##### 






Exhibit 2

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                                                             |                                                |      |  |      | 
|-------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---- |  | ---- | 
|                                                                                                                                             |                                                | Page
|                                                                                                                                             |                                                |     
|Annual Consolidated Financial Statements for
    the Years Ended 31stDecember 2001,
    2000 and 1999                                        |                                                |      |  |     
|                                                                                                                                             | Auditors Report and Notice to US Readers      |      |  | F-2  | 
|                                                                                                                                             | Consolidated Statements of Income              |      |  | F-3  | 
|                                                                                                                                             | Consolidated Statements of Retained Earnings   |      |  | F-3  | 
|                                                                                                                                             | Consolidated Balance Sheets                    |      |  | F-4  | 
|                                                                                                                                             | Consolidated Statements of Cash Flow           |      |  | F-5  | 
|                                                                                                                                             | Notes to the Consolidated Financial Statements |      |  | F-6  | 
|Unaudited Consolidated Interim Financial
    Statements as at 31stMarch 2002 and for the
    three months ended 31 stMarch 2002 and
    2001 |                                                |      |  |     
|                                                                                                                                             | Consolidated Statements of Income              |      |  | F-34 | 
|                                                                                                                                             | Consolidated Statements of Retained Earnings   |      |  | F-34 | 
|                                                                                                                                             | Consolidated Balance Sheets                    |      |  | F-35 | 
|                                                                                                                                             | Consolidated Statements of Cash Flow           |      |  | F-36 | 
|                                                                                                                                             | Notes to Consolidated Financial Statements     |      |  | F-37 | 




F-1



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##### 






CP Ships Limited

Auditors report

To the shareholders of CP Ships
Limited

We have audited the consolidated balance sheets
of CP Ships Limited as at 31st December
2001, 2000 and 1999 and the consolidated statements of income,
retained earnings and cash flow for each of the three years then
ended. These consolidated financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audit in accordance with
Canadian and United States of America generally accepted
auditing standards. Those standards require that we plan and
perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.

In our opinion, these consolidated financial
statements present fairly, in all material respects, the
financial position of the Company as at
31st December 2001, 2000 and 1999 and the
results of its operations, changes in its financial position and
its cash flow for each of the three years then ended in
accordance with Canadian generally accepted accounting
principles.

(signed)

PricewaterhouseCoopers LLP


Chartered Accountants


Toronto, Ontario, Canada


27th February 2002, except

as to note 22(k) which is as of


28th May 2002 and


note 23 which is


as of 30th May 2002


Notice to US readers

In the United States of America, reporting
standards for auditors require the addition of an explanatory
paragraph (following the opinion paragraph) when there are
changes, such as the changes described in notes 2 and 22(k)
to the financial statements, that have a material effect on the
comparability of the amounts disclosed in the Companys
financial statements. Our report to the shareholders dated
27th February 2002, 28th May
2002 and 30th May 2002 is expressed in
accordance with Canadian reporting standards which does not
require a reference in the auditors report to such changes
when the change is properly accounted for and adequately
disclosed in the financial statements.

(signed)

PricewaterhouseCoopers LLP


Chartered Accountants


Toronto, Ontario, Canada


27th February 2002

except as to note 22(k) which is as of


28th May 2002.





F-2



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##### 






CP Ships Limited



|                                  |                         
|--------------------------------- | ------------------------
|Consolidated Statements of Income | Year ended 31st December

|                                                                     |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|-------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  | 
|                                                                    
|                                                                    
|(US$ millions except per share amounts)                              |  | 2001 |        | 2000 |  | 1999 |        |  
|                                                                    
|                                                                    
|Revenues                                                             |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|Container shipping operations                                        |  |      | 2,646  |      |  |      | 2,645  |   |  |  | 1,878  |   |  | 
|Expenses                                                             |  |      |        |      |  |      |        |   |  |  |        |   |  | 
|Container shipping operations                                        |  |      | 2,068  |      |  |      | 2,037  |   |  |  | 1,458  |   |  | 
|General and administrative                                           |  |      | 363    |      |  |      | 381    |   |  |  | 281    |   |  | 
|Depreciation                                                         |  |      | 74     |      |  |      | 60     |   |  |  | 47     |   |  | 
|Currency exchange loss                                               |  |      | 2      |      |  |      | 5      |   |  |  | 4      |   |  | 
|Gain on disposal of capital assets                                   |  |      |       |      |  |      | (2     | ) |  |  | (1     | ) |  | 
|                                                                     |  |     
|                                                                     |  |      | 2,507  |      |  |      | 2,481  |   |  |  | 1,789  |   |  | 
|                                                                     |  |     
|Operating income before exceptional
    charges                      |  |      | 139    |      |  |      | 164    |   |  |  | 89     |   |  | 
|Spin-off related items (note 3)                                      |  |      | (17    | )    |  |      |       |   |  |  |       |   |  | 
|Unusual charges (note 3)                                             |  |      | (19    | )    |  |      |       |   |  |  |       |   |  | 
|                                                                     |  |     
|Operating income                                                     |  |      | 103    |      |  |      | 164    |   |  |  | 89     |   |  | 
|Interest income/(expense), net (note 4)                              |  |      |       |      |  |      | 1      |   |  |  | (4     | ) |  | 
|                                                                     |  |     
|Income before income tax                                             |  |      | 103    |      |  |      | 165    |   |  |  | 85     |   |  | 
|Income tax expense (note 5)                                          |  |      | (12    | )    |  |      | (12    | ) |  |  | (11    | ) |  | 
|                                                                     |  |     
|Income before goodwill charges and minority
    interest             |  |      | 91     |      |  |      | 153    |   |  |  | 74     |   |  | 
|Minority interest                                                    |  |      | 1      |      |  |      |       |   |  |  | 1      |   |  | 
|                                                                     |  |     
|Income before goodwill charges                                       |  |      | 92     |      |  |      | 153    |   |  |  | 75     |   |  | 
|Goodwill charges, net of tax ($0)                                    |  |      | (16    | )    |  |      | (18    | ) |  |  | (15    | ) |  | 
|                                                                     |  |     
|Net income                                                           |  |      | 76     |      |  |      | 135    |   |  |  | 60     |   |  | 
|Dividends on preference shares                                       |  |      | (3     | )    |  |      | (2     | ) |  |  |       |   |  | 
|                                                                     |  |     
|Net income available to common
    shareholders                      |  |      | $  73  |      |  |      | $ 133  |   |  |  | $  60  |   |  | 
|                                                                     |  |     
|Average number of common shares outstanding
    (millions) (note 15) |  |      | 79.3   |      |  |      | 79.1   |   |  |  | 79.1   |   |  | 
|Earnings per common share basic (note 15)                            |  |      | $ 0.92 |      |  |      | $ 1.68 |   |  |  | $ 0.76 |   |  | 
|Earnings per common share diluted (note 15)                          |  |      | $ 0.91 |      |  |      | $ 1.68 |   |  |  | $ 0.76 |   |  | 

Consolidated Statements of Retained Earnings

|                                               |  |  |      |   |  |  |      |   |  |  |      |  |  | 
|---------------------------------------------- |  |  | ---- | - |  |  | ---- | - |  |  | ---- |  |  | 
|Balance, 1stJanuary (restated,
    note 2 (f)) |  |  | 443  |   |  |  | 310  |   |  |  | 250  |  |  | 
|Net income                                     |  |  | 76   |   |  |  | 135  |   |  |  | 60   |  |  | 
|Dividends on preference shares                 |  |  | (3   | ) |  |  | (2   | ) |  |  |     |  |  | 
|Dividends on common shares                     |  |  | (3   | ) |  |  |     |   |  |  |     |  |  | 
|                                               |  | 
|Balance, 31stDecember                          |  |  | $513 |   |  |  | $443 |   |  |  | $310 |  |  | 
|                                               |  | 




F-3



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##### 






CP Ships Limited



|                            |                    
|--------------------------- | -------------------
|Consolidated Balance Sheets | As at 31st December

|                                                                         |                             |      |        |      |  |      |        |     |  |  |        |     |  |  | 
|------------------------------------------------------------------------ | --------------------------- | ---- | ------ | ---- |  | ---- | ------ | --- |  |  | ------ | --- |  |  | 
|                                                                        
|                                                                        
|(US$ millions)                                                           |                             | 2001 |        | 2000 |  | 1999 |        |    
|                                                                        
|                                                                        
|ASSETS                                                                   |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Current assets                                                           |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Cash and cash equivalents                                                |                             |      | 116    |      |  |      | 122    |     |  |  | 61     |     |  | 
|Accounts receivable                                                      |                             |      | 366    |      |  |      | 392    |     |  |  | 306    |     |  | 
|Prepaid expenses                                                         |                             |      | 38     |      |  |      | 32     |     |  |  | 26     |     |  | 
|Loan to former affiliated company due within one
    year (note 7)       |                             |      |       |      |  |      | 116    |     |  |  |       |     |  | 
|Inventory                                                                |                             |      | 12     |      |  |      | 14     |     |  |  | 9      |     |  | 
|                                                                         |                             |     
|                                                                         |                             |      | 532    |      |  |      | 676    |     |  |  | 402    |     |  | 
|Capital assets (note 8)                                                  |                             |      | 795    |      |  |      | 536    |     |  |  | 355    |     |  | 
|Deferred charges (note 9)                                                |                             |      | 14     |      |  |      |       |     |  |  |       |     |  | 
|Deposits on ships to be purchased                                        |                             |      |       |      |  |      | 5      |     |  |  |       |     |  | 
|Goodwill                                                                 |                             |      | 510    |      |  |      | 531    |     |  |  | 461    |     |  | 
|                                                                         |                             |     
|                                                                         |                             |      | $1,851 |      |  |      | $1,748 |     |  |  | $1,218 |     |  | 
|                                                                         |                             |     
|LIABILITIES                                                              |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Current liabilities                                                      |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Accounts payable and accrued liabilities:                                |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|                                                                         | Former affiliated companies |      |        |     |  |      |        | 15  |  |  |        | 25  |  |  | 
|                                                                         | Trade and other payables    |      |        | 505  |  |      |        | 497 |  |  |        | 415 |  |  | 
|Loans from former affiliated companies due within
    one year (note 10) |                             |      |       |      |  |      | 86     |     |  |  | 73     |     |  | 
|Long-term debt within one year (note 11)                                 |                             |      | 15     |      |  |      | 11     |     |  |  | 14     |     |  | 
|                                                                         |                             |     
|                                                                         |                             |      | 520    |      |  |      | 609    |     |  |  | 527    |     |  | 
|Long-term liabilities                                                    |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Long-term debt due after one year (note 11)                              |                             |      | 215    |      |  |      | 21     |     |  |  | 30     |     |  | 
|Future income taxes (note 5)                                             |                             |      | 8      |      |  |      | 10     |     |  |  | 7      |     |  | 
|Minority interests                                                       |                             |      | 8      |      |  |      | 9      |     |  |  | 5      |     |  | 
|                                                                         |                             |     
|                                                                         |                             |      | 231    |      |  |      | 40     |     |  |  | 42     |     |  | 
|SHAREHOLDERS EQUITY                                                     |                             |      |        |      |  |      |        |     |  |  |        |     |  | 
|Common share capital (note 12)                                           |                             |      | 597    |      |  |      | 63     |     |  |  | 63     |     |  | 
|Preference share capital (note 12)                                       |                             |      |       |      |  |      | 116    |     |  |  |       |     |  | 
|Contributed surplus (note 12)                                            |                             |      |       |      |  |      | 485    |     |  |  | 282    |     |  | 
|Retained earnings                                                        |                             |      | 513    |      |  |      | 443    |     |  |  | 310    |     |  | 
|Cumulative foreign currency translation
    adjustments                  |                             |      | (10    | )    |  |      | (8     | )   |  |  | (6     | )   |  | 
|                                                                         |                             |     
|                                                                         |                             |      | 1,100  |      |  |      | 1,099  |     |  |  | 649    |     |  | 
|                                                                         |                             |     
|                                                                         |                             |      | $1,851 |      |  |      | $1,748 |     |  |  | $1,218 |     |  | 
|                                                                         |                             |     

Contingent liabilities & commitments
notes 17 & 18




F-4



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##### 






CP Ships Limited



|                                     |                         
|------------------------------------ | ------------------------
|Consolidated Statements of Cash Flow | Year ended 31st December

|                                                              |  |      |       |      |  |      |       |   |  |  |      |   |  | 
|------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  |  | ---- | - |  | 
|                                                             
|                                                             
|(US$ millions)                                                |  | 2001 |       | 2000 |  | 1999 |       |  
|                                                             
|                                                             
|Operating activities                                          |  |      |       |      |  |      |       |   |  |  |      |   |  | 
|Net income                                                    |  |      | 76    |      |  |      | 135   |   |  |  | 60   |   |  | 
|Depreciation and goodwill charges                             |  |      | 90    |      |  |      | 78    |   |  |  | 62   |   |  | 
|Unusual and spin-off related charges                          |  |      | 36    |      |  |      |      |   |  |  |     |   |  | 
|Future income tax expense                                     |  |      |      |      |  |      | 3     |   |  |  | 2    |   |  | 
|Gain on disposal of capital assets                            |  |      |      |      |  |      | (2    | ) |  |  | (1   | ) |  | 
|Other                                                         |  |      | 1     |      |  |      | (3    | ) |  |  | (3   | ) |  | 
|                                                              |  |     
|                                                              |  |      | 203   |      |  |      | 211   |   |  |  | 120  |   |  | 
|Decrease/(increase) in non-cash working capital
    (note 14) |  |      | 7     |      |  |      | (37   | ) |  |  | (91  | ) |  | 
|                                                              |  |     
|Cash from operations before unusual and spin-off
    payments |  |      | 210   |      |  |      | 174   |   |  |  | 29   |   |  | 
|Unusual and spin-off payments                                 |  |      | (18   | )    |  |      |      |   |  |  |     |   |  | 
|                                                              |  |     
|Cash from operations                                          |  |      | 192   |      |  |      | 174   |   |  |  | 29   |   |  | 
|Financing activities                                          |  |      |       |      |  |      |       |   |  |  |      |   |  | 
|Contributed surplus                                           |  |      | 2     |      |  |      | 203   |   |  |  | 52   |   |  | 
|Return of share capital                                       |  |      | (14   | )    |  |      |      |   |  |  |     |   |  | 
|Issue of preferred shares                                     |  |      |      |      |  |      | 116   |   |  |  |     |   |  | 
|Redemption of preferred shares                                |  |      | (116  | )    |  |      |      |   |  |  |     |   |  | 
|Increase in long-term debt                                    |  |      | 160   |      |  |      | 2     |   |  |  | 2    |   |  | 
|Repayment of long-term debt                                   |  |      | (14   | )    |  |      | (14   | ) |  |  | (14  | ) |  | 
|Deferred charges  finance costs                              |  |      | (14   | )    |  |      |      |   |  |  |     |   |  | 
|Increase in loans from former affiliated companies            |  |      | 88    |      |  |      | 38    |   |  |  | 37   |   |  | 
|Repayment of loans from former affiliated
    companies       |  |      | (138  | )    |  |      | (37   | ) |  |  | (63  | ) |  | 
|Preference dividends paid                                     |  |      | (3    | )    |  |      | (2    | ) |  |  |     |   |  | 
|                                                              |  |     
|Cash (outflow)/inflow from financing activities               |  |      | (49   | )    |  |      | 306   |   |  |  | 14   |   |  | 
|Investing activities                                          |  |      |       |      |  |      |       |   |  |  |      |   |  | 
|Additions to capital assets                                   |  |      | (292  | )    |  |      | (307  | ) |  |  | (113 | ) |  | 
|Deposits on ships to be purchased                             |  |      |      |      |  |      | (5    | ) |  |  |     |   |  | 
|Acquisition of businesses                                     |  |      |      |      |  |      | (61   | ) |  |  |     |   |  | 
|Proceeds from disposal of capital assets                      |  |      | 15    |      |  |      | 70    |   |  |  | 5    |   |  | 
|Proceeds from disposal of investments                         |  |      | 12    |      |  |      |      |   |  |  |     |   |  | 
|Increase in loans to former affiliated company                |  |      |      |      |  |      | (116  | ) |  |  |     |   |  | 
|Repayment of loans to former affiliated company               |  |      | 116   |      |  |      |      |   |  |  | 31   |   |  | 
|                                                              |  |     
|Cash (outflow) from investing activities                      |  |      | (149  | )    |  |      | (419  | ) |  |  | (77  | ) |  | 
|(Decrease)/increase in cash and cash
    equivalents*         |  |      | (6    | )    |  |      | 61    |   |  |  | (34  | ) |  | 
|Cash and cash equivalents at beginning of
    year            |  |      | 122   |      |  |      | 61    |   |  |  | 95   |   |  | 
|                                                              |  |     
|Cash and cash equivalents at end of
    year                  |  |      | $ 116 |      |  |      | $ 122 |   |  |  | $ 61 |   |  | 
|                                                              |  |     
|Additional information                                        |  |      |       |      |  |      |       |   |  |  |      |   |  | 
|Taxes paid                                                    |  |      | $ 12  |      |  |      | $ 13  |   |  |  | $  9 |   |  | 
|Interest paid                                                 |  |      | $  7  |      |  |      | $  5  |   |  |  | $  7 |   |  | 



|  |                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------
|* | Cash and cash equivalents comprises cash and
    temporary investments with a maximum maturity of three
    months.




