##### 



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For
the transition period fromto.
 Commission file number 0-19791
 
 VITRAN CORPORATION INC.
 (Exact name of registrant as specified in its charter)
 
 Ontario, Canada(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)
 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5  (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)  (416) 596-7664
  Title of each class
    
    Name of each exchange on which registeredCommon Shares
    
    Toronto Stock Exchange  TSX®NASDAQ  National Market
  o þ
 o þ
 þ o
 þ o
 o
  o o o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




---



##### 



TABLE OF CONTENTS
 Item
    
    
    
    PagePART I1.
    
    Business
    
    
    31. a
    
    Risk Factors
    
    
    71. b
    
    Unresolved Staff Comments
    
    
    72.
    
    Properties
    
    
    73.
    
    Legal Proceedings
    
    
    74.
    
    Submission of Matters to a Vote of Security Holders
    
    
    7PART II5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    86.
    
    Selected Financial Data
    
    
    107.
    
    Management Discussion and Analysis
of Financial Condition and Results of Operations
    
    
    137. a
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    248.
    
    Financial Statements and Supplementary Data
    
    
    259.
    
    Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure
    
    
    539. a
    
    Controls and Procedures
    
    
    539. b
    
    Other Information
    
    
    55PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    5511.
    
    Executive Compensation
    
    
    5612.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    5613.
    
    Certain Relationships and Related Transactions
    
    
    5614.
    
    Principal Accounting Fees and Services
    
    
    56PART IV15.
    
    Exhibits, Financial Statements Schedules and Reports on Form 8-K
    
    
    56
 2




---



##### 



Unless otherwise indicated all dollar references herein are in United States dollars.
 PART I
 ITEM 1BUSINESS
 OVERVIEW
  CORPORATE STRUCTURE
   OPERATING SEGMENTS
  LTL Services
   3




---



##### 



Logistics
  Supply Chain Solutions.
  Freight Brokerage.
 Truckload
  4




---



##### 



THE TRUCKING INDUSTRY
   
    
    The trend among shippers toward minimal inventories, deferred air freight, and regional
distribution has increased the demand for next-day and second-day delivery service.
    
    Regional carriers with sufficient scale and freight density to support local terminal
networks can offer greater service reliability and minimize the costs associated with
intermediate handling.
    
    Regional carriers are predominantly non-union, which offers cost savings, greater
flexibility, and a lower likelihood of service disruptions compared with unionized
carriers.
    
    There has been a reduction of capacity as weaker competitors exit the business.
 MARKETING AND CUSTOMERS
     EMPLOYEES
   5




---



##### 



INFORMATION TECHNOLOGY
  SEASONALITY
  REGULATION
    COMPETITION
  AVAILABLE INFORMATION
 www.sec.gov/edgar.shtml www.sedar.com
 6




---



##### 



ITEM 1. aRISK FACTORS
 RISKS AND UNCERTAINTIES
  ITEM 1. bUNRESOLVED STAFF COMMENTS
  ITEM 2PROPERTIES
 .
   Terminals
    
    Doors
    
    Owned/ LeasedToronto
    
    
    132
    
    
    LeasedIndianapolis
    
    
    116
    
    
    LeasedMontreal
    
    
    85
    
    
    OwnedVancouver
    
    
    85
    
    
    OwnedChicago
    
    
    81
    
    
    LeasedWinsted
    
    
    78
    
    
    OwnedEdmonton
    
    
    69
    
    
    OwnedSt. Louis
    
    
    65
    
    
    LeasedMinneapolis
    
    
    62
    
    
    LeasedDallas
    
    
    55
    
    
    Owned
  ITEM 3LEGAL PROCEEDINGS
  ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  7




---



##### 



PART II
 ITEM 5MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 Description of Share Capital
     TSX
    
    
    AMEX/NASDAQQuarter
    
    High
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume(in Canadian dollars)
    
    
    (in United States dollars)2005Fourth Quarter
    
    $
    23.50
    
    
    $
    19.00
    
    
    
    322,700
    
    
    $
    20.00
    
    
    $
    15.55
    
    
    
    1,894,700Third Quarter
    
    $
    21.99
    
    
    $
    18.85
    
    
    
    406,800
    
    
    $
    18.19
    
    
    $
    15.28
    
    
    
    1,865,500Second Quarter
    
    $
    19.90
    
    
    $
    16.50
    
    
    
    654,600
    
    
    $
    16.39
    
    
    $
    13.41
    
    
    