F-5



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##### 






CP Ships Limited

Notes to the Consolidated Financial
Statements

(Unless otherwise indicated, all amounts are
shown in US$ millions)


1.  REORGANIZATION

Prior to 1st October 2001,
CP Ships Holdings Inc (CPSHI) was the wholly
owned holding company of Canadian Pacific Limiteds
(CPL) container shipping interests. On
1st October 2001, as part of a Plan of
Arrangement, CPL distributed its interests in CPSHI to a newly
created subsidiary company, CP Ships Limited
(CP Ships). CPL then distributed its investment
in CP Ships to its common shareholders on the basis of one
new common share in CP Ships for four old CPL common
shares. Where appropriate, share numbers in the financial
statements reflect the effect of the share consolidation applied
retroactively. As both CPSHI and CP Ships were under the
control of CPL at the time, the transactions have been accounted
for in a manner similar to a pooling-of-interests and the
historical financial information of CPSHI has become the
historical financial information of the now publicly held
CP Ships.

In 2001, prior to the reorganization, CPSHI paid
a return of capital to CPL of $14 million and issued shares
to CPL valued at $61 million as consideration for the
transfer of shipping related affiliates and other assets from
CPL to CP Ships.

To mark the companys spin-off from CPL,
each employee (where legally permitted) was awarded $1,000 worth
of shares. A total of 398,026 shares was issued from treasury
for this Launch Award and no compensation expense was recorded.

2.  SIGNIFICANT ACCOUNTING
POLICIES

These consolidated financial statements have been
prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP) which
differ in certain respects from United States generally accepted
accounting principles (US GAAP). A
reconciliation of significant measurement differences between
Canadian and US GAAP has been included in note 22.

(a)  Basis of
consolidation

The consolidated financial statements include
CP Ships and the operations of all of its subsidiary
companies from the date of acquisition until the date of
disposal.

CP Ships share of the results and net
assets of 50% joint ventures is proportionately consolidated in
the consolidated statements of income, retained earnings and
cash flows and the consolidated balance sheets.

(b)  Revenue and cost
recognition

Revenue and costs directly attributable to loaded
container movements are recognized when delivery of the
container is completed. Other revenue is accounted for on
completed service delivery and other costs are accounted for
when incurred.

(c)  Use of estimates

The preparation of financial statements requires
that management make estimates in reporting the amounts of
certain revenues and expenses for each financial year and
certain assets and liabilities at the end of each financial
year. Actual results may differ from these estimates.

(d)  Income taxes

Effective 1st January 2000,
CP Ships adopted, retroactively without restating prior
years, the new recommendations of The Canadian Institute of
Chartered Accountants (CICA) with respect to
accounting for income taxes. The new recommendations adopted the
liability method for providing for income taxes. Under this




F-6



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




2.  SIGNIFICANT ACCOUNTING POLICIES
(Continued)




(d)  Income taxes
(continued)


method, future tax assets and liabilities are
recognized based on differences between the basis of assets and
liabilities used for financial statement and income tax
purposes, using substantively enacted tax rates. The effect on
2000 earnings from adopting these changes was immaterial.

Previously, income taxes were provided for based
on the deferral method. Under this method, deferred income taxes
are computed by applying current tax rates to all significant
timing differences between accounting and taxable income. The
resulting deferred income tax balances were not adjusted for
subsequent changes in tax rates.

(e)  Earnings per common
share

Basic earnings per common share are calculated
using the weighted average number of common shares outstanding
in the year.

The dilutive effect of outstanding stock options
is reflected in diluted earnings per share by application of the
treasury stock method, which assumes proceeds received from the
exercise of stock options are used to purchase common shares at
the average market price during the period. The resulting
incremental shares are included in the denominator of the
diluted earnings per share calculation.

(f)  Capital assets

Capital assets are stated at cost less
depreciation.

Depreciation on ships is calculated on a
straight-line basis at rates to reduce the book value of each
ship to its estimated residual value by the end of its estimated
useful life in the companys business. The estimated useful
life of a ship is calculated as the remaining period of a
25 year life.

Major additions, replacements and capital
improvements to ships are depreciated over the estimated
remaining useful life of the ship.

Dry docking and special survey costs are deferred
and amortized over the dry docking cycle, typically between two
to five years. Any unamortized cost is written off on the
disposal of the relevant ship. Prior to
1st January 2000, dry docking costs were
accounted for on an accrual basis. The financial statements for
1999 were restated retrospectively to reflect the change in
accounting policy. The effect of this change was to increase net
income by $6 million in the year ended
31st December 2000 and $2 million in the
year ended 31st December 1999.

Containers are depreciated on a straight-line
basis over 12 years to their estimated residual values.

Furniture and equipment is fully depreciated on a
straight-line basis over the estimated service lives of the
assets (maximum ten years).

Computer hardware and software is fully
depreciated on a straight-line basis over three to five years
from the date that it is brought into use. Costs directly
associated with developing or obtaining internal-use computer
software are capitalized.

Trucking equipment is fully depreciated on a
straight-line basis over the estimated service lives of the
assets (maximum ten years). Owned automobiles are depreciated on
a straight-line basis over four years.

Buildings are fully depreciated on a
straight-line basis over the estimated useful lives (maximum
50 years). Land is not depreciated.




F-7



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




2.  SIGNIFICANT ACCOUNTING POLICIES
(Continued)




(f)  Capital assets
(continued)


Leasehold improvements are amortized over the
lesser of the remaining term of the leases or ten years.

Terminal equipment is depreciated on a
straight-line basis over three to 30 years.

When depreciable assets are retired or otherwise
disposed of, the related costs and accumulated depreciation are
removed from the accounts and the remaining balance, net of any
proceeds from sale or salvage value, is reflected in the results
from operations.

(g)     Leases

Leases are classified as either capital or
operating. Those leases which transfer substantially all the
benefits and risks of ownership of property to CP Ships are
accounted for as capital leases.

Capital leases are accounted for as assets and
are fully amortized on a straight-line basis over the period of
the relevant lease. Commitments to repay the principal amounts
arising under capital lease obligations are included in current
liabilities to the extent that the amount is repayable within
one year, otherwise the principal is included in amounts due
after one year. The capitalized lease obligation reflects the
present value of future lease payments. The finance element of
the lease payments is charged to income over the term of the
lease.

Operating lease costs are charged to income on a
straight-line basis.

(h)  Goodwill

Goodwill represents the excess of the fair value
of consideration paid over the fair value of net assets acquired
and is amortized to income over a period of 35 years.
CP Ships evaluates the carrying value of goodwill for
possible impairment on an annual basis. Goodwill is written down
to fair value when declines in value are considered to be other
than temporary, based upon expected operating performance of the
relevant subsidiary.

(i)  Foreign currency
translation

Revenue and expense items and other transactions
denominated in foreign currencies are recorded in United States
Dollars, which is the functional currency of CP Ships, at
the exchange rates in effect on the dates of the related
transactions. Monetary assets and liabilities denominated in
foreign currencies are translated into United States Dollars at
the year-end rates of exchange. Except for unrealized gains and
losses on long-term monetary liabilities, which are deferred and
amortized to income over the period to maturity of the related
debt, foreign currency gains and losses arising from realization
or remeasurement of foreign currency denominated monetary assets
and liabilities are recognized in income as incurred.

The financial statements of subsidiary companies
denominated in currencies other than United States Dollars,
which are all considered to be self sustaining, are translated
into United States Dollars using year-end rates of exchange for
assets and liabilities and the average rates in effect for the
year for revenues and expenses. Exchange gains or losses arising
from such translation are deferred and included under
Shareholders equity as foreign currency translation
adjustments.

(j)  Employee future
benefits

The costs of pensions are actuarially determined
using the projected benefit method prorated on service and
managements best estimate of expected plan investment
performance, salary escalation and retirement ages of employees.
Market related values are used for calculating the expected
return on plan assets. The projected




F-8



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




2.  SIGNIFICANT ACCOUNTING POLICIES
(Continued)




(j)  Employee future benefits
(continued)


benefit obligation is discounted using a market
interest rate at the beginning of the year on high quality
corporate debt instruments.

Pension expense includes the cost of pension
benefits earned during the year, the interest cost on pension
obligations, the expected return on pension plan assets,
settlement gains, the amortization of the net transitional
asset, the amortization of adjustments arising from pension plan
amendments, and the amortization of the excess of the net
actuarial gain or loss over 10% of the greater of the benefit
obligation and the market related value of plan assets. The
amortization period covers the expected average remaining
service lives of employees covered by the various plans.

Effective 1st January 2000,
CP Ships adopted the new recommendations of the CICA for
accounting for employee benefits. The effect on 2000 earnings
from adopting these changes prospectively was immaterial. The
principal difference between the new recommendations and the
accounting policy applied previously was in the choice of
discount rate used for computing benefit obligations.

For defined contribution plans, pension costs
generally equal plan contributions due during the year.

(k)  Derivative financial
instruments

Hedging instruments are utilized by CP Ships
to manage its exposure relating to foreign currency exchange
rates. Payments or receipts under these contracts are recognized
in income concurrently with the hedged transaction and the fair
values of the outstanding contracts are not reflected in the
financial statements.

(l)  Stock based
compensation

CP Ships has stock based compensation plans
described in note 13, under which stock options and stock
appreciation rights (SARs) are granted to directors and certain
key employees or have been granted to former CPL employees as
part of the demerger.

Compensation expense is not recognized for stock
options. Any consideration paid by employees on the exercise of
stock options is credited to share capital. In the event options
are cancelled, no adjustment is made to share capital and no
expense is recognized.

Compensation expense is recognized for
exercisable SARs for the excess of the market value of a common
share over the related option price.

(m)  Restructuring costs

Restructuring costs are recorded in the year
detailed exit and restructuring plans are approved. Provisions
for restructuring costs are recorded in liabilities.

(n)  Comparative figures

Certain comparatives have been reclassified to
conform with the presentation adopted in the current year.

(o)  New Canadian accounting
pronouncements

CICA 3870, Stock based compensation and
other stock based payments was issued on
13th November 2001 and will be effective for
awards granted after 31st December 2001. The new
rules require compensation expense to be calculated using the
fair value method and either expensed to income or the effect
disclosed in the




F-9



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




2.  SIGNIFICANT ACCOUNTING POLICIES
(Continued)




(o)  New Canadian accounting
pronouncements (continued)


notes to the financial statements. The impact of
implementing this new standard on CP Ships financial
position and results of operations is not yet determinable.

CICA 3062, Goodwill and other intangible
assets was issued in August 2001 and will be effective for
CP Ships for years beginning 1st January
2002 and will be applied prospectively. CICA 3062 requires that
goodwill no longer be amortized, but instead be subject to an
impairment test at least annually. CP Ships is in the
process of preparing for the adoption of CICA 3062 and is making
the determinations as to what its reporting units are and what
amounts of goodwill, other assets and liabilities should be
allocated to those reporting units. CP Ships has not yet
determined what effect, if any, the impairment test will have on
its earnings and financial position. The impact of not
amortizing goodwill for the year ended
31st December 2001 would have been to increase
net income by $16 million and increase basic and diluted
earnings per share by $0.20.

CICA 1650, Foreign currency
translation will be effective 1st January
2002. CP Ships will retroactively adopt a change in the
accounting rules for the treatment of foreign exchange gains and
losses. These changes have not been applied to these statements.
The new rules will no longer allow for the deferral and
amortization of foreign exchange gains and losses on long-term
debt. As the majority of CP Ships debt is denominated
in United States Dollars, this change will not have a material
effect on its financial statements.

CICA AcG-13 Hedging Relationship is
effective for fiscal years beginning 1st July
2002 and specifies new criteria for applying hedging accounting.
CP Ships is assessing the impact that this guidance will
have on its financial position and results of operations.

3.     EXCEPTIONAL
CHARGES

The exceptional charges incurred in 2001 comprise:



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | Spin-off related items of $17 million for
    professional fees and other expenses associated with the
    companys demerger from CPL including $10 million for
    the cost of terminating a cash-based long-term incentive plan
    (LTIP) by converting it into restricted stock
    awards. The total value of shares required to terminate LTIP was
    $22 million. The amount of $10 million included in the
    exceptional charge, together with an $8 million provision
    charged for the year ended 31st December 2000
    for LTIP earned to that date allowed for the purchase on the
    market of CP Ships shares at a value of
    $18 million. Shares valued at $4 million were issued
    from treasury. The shares are held by an irrevocable trust which
    was established to settle the companys obligations under
    the LTIP termination arrangements.
|
| | (b) | Unusual charges of $19 million for the
    restructuring of organization and offices, mainly in Europe and
    North America, during 2001 and 2002. The charges include the
    cost of employee severance and redundant office leases and
    $5 million had been paid at 31st December
    2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     




F-10



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


4.     INTEREST
INCOME/(EXPENSE)

|                       |  |      |    |      |  |      |     |   |  |  |     |   |  | 
|---------------------- |  | ---- | -- | ---- |  | ---- | --- | - |  |  | --- | - |  | 
|                      
|                      
|                       |  | 2001 |    | 2000 |  | 1999 |     |  
|                      
|                      
|Long-term debt         |  |      | (6 | )    |  |      | (4  | ) |  |  | (7  | ) |  | 
|Short-term debt        |  |      | (1 | )    |  |      | (1  | ) |  |  |    |   |  | 
|                       |  |     
|Total interest payable |  |      | (7 | )    |  |      | (5  | ) |  |  | (7  | ) |  | 
|Interest income        |  |      | 7  |      |  |      | 6   |   |  |  | 3   |   |  | 
|                       |  |     
|Net                    |  |      | $ |      |  |      | $ 1 |   |  |  | $(4 | ) |  | 
|                       |  |     

5.  INCOME TAXES

Taxation in these financial statements arises
from the activities of CP Ships trading companies.
The company has three principal operating subsidiaries, Lykes
Lines Limited, LLC (Lykes Lines), TMM Lines Limited,
LLC (TMM Lines) and CP Ships (UK) Limited.

Lykes Lines and TMM Lines have the taxation
attributes of their Bermudian parents and hence have low rates
of tax. CP Ships (UK) Limited (formerly Contship
Containerlines Limited) entered with effect from
1st January 2001 the UK Tonnage Tax regime under
which taxation is based on the tonnage of qualifying ships
employed in the business, rather than profits. As part of the
Plan of Arrangement described in note 1, the business and
assets of each of ANZDL, Canada Maritime and Cast were
transferred to CP Ships (UK) Limited on
27th September 2001 and became part of the
Tonnage Tax regime with effect from that date. Previously, the
business and assets had been owned by Bermudian companies which
had received exemption from taxation in Bermuda. Lykes Lines,
TMM Lines and CP Ships (UK) Limited are also subject to
taxation in certain countries on their operations in those
countries and, through their subsidiaries, on the income of
their agency and other operations, such as haulage.

Racine Terminal (Montreal) Company and Cast
Terminal Company are taxed in Canada.

|                   |  |      |     |      |  |      |     |  |  |  |     |  |  | 
|------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- |  |  | 
|                  
|                  
|                   |  | 2001 |     | 2000 |  | 1999 |     | 
|                  
|                  
|Income tax expense |  |      |     |      |  |      |     |  |  |  |     |  |  | 
|Current            |  |      | 12  |      |  |      | 9   |  |  |  | 9   |  |  | 
|Future             |  |      |    |      |  |      | 3   |  |  |  | 2   |  |  | 
|                   |  |     
|Total              |  |      | $12 |      |  |      | $12 |  |  |  | $11 |  |  | 
|                   |  |     

The difference between the income tax expense and
the provision obtained by applying the Canadian statutory tax
rate is as follows:

|                                      |  |      |      |      |  |      |      |   |  |  |      |   |  | 
|------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | - |  | 
|                                     
|                                     
|                                      |  | 2001 |      | 2000 |  | 1999 |      |  
|                                     
|                                     
|Provision at Canadian statutory rates |  |      | 38   |      |  |      | 74   |   |  |  | 46   |   |  | 
|Foreign tax rate differentials        |  |      | (23  | )    |  |      | (51  | ) |  |  | (34  | ) |  | 
|Effect of tonnage tax                 |  |      | (7   | )    |  |      |     |   |  |  |     |   |  | 
|Prior year items                      |  |      | 1    |      |  |      | (1   | ) |  |  |     |   |  | 
|Other                                 |  |      | 3    |      |  |      | (10  | ) |  |  | (1   | ) |  | 
|                                      |  |     
|Income tax expense                    |  |      | $ 12 |      |  |      | $ 12 |   |  |  | $ 11 |   |  | 
|                                      |  |     




F-11



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




5.  INCOME TAXES
(Continued)


The provision for future income taxes arises from
differences in the recognition of revenues and expenses for
income tax and accounting purposes. The temporary differences
comprising the future income tax liability are:

|                                                         |  |      |    |      |  |      |     |  |  |  |    |  |  | 
|-------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | --- |  |  |  | -- |  |  | 
|                                                        
|                                                        
|                                                         |  | 2001 |    | 2000 |  | 1999 |     | 
|                                                        
|                                                        
|Future income tax liabilities                            |  |      |    |      |  |      |     |  |  |  |    |  |  | 
|Capital assets carrying value in excess of tax
    basis |  |      | 7  |      |  |      | 8   |  |  |  | 5  |  |  | 
|Other items                                              |  |      | 1  |      |  |      | 2   |  |  |  | 2  |  |  | 
|                                                         |  |     
|Total                                                    |  |      | $8 |      |  |      | $10 |  |  |  | $7 |  |  | 
|                                                         |  |     

6.  BUSINESS ACQUISITIONS

In January 1999, CPSHI completed the formation of
the Americana Ships Limited (Americana Ships) joint
venture with Transportación Maritima Mexicana S.A. de C.V.
(TMMsa). CPSHI contributed its holdings of shares in Lykes
Lines, Ivaran Lines Limited and Contship (Med-Gulf) Limited to
Americana Ships in exchange for 50% of the issued shares of
Americana Ships. TMMsa contributed all of its liner shipping
business, also for 50% of the issued shares of Americana Ships.

During 2000, CPSHI completed the acquisition of
the 50% of the shares in the Americana Ships joint venture that
was owned by TMMsa and acquired full ownership of Americana
Ships container shipping services. The transaction was
accounted for as a purchase; goodwill amounted to
$84 million, representing the difference between the
consideration and the fair value of the net assets acquired.

Other businesses acquired in 2000, also accounted
for as purchases, gave rise to goodwill of $9 million.

The acquisitions have been accounted for as
follows:

|                                          |  |      |    |      |  |      |      |   |  |  |    |  |  | 
|----------------------------------------- |  | ---- | -- | ---- |  | ---- | ---- | - |  |  | -- |  |  | 
|                                         
|                                         
|                                          |  | 2001 |    | 2000 |  | 1999 |      |  
|                                         
|                                         
|Total assets acquired other than goodwill |  |      |   |      |  |      | 135  |   |  |  |   |  |  | 
|Goodwill                                  |  |      |   |      |  |      | 93   |   |  |  |   |  |  | 
|Total liabilities                         |  |      |   |      |  |      | (167 | ) |  |  |   |  |  | 
|                                          |  |     
|Total                                     |  |      | $ |      |  |      | $ 61 |   |  |  | $ |  |  | 
|                                          |  |     

Consideration was paid in cash.

7.  LOAN TO FORMER AFFILIATED
COMPANY

In 2000, CPSHI made a loan of
Cdn$175 million ($116 million) to Canadian Pacific
Securities (Ontario) Limited, a former affiliate, at a floating
interest rate, payable quarterly. The loan was repaid during
2001.




F-12



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


8.  CAPITAL ASSETS

|                               |                          |      |       |      |   |      |       |     |   |  |       |     |   |  | 
|------------------------------ | ------------------------ | ---- | ----- | ---- | - | ---- | ----- | --- | - |  | ----- | --- | - |  | 
|                              
|                              
|                               |                          | 2001 |       | 2000 |   | 1999 |       |    
|                              
|                              
|Ships                          |                          |      |       |      |   |      |       |     |   |  |       |     |   | 
|                               | Cost                     |      |       | 640  |   |      |       | 398 |   |  |       | 182 |   |  | 
|                               | Accumulated depreciation |      |       | (114 | ) |      |       | (87 | ) |  |       | (71 | ) |  | 
|                               |                          |     
|                               |                          |      | 526   |      |   |      | 311   |     |   |  | 111   |     |   | 
|                               |                          |     
|Containers                     |                          |      |       |      |   |      |       |     |   |  |       |     |   | 
|                               | Cost                     |      |       | 135  |   |      |       | 146 |   |  |       | 191 |   |  | 
|                               | Accumulated depreciation |      |       | (44  | ) |      |       | (36 | ) |  |       | (35 | ) |  | 
|                               |                          |     
|                               |                          |      | 91    |      |   |      | 110   |     |   |  | 156   |     |   | 
|                               |                          |     
|Terminal equipment and other   |                          |      |       |      |   |      |       |     |   |  |       |     |   | 
|                               | Cost                     |      |       | 119  |   |      |       | 102 |   |  |       | 99  |   |  | 
|                               | Accumulated depreciation |      |       | (53  | ) |      |       | (48 | ) |  |       | (43 | ) |  | 
|                               |                          |     
|                               |                          |      | 66    |      |   |      | 54    |     |   |  | 56    |     |   | 
|                               |                          |     
|Computer hardware and software |                          |      |       |      |   |      |       |     |   |  |       |     |   | 
|                               | Cost                     |      |       | 162  |   |      |       | 98  |   |  |       | 59  |   |  | 
|                               | Accumulated depreciation |      |       | (50  | ) |      |       | (37 | ) |  |       | (27 | ) |  | 
|                               |                          |     
|                               |                          |      | 112   |      |   |      | 61    |     |   |  | 32    |     |   | 
|                               |                          |     
|Total cost                     |                          |      | 1,056 |      |   |      | 744   |     |   |  | 531   |     |   | 
|Total accumulated depreciation |                          |      | (261  | )    |   |      | (208  | )   |   |  | (176  | )   |   | 
|                               |                          |     
|Net book value                 |                          |      | $ 795 |      |   |      | $ 536 |     |   |  | $ 355 |     |   | 
|                               |                          |     

At 31st December 2001 assets held
under capital leases included in the above had a cost of
$104 million (2000: $106 million, 1999:
$98 million) and accumulated depreciation of
$59 million (2000: $54 million, 1999:
$45 million).

Ships with a net book value of $301 million
at 31st December 2001 (2000 and 1999:
$0 million) were pledged as security against bank and other
loans and buildings with a net book value of $3 million
(2000 and 1999: $2 million) were mortgaged as security
against long-term loans.

9.     DEFERRED
CHARGES

Deferred charges represent $14 million (2000
and 1999: $0) of costs related to the arrangement of new
facilities and the renegotiation of other arrangements. These
costs are amortized evenly over the periods of the underlying
arrangements which end ranging from 2005 to 2012.

10.     LOANS FROM
FORMER AFFILIATED COMPANIES DUE WITHIN ONE YEAR

|                                              |  |      |   |      |  |      |    |  |  |   |    |  |  | 
|--------------------------------------------- |  | ---- | - | ---- |  | ---- | -- |  |  | - | -- |  |  | 
|                                             
|                                             
|                                              |  | 2001 |   | 2000 |  | 1999 |    | 
|                                             
|                                             
|CP (Bermuda) Limited                          |  |      |  |      |  |      | 37 |  |  |   | 37 |  |  | 
|CPL                                           |  |      |  |      |  |      | 31 |  |  |   | 36 |  |  | 
|Canadian Pacific Securities (Ontario) Limited |  |      |  |      |  |      | 11 |  |  |   |   |  |  | 
|Canadian Pacific Finance Ireland              |  |      |  |      |  |      | 7  |  |  |   |   |  |  | 
|                                              |  |     
|                                              |  | $    |  |      |  | $    | 86 |  |  | $ | 73 |  |  | 
|                                              |  |     




F-13



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




10.     LOANS FROM
FORMER AFFILIATED COMPANIES DUE WITHIN ONE YEAR
(Continued)


The loan from CP (Bermuda) Limited of
$37 million at 31st December 2000 was
interest free and repayable on demand and was cancelled in 2001
upon the acquisition of CP (Bermuda) Limited by CPSHI as part of
the reorganization described in note 1.

The loan from CPL of $31 million outstanding
at 31st December 2000 was interest free and
repayable on demand. It was repaid during 2001.

The loan from CPL of $36 million outstanding
at 31st December 1999 was interest free and
repayable on demand. It was repaid during 2000.

The loans from Canadian Pacific Securities
(Ontario) Limited of $11 million at
31st December 2000 bore variable rates of
interest, were repayable on demand and were repaid during 2001.

The loans from Canadian Pacific Finance Ireland
of $7 million at 31st December 2000 were
for a fixed period of 180 days and carried a fixed interest
rate of 6.5%. They were repaid during 2001.

11.     LONG-TERM
DEBT

|                            |  |      |     |      |  |      |     |   |  |   |     |   |  | 
|--------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | - |  | 
|                           
|                           
|                            |  | 2001 |     | 2000 |  | 1999 |     |  
|                           
|                           
|Bank loan                   |  |      | 160 |      |  |      |    |   |  |   |    |   |  | 
|Long-term loans             |  |      | 52  |      |  |      | 2   |   |  |   | 2   |   |  | 
|Capital leases              |  |      | 18  |      |  |      | 30  |   |  |   | 42  |   |  | 
|                            |  |     
|                            |  |      | 230 |      |  |      | 32  |   |  |   | 44  |   |  | 
|Amounts due within one year |  |      | (15 | )    |  |      | (11 | ) |  |   | (14 | ) |  | 
|                            |  |     
|Amounts due after one year  |  | $    | 215 |      |  | $    | 21  |   |  | $ | 30  |   |  | 
|                            |  |     

The bank loan represents amounts drawn on a
$175 million revolving credit facility that is committed to
August 2005 with a $50 million step down in August 2004. A
second revolving credit facility of $250 million was
entered into in December 2001. This is committed to December
2006, with a 25% step down in December 2005. Both facilities are
secured by certain owned ships and bear interest at a margin
over LIBOR which depends on the facilities credit rating.
As at 31st December 2001 the margins were 1.05%
and 1.40% respectively.

Long-term loans comprises $1 million
repayable up to 2008 and bearing interest at LIBOR plus 2.625%
secured on an office building and $51 million repayable up
to 2008 bearing interest at 6.71% secured on ships.

The bank loan and long-term loans are subject to
covenants which are customary for these types of facility. As at
31st December 2001 CP Ships was in
compliance with these covenants.

Aggregate maturities of the bank loan and
long-term loans for the five years subsequent to
31st December 2001 are as follows:

|           |  |   |     |  |  | 
|---------- |  | - | --- |  |  | 
|2002       |  |   | 7   |  |  | 
|2003       |  |   | 7   |  |  | 
|2004       |  |   | 42  |  |  | 
|2005       |  |   | 133 |  |  | 
|2006       |  |   | 8   |  |  | 
|Thereafter |  |   | 15  |  |  | 
|           |  |  
|Total      |  | $ | 212 |  |  | 
|           |  |  




F-14



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




11.     LONG-TERM
DEBT (Continued)


The capital leases consist of container leases of
$18 million (2000: $29 million, 1999:
$41 million) and automobile leases of $0 (2000 and 1999:
$1 million).

The capital leases are repayable in monthly
installments ending between 2002 and 2005 and are secured on the
leased equipment. Obligations under capital leases bear fixed
interest rates, which range from 6% to 13%. Interest expense on
such leases amounted to $3 million (2000 and 1999:
$4 million).

Capital lease commitments over the next five
years and thereafter are as follows:

|                                              |  |   |    |   |  | 
|--------------------------------------------- |  | - | -- | - |  | 
|2002                                          |  |   | 9  |   |  | 
|2003                                          |  |   | 5  |   |  | 
|2004                                          |  |   | 5  |   |  | 
|2005                                          |  |   | 1  |   |  | 
|                                              |  |  
|Total minimum lease payments                  |  |   | 20 |   |  | 
|Less: imputed interest                        |  |   | (2 | ) |  | 
|                                              |  |  
|Present value of minimum lease payments       |  |   | 18 |   |  | 
|Less: current portion                         |  |   | (7 | ) |  | 
|                                              |  |  
|Long-term portion of capital lease obligation |  | $ | 11 |   |  | 
|                                              |  |  

Financial assets and liabilities

Short-term financial assets and liabilities are
valued at their carrying amounts as presented in the
consolidated balance sheet, which are reasonable estimates of
fair value due to the relatively short period to maturity of
these instruments.

The fair value of third-party long-term debt has
been estimated based on rates currently available to
CP Ships for long-term borrowing with similar terms and
conditions to those borrowings in place at the balance sheet
date. There is no material difference between the carrying value
and the fair value of third-party long-term debt.

CP Ships does not believe that there are any
significant concentrations of credit risk.

Forward foreign currency exchange
contracts

CP Ships is exposed to changes in exchange
rates on future cost streams denominated in certain currencies
other than United States Dollars. To manage these exposures,
CP Ships enters into hedges as it deems appropriate, to
cover some or all of its anticipated net exposure, which is
principally to Canadian Dollars, British Pounds and Euros.

At 31st December 2001,
CP Ships did not have any outstanding forward foreign
exchange hedges in place. At 31st December 2000,
CP Ships had entered into forward foreign exchange
contracts to sell approximately $131 million (1999:
$167 million) and the unrealized gain/loss on these forward
foreign currency exchange contracts at that date not recognized
in income was $0 (1999: unrealized gain $5 million).




F-15



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


12.     SHARE CAPITAL
AND CONTRIBUTED SURPLUS

On 1st October 2001, as described
in note 1, CPL distributed its interests in CPSHI to
CP Ships. CPL then distributed its investment in
CP Ships to its common shareholders. On
1st January 2002, CPSHI amalgamated with
CP Ships.

|                                                 |  |      |     |      |  |      |     |  |  |   |    |  |  | 
|------------------------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  | - | -- |  |  | 
|                                                
|                                                
|                                                 |  | 2001 |     | 2000 |  | 1999 |     | 
|                                                
|                                                
|Issued share capital of CP Ships:                |  |      |     |      |  |      |     |  |  |   |    |  |  | 
|79,969,095 common shares  no par value          |  | $    | 597 |      |  | $    |    |  |  | $ |   |  |  | 
|Issued share capital of CPSHI:                   |  |      |     |      |  |      |     |  |  |   |    |  |  | 
|871,007,155 common shares  no par value         |  | $    |    |      |  | $    | 63  |  |  | $ | 63 |  |  | 
|175,000 redeemable, cumulative preference shares |  | $    |    |      |  | $    | 116 |  |  | $ |   |  |  | 
|                                                 |  |     

The authorized share capital of CP Ships is
an unlimited number of common shares and an unlimited number of
preference shares.