    2,435,700First Quarter
    
    $
    21.00
    
    
    $
    17.95
    
    
    
    676,600
    
    
    $
    17.25
    
    
    $
    14.05
    
    
    
    2,295,8002004Fourth Quarter
    
    $
    22.00
    
    
    $
    18.25
    
    
    
    604,600
    
    
    $
    18.00
    
    
    $
    14.87
    
    
    
    2,365,400Third Quarter
    
    $
    23.48
    
    
    $
    17.94
    
    
    
    403,600
    
    
    $
    17.55
    
    
    $
    13.80
    
    
    
    2,696,400Second Quarter
    
    $
    22.64
    
    
    $
    18.20
    
    
    
    510,800
    
    
    $
    16.60
    
    
    $
    14.02
    
    
    
    3,055,200First Quarter
    
    $
    22.22
    
    
    $
    17.50
    
    
    
    844,000
    
    
    $
    16.14
    
    
    $
    13.15
    
    
    
    3,786,500
 TSX
    
    
    AMEX/NASDAQ2005 Monthly
    
    High
    
    
    Low
    
    
    Volume
    
    
    High
    
    
    Low
    
    
    Volume(in Canadian dollars)
    
    
    (in United States dollars)December
    
    $
    23.50
    
    
    $
    20.50
    
    
    
    53,800
    
    
    $
    20.00
    
    
    $
    17.75
    
    
    
    463,300November
    
    $
    22.00
    
    
    $
    20.00
    
    
    
    222,600
    
    
    $
    18.75
    
    
    $
    16.98
    
    
    
    433,200October
    
    $
    19.68
    
    
    $
    19.00
    
    
    
    46,300
    
    
    $
    17.50
    
    
    $
    15.55
    
    
    
    998,200September
    
    $
    20.35
    
    
    $
    18.85
    
    
    
    89,800
    
    
    $
    17.50
    
    
    $
    15.75
    
    
    
    539,400August
    
    $
    21.83
    
    
    $
    19.01
    
    
    
    178,600
    
    
    $
    18.01
    
    
    $
    15.65
    
    
    
    287,400July
    
    $
    21.99
    
    
    $
    19.32
    
    
    
    138,400
    
    
    $
    18.19
    
    
    $
    15.28
    
    
    
    1,038,700June
    
    $
    19.90
    
    
    $
    18.25
    
    
    
    265,900
    
    
    $
    16.39
    
    
    $
    14.43
    
    
    
    785,800May
    
    $
    19.65
    
    
    $
    17.05
    
    
    
    246,400
    
    
    $
    15.59
    
    
    $
    13.41
    
    
    
    1,012,900April
    
    $
    19.01
    
    
    $
    16.50
    
    
    
    142,300
    
    
    $
    15.41
    
    
    $
    13.48
    
    
    
    637,000March
    
    $
    20.37
    
    
    $
    17.95
    
    
    
    276,700
    
    
    $
    16.50
    
    
    $
    14.80
    
    
    
    599,000February
    
    $
    21.00
    
    
    $
    17.99
    
    
    
    89,900
    
    
    $
    16.35
    
    
    $
    14.05
    
    
    
    1,071,900January
    
    $
    20.84
    
    
    $
    18.40
    
    
    
    310,000
    
    
    $
    17.25
    
    
    $
    14.65
    
    
    
    624,900
 8




---



##### 



Stock Option Plan
 Number of securitiesNumber of securities
    
    
    
    
    
    remaining available forto be issued upon
    
    Weighted average
    
    future issuanceexercise of outstanding
    
    exercise price of
    
    (excluding securitiesPlan Category
    
    options
    
    outstanding options
    
    reflected in column (a))(a)
    
    (b)
    
    (c)Equity compensation plans approved by security holders
    
    
    777,500
    
    
    $
    9.71
    
    
    
    317,000Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total
(1)
    
    
    777,500
    
    
    $
    9.71
    
    
    
    317,000
 
 (1)

    As at December 31, 2005.
  Use of Proceeds
  Purchases of Equity Securities
  Maximum numberTotal number of
    
    of common sharesNumber of
    
    Average price paid
    
    common shares as
    
    that may yet becommon shares
    
    per common share
    
    part of a publicly
    
    purchased under thePeriod
    
    purchased
    
    (CAD)
    
    announced plan
    
    planOct. 1 to Oct. 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,184Nov. 1 to Nov. 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,184Dec. 1 to Dec. 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,184Total
    
    
    
    
    
    
    
    
    
    
    
 Transfer Agents
 Computershare Investor Services Inc.
    
    Montreal, Toronto
    
    CanadaComputershare Trust Company Inc.
    
    Denver
    
    United States
 9




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##### 



ITEM 6SELECTED FINANCIAL DATA
  Selected Financial Data
 Year
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Canadian GAAPStatements of IncomeRevenue
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477Income from continuing
operations before depreciation
and amortization expense
(1)
    
    
    32,392
    
    
    
    24,183
    
    
    
    20,308
    
    
    
    17,817
    
    
    
    13,938Income from continuing operations
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,814
    
    
    
    12,509
    
    
    
    7,586Net income from continuing
operations
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    6,938
    
    
    
    2,335Net loss on discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,696
    )Net income (loss)
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    (1,361
    )Earnings
per share basic:Net income from continuing
operations
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.72
    
    
    $
    0.24Net income (loss)
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.72
    
    
    $
    (0.14
    )Weighted average number of shares
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901
    
    
    
    9,691,041
    
    
    
    9,859,296Earnings per share diluted:Net income from continuing
operations
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.71
    
    
    $
    0.24Net income (loss)
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.71
    
    
    $
    (0.14
    )Weighted average number of shares
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
    
    
    
    9,784,066
    
    
    
    9,859,296United States GAAP(2)Statements of IncomeRevenue
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477Income from continuing
operations before depreciation
and amortization expense
(1)
    
    
    32,392
    
    
    
    24,183
    
    
    
    20,044
    
    
    
    17,373
    
    
    
    13,524Income from continuing operations
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,550
    
    
    
    12,065
    
    
    
    7,172Net income from continuing
operations
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    6,494
    
    
    
    1,921Net loss on discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,696
    )Change in method for accounting
for goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,023
    )Net income (loss)
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    3,471
    
    
    $
    (1,775
    )
 10




---



##### 



Selected Financial Data (continued)
 Year
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Earnings per share basic:Net income from
continuing operations
continuing operations
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.67
    
    
    $
    0.19Net income (loss)
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.36
    
    
    $
    (0.18
    )Weighted average number of
shares
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901
    
    
    
    9,691,041
    
    
    
    9,859,296Earnings per share diluted:Net income from continuing
operations
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.66
    
    
    $
    0.19Net income (loss)
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.35
    
    
    $
    (0.18
    )Weighted average number of
shares
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
    
    
    
    9,784,066
    
    
    
    9,859,296Dividends per share $US
    
     
   Nil
    
    
     
   Nil
    

    
     
   Nil
    
    
     
   Nil
    

    
    $
    0.023Dividends per share $Cdn
    
     
   Nil
    
    
     
   Nil
    

    
     
   Nil
    
    
     
   Nil
    

    
    $
    0.035
 Year
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001Balance Sheets (Canadian and
United States GAAP)Assets:Current assets
    
    $
    71,017
    
    
    $
    90,177
    
    
    $
    85,046
    
    
    $
    46,746
    
    
    $
    52,537Property and equipment, net
    
    
    66,807
    
    
    
    37,563
    
    
    
    35,102
    
    
    
    30,787
    
    
    
    32,032Intangible assets
    
    
    2,456
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill, net
    
    
    61,448
    
    
    
    45,304
    
    
    
    44,865
    
    
    
    43,869
    
    
    
    46,874Total assets
    
    $
    201,728
    
    
    $
    173,044
    
    
    $
    165,013
    
    
    $
    121,402
    
    
    $
    131,443Liabilities and
Stockholders Equity:Current liabilities
    
    $
    48,331
    
    
    $
    38,806
    
    
    $
    46,412
    
    
    $
    36,061
    
    
    $
    37,993Long-term debt
    
    
    8,588
    
    
    
    11,507
    
    
    
    17,931
    
    
    
    30,504
    
    
    
    40,013Other non-current liabilities
    
    
    5,007
    
    
    
    3,546
    
    
    
    2,715
    
    
    
    2,767
    
    
    