An analysis of CP Ships common shares is as
follows:

|                                                                   |  |        |            |           |  |   |     |  |  | 
|------------------------------------------------------------------ |  | ------ | ---------- | --------- |  | - | --- |  |  | 
|                                                                  
|                                                                  
|                                                                   |  | Number |            | $ million |  |  
|                                                                  
|                                                                  
|Balance, 1stJanuary 2001                                           |  |        |           |           |  |   |    |  |  | 
|New issue                                                          |  |        | 79,127,044 |           |  |   | 597 |  |  | 
|Issued under Launch Award, stock option plans and
    LTIP buy-out |  |        | 842,051    |           |  |   |    |  |  | 
|                                                                   |  |       
|Balance, 31stDecember 2001                                         |  |        | 79,969,095 |           |  | $ | 597 |  |  | 
|                                                                   |  |       

During 2001, and prior to CPLs disposal of
CPSHI to CP Ships, CPL provided an additional
$2 million as contributed surplus, and CPSHI subsequently
increased its stated share capital in the amount of its
$487 million contributed surplus. CPSHI also returned
$14 million of share capital to CPL, redeemed the 175,000
redeemable cumulative preference shares and issued 400 common
shares to CPL at a value of $61 million as consideration
for the transfer of shipping related affiliates and other assets
from CPL.

During 2000, capital totalling $203 million
was contributed by CPL to CPSHI to fund the purchase of the
remaining 50% of Americana Ships, the purchase of ships and the
repayment of certain loans owed to CPL. No shares were issued in
respect to these transactions.

In addition in 2000, CPSHI issued preference
shares of Cdn$175 million ($116 million) to, and the
related proceeds were lent back to, an affiliated company
(note 7). The preference shares carried a floating
cumulative dividend based on the bankers acceptance rate plus
30 basis points. The preference shares were redeemed in
2001 and the loan repaid.

During 1999 additional capital totalling
$52 million was contributed to finance the repayment of
certain loans owed to CPL and to provide additional capital. No
shares were issued in respect of these transactions.

Shareholder Rights Plan

On 30th July 2001, CP Ships
adopted a Shareholder Rights Plan (the Rights Plan)
which became effective 1st October 2001. The
Rights Plan is designed to provide CP Ships with sufficient
time to explore and develop alternatives for maximizing
shareholder value in the event of a take-over bid and to provide
all shareholders with an equal opportunity to participate in the
bid.




F-16



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


13.     STOCK
OPTIONS

Under the CP Ships Employee Stock Option
Plan (ESOP) and Directors Stock Option Plan
(DSOP) options may be granted to key employees and
directors to purchase CP Ships common shares at a price
normally based on the market value of the shares on or
immediately prior to the grant date. Each option may be
exercised on a date or dates set by the Board of Directors and
expires ten years after the grant date.

Transition of CPL Option Plan

On the effective date of the Plan of Arrangement
described in note 1, outstanding options under the CPL Key
Employee Stock Option Plan (KESOP) were replaced
pro-rata with new options under the new option plans of the five
separately-listed companies, including CP Ships.
Accompanying stock appreciation rights (SARs)
equivalent to one-half of the number of shares under option were
replaced in a similar manner. An SAR entitles the holder to
receive payment of an amount equal to the excess of the market
value of a common share at the exercise date over the related
option price. Former CPL employees options over
CP Ships shares may be exercised after two years from the
original grant date under KESOP in respect to one-half of the
number of shares and after three years in respect to the balance
and expire ten years after the original grant date. SARs may be
exercised no earlier than three years and no later than ten
years after the grant date.

Where an option has been exercised by a former
CPL employee as to one-half the number of shares to which it
relates, any further exercises reduce the number of SARs granted
on a one-for-one basis. At all times, the exercise of an SAR
reduces the number of shares under an option on a one-for-one
basis.

In the event of a change in control of
CP Ships, all outstanding options and SARs under all plans
become immediately exercisable.

At 31st December 2001, 2,453,429
shares (2000 and 1999: nil) were available for the granting of
future options under the stock option plans out of the 6,158,000
currently authorized.

Details of the stock options outstanding are as
follows:

|                                                                  |      |           |           |                  |  |               |       |                  |  |  |   |   |  |  |   |   |  |  | 
|----------------------------------------------------------------- | ---- | --------- | --------- | ---------------- |  | ------------- | ----- | ---------------- |  |  | - | - |  |  | - | - |  |  | 
|                                                                 
|                                                                 
|                                                                  |      | 2001      |           |                  |  | 2000 and 1999 |       |                 
|                                                                  |      | 2001      |           | Weighted Average |  | 2000 and 1999 |       | Weighted Average |  | 
|                                                                  |      | Number of |           | Exercise Price   |  | Number of     |       | Exercise Price   |  | 
|                                                                  |      | Options   |           | $ Per Share      |  | Options       |       | $ Per Share      |  | 
|                                                                 
|                                                                 
|Outstanding at beginning of the year                              |      |           |          |                  |  |               |      |                  |  |  |  |   |  |  |  |   |  | 
|Granted to former CPL employees under the Plan of
    Arrangement |      |           | 548,983   |                  |  |               | 4.052 |                  |  |  |  |   |  |  |  |   |  | 
|Granted under:                                                    |      |           |           |                  |  |               |       |                  |  |  |   |   |  |  |   |   |  | 
|                                                                  | ESOP |           |           | 3,116,000        |  |               |       | 7.840            |  |  |   |  |  |  |   |  |  |  | 
|                                                                  | DSOP |           |           | 48,000           |  |               |       | 7.840            |  |  |   |  |  |  |   |  |  |  | 
|Exercised                                                         |      |           | (51,051   | )                |  |               | 4.205 |                  |  |  |  |   |  |  |  |   |  | 
|Cancelled                                                         |      |           | (8,412    | )                |  |               | 4.141 |                  |  |  |  |   |  |  |  |   |  | 
|                                                                  |      |          
|Outstanding at the end of the year                                |      |           | 3,653,520 |                  |  |               | 7.332 |                  |  |  |  |   |  |  |  |   |  | 
|                                                                  |      |          




F-17



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




13.     STOCK OPTIONS
(Continued)


Details as at 31st December 2001
(none outstanding at 31st December 2000 and
31st December 1999) of the stock options
outstanding by year of expiry were as follows:

|        |  |           |           |             |  |                  |               |             |  |                  |       |  |  |  |         |  |  |  |       |  |  | 
|------- |  | --------- | --------- | ----------- |  | ---------------- | ------------- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  |  | ----- |  |  | 
|       
|       
|        |  | 2001      |           | 2001        |  |                  |               | 2001        |  |                 
|        |  | 2001      |           | Exercise    |  | Weighted Average |               | 2001        |  | Weighted Average |       | 
|Year of |  | Number of |           | Price Range |  | Exercise Price   |               | Number      |  | Exercise Price   |       | 
|Expiry  |  | Options   |           | $ Per Share |  | $ Per Share      |               | Exercisable |  | $ Per Share      |       | 
|       
|       
|2002    |  |           | 6,904     |             |  |                  | 2.491         |             |  |                  | 2.491 |  |  |  | 6,904   |  |  |  | 2.491 |  |  | 
|2003    |  |           | 35,763    |             |  |                  | 2.695 - 3.040 |             |  |                  | 2.979 |  |  |  | 35,763  |  |  |  | 2.979 |  |  | 
|2004    |  |           | 23,481    |             |  |                  | 2.849         |             |  |                  | 2.849 |  |  |  | 23,481  |  |  |  | 2.849 |  |  | 
|2005    |  |           | 42,011    |             |  |                  | 3.219 - 3.270 |             |  |                  | 3.221 |  |  |  | 42,011  |  |  |  | 3.221 |  |  | 
|2006    |  |           |          |             |  |                  |              |             |  |                  |      |  |  |  |        |  |  |  |      |  |  | 
|2007    |  |           | 75,206    |             |  |                  | 4.842 - 5.097 |             |  |                  | 4.845 |  |  |  | 75,206  |  |  |  | 4.845 |  |  | 
|2008    |  |           | 9,400     |             |  |                  | 4.529 - 5.493 |             |  |                  | 4.852 |  |  |  | 9,400   |  |  |  | 4.852 |  |  | 
|2009    |  |           | 137,445   |             |  |                  | 4.075         |             |  |                  | 4.075 |  |  |  | 137,445 |  |  |  | 4.075 |  |  | 
|2010    |  |           | 159,310   |             |  |                  | 4.235 - 5.231 |             |  |                  | 4.297 |  |  |  | 159,310 |  |  |  | 4.297 |  |  | 
|2011    |  |           | 3,164,000 |             |  |                  | 7.840         |             |  |                  | 7.840 |  |  |  |        |  |  |  |      |  |  | 
|        |  |          
|        |  |           | 3,653,520 |             |  |                  | 2.491 - 7.840 |             |  |                  | 7.332 |  |  |  | 489,520 |  |  |  | 4.046 |  |  | 
|        |  |          

During 2001, $0.7 million was charged to
compensation expense for SARs, and $0.2 million was
credited to common share capital for options exercised.

14.     CHANGES IN
NON-CASH WORKING CAPITAL BALANCES

|                                                                                                                                            |  |      |     |      |  |      |     |   |  |   |     |   |  | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | - |  | 
|                                                                                                                                           
|                                                                                                                                           
|                                                                                                                                            |  | 2001 |     | 2000 |  | 1999 |     |  
|                                                                                                                                           
|                                                                                                                                           
|Decrease/(increase) in current
    assets:                                                                                                  |  |      |     |      |  |      |     |   |  |   |     |   |  | 
|Accounts receivable                                                                                                                         |  |      | 26  |      |  |      | (86 | ) |  |   | (50 | ) |  | 
|Prepaid expenses                                                                                                                            |  |      | (6  | )    |  |      | (6  | ) |  |   | (5  | ) |  | 
|Inventory                                                                                                                                   |  |      | 2   |      |  |      | (5  | ) |  |   | (5  | ) |  | 
|                                                                                                                                            |  |     
|                                                                                                                                            |  |      | 22  |      |  |      | (97 | ) |  |   | (60 | ) |  | 
|(Decrease)/increase in current
    liabilities:                                                                                             |  |      |     |      |  |      |     |   |  |   |     |   |  | 
|Accounts payable and accrued liabilities                                                                                                    |  |      | (25 | )    |  |      | 72  |   |  |   | (7  | ) |  | 
|Decrease/(increase) in non-cash working capital
    balances from the acquisition and sale of businesses and joint
    ventures             |  |      |    |      |  |      | (24 | ) |  |   | (4  | ) |  | 
|Decrease/(increase) in non-cash working capital
    balances transferred in from shipping-related affiliates prior
    to spin-off (note 1) |  |      | 9   |      |  |      |    |   |  |   |    |   |  | 
|Other changes in non-cash working capital balances                                                                                          |  |      | 1   |      |  |      | 12  |   |  |   | (20 | ) |  | 
|                                                                                                                                            |  |     
|Total                                                                                                                                       |  | $    | 7   |      |  | $    | (37 | ) |  | $ | (91 | ) |  | 
|                                                                                                                                            |  |     

15.     EARNINGS PER
SHARE

Basic and diluted earnings per share are shown on
the income statement. Basic and diluted earnings per share have
been calculated using net income available to common
shareholders divided by 79.3 million and 79.9 million
shares respectively for 2001 and 79.1 million and
79.2 million shares respectively for 2000 and 1999.




F-18



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




15.     EARNINGS PER
SHARE (Continued)


The basic and diluted earnings per share figures
for 2000 and 1999 have been restated as if the shares and
options outstanding at the spin-off date (note 1) had been
in place for 2000 and 1999.

|                                                         |                              |      |     |      |  |      |     |      |  |  |     |      |  |  | 
|-------------------------------------------------------- | ---------------------------- | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | ---- |  |  | 
|                                                        
|                                                        
|Millions of shares                                       |                              | 2001 |     | 2000 |  | 1999 |     |     
|                                                         |                              |      |     |      |  |      |     |     
|                                                        
|                                                        
|Weighted average number of common shares
    outstanding |                              |      |     |      |  |      |     |      |  |  |     |      |  | 
|                                                         |  basic earnings per share   |      |     | 79.3 |  |      |     | 79.1 |  |  |     | 79.1 |  |  | 
|Effect of dilutive securities  stock
    options        |                              |      | 0.6 |      |  |      | 0.1 |      |  |  | 0.1 |      |  | 
|                                                         |                              |     
|Weighted average number of common shares
    outstanding |                              |      |     |      |  |      |     |      |  |  |     |      |  | 
|                                                         |  diluted earnings per share |      |     | 79.9 |  |      |     | 79.2 |  |  |     | 79.2 |  |  | 
|                                                         |                              |     

16.  RELATED PARTY
TRANSACTIONS

Container shipping operating expenses included
$90 million for 2001 (2000: $127 million, 1999:
$110 million) in relation to services provided by parties
who were related at the times of the transactions, mainly inland
transportation costs paid to Canadian Pacific Railway, which
charges were established on normal commercial terms. There were
dividends on preference shares paid to a former affiliated
company amounting to $3 million in 2001 (2000:
$2 million, 1999: $0).

Forward foreign currency exchange contracts
referred to in note 11 included contracts with CPL. As at
31st December 2001, CP Ships had no such
contracts with any affiliated companies (2000: $47 million,
1999: $92 million). As at 31st December
2001, the unrealized gain/loss on these contracts not recognized
in income was $0 (31st December 2000: unrealized
gain/loss $0, 31st December 1999: unrealised
gain $7 million).

17.  CONTINGENT
LIABILITIES

At 31st December 2001
CP Ships had bank and other guarantees given in the normal
course of business of $1 million (2000: $4 million,
1999: $2 million).

During the normal course of business activity,
CP Ships and its subsidiaries are occasionally involved in
litigation proceedings. Two actions totalling approximately
Belgian Francs 3,876 million ($87 million) were
initiated in Belgium in 1999 against CP Ships and certain
of its subsidiaries relating to termination of contracts for
stevedoring and related services. One action for Belgian Francs
298 million ($7 million) was withdrawn in January 2002
at no cost to CP Ships. CP Ships intends to defend
vigorously the remaining action. CP Ships and its
subsidiaries do not believe they will incur any liability in
this action and accordingly, no provision has been made in the
financial statements with respect to this matter other than for
legal costs.

18.  COMMITMENTS

(a)  Capital expenditures

CP Ships has capital commitments at
31st December 2001 of $395 million,
principally in respect to shipbuilding contracts, of which
$225 million falls due in 2002 and $170 million in
2003.

(b)  Operating leases

CP Ships utilizes ships, containers and
other equipment and occupies premises under non-cancellable
operating leases.




F-19



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




18.  COMMITMENTS
(Continued)




(b)  Operating leases
(continued)


Rent expense under operating leases:

|           |  |      |      |      |  |      |      |  |  |  |      |  |  | 
|---------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  | 
|          
|          
|           |  | 2001 |      | 2000 |  | 1999 |      | 
|          
|          
|Ships      |  |      | 308  |      |  |      | 308  |  |  |  | 221  |  |  | 
|Containers |  |      | 132  |      |  |      | 124  |  |  |  | 76   |  |  | 
|Other      |  |      | 18   |      |  |      | 17   |  |  |  | 12   |  |  | 
|           |  |     
|           |  |      | $458 |      |  |      | $449 |  |  |  | $309 |  |  | 
|           |  |     

CP Ships has commitments under operating
leases, including obligations under time charters which include
certain ship operating expenses, and under long-term bareboat
charters, two of which expire in 2008 and two in 2012. The
commitments in each of the next five years and thereafter are:

|                    |  |  |      |  |  | 
|------------------- |  |  | ---- |  |  | 
|2002                |  |  | 203  |  |  | 
|2003                |  |  | 93   |  |  | 
|2004                |  |  | 62   |  |  | 
|2005                |  |  | 46   |  |  | 
|2006                |  |  | 32   |  |  | 
|2007 and thereafter |  |  | 149  |  |  | 
|                    |  | 
|                    |  |  | $585 |  |  | 
|                    |  | 

19.  PENSIONS

CP Ships operates a number of defined
contribution and defined benefit pension plans throughout the
world.

Defined benefit plans are based principally on
years of service and compensation levels near retirement. Annual
contributions to these plans, which are based on various
actuarial cost methods, are made on the basis of not less than
the minimum amounts required by national, federal or provincial
pension supervisory authorities.