    3,602Total
stockholders equity 
Canadian GAAP
    
    $
    139,802
    
    
    $
    119,185
    
    
    $
    97,955
    
    
    $
    52,070
    
    
    $
    49,836Total
stockholders equity 
United States GAAP
    
    $
    139,437
    
    
    $
    118,826
    
    
    $
    97,590
    
    
    $
    51,853
    
    
    $
    49,923Total commitments under
operating leases
    
    $
    40,239
    
    
    $
    46,564
    
    
    $
    48,580
    
    
    $
    57,475
    
    
    $
    56,338Operating Ratios(3)Total company
    
    
    94.1
    %
    
    
    94.9
    %
    
    
    95.5
    %
    
    
    95.9
    %
    
    
    97.6
    %Less-than-truckload
    
    
    93.1
    %
    
    
    94.2
    %
    
    
    94.3
    %
    
    
    94.6
    %
    
    
    96.6
    %Logistics
    
    
    94.7
    %
    
    
    95.3
    %
    
    
    96.2
    %
    
    
    96.5
    %
    
    
    99.8
    %Truckload
    
    
    93.5
    %
    
    
    94.5
    %
    
    
    98.2
    %
    
    
    98.0
    %
    
    
    97.4
    %
 
  (1)
    
    Income from continuing operations before depreciation and amortization expense (EBITDA) is
a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP.
EBITDA represents net income, plus net loss on discontinued operations, plus amortization of
goodwill, minus minority interest, plus (minus) income tax expense (benefit), plus net
interest expense, and plus depreciation and amortization. The Company uses EBITDA in
evaluating its operating performance compared to that of other companies in its industry, as
the calculation of EBITDA eliminates the effects of financing, income taxes and the accounting
effects of capital spending, which items may vary for different companies for reasons
unrelated to overall operating performance. When analyzing its operating performance,
however, investors should use EBITDA in addition to, not as an alternative for, income from
operations and net income, as those items are defined by GAAP. Investors should also note
that the Companys presentation of EBITDA may not be comparable to similarly titled measures
used by other companies. EBITDA is reconciled to net income as follows:
 Year ended December 31,2005
    


    2004
        
    2003

    
    2002

    
    2001Net income
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    (1,361
    )Net loss on discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,696Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (85
    )Income tax expense
    
    
    7,191
    
    
    
    3,983
    
    
    
    3,158
    
    
    
    2,282
    
    
    
    153Interest expense, net
    
    
    298
    
    
    
    51
    
    
    
    1,320
    
    
    
    3,289
    
    
    
    3,833Depreciation and amortization
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494
    
    
    
    5,308
    
    
    
    7,702EBITDA
    
    $
    32,392
    
    
    $
    24,183
    
    
    $
    20,308
    
    
    $
    17,817
    
    
    $
    13,938
 11




---



##### 



Selected Financial Data (continued)
 (2)
    
    Please see Note 16 to the Consolidated Financial Statements for differences between Canadian
and United States GAAP.(3)
    
    Operating ratio (OR) is a non-GAAP financial measure which does not have any standardized
meaning prescribed by GAAP. OR is the sum of operating expenses, selling, general and
administrative expenses, other expenses (income), and depreciation and amortization expense,
divided by revenue. OR allows management to measure the Company and its various segments
operating efficiency. OR is a widely recognized measure in the transportation industry which
provides a comparable benchmark for evaluating the Companys performance compared to its
competitors. Investors should also note that the Companys presentation of OR may not be
comparable to similarly titled measures by other companies. OR is calculated as follows:
 Year ended December 31,2005



    2004


    2003


    2002


    2001Operating expenses
    
    $
    357,960
    
    
    $
    319,295
    
    
    $
    282,016
    
    
    $
    254,405
    
    
    $
    263,524Selling, general and administrative expenses
    
    
    37,881
    
    
    
    31,263
    
    
    
    29,366
    
    
    
    31,084
    
    
    
    32,291Other expenses (income)
    
    
    (41
    )
    
    
    (146
    )
    
    
    136
    
    
    
    289
    
    
    
    724Depreciation and amortization expense
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494
    
    
    
    5,308
    
    
    
    6,352$
    402,765
    
    
    $
    355,618
    
    
    $
    317,012
    
    
    $
    291,086
    
    
    $
    302,891Revenue
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477Operating ratio (OR)
    