Net benefit plan expense for each year for such
defined benefit plans includes the following components:

|                                                   |  |      |     |      |  |      |     |   |  |  |     |   |  | 
|-------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | - |  | 
|                                                  
|                                                  
|                                                   |  | 2001 |     | 2000 |  | 1999 |     |  
|                                                  
|                                                  
|Service cost  benefits earned during
    the year |  |      | 1   |      |  |      | 1   |   |  |  | 1   |   |  | 
|Interest cost on projected benefit obligation      |  |      | 4   |      |  |      | 5   |   |  |  | 3   |   |  | 
|Expected return on pension fund assets             |  |      | (4  | )    |  |      | (5  | ) |  |  | (4  | ) |  | 
|Amortization of transition asset                   |  |      |    |      |  |      | (1  | ) |  |  |    |   |  | 
|Recognized net actuarial loss                      |  |      | 4   |      |  |      |    |   |  |  |    |   |  | 
|Amount not recognized due to limitation            |  |      | (3  | )    |  |      | 1   |   |  |  | 1   |   |  | 
|                                                   |  |     
|Net benefit plan expense                           |  |      | $ 2 |      |  |      | $ 1 |   |  |  | $ 1 |   |  | 
|                                                   |  |     




F-20



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




19.  PENSIONS (Continued)


Information about changes in CP Ships
defined benefit plans is as follows:

|                                         |  |      |      |      |  |  |      |   |  | 
|---------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | - |  | 
|                                        
|                                        
|                                         |  | 2001 |      | 2000 |  | 
|                                        
|                                        
|Change in benefit obligation             |  |      |      |      |  |  |      |   |  | 
|Benefit obligation at start of year      |  |      | 85   |      |  |  | 57   |   |  | 
|Effect of change in accounting policy    |  |      |     |      |  |  | 2    |   |  | 
|Service cost                             |  |      | 1    |      |  |  | 1    |   |  | 
|Interest cost                            |  |      | 4    |      |  |  | 5    |   |  | 
|Amendments                               |  |      | (2   | )    |  |  |     |   |  | 
|Plan participants contributions         |  |      |     |      |  |  | 1    |   |  | 
|Actuarial loss/(gain)                    |  |      | (16  | )    |  |  | 6    |   |  | 
|(Settlement)/acquisition                 |  |      | (38  | )    |  |  | 21   |   |  | 
|Benefits paid                            |  |      | (1   | )    |  |  | (7   | ) |  | 
|Exchange rate fluctuation                |  |      | (1   | )    |  |  | (1   | ) |  | 
|                                         |  |     
|Benefit obligation at end of year        |  |      | $ 32 |      |  |  | $ 85 |   |  | 
|                                         |  |     
|Change in plan assets                    |  |      |      |      |  |  |      |   |  | 
|Fair value of assets at start of year    |  |      | 83   |      |  |  | 62   |   |  | 
|Actual return on plan assets             |  |      | (21  | )    |  |  | 6    |   |  | 
|(Settlement)/acquisition                 |  |      | (38  | )    |  |  | 19   |   |  | 
|Employer contributions                   |  |      | 2    |      |  |  | 3    |   |  | 
|Plan participants contributions         |  |      |     |      |  |  | 1    |   |  | 
|Benefits paid                            |  |      | (1   | )    |  |  | (7   | ) |  | 
|Exchange rate fluctuation                |  |      |     |      |  |  | (1   | ) |  | 
|                                         |  |     
|Fair value of plan assets at end of year |  |      | $ 25 |      |  |  | $ 83 |   |  | 
|                                         |  |     

Included in the above accrued benefit obligation
and fair value of plan assets are the following amounts in
respect to plans that are not fully funded:

|                                                    |  |      |     |      |  |      |     |   |  |  |     |   |  | 
|--------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  |  | --- | - |  | 
|                                                   
|                                                   
|                                                    |  | 2001 |     | 2000 |  | 1999 |     |  
|                                                   
|                                                   
|Funded status                                       |  |      | (7  | )    |  |      | (2  | ) |  |  | 5   |   |  | 
|Unrecognized transition asset                       |  |      |    |      |  |      | (1  | ) |  |  | (1  | ) |  | 
|Unrecognized net actuarial loss                     |  |      | 8   |      |  |      | 5   |   |  |  | 2   |   |  | 
|Unrecognized prior service cost                     |  |      | (2  | )    |  |      |    |   |  |  |    |   |  | 
|Amount not recognized due to limitation             |  |      | (2  | )    |  |      | (5  | ) |  |  | (6  | ) |  | 
|                                                    |  |     
|(Accrued) benefit cost                              |  |      | $(3 | )    |  |      | $(3 | ) |  |  | $  |   |  | 
|                                                    |  |     
|Weighted-average assumptions as of
    31stDecember |  |      |     |      |  |      |     |   |  |  |     |   |  | 
|Discount rate                                       |  |      | 6.5 | %    |  |      | 6.7 | % |  |  | 7.1 | % |  | 
|Expected return on plan assets                      |  |      | 7.2 | %    |  |      | 6.9 | % |  |  | 7.0 | % |  | 
|Rate of compensation increase                       |  |      | 4.9 | %    |  |      | 4.6 | % |  |  | 4.5 | % |  | 

CP Ships also has defined contribution
plans. The net expense for such plans was $4 million in
both 2001 and 2000 and $3 million in 1999.




F-21



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


20.  SEGMENT INFORMATION

CP Ships provides regional containerized
ocean and related inland transportation services across the
world in various trade lanes.

CP Ships manages its business by aggregating
its container shipping services into the four major markets that
it serves, namely TransAtlantic, Australasia, Latin America and
Asia. Container shipping services in other regions and services
ancillary to container shipping are separately aggregated.
Accordingly, CP Ships has five reportable segments.

Revenue and all operating expenses are either
directly related to the activity in a segment or are centrally
managed and are allocated across the segments.

CP Ships does not analyze or manage its
assets by segment and consequently no segmented analysis of
assets is presented. It is impractical to obtain an analysis of
revenue by customers countries of domicile. CP Ships
does not rely on any single major customer or group of major
customers. No customer accounts for more than 10% of
CP Ships revenue.

|                                                      |  |      |        |      |  |      |        |  |  |  |        |   |  | 
|----------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | - |  | 
|                                                     
|                                                     
|                                                      |  | 2001 |        | 2000 |  | 1999 |        | 
|                                                     
|                                                     
|Revenues                                              |  |      |        |      |  |      |        |  |  |  |        |   |  | 
|TransAtlantic                                         |  |      | 1,323  |      |  |      | 1,406  |  |  |  | 977    |   |  | 
|Australasia                                           |  |      | 549    |      |  |      | 574    |  |  |  | 547    |   |  | 
|Latin America                                         |  |      | 244    |      |  |      | 242    |  |  |  | 137    |   |  | 
|Asia                                                  |  |      | 435    |      |  |      | 337    |  |  |  | 154    |   |  | 
|Other                                                 |  |      | 95     |      |  |      | 86     |  |  |  | 63     |   |  | 
|                                                      |  |     
|Total Revenues                                        |  |      | $2,646 |      |  |      | $2,645 |  |  |  | $1,878 |   |  | 
|                                                      |  |     
|Expenses                                              |  |      |        |      |  |      |        |  |  |  |        |   |  | 
|TransAtlantic                                         |  |      | 1,244  |      |  |      | 1,317  |  |  |  | 936    |   |  | 
|Australasia                                           |  |      | 520    |      |  |      | 551    |  |  |  | 511    |   |  | 
|Latin America                                         |  |      | 216    |      |  |      | 224    |  |  |  | 141    |   |  | 
|Asia                                                  |  |      | 448    |      |  |      | 317    |  |  |  | 149    |   |  | 
|Other                                                 |  |      | 79     |      |  |      | 72     |  |  |  | 52     |   |  | 
|                                                      |  |     
|Total Expenses                                        |  |      | $2,507 |      |  |      | $2,481 |  |  |  | $1,789 |   |  | 
|                                                      |  |     
|Operating Income before exceptional
    charges       |  |      |        |      |  |      |        |  |  |  |        |   |  | 
|TransAtlantic                                         |  |      | 79     |      |  |      | 89     |  |  |  | 41     |   |  | 
|Australasia                                           |  |      | 29     |      |  |      | 23     |  |  |  | 36     |   |  | 
|Latin America                                         |  |      | 28     |      |  |      | 18     |  |  |  | (4     | ) |  | 
|Asia                                                  |  |      | (13    | )    |  |      | 20     |  |  |  | 5      |   |  | 
|Other                                                 |  |      | 16     |      |  |      | 14     |  |  |  | 11     |   |  | 
|                                                      |  |     
|Total Operating Income before exceptional
    charges |  |      | $ 139  |      |  |      | $ 164  |  |  |  | $  89  |   |  | 
|                                                      |  |     

Other includes smaller regional
markets, terminal operations and services ancillary to container
shipping.




F-22



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




20.  SEGMENT INFORMATION
(Continued)


Depreciation included in expenses:

|              |  |      |     |      |  |      |     |  |  |  |     |  |  | 
|------------- |  | ---- | --- | ---- |  | ---- | --- |  |  |  | --- |  |  | 
|             
|             
|              |  | 2001 |     | 2000 |  | 1999 |     | 
|             
|             
|TransAtlantic |  |      | 44  |      |  |      | 40  |  |  |  | 30  |  |  | 
|Australasia   |  |      | 6   |      |  |      | 8   |  |  |  | 8   |  |  | 
|Latin America |  |      | 5   |      |  |      | 3   |  |  |  | 2   |  |  | 
|Asia          |  |      | 8   |      |  |      | 4   |  |  |  | 2   |  |  | 
|Other         |  |      | 11  |      |  |      | 5   |  |  |  | 5   |  |  | 
|              |  |     
|Total         |  |      | $74 |      |  |      | $60 |  |  |  | $47 |  |  | 
|              |  |     

Geographical analysis of capital assets and
goodwill:

|                |  |      |        |      |  |      |        |  |  |  |      |  |  | 
|--------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ---- |  |  | 
|               
|               
|                |  | 2001 |        | 2000 |  | 1999 |        | 
|               
|               
|Canada          |  |      | 36     |      |  |      | 35     |  |  |  | 40   |  |  | 
|United States   |  |      | 85     |      |  |      | 37     |  |  |  | 12   |  |  | 
|Other Countries |  |      | 57     |      |  |      | 43     |  |  |  | 36   |  |  | 
|Ships(1)        |  |      | 526    |      |  |      | 311    |  |  |  | 111  |  |  | 
|Containers(1)   |  |      | 91     |      |  |      | 110    |  |  |  | 156  |  |  | 
|Goodwill(1)     |  |      | 510    |      |  |      | 531    |  |  |  | 461  |  |  | 
|                |  |     
|                |  |      | $1,305 |      |  |      | $1,067 |  |  |  | $816 |  |  | 
|                |  |     



|    |                                                                                   
|--- | ----------------------------------------------------------------------------------
|(1) | None of the ships, containers or goodwill are
    located in a particular country.

21.  AMERICANA SHIPS JOINT
VENTURE

In January 1999, CPSHI completed the formation of
a joint venture with TMMsa (see note 6).

CPSHIs share of the American Ships joint
venture assets and the result for the year to
31st December 1999 are summarized below:

|                      |                        |  |       |      |   |  | 
|--------------------- | ---------------------- |  | ----- | ---- | - |  | 
|Balance sheet         |                        |  |       |      |   | 
|                      | Current assets         |  |       | 127  |   |  | 
|                      | Long term assets       |  |       | 153  |   |  | 
|                      |                        | 
|                      |                        |  | $ 280 |      |   | 
|                      |                        | 
|                      | Short term liabilities |  |       | 142  |   |  | 
|                      | Long term liabilities  |  |       | 53   |   |  | 
|                      | Equity                 |  |       | 85   |   |  | 
|                      |                        | 
|                      |                        |  | $ 280 |      |   | 
|                      |                        | 
|Statement of Earnings |                        |  |       |      |   | 
|                      | Operating revenue      |  |       | 502  |   |  | 
|                      | Operating expenses     |  |       | (518 | ) |  | 
|                      |                        | 
|Loss for the year     |                        |  | $ (16 | )    |   | 
|                      |                        | 




F-23



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                              
|--- | ---------------------------------------------
|21. | AMERICANA SHIPS JOINT VENTURE
    (Continued)

|                           |                      |  |      |     |   |  | 
|-------------------------- | -------------------- |  | ---- | --- | - |  | 
|Statement of Cash Flows    |                      |  |      |     |   | 
|Cash flows resulting from: |                      |  |      |     |   | 
|                           | Operating activities |  |      | (8  | ) |  | 
|                           | Financing activities |  |      | 46  |   |  | 
|                           | Investing activities |  |      | (35 | ) |  | 
|                           |                      | 
|Increase in cash resources |                      |  | $  3 |     |   | 
|                           |                      | 



|    |                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES

Summary of differences

The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in Canada (Canadian GAAP) which differ
in certain respects from United States generally accepted
accounting principles (US GAAP). The material
differences are described below along with their effect on
CP Ships Consolidated Statements of Income, Retained
Earnings, Consolidated Balance Sheets and Consolidated
Statements of Cash Flow.

(a)  Change in accounting
policy  dry docks

The effect of a change in accounting policy for
dry dock costs in 2000 has been reflected by retrospectively
restating the previous years Canadian GAAP financial
statements. Under US GAAP, the cumulative effect of this change
has been reported in the 2000 income statement.

The effect of this change in 2000 on income
before cumulative effect of change in accounting principles and
on net income as determined in accordance with US GAAP was an
increase to net income of $6 million, and an increase in
basic earnings per share of $0.08. If the defer and amortize
method had been applied retroactively for US GAAP the 1999 basic
earnings per common share would have increased by $0.03 from the
amounts presented in the US GAAP reconciliation in
note 22(l).

(b)  Derivative financial
instruments

During normal course of business, CP Ships
is exposed to foreign currency risk due to the payment of
certain operating expenses in currencies other than
CP Ships functional currency. The most significant
non-US currency exposures are in Canadian dollars, Euros and
British pounds. CP Ships makes use of derivative
instruments to limit this risk.

CP Ships enters into contracts as it deems
appropriate to hedge some or all of its anticipated net currency
exposures. Under Canadian GAAP, CP Ships accounts for its
foreign currency derivative instruments as hedges and related
exchange gains and losses are deferred until the maturity of the
contract.

Prior to 1st January 2001 for
United States reporting under FASB Statement No. 52,
Foreign Currency Translation, gains and losses on
forward foreign exchange contracts associated with anticipated
future transactions that do not constitute firm commitments were
recognized in income as they arose. Effective
1st January 2001, CP Ships adopted FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by
FAS 137 and 138 and as interpreted by the Derivatives
Implementation Group, for the purposes of presenting
US GAAP financial information.




F-24



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(b)  Derivative financial
instruments (continued)


FAS 133 establishes accounting and reporting
standards for derivative instruments including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activity. Changes in
the fair value of derivatives are recorded in each period in
current earnings or other comprehensive income, depending on
whether a derivative is designated and committed as part of a
hedge transaction and, if it is, the type of hedge transaction.
CP Ships uses various derivative instruments, which are
designated and documented as cash flow hedges, to hedge
anticipated foreign currency expenditures. These contracts
provide economic hedging to CP Ships, and under Canadian
GAAP payments or receipts under these contracts are recognized
in income concurrently with the hedged transaction and the fair
values of the outstanding contracts are not reflected in the
financial statements.

CP Ships forward exchange contacts
that do not qualify for hedge accounting under US GAAP have
been marked-to-market through earnings.

CP Ships evaluates contracts for
embedded derivatives, and considers whether any
embedded derivatives have to be separated from the host
contracts in accordance with FAS 133. Embedded derivatives
may have terms that are not clearly and closely related to the
terms of the host contract in which they are included. If
embedded derivatives exist and are not clearly and closely
related to the host contract, they are accounted for separately
from the host contract as derivatives, with changes in their
fair value recorded in current earnings.

CP Ships offers to certain of its customers
the option to pay trade receivables in either US Dollars or
the local currency of the respective customer. These terms
constitute an embedded derivative and for US GAAP are
accounted for under FAS 133 which requires revaluing these
derivatives to fair market value and recording a liability with
the offset to net income. Prior to the implementation of
FAS 133 for the purposes of presenting US GAAP
information on 1st January 2001, no revaluation
was made and the gain or loss was recognized upon settlement.

The cumulative effect of the adoption of
FAS 133 at the 1st January 2001 was to
reduce net income before taxes under US GAAP by
approximately $4 million. Application of FAS 133 to
the calculation of US GAAP financial information results in
the recording of pre-tax gains of $2 million for the year
ended 31st December 2001.

(c)  Acquisition integration and
reorganization costs

There are differences between Canadian and
US GAAP as to the timing of the recognition of certain
liabilities associated with acquisition-related integration and
reorganization costs. Further, under US GAAP certain of
these costs are charged to the income statement rather than
being allocated to the cost of the acquisition, with a
consequent effect on the amount of goodwill and the subsequent
annual amortization charge.

(d)  Employee future
benefits  pension costs

Effective 1st January 2000,
CP Ships adopted prospectively, without restating prior
years, the provisions of the new recommendations of The Canadian
Institute of Chartered Accountants (CICA) under CICA
3461. This eliminated most differences between Canadian and US
GAAP with respect to accounting for employee future benefits
including pension costs.

Prior to 2000, the principal difference between
Canadian and US GAAP in accounting for pension costs was
the choice of discount rate used for computing the benefit
obligation and the service and interest cost components




F-25



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(d)  Employee future
benefits  pension costs (continued)


of net periodic pension expense. Under Canadian
GAAP, the discount rate used represented managements best
estimate of the long-term rate of return on pension fund assets,
whereas under US GAAP the discount rate reflects the rate
at which pension benefits can be effectively settled at the date
of the financial statements.

(e)  Income taxes

Effective 1st January 2000,
CP Ships adopted, without restating prior years, the new
CICA 3465, with respect to accounting for income taxes. Although
now broadly the same as US GAAP, the new Canadian method uses
substantively enacted, rather than enacted only, tax rates to
calculate future taxes. Except for the potential difference in
the tax rates to be adopted, there are no significant
differences from the year 2000 between Canadian and US GAAP with
respect to accounting for income taxes.

Prior to 2000, CP Ships followed the
Canadian method of accounting for income taxes, described as the
deferral method, which focused on differences arising between
financial statement income and taxable income. The method
followed under US GAAP, described as the liability method,
focuses on differences between the book and tax value of assets
and liabilities.

(f)  Goodwill charges

Under Canadian GAAP goodwill charges net of any
tax effects are reported separately as a deduction from income
after tax, whereas US GAAP requires goodwill charges to be
reported within operating expenses and consequently they are
included in the determination of operating income. Amortization
expense for the years ended 31st December 2001,
2000 and 1999 under US GAAP were $14 million,
$16 million and $14 million respectively.

(g)  Impairment of long-lived assets
including goodwill

Under both Canadian and US GAAP, when factors
indicate a possible impairment in capital assets or goodwill,
recoverability is assessed based upon a cash flow analysis.
Under Canadian GAAP, the cash flow analysis includes interest
expense, whereas under US GAAP interest expense is
excluded. Under Canadian GAAP, an impairment loss is recognized
to the extent that the assets carrying amount exceeds its
net recoverable amount. Under US GAAP, an impairment loss
is measured as the amount the carrying value exceeds the fair
value of the asset. No impairment losses have been recognized by
CP Ships under either Canadian or US GAAP.

(h)  Stock based
compensation

In 2001, CP Ships established stock based
compensation plans, as described in note 13. Under Canadian
GAAP, compensation expense is not recognized for stock options
or the issuance of shares to employees. Any consideration paid
by employees on the exercise of stock options is credited to
share capital. In the event options are cancelled, no adjustment
is made to share capital and no expense is recognized. For
US GAAP under APB 25, the difference between the
market value at the date of grant and the grant price of the
stock option or issuance of shares to employees is recognized as
compensation expense.




F-26



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)

(i)  Comprehensive income

US GAAP requires the disclosure, as other
comprehensive income, of changes in equity during the period
from transactions and other events from non-owner sources.
Canadian GAAP does not require similar disclosure. Other
comprehensive income under US GAAP in these financial statements
arises from foreign currency translation adjustments. A
statement of comprehensive income under US GAAP for each of the
years ended 31st December 2001, 2000 and 1999 is
shown in note 22 (m).

(j)  Incorporated joint
ventures

US GAAP requires investments in incorporated
joint ventures to be accounted for under the equity method,
while under Canadian GAAP the accounts of incorporated joint
ventures are proportionately consolidated. However, under rules
promulgated by the SEC, a foreign registrant may, subject to the
provision of additional information, continue to follow
proportional consolidation for purposes of registration and
other filings notwithstanding the departure from US GAAP.
Consequently, the balance sheet and statements of income and
cash flow for 1999 have not been adjusted to restate the
accounting for the Americana Ships joint venture under
US GAAP. Additional information concerning
CP Ships interest in joint ventures is presented in
note 21.

(k)     Ship
leases

Under Canadian GAAP, certain ship charters
as disclosed within note 18 are accounted for as operating
leases. Under US GAAP, these ships are chartered from
special purpose entities which would be consolidated. This would
result in assets and liabilities, expenses and cash flows
relating to these ships being reported in the financial
statements. The US GAAP information as at
31st December 2001, 2000 and 1999 has been
changed to reflect these amounts. The impact on US GAAP
earnings for the years ended 31st December 2001,
2000 and 1999 is not material as the decrease in the charter
hire expense of $21 million is offset by an increase in
interest and depreciation of $13 million and
$8 million, respectively for each of the three years. The
impact on US GAAP shareholders equity is an
$8 million reduction for each of the three years ended
31st December 2001. This comprises an increase
in capital assets of $160 million (2000 
$168 million, 1999  $175 million), an
increase in long-term debt of $165 million
(2000  $173 million and 1999 
$180 million) and an increase in accrued interest of
$3 million (2000  $3 million and
1999  $3 million). Cash flows from operations
would be increased and cash flows from financing activities
would be decreased by $8 million in each of the three years
ended 31st December 2001.




F-27



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)

(l)  Statements of consolidated
income and equity

The following is a reconciliation of net income
under Canadian GAAP to net income under US GAAP:



| |                         
| | ------------------------
| | Year ended 31st December

|                                                                                    |                                                               |      |        |        |   |      |       |       |   |  |       |       |   |  | 
|----------------------------------------------------------------------------------- | ------------------------------------------------------------- | ---- | ------ | ------ | - | ---- | ----- | ----- | - |  | ----- | ----- | - |  | 
|                                                                                   
|                                                                                   
|(US$ millions except amounts per share)                                             |                                                               | 2001 |        | 2000   |   | 1999 |       |      
|                                                                                   
|                                                                                   
|Net income  Canadian GAAP                                                          |                                                               |      | 76     |        |   |      | 135   |       |   |  | 60    |       |   | 
|US GAAP adjustments                                                                 |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|                                                                                    | Dry dock accounting policy change                             |      |        |       |   |      |       |      |   |  |       | (2    | ) |  | 
|                                                                                    | Derivative financial instruments                              |      |        | 2      |   |      |       |      |   |  |       |      |   |  | 
|                                                                                    | Unrealized gain/(loss) on foreign exchange
    contracts      |      |        |       |   |      |       | (5    | ) |  |       | 6     |   |  | 
|                                                                                    | Acquisition-related costs                                     |      |        | (3     | ) |      |       | (15   | ) |  |       | (12   | ) |  | 
|                                                                                    | Pension costs                                                 |      |        | (3     | ) |      |       | 3     |   |  |       | 1     |   |  | 
|                                                                                    | Deferred income taxes                                         |      |        |       |   |      |       | (4    | ) |  |       | (1    | ) |  | 
|                                                                                    | Stock based compensation                                      |      |        | (8     | ) |      |       |      |   |  |       |      |   |  | 
|                                                                                    | Tax effect of US GAAP adjustments                             |      |        |       |   |      |       |      |   |  |       |      |   |  | 
|                                                                                    |                                                               |     
|Income  US GAAP before cumulative
    effect of accounting changes                 |                                                               |      | 64     |        |   |      | 114   |       |   |  | 52    |       |   | 
|                                                                                    | Cumulative effect of change in dry dock
    accounting policy |      |        |       |   |      |       | 19    |   |  |       |      |   |  | 
|                                                                                    | Cumulative effect of adoption of FAS 133                      |      |        | (4     | ) |      |       |      |   |  |       |      |   |  | 
|                                                                                    |                                                               |     
|Net income  US GAAP                                                                |                                                               |      | 60     |        |   |      | 133   |       |   |  | 52    |       |   | 
|Other Comprehensive income                                                          |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|                                                                                    | Foreign currency translation adjustments                      |      |        | (2     | ) |      |       | (2    | ) |  |       | (2    | ) |  | 
|                                                                                    |                                                               |     
|Comprehensive income  US GAAP                                                      |                                                               |      | $  58  |        |   |      | $ 131 |       |   |  | $ 50  |       |   | 
|                                                                                    |                                                               |     
|Earnings per common share basic ($ per share)*                                      |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|Canadian GAAP                                                                       |                                                               |      | $ 0.92 |        |   |      | $1.68 |       |   |  | $0.76 |       |   | 
|US GAAP                                                                             |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|                                                                                    | Income before cumulative effect of accounting
    changes     |      |        | $ 0.77 |   |      |       | $1.42 |   |  |       | $0.66 |   |  | 
|                                                                                    | Cumulative effect of accounting changes                       |      |        | $(0.05 | ) |      |       | $0.24 |   |  |       | $    |   |  | 
|                                                                                    |                                                               |     
|Basic earnings per common share after cumulative
    effect of accounting changes   |                                                               |      | $ 0.72 |        |   |      | $1.66 |       |   |  | $0.66 |       |   | 
|                                                                                    |                                                               |     
|Earnings per common share diluted ($ per share)*                                    |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|Canadian GAAP                                                                       |                                                               |      | $ 0.91 |        |   |      | $1.68 |       |   |  | $0.76 |       |   | 
|US GAAP                                                                             |                                                               |      |        |        |   |      |       |       |   |  |       |       |   | 
|                                                                                    | Income before cumulative effect of accounting
    changes     |      |        | $ 0.76 |   |      |       | $1.41 |   |  |       | $0.66 |   |  | 
|                                                                                    | Cumulative effect of accounting changes                       |      |        | $(0.05 | ) |      |       | $0.24 |   |  |       | $    |   |  | 
|Diluted earnings per common share after
    cumulative effect of accounting changes |                                                               |      | $ 0.71 |        |   |      | $1.65 |       |   |  | $0.66 |       |   | 
|                                                                                    |                                                               |     



|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|* | Earnings per common share is calculated after
    deduction of preference share dividends




F-28



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(l)  Statements of consolidated
income and equity (continued)


Reconciliation of equity under Canadian GAAP to
equity under US GAAP:

Year ended
31st December


|                       |                                                          |      |        |      |   |      |        |     |   |  |      |     |   |  | 
|---------------------- | -------------------------------------------------------- | ---- | ------ | ---- | - | ---- | ------ | --- | - |  | ---- | --- | - |  | 
|                      
|                      
|(US$ millions)         |                                                          | 2001 |        | 2000 |   | 1999 |        |    
|                      
|                      
|Equity  Canadian GAAP |                                                          |      | 1,100  |      |   |      | 1,099  |     |   |  | 649  |     |   | 
|US GAAP adjustments    |                                                          |      |        |      |   |      |        |     |   |  |      |     |   | 
|                       | Dry dock accounting policy change                        |      |        |     |   |      |        |    |   |  |      | (19 | ) |  | 
|                       | Derivative financial instruments                         |      |        | (2   | ) |      |        |    |   |  |      |    |   |  | 
|                       | Unrealized gain/(loss) on foreign exchange
    contracts |      |        |     |   |      |        |    |   |  |      | 5   |   |  | 
|                       | Acquisition-related costs                                |      |        | (41  | ) |      |        | (38 | ) |  |      | (23 | ) |  | 
|                       | Pension costs                                            |      |        | 3    |   |      |        | 6   |   |  |      | 3   |   |  | 
|                       | Ship leases                                              |      |        | (8   | ) |      |        | (8  | ) |  |      | (8  | ) |  | 
|                       | Deferred income taxes                                    |      |        |     |   |      |        |    |   |  |      | 4   |   |  | 
|                       | Tax effect of US GAAP adjustments                        |      |        |     |   |      |        |    |   |  |      |    |   |  | 
|                       |                                                          |     
|Equity  US GAAP       |                                                          |      | $1,052 |      |   |      | $1,059 |     |   |  | $611 |     |   | 
|                       |                                                          |     

(m)  Additional US GAAP
disclosures

Additional US GAAP disclosures are set out
below.

Accounts receivable

Year ended
31st December


|                          |  |      |      |      |  |      |      |  |  |  |      |  |  | 
|------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  | 
|                         
|                         
|                          |  | 2001 |      | 2000 |  | 1999 |      | 
|                         
|                         
|Trade receivables         |  |      | 254  |      |  |      | 283  |  |  |  | 221  |  |  | 
|Third-party agents        |  |      | 42   |      |  |      | 31   |  |  |  | 35   |  |  | 
|Other receivables         |  |      | 70   |      |  |      | 78   |  |  |  | 50   |  |  | 
|                          |  |     
|Total accounts receivable |  |      | $366 |      |  |      | $392 |  |  |  | $306 |  |  | 
|                          |  |     

Trade and other payables

Year ended
31st December


|                                               |  |      |      |      |  |      |      |  |  |  |      |  |  | 
|---------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- |  |  | 
|                                              
|                                              
|                                               |  | 2001 |      | 2000 |  | 1999 |      | 
|                                              
|                                              
|Trade payables                                 |  |      | 174  |      |  |      | 153  |  |  |  | 45   |  |  | 
|Accrued operating expenses                     |  |      | 246  |      |  |      | 262  |  |  |  | 274  |  |  | 
|Third-party agents                             |  |      | 17   |      |  |      | 16   |  |  |  | 28   |  |  | 
|Other payable and accrued liabilities          |  |      | 68   |      |  |      | 66   |  |  |  | 68   |  |  | 
|                                               |  |     
|Total accounts payable and accrued liabilities |  |      | $505 |      |  |      | $497 |  |  |  | $415 |  |  | 
|                                               |  |     

Restructuring

CP Ships recorded a $19 million
restructuring charge related to rationalizing organization and
offices, mostly in North America and Europe to improve
efficiency, reduce costs and strengthen competitive positioning.
The charge is comprised $10 million in employee related
charges, and $9 million in office lease related charges and
is shown as a separate operating expense line within the
statements of income. The employee related charges




F-29



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(m)  Additional US GAAP disclosures
(continued)


represent severance and related benefits such as
outplacement counselling, certain legal costs, vacation and
medical coverage for terminated employees. The restructuring is
expected to be complete by 31st December 2002.

The restructuring plan identified a number of
offices to be closed in various cities. The office lease related
charges include the additional cost of leased office space that
will no longer be occupied as well as costs required to
terminate existing lease obligations.

The following table presents a rollforward of
2001 activity related to the restructuring charges.

|                             |  |               |    |                |  |               |     |      |  |  |     |   |  |  |     |  |  | 
|---------------------------- |  | ------------- | -- | -------------- |  | ------------- | --- | ---- |  |  | --- | - |  |  | --- |  |  | 
|                            
|                            
|                             |  | Reserve as at |    |                |  | Reserve as at |     |     
|                             |  | 31stDecember  |    |                |  | 31stDecember  |     |     
|                             |  | 2000          |    | Pre-tax charge |  | Payments      |     | 2001 |  | 
|                            
|                            
|Employee related charges     |  |               |   |                |  |               | 10  |      |  |  | (3  | ) |  |  | 7   |  |  | 
|Office lease related charges |  |               |   |                |  |               | 9   |      |  |  | (2  | ) |  |  | 7   |  |  | 
|                             |  |              
|Total                        |  |               | $ |                |  |               | $19 |      |  |  | $(5 | ) |  |  | $14 |  |  | 
|                             |  |              

Stock-based compensation

Under the CP Ships Employee Stock Option
Plan (ESOP) and the Directors Stock Option Plan
(DSOP) options may be granted to key employees and
directors to purchase CP Ships common shares at a price
normally based on the market value of the shares on or
immediately prior to the grant date. Each option may be
exercised after three years and no later than ten years after
the grant date.