    
    94.1
    %
    
    
    94.9
    %
    
    
    95.5
    %
    
    
    95.9
    %
    
    
    97.6
    %
 12




---



##### 



ITEM 7

    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements:
 This MD&A and the documents incorporated by reference contains forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act of 1995 concerning
Vitrans business, operations, and financial performance and condition.
 When used in this MD&A, the words believe, anticipate, intend, estimate, expect,
project, may, plans, continue, focus, endeavor and similar expressions are intended to
identify forward-looking statements, although not all forward-looking statements contain such
words. These forward-looking statements are based on current expectations and are naturally
subject to uncertainty and changes in circumstances that may cause actual results to differ
materially from those expressed or implied by such forward-looking statements.
 Specifically, but not limited to, this MD&A and the documents incorporated by reference
contain forward-looking statements regarding:
 
    
    the Companys objective to expand or acquire a less-than-truckload operation in a new
regional market
    
    the Companys intention to achieve above average transborder and inter-regional growth rates
    
    the Companys plan to develop revenue, density and yield improvements
    
    the Companys intention to improve linehaul efficiency and dock operations
    
    the Companys plan to build regional sales density in the western United States
    
    the Companys objective to increase the Logistics segment revenue
    
    the Companys focus on driver retention particularly in the Truckload segment.
 Such forward-looking statements involve known and unknown risks, uncertainties and other
factors that may cause Vitrans actual results, performance or achievements to differ materially
from any future results, performance or achievements expressed or implied by such forward-looking
statements. Factors that may cause such differences include but are not limited to technological
change, regulatory change, the general health of the economy, labor relations, fuel, availability
of qualified drivers and competitive factors. More detailed information about these and other
factors is included in the MD&A. Many of these factors are beyond the Companys control;
therefore, future events may vary substantially from what the Company currently foresees. You
should not place undue reliance on such forward-looking statements. Vitran Corporation Inc. is
under no obligation to update or alter such forward-looking statements whether as a result of new
information, future events or otherwise. Unless otherwise indicated all dollar references herein
are in U.S. dollars. The Companys Annual Report on Form 10-K, as well as all the Companys other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov
 13




---



##### 



OVERVIEW
    EXECUTIVE SUMMARY
     14




---



##### 



RESULTS OF OPERATIONS 2005 COMPARED TO 2004
 CONSOLIDATED RESULTS
  (in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005 vs 2004
    
    
    2004 vs 2003Revenue
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    
    14.3
    %
    
    
    12.9
    %Operating expenses
    
    
    357,960
    
    
    
    319,295
    
    
    
    282,016
    
    
    
    12.1
    %
    
    
    13.2
    %SG&A expenses
    
    
    37,881
    
    
    
    31,263
    
    
    
    29,366
    
    
    
    21.2
    %
    
    
    6.5
    %Other expenses
(income)
    
    
    (41
    )
    
    
    (146
    )
    
    
    136
    
    
    
    71.9
    %
    
    
    (207.4
    %)Depreciation and
amortization
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494
    
    
    
    33.8
    %
    
    
    (5.2
    %)Income from
operations
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,814
    
    
    
    34.0
    %
    
    
    28.1
    %Interest expense,
net
    
    
    298
    
    
    
    51
    
    
    
    1,320
    
    
    
    484.3
    %
    
    
    (96.1
    %)Net income
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    20.0
    %
    
    
    44.6
    %
 2005
    
    
    2004
    
    
    2003
    
    
    2005 vs 2004
    
    
    2004 vs 2003Earnings per share:Basic
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    
    17.2
    %
    
    
    14.0
    %Diluted
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    
    19.7
    %
    
    
    15.8
    %Operating ratio
    
    
    94.1
    %
    
    
    94.9
    %
    
    
    95.5
    %
     15




---



##### 



SEGMENTED RESULTS
 LTL (Less-than-truckload)
  (in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005 vs 2004
    
    
    2004 vs 2003Revenue
    
    $
    352,693
    
    
    $
    303,017
    
    
    $
    270,189
    
    
    
    16.4
    %
    
    
    12.2
    %Income from operations
    
    
    24,494
    
    
    
    17,604
    
    
    
    15,386
    
    
    
    39.1
    %
    
    
    14.4
    %Operating ratio
    
    
    93.1
    %
    
    
    94.2
    %
    
    
    94.3
    %Number of shipments(1)
    
    
    2,539,192
    
    
    
    2,415,204
    
    
    
    2,311,935
    
    
    
    5.13
    %
    
    
    4.47
    %Weight (000s of lbs)(2)
    
    
    4,003,039
    
    
    
    3,894,005
    
    
    
    3,680,893
    
    
    
    2.80
    %
    
    
    5.79
    %Revenue per shipment(3)
    
    $
    138.91
    
    
    $
    125.47
    
    
    $
    116.87
    
    
    
    10.71
    %
    
    
    7.36
    %Revenue per hundredweight(4)
    
    
    8.81
    
    
    
    7.78
    
    
    
    7.34
    
    
    
    13.24
    %
    
    
    5.99
    %
   16




---



##### 



Logistics
  (in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005 vs 2004
    
    
    2004 vs 2003Revenue
    
    $
    40,261
    
    
    $
    35,499
    
    
    $
    28,642
    
    
    
    13.4
    %
    
    
    23.9
    %Income from
operations
    
    
    2,141
    
    
    
    1,668
    
    
    
    1,084
    
    
    
    28.4
    %
    
    
    53.9
    %Operating ratio
    
    
    94.7
    %
    
    
    95.3
    %
    
    
    96.2
    %
  Truckload
  (in thousands)
    
    2005
    
    
    2004
    
    
    2003
    
    
    2005 vs 2004
    
    
    2004 vs 2003Revenue
    
    $
    35,238
    
    
    $
    36,079
    
    
    $
    32,995
    
    
    
    (2.3
    %)
    
    
    9.3
    %Income from
operations
    
    
    2,308
    
    
    
    1,968
    
    
    
    602
    
    
    
    17.3
    %
    
    
    226.9
    %Operating ratio
    
    
    93.5
    %
    
    
    94.5
    %
    
    
    98.2
    %
 (5)
 RESULTS OF OPERATIONS 2004 COMPARED TO 2003
 CONSOLIDATED RESULTS
   17




---



##### 



SEGMENTED RESULTS
 LTL (Less-than-truckload)
   Logistics
  18




---



##### 



Truckload
 (5)
  (1)
    
    A shipment is a single movement of goods from a point of origin to its final destination as
described on a bill of lading document.(2)
    
    Weight represents the total pounds shipped by each LTL business unit.(3)
    
    Revenue per shipment represents revenue divided by the number of shipments.(4)
    
    Revenue per hundredweight is the price obtained for transporting 100 pounds of LTL freight
from point to point, calculated by dividing the revenue for an LTL shipment by the
hundredweight (weight in pounds divided by 100) for a shipment.(5)
    
    Revenue per total mile represents revenue divided by the total miles driven.
 GENERAL RISKS AND UNCERTAINTIES
  highly competitive
 economic conditions seasonal fluctuations
 dependent on a major railroad
 credit risk
 labor relations
 qualified drivers
 19




---



##### 



key management
 foreign currency risk
 diesel fuel expenses
 laws and regulation
 strengthen border security regulations
 interest rate risk
 highly capital intensive
 LIQUIDITY AND CAPITAL RESOURCES
    20




---



##### 



(in thousands of dollars)
    
    Year ended December 31,2005
    
    
    2004
    
    
    2003Real estate and buildings
    
    $
    7,632
    
    
    $
    346
    
    
    $
    359Tractors
    
    
    2,793
    
    
    
    1,275
    
    
    
    520Trailing fleet
    
    
    10,969
    
    
    
    3,339
    
    
    
    4,488Information technology
    
    
    938
    
    
    
    626
    
    
    
    896Leasehold improvements
    
    
    277
    
    
    
    143
    
    
    
    77Other equipment
    
    
    254
    
    
    
    513
    
    
    
    555Total
    
    $
    22,863
    
    
    $
    6,242
    
    
    $
    6,895
  off-balance sheet
 (in thousands of dollars)
    
    
    
    
    
    
    
    
    
    Payments due by periodTotal
    
    
    2006
    
    
    2007 & 2008
    
    
    2009 & 2010
    
    
    ThereafterContractual ObligationsLong-term debt (LIBOR 5.45%)
    
    $
    11,435
    
    
    $
    5,813
    
    
    $
    5,622
    
    
    $
    Nil
    
    $
    NilRevolving credit facility (CDN BA 4.65%)
    
    
    2,923
    
    
    Nil
    
    
    2,923
    
    
    Nil
    
    NilCapital lease obligations
    
    
    75
    
    
    
    33
    
    
    
    42
    
    
    Nil
    
    NilSub-total
    
    
    14,433
    
    
    
    5,846
    
    
    
    8,587
    
    
    Nil
    
    NilOff-balance sheet commitmentsOperating leases
    
    
    40,239
    
    
    
    13,722
    
    
    
    17,435
    
    
    
    6,381
    
    
    