CP Ships applies the intrinsic value method
in accounting for its options granted to employees. If
CP Ships had determined compensation cost based on the fair
value at the grant date for employee share options in accordance
with FASB Statement No. 23, Accounting for
Stock-Based Compensation, net income and net income per
share would have changed to the pro forma amounts indicated
below. CP Ships had no stock based compensation prior to
2001:

|                                         |  |      |       |  |  |  |  | 
|---------------------------------------- |  | ---- | ----- |  |  |  |  | 
|                                        
|                                        
|(US$ millions, except per share amounts) |  | 2001 |       | 
|                                        
|                                        
|Net income  as reported                 |  |      | $ 60  |  |  |  |  | 
|Pro forma net income                     |  |      | $ 53  |  |  |  |  | 
|Pro forma earnings per share  basic     |  |      | $0.63 |  |  |  |  | 
|Pro forma earnings per share  diluted   |  |      | $0.63 |  |  |  |  | 
|                                         |  |     

The weighted average number of shares in issue
used in the above table is given in Note 15.

The fair value of each employee grant is
estimated on the date of the grant using the Black-Scholes
option-pricing method with the following weighted-average
assumptions used for grants made during the year ended
31st December 2001:

|                             |  |      |     |   |  | 
|---------------------------- |  | ---- | --- | - |  | 
|                            
|                            
|                             |  | 2001 |     |  
|                            
|                            
|Expected option term (years) |  |      | 5   |   |  | 
|Expected volatility          |  |      | 30  | % |  | 
|Risk free interest rate      |  |      | 3.8 | % |  | 
|Dividend yield               |  |      | 2.0 | % |  | 
|                             |  |     




F-30



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(m)  Additional US GAAP disclosures
(continued)


Goodwill

Goodwill and accumulated amortization as at
31st December 2001, 2000 and 1999:

|                              |  |      |      |      |  |      |      |   |  |  |      |   |  | 
|----------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | - |  | 
|                             
|                             
|                              |  | 2001 |      | 2000 |  | 1999 |      |  
|                             
|                             
|Goodwill                      |  |      | 538  |      |  |      | 541  |   |  |  | 463  |   |  | 
|Less accumulated amortization |  |      | (68  | )    |  |      | (54  | ) |  |  | (38  | ) |  | 
|                              |  |     
|Net Goodwill                  |  |      | $470 |      |  |      | $487 |   |  |  | $425 |   |  | 
|                              |  |     

Pensions

Information about CP Ships defined
benefit pension plans required in accordance with FASB Statement
No. 132 Employers Disclosures about Pension and
Other Post retirement Benefits is as follows:

|                                               |  |      |     |      |  |      |    |   |  |   |     |   |  | 
|---------------------------------------------- |  | ---- | --- | ---- |  | ---- | -- | - |  | - | --- | - |  | 
|                                              
|                                              
|                                               |  | 2001 |     | 2000 |  | 1999 |    |  
|                                              
|                                              
|Change in benefit obligation                   |  |      |     |      |  |      |    |   |  |   |     |   |  | 
|Benefit obligation at beginning of year        |  |      | 85  |      |  |      | 59 |   |  |   | 72  |   |  | 
|Service cost                                   |  |      | 1   |      |  |      | 1  |   |  |   | 1   |   |  | 
|Interest cost                                  |  |      | 4   |      |  |      | 5  |   |  |   | 4   |   |  | 
|Plan participants contributions               |  |      |    |      |  |      | 1  |   |  |   | 1   |   |  | 
|Actuarial (gain)/loss                          |  |      | (16 | )    |  |      | 6  |   |  |   | 2   |   |  | 
|Acquisitions                                   |  |      |    |      |  |      | 21 |   |  |   | 1   |   |  | 
|Amendment                                      |  |      | (2  | )    |  |      |   |   |  |   |    |   |  | 
|Disposals                                      |  |      |    |      |  |      |   |   |  |   | (19 | ) |  | 
|Settlements                                    |  |      | (38 | )    |  |      |   |   |  |   |    |   |  | 
|Benefits paid                                  |  |      | (1  | )    |  |      | (7 | ) |  |   | (3  | ) |  | 
|Exchange Rate Fluctuation                      |  |      | (1  | )    |  |      | (1 | ) |  |   |    |   |  | 
|                                               |  |     
|Benefit obligation at end of year              |  | $    | 32  |      |  | $    | 85 |   |  | $ | 59  |   |  | 
|                                               |  |     
|Change in plan assets                          |  |      |     |      |  |      |    |   |  |   |     |   |  | 
|Fair value of plan assets at beginning of year |  |      | 83  |      |  |      | 62 |   |  |   | 82  |   |  | 
|Actual return on plan assets                   |  |      | (21 | )    |  |      | 6  |   |  |   | 3   |   |  | 
|Employer contributions                         |  |      | 2   |      |  |      | 3  |   |  |   | 1   |   |  | 
|Plan participants contributions               |  |      |    |      |  |      | 1  |   |  |   | 1   |   |  | 
|Settlements                                    |  |      | (38 | )    |  |      |   |   |  |   |    |   |  | 
|Acquisitions                                   |  |      |    |      |  |      | 19 |   |  |   |    |   |  | 
|Disposals                                      |  |      |    |      |  |      |   |   |  |   | (22 | ) |  | 
|Benefits paid                                  |  |      | (1  | )    |  |      | (7 | ) |  |   | (3  | ) |  | 
|Exchange Rate fluctuations                     |  |      |    |      |  |      | (1 | ) |  |   |    |   |  | 
|                                               |  |     
|Fair value of plan assets at end of year       |  | $    | 25  |      |  | $    | 83 |   |  | $ | 62  |   |  | 
|                                               |  |     
|Funded status                                  |  |      | (7  | )    |  |      | (2 | ) |  |   | 3   |   |  | 
|Unrecognised transition (asset)/obligation     |  |      |    |      |  |      | (1 | ) |  |   | (1  | ) |  | 
|Unrecognised net actuarial (gain)/loss         |  |      | 8   |      |  |      | 5  |   |  |   | (1  | ) |  | 
|Unrecognised prior service cost                |  |      | (2  | )    |  |      |   |   |  |   |    |   |  | 
|                                               |  |     
|(Accrued)/prepaid benefit cost                 |  | $    | (1  | )    |  | $    | 2  |   |  | $ | 1   |   |  | 
|                                               |  |     




F-31



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(m)  Additional US GAAP disclosures
(continued)


|                                                    |  |      |      |      |  |      |      |   |  |   |      |   |  | 
|--------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | - |  | 
|                                                   
|                                                   
|                                                    |  | 2001 |      | 2000 |  | 1999 |      |  
|                                                   
|                                                   
|Components of net periodic benefit
    cost         |  |      |      |      |  |      |      |   |  |   |      |   |  | 
|Service cost                                        |  |      | 1    |      |  |      | 1    |   |  |   | 1    |   |  | 
|Interest cost                                       |  |      | 4    |      |  |      | 5    |   |  |   | 3    |   |  | 
|Expected return on assets                           |  |      | (4   | )    |  |      | (5   | ) |  |   | (4   | ) |  | 
|Settlement cost on disposal                         |  |      | 3    |      |  |      |     |   |  |   |     |   |  | 
|                                                    |  |     
|Net periodic benefit cost                           |  | $    | 4    |      |  | $    | 1    |   |  | $ |     |   |  | 
|                                                    |  |     
|Weighted-average assumptions as of
    31stDecember |  |      |      |      |  |      |      |   |  |   |      |   |  | 
|Discount rate                                       |  |      | 6.5% |      |  |      | 6.7% |   |  |   | 6.8% |   |  | 
|Expected return on plan assets                      |  |      | 7.2% |      |  |      | 6.9% |   |  |   | 6.9% |   |  | 
|Rate of compensation increase                       |  |      | 4.9% |      |  |      | 4.6% |   |  |   | 4.5% |   |  | 
|                                                    |  |     

Software development costs

Software development costs are capitalized in
accordance with SOP 98-1, Accounting for the costs of
Computer Software Developed or obtained for internal use.
At 31st December 2001, 2000 and 1999 the net
book value of software development costs included within
computer hardware and software was $86 million,
$36 million and $10 million respectively.

Allowance for bad debts

The allowance for bad debts as at
31st December 2001, 2000 and 1999 was
$14 million, $22 million and $12 million
respectively.

(n)  Recent US GAAP
pronouncements

On 20th July 2001, the FASB
issued Statement No. 141, Business
Combinations, and Statement No. 142, Goodwill
and Other Intangible Assets, which are required to be
implemented with effect from 1st July 2001 and
1st January 2002 respectively. FAS 141
requires that all business combinations be accounted for by the
purchase method. FAS 142 addresses the accounting for
acquired goodwill and other intangible assets and contains
certain transitional provisions which may affect classification
of intangible assets, as well as the balance of goodwill. The
ongoing impact will be that goodwill will no longer be
amortized, but instead will be tested at least annually for
impairment. The requirements of both statements apply
prospectively from the effective date for the purposes of
presenting US GAAP financial information. CP Ships has not
yet determined what effect, if any, the impairment test will
have on its financial position and results of operations. The
impact of not amortizing goodwill for the year ended
31st December 2001 would have been to increase
net income reported under US GAAP before the cumulative effect
of accounting changes by $14 million and earnings per share
by $0.18.

FASB Statement No. 143, Accounting for
Obligations Associated with the Retirement of Long-Lived
Assets, was issued in July 2001. This standard will be
effective for CP Ships fiscal year beginning after
1st January 2002; however, early adoption is
permitted. The standard provides the accounting requirements for
retirement obligations associated with tangible long-lived
assets. The standard requires that the obligation associated
with the retirement of the tangible long-lived assets is
capitalized into the asset cost at the time of initial
recognition. The liability is then discounted to its fair value
at the time of recognition using the guidance




F-32



---



##### 






CP Ships Limited


Notes to the Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)




|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|22. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED 
     IN CANADA AND THE UNITED STATES (Continued)



(n)  Recent US GAAP pronouncements
(continued)


provided by the standard. The requirements of
this statement will be reflected as a cumulative effect
adjustment to income for the purposes of presenting US GAAP
financial information. CP Ships is assessing the impact
that this new standard will have on its financial position and
results of operations.

FASB Statement No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets was issued
on 3rd October 2001 and will be effective for
CP Ships fiscal year beginning
1st January 2002. The objectives of FAS 144 are
to create a single accounting model, based on the framework
established in FAS 121, for long-lived assets including segments
of a business to be disposed of by sale, whether previously held
and used or newly acquired. CP Ships is assessing the
impact that this new standard will have on its financial
position and results of operations.

23.     SUBSEQUENT
EVENTS

On 30th May 2002 CP Ships filed a
preliminary prospectus for the issue of
$                 Common
Shares for approximate net proceeds of $ 95 million. In
addition on the same date CP Ships authorised for issue
$250 million   % Senior Notes due 2012 for net
proceeds of approximately $242 million.

On 30th May 2002 CP Ships
entered into an agreement to purchase all of the issued and
outstanding shares of Italia di Navigazione S.p.A. and
controlling interests in, or certain assets of, sales agencies
in Canada, Italy, Spain and Venezuela for $40 million.




F-33



---



##### 






CP Ships Limited

Consolidated Statements of Income

|          |                              
|--------- | -----------------------------
|Unaudited | Three months ended 31st March

|                                                           |  |      |        |      |  |  |        |   |  | 
|---------------------------------------------------------- |  | ---- | ------ | ---- |  |  | ------ | - |  | 
|                                                          
|                                                          
|(US$ millions except per share amounts)                    |  | 2002 |        | 2001 |  | 
|                                                          
|                                                          
|Revenues                                                   |  |      |        |      |  |  |        |   |  | 
|Container shipping operations                              |  |      | 578    |      |  |  | 639    |   |  | 
|Expenses                                                   |  |      |        |      |  |  |        |   |  | 
|Container shipping operations                              |  |      | 474    |      |  |  | 501    |   |  | 
|General and administrative                                 |  |      | 89     |      |  |  | 93     |   |  | 
|Depreciation                                               |  |      | 20     |      |  |  | 16     |   |  | 
|Currency exchange loss/(gain)                              |  |      | 1      |      |  |  | (2     | ) |  | 
|                                                           |  |     
|                                                           |  |      | 584    |      |  |  | 608    |   |  | 
|Operating (loss)/income                                    |  |      | (6     | )    |  |  | 31     |   |  | 
|Net interest expense                                       |  |      | (3     | )    |  |  |       |   |  | 
|Income tax expense                                         |  |      | (2     | )    |  |  | (2     | ) |  | 
|Goodwill charges, net of tax ($0)(note 1)                  |  |      |       |      |  |  | (4     | ) |  | 
|                                                           |  |     
|Net (loss)/income available to common
    shareholders     |  |      | $ (11  | )    |  |  | $  25  |   |  | 
|                                                           |  |     
|Average number of common shares outstanding
    (millions) |  |      | 80.0   |      |  |  | 79.1   |   |  | 
|(Loss)/earnings per common share basic                     |  |      | $(0.14 | )    |  |  | $ 0.32 |   |  | 
|(Loss)/earnings per common share diluted
    (note 2)      |  |      | $(0.14 | )    |  |  | $ 0.32 |   |  | 

Consolidated Statements of Retained Earnings

|                                                        |  |  |      |   |  |  |      |  |  | 
|------------------------------------------------------- |  |  | ---- | - |  |  | ---- |  |  | 
|                                                       
|Balance, beginning of period as previously
    reported |  |  | 513  |   |  |  | 443  |  |  | 
|Net (loss)/income                                       |  |  | (11  | ) |  |  | 25   |  |  | 
|                                                        |  | 
|                                                        |  |  | 502  |   |  |  | 468  |  |  | 
|Dividend on common shares                               |  |  | (3   | ) |  |  |     |  |  | 
|                                                        |  | 
|Balance, 31stMarch                                      |  |  | $499 |   |  |  | $468 |  |  | 
|                                                        |  | 




F-34



---



##### 






CP Ships Limited

Consolidated Balance Sheets

|          |      
|--------- | -----
|Unaudited | As at

|                                                        |  |           |        |              |  |  |        |   |  | 
|------------------------------------------------------- |  | --------- | ------ | ------------ |  |  | ------ | - |  | 
|                                                       
|                                                       
|                                                        |  | 31stMarch |        | 31stDecember |  | 
|(US$ millions)                                          |  | 2002      |        | 2001         |  | 
|                                                       
|                                                       
|ASSETS                                                  |  |           |        |              |  |  |        |   |  | 
|Current assets                                          |  |           |        |              |  |  |        |   |  | 
|Cash and cash equivalents                               |  |           | 92     |              |  |  | 116    |   |  | 
|Accounts receivable                                     |  |           | 377    |              |  |  | 366    |   |  | 
|Prepaid expenses                                        |  |           | 46     |              |  |  | 38     |   |  | 
|Inventory                                               |  |           | 12     |              |  |  | 12     |   |  | 
|                                                        |  |          
|                                                        |  |           | 527    |              |  |  | 532    |   |  | 
|Capital assets, at cost                                 |  |           | 1,053  |              |  |  | 1,056  |   |  | 
|Less accumulated depreciation                           |  |           | (268   | )            |  |  | (261   | ) |  | 
|                                                        |  |          
|                                                        |  |           | 785    |              |  |  | 795    |   |  | 
|Deferred charges                                        |  |           | 14     |              |  |  | 14     |   |  | 
|Goodwill (note 1)                                       |  |           | 510    |              |  |  | 510    |   |  | 
|                                                        |  |          
|                                                        |  |           | $1,836 |              |  |  | $1,851 |   |  | 
|                                                        |  |          
|LIABILITIES                                             |  |           |        |              |  |  |        |   |  | 
|Current liabilities                                     |  |           |        |              |  |  |        |   |  | 
|Accounts payable and accrued liabilities                |  |           | 508    |              |  |  | 505    |   |  | 
|Long-term debt due within one year                      |  |           | 14     |              |  |  | 15     |   |  | 
|                                                        |  |          
|                                                        |  |           | 522    |              |  |  | 520    |   |  | 
|Long-term liabilities                                   |  |           |        |              |  |  |        |   |  | 
|Long-term debt due after one year                       |  |           | 212    |              |  |  | 215    |   |  | 
|Future income taxes                                     |  |           | 8      |              |  |  | 8      |   |  | 
|Minority interests                                      |  |           | 8      |              |  |  | 8      |   |  | 
|                                                        |  |          
|                                                        |  |           | 228    |              |  |  | 231    |   |  | 
|SHAREHOLDERS EQUITY                                    |  |           |        |              |  |  |        |   |  | 
|Common share capital                                    |  |           | 597    |              |  |  | 597    |   |  | 
|Retained earnings                                       |  |           | 499    |              |  |  | 513    |   |  | 
|Cumulative foreign currency translation
    adjustments |  |           | (10    | )            |  |  | (10    | ) |  | 
|                                                        |  |          
|                                                        |  |           | 1,086  |              |  |  | 1,100  |   |  | 
|                                                        |  |          
|                                                        |  |           | $1,836 |              |  |  | $1,851 |   |  | 
|                                                        |  |          




F-35



---



##### 






CP Ships Limited

Consolidated Statements of Cash Flow

|          |                              
|--------- | -----------------------------
|Unaudited | Three months ended 31st March

|                                                                    |  |      |      |      |  |  |      |   |  | 
|------------------------------------------------------------------- |  | ---- | ---- | ---- |  |  | ---- | - |  | 
|                                                                   
|                                                                   
|(US$ millions)                                                      |  | 2002 |      | 2001 |  | 
|                                                                   
|                                                                   
|Operating activities                                                |  |      |      |      |  |  |      |   |  | 
|Net (loss)/income for period                                        |  |      | (11  | )    |  |  | 25   |   |  | 
|Depreciation and goodwill charges                                   |  |      | 20   |      |  |  | 20   |   |  | 
|Amortisation and deferred charges                                   |  |      | 1    |      |  |  |     |   |  | 
|Other                                                               |  |      | 2    |      |  |  | (1   | ) |  | 
|                                                                    |  |     
|                                                                    |  |      | 12   |      |  |  | 44   |   |  | 
|Increase in non-cash working capital                                |  |      | (12  | )    |  |  | (6   | ) |  | 
|                                                                    |  |     
|Cash from operations before restructuring and
    spin-off payments |  |      |     |      |  |  | 38   |   |  | 
|Restructuring and spin-off payments                                 |  |      | (4   | )    |  |  |     |   |  | 
|                                                                    |  |     
|Cash (outflow)/inflow from operations                               |  |      | (4   | )    |  |  | 38   |   |  | 
|Financing activities                                                |  |      |      |      |  |  |      |   |  | 
|Repayment of long-term debt                                         |  |      | (4   | )    |  |  | (3   | ) |  | 
|Deferred charges                                                    |  |      | (1   | )    |  |  |     |   |  | 
|Increase in loans from former affiliated companies                  |  |      |     |      |  |  | 45   |   |  | 
|Dividend paid                                                       |  |      | (3   | )    |  |  |     |   |  | 
|                                                                    |  |     
|Cash (outflow)/inflow from financing activities                     |  |      | (8   | )    |  |  | 42   |   |  | 
|Investing activities                                                |  |      |      |      |  |  |      |   |  | 
|Additions to capital assets                                         |  |      | (16  | )    |  |  | (109 | ) |  | 
|Proceeds from disposal of capital assets                            |  |      | 4    |      |  |  | 4    |   |  | 
|                                                                    |  |     
|Cash (outflow) from investing activities                            |  |      | (12  | )    |  |  | (105 | ) |  | 
|(Decrease) in cash and cash
    equivalents*                        |  |      | (24  | )    |  |  | (25  | ) |  | 
|Cash and cash equivalents at beginning of
    period                |  |      | 116  |      |  |  | 122  |   |  | 
|                                                                    |  |     
|Cash and cash equivalents at end of
    period                      |  |      | $ 92 |      |  |  | $ 97 |   |  | 
|                                                                    |  |     



|  |                                                                                                                    
|- | -------------------------------------------------------------------------------------------------------------------
|* | Cash and cash equivalents comprises cash and
    temporary investments with a maximum maturity of three
    months.




F-36



---



##### 






CP Ships Limited

Notes to Consolidated Financial
Statements

(Unless otherwise indicated, all amounts are
shown in US$ millions)


Unaudited


1.     ACCOUNTING
POLICIES

These consolidated financial statements have been
prepared using accounting policies that are consistent with the
policies used in preparing the 2001 annual consolidated
financial statements, except as noted below, and should be read
in conjunction with the annual financial statements contained in
the CP Ships Limited (CP Ships) Annual
Report.

Goodwill and other intangible assets

Effective 1st January 2002,
CP Ships prospectively adopted the new recommendations of
The Canadian Institute of Chartered Accountants
(CICA) with respect to accounting for goodwill and
other intangible assets. Under the new method, goodwill is not
amortized but is subject to an annual impairment test. Under the
old method, goodwill was amortized over 35 years.
CP Ships is in the process of determining whether or not
any goodwill is subject to impairment under the new standard and
will complete the process before 30th June 2002.
The impact of not amortizing goodwill in the first quarter of
2001 would have been to increase net income by $4 million
to $29 million from $25 million and would have
increased basic and diluted earnings per share by $0.05.

Foreign currency translation

Effective 1st January 2002,
CP Ships adopted, retroactively, the new recommendations of
the CICA with respect to accounting for foreign currency
translation adjustments. The new rules no longer require the
deferral and amortization of foreign exchange gains and losses
on long-term debt. As the majority of CP Ships debt
is denominated in US Dollars, this change has not had a material
effect on its financial statements.

Stock based compensation

Effective 1st January 2002,
CP Ships prospectively adopted the new recommendations of
the CICA with respect to accounting for stock-based compensation
and other stock-based payments. The new recommendations require
compensation expense to be calculated using the fair value
method and either expensed to income or the effect disclosed in
the notes to the financial statements. As permitted under the
new standard, CP Ships will not account for stock based
compensation using the fair value method but will disclose the
effect of using this alternative method of accounting for such
stock-based compensation plans.

2.     EARNINGS PER
SHARE

The basic and diluted earnings per share figures
for the three months ended 31st March 2001 have
been restated as if the shares and options outstanding at
1st October 2001, the date upon which
CP Ships became a public company, had been in place for the
three months ended 31st March 2001.

Three months ended
31st March

|                                                         |                              |      |     |      |  |  |     |      |  |  | 
|-------------------------------------------------------- | ---------------------------- | ---- | --- | ---- |  |  | --- | ---- |  |  | 
|                                                        
|                                                        
|(Millions of shares)                                     |                              | 2002 |     | 2001 |  | 
|                                                        
|                                                        
|Weighted average number of common shares
    outstanding |                              |      |     |      |  |  |     |      |  | 
|                                                         |  basic earnings per share   |      |     | 80.0 |  |  |     | 79.1 |  |  | 
|Effect of diluted securities  stock
    options         |                              |      | 1.2 |      |  |  | 0.1 |      |  | 
|                                                         |                              |     
|Weighted average number of common shares
    outstanding |                              |      |     |      |  |  |     |      |  | 
|                                                         |  diluted earnings per share |      |     | 81.2 |  |  |     | 79.2 |  |  | 
|                                                         |                              |     




F-37



---



##### 






CP Ships Limited


Notes to Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


Unaudited


3.     SEGMENT
INFORMATION

Three months ended
31st March

|                        |               |      |      |      |   |  |      |     |  |  | 
|----------------------- | ------------- | ---- | ---- | ---- | - |  | ---- | --- |  |  | 
|                       
|                       
|(US$ millions)          |               | 2002 |      | 2001 |   | 
|                       
|                       
|Revenues                |               |      |      |      |   |  |      |     |  | 
|                        | TransAtlantic |      |      | 288  |   |  |      | 335 |  |  | 
|                        | Australasia   |      |      | 120  |   |  |      | 131 |  |  | 
|                        | Latin America |      |      | 50   |   |  |      | 60  |  |  | 
|                        | Asia          |      |      | 103  |   |  |      | 88  |  |  | 
|                        | Other         |      |      | 17   |   |  |      | 25  |  |  | 
|                        |               |     
|Total Revenues          |               |      | $578 |      |   |  | $639 |     |  | 
|                        |               |     
|Expenses                |               |      |      |      |   |  |      |     |  | 
|                        | TransAtlantic |      |      | 280  |   |  |      | 317 |  |  | 
|                        | Australasia   |      |      | 123  |   |  |      | 128 |  |  | 
|                        | Latin America |      |      | 44   |   |  |      | 56  |  |  | 
|                        | Asia          |      |      | 122  |   |  |      | 87  |  |  | 
|                        | Other         |      |      | 15   |   |  |      | 20  |  |  | 
|                        |               |     
|Total Expenses          |               |      | $584 |      |   |  | $608 |     |  | 
|                        |               |     
|Operating (loss)/income |               |      |      |      |   |  |      |     |  | 
|                        | TransAtlantic |      |      | 8    |   |  |      | 18  |  |  | 
|                        | Australasia   |      |      | (3   | ) |  |      | 3   |  |  | 
|                        | Latin America |      |      | 6    |   |  |      | 4   |  |  | 
|                        | Asia          |      |      | (19  | ) |  |      | 1   |  |  | 
|                        | Other         |      |      | 2    |   |  |      | 5   |  |  | 
|                        |               |     
|Operating (loss)/income |               |      | $ (6 | )    |   |  | $ 31 |     |  | 
|                        |               |     



|   |                                                                                                 
|-- | ------------------------------------------------------------------------------------------------
|4. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES

The consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in Canada (Canadian GAAP) which differ in
certain respects from United States generally accepted
principles (US GAAP). Except as noted below,
the differences are described in the CP Ships Limited
Annual Report. Certain additional disclosures for interim
financial statements prepared under US GAAP have not been
provided because they are not required.

(a)  Capitalized interest

Under Canadian GAAP, CP Ships does not
capitalize interest. US GAAP requires interest incurred as part
of the cost of constructing assets to be capitalized. The amount
of interest capitalized for US GAAP in the three months ended
31st March 2002 was $1 million (three
months ended 31st March 2001: $0).




F-38



---



##### 






CP Ships Limited


Notes to Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


Unaudited




|   |                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------
|4. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES
    (Continued)

(b)  Statements of consolidated
income and equity

The following is a reconciliation of net income
under Canadian GAAP to net income under US GAAP:



| |                              
| | -----------------------------
| | Three months ended 31st March

|                                                                    |                                                           |      |        |        |   |  |        |        |   |  | 
|------------------------------------------------------------------- | --------------------------------------------------------- | ---- | ------ | ------ | - |  | ------ | ------ | - |  | 
|                                                                   
|                                                                   
|(US$ millions except earnings per share)                            |                                                           | 2002 |        | 2001   |   | 
|                                                                   
|                                                                   
|Net income  Canadian GAAP                                          |                                                           |      | (11    | )      |   |  | 25     |        |   | 
|US GAAP adjustments                                                 |                                                           |      |        |        |   |  |        |        |   | 
|                                                                    | Derivative financial instruments                          |      |        |       |   |  |        | 2      |   |  | 
|                                                                    | Unrealised gain on foreign exchange contracts             |      |        | 4      |   |  |        |       |   |  | 
|                                                                    | Acquisition-related costs                                 |      |        | (1     | ) |  |        | (4     | ) |  | 
|                                                                    | Pension costs                                             |      |        |       |   |  |        | (1     | ) |  | 
|                                                                    | Capitalised interest                                      |      |        | 1      |   |  |        |       |   |  | 
|                                                                    | Tax effect of US GAAP adjustments                         |      |        |       |   |  |        |       |   |  | 
|                                                                    |                                                           |     
|Income  US GAAP before cumulative
    effect of accounting changes |                                                           |      | (7     | )      |   |  | 22     |        |   | 
|                                                                    | Cumulative effect of adoption of FAS 133                  |      |        |       |   |  |        | (4     | ) |  | 
|                                                                    |                                                           |     
|Net income  US GAAP                                                |                                                           |      | (7     | )      |   |  | 18     |        |   | 
|Other Comprehensive income                                          |                                                           |      |        |        |   |  |        |        |   | 
|                                                                    | Foreign currency translation adjustments                  |      |        |       |   |  |        | (1     | ) |  | 
|                                                                    |                                                           |     
|Comprehensive income  US GAAP                                      |                                                           |      | $  (7  | )      |   |  | $  17  |        |   | 
|                                                                    |                                                           |     
|Earnings per common share basic
    ($ per share)                   |                                                           |      |        |        |   |  |        |        |   | 
|Canadian GAAP                                                       |                                                           |      | $(0.14 | )      |   |  | $ 0.32 |        |   | 
|US GAAP                                                             |                                                           |      |        |        |   |  |        |        |   | 
|                                                                    | Income before cumulative effect of accounting
    changes |      |        | $(0.09 | ) |  |        | $ 0.28 |   |  | 
|                                                                    | Cumulative effect of accounting changes                   |      |        | $     |   |  |        | $(0.05 | ) |  | 
|                                                                    |                                                           |     
|Basic earnings per share                                            |                                                           |      | $(0.09 | )      |   |  | $ 0.23 |        |   | 
|                                                                    |                                                           |     
|Earnings per common share diluted
    ($ per share)                 |                                                           |      |        |        |   |  |        |        |   | 
|Canadian GAAP                                                       |                                                           |      | $(0.14 | )      |   |  | $ 0.32 |        |   | 
|US GAAP                                                             |                                                           |      |        |        |   |  |        |        |   | 
|                                                                    | Income before cumulative effect of accounting
    changes |      |        | $(0.09 | ) |  |        | $ 0.28 |   |  | 
|                                                                    | Cumulative effect of accounting changes                   |      |        | $     |   |  |        | $(0.05 | ) |  | 
|                                                                    |                                                           |     
|Diluted earnings per share                                          |                                                           |      | $(0.09 | )      |   |  | $ 0.23 |        |   | 
|                                                                    |                                                           |     




F-39



---



##### 






CP Ships Limited


Notes to Consolidated Financial Statements
(Continued)

(Unless otherwise indicated, all amounts are
shown in US$ millions)


Unaudited




|   |                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------
|4. | DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES
    GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES
    (Continued)



(b)  Statements of consolidated
income and equity (continued)


Reconciliation of equity under Canadian GAAP to
equity under US GAAP:



| |      
| | -----
| | As at

|                       |                                   |           |        |              |   |  |        |     |   |  | 
|---------------------- | --------------------------------- | --------- | ------ | ------------ | - |  | ------ | --- | - |  | 
|                      
|                      
|                       |                                   | 31stMarch |        | 31stDecember |   | 
|(US$ millions)         |                                   | 2002      |        | 2001         |   | 
|                      
|                      
|Equity  Canadian GAAP |                                   |           | 1,086  |              |   |  | 1,100  |     |   | 
|US GAAP adjustments    |                                   |           |        |              |   |  |        |     |   | 
|                       | Derivative financial instruments  |           |        | 2            |   |  |        | (2  | ) |  | 
|                       | Acquisition-related costs         |           |        | (42          | ) |  |        | (41 | ) |  | 
|                       | Pension costs                     |           |        | 3            |   |  |        | 3   |   |  | 
|                       | Capitalized interest              |           |        | 1            |   |  |        |    |   |  | 
|                       | Ship leases                       |           |        | (8           | ) |  |        | (8  | ) |  | 
|                       | Tax effect of US GAAP adjustments |           |        |             |   |  |        |    |   |  | 
|                       |                                   |          
|Equity  US GAAP       |                                   |           | $1,042 |              |   |  | $1,052 |     |   | 
|                       |                                   |          

(c)     Recent US
GAAP pronouncements

In April 2002, the FASB issued
Statement-No 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13,
and Technical Corrections. This standard will require
gains and losses from extinguishment of debt to be classified as
extraordinary items only if they meet the criteria of unusual
and infrequent in Opinion 30, Reporting the Results
of Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. Any gain
or loss on extinguishment will be recorded in the most
appropriate line item to which it relates within net income
before extraordinary items. FAS 145 is effective for fiscal
years beginning after 15th May, 2002; however,
certain sections are effective for transactions occurring after
15th May, 2002. CP Ships is assessing the
impact that this new standard will have on its financial
position and results of operations.

5.     SUBSEQUENT
EVENTS

On 30th May 2002, CP Ships
filed a preliminary short form prospectus for the issue of
Common Shares for approximate net proceeds of $95 million.
In addition, CP Ships announced a proposed private placement of
$250 million
of           senior
notes due 2012 for net proceeds of approximately
$242 million.

On 30th May 2002 CP Ships
entered into an agreement to purchase all of the issued and
outstanding shares of Italia di Navigazione S.p.A. and
controlling interests in, or certain assets of, sales agencies
in Canada, Italy, Spain and Venezuela for $40 million.




F-40