    2,701Total contractual obligations
    
    $
    54,672
    
    
    $
    19,568
    
    
    $
    26,022
    
    
    $
    6,381
    
    
    $
    2,701
   21




---



##### 



OUTLOOK
      CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
  Allowance for Doubtful Accounts
  22




---



##### 



Claims and Insurance Accruals
  Goodwill and Intangible Assets
   Capital Assets
  CHANGES IN ACCOUNTING POLICY
  Comprehensive Income
  23




---



##### 



Equity
  Financial
Instruments  Recognition and Measurements
  Hedging
  RELATED PARTIES
  ITEM 7aQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATE SENSITIVITY
  (in thousands of dollars)
    
    
    
    
    
    Payments due by periodTotal
    
    
    2006
    
    
    2007 & 2008
    
    
    2009 & 2010
    
    
    ThereafterLong-term debtVariable RateTerm bank facility
    
    $
    11,435
    
    
    $
    5,813
    
    
    $
    5,622
    
    
        $
    Nil
    
        $
    NilAverage interest rate (LIBOR)
    
    
    5.45
    %
    
    
    5.45
    %
    
    
    5.45
    %Revolving bank facility
    
    
    2,923
    
    
    
    Nil
    
    
    
    2,923
    
    
    Nil
    
    NilAverage interest rate (Cdn BA)
    
    
    4.65
    %
    
    
    
    
    
    
    4.65
    %Fixed RateCapital lease obligation
    
    
    75
    
    
    
    33
    
    
    
    42
    
    
    Nil
    
    NilAverage interest rate
    
    
    6.79
    %
    
    
    6.79
    %
    
    
    6.79
    %Total
    
    $
    14,433
    
    
    $
    5,846
    
    
    $
    8,587
    
    
        $
    Nil
    
        $
    Nil
   24




---



##### 



ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   MANAGEMENT RESPONSIBILITY OVER FINANCIAL REPORTING
    25




---



##### 



INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 AUDITORS REPORT TO THE SHAREHOLDERS
     llp
 
 26




---



##### 



2005
    
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    14,592
    
    
    $
    7,375Marketable securities (note 3)
    
    
    
    
    
    
    33,087Accounts receivable
    
    
    46,587
    
    
    
    40,124Inventory, deposits and prepaid expenses
    
    
    8,396
    
    
    
    5,924Future income taxes (note 7)
    
    
    1,442
    
    
    
    3,66771,017
    
    
    
    90,177Capital assets (note 4)
    
    
    66,807
    
    
    
    37,563Intangible assets (note 5)
    
    
    2,456
    
    
    
    Goodwill
    
    
    61,448
    
    
    
    45,304$
    201,728
    
    
    $
    173,044Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    41,362
    
    
    $
    33,377Income and other taxes payable
    
    
    1,124
    
    
    
    2,399Current portion of long-term debt (note 6)
    
    
    5,845
    
    
    
    3,03048,331
    
    
    
    38,806Long-term debt (note 6)
    
    
    8,588
    
    
    
    11,507Future income taxes (note 7)
    
    
    5,007
    
    
    
    3,546Shareholders equity:Common shares, no par value, unlimited authorized,
12,647,636 and 12,419,678 issued and
outstanding in 2005 and 2004, respectively (note 8)
    
    
    63,604
    
    
    
    60,798Contributed surplus
    
    
    956
    
    
    
    323Retained earnings
    
    
    72,310
    
    
    
    54,972Cumulative translation adjustment (note 9)
    
    
    2,932
    
    
    
    3,092139,802
    
    
    
    119,185$
    201,728
    
    
    $
    173,044Lease commitments (note 12)Contingent liabilities (note 14)
 On behalf of the Board:/s/ RICHARD D. McGRAW
    
    
    
    /s/ JOHN R. GOSSLINGChairman
    
    
    
    Director
  27




---



##### 



2005
    
    
    2004
    
    
    2003Revenue
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826Operating expenses
    
    
    357,960
    
    
    
    319,295
    
    
    
    282,016Selling, general and administration expenses
    
    
    37,881
    
    
    
    31,263
    
    
    
    29,366Other expenses (income)
    
    
    (41
    )
    
    
    (146
    )
    
    
    136395,800
    
    
    
    350,412
    
    
    
    311,518Income from operations before depreciation
and amortization
    
    
    32,392
    
    
    
    24,183
    
    
    
    20,308Depreciation and amortization
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494Income from operations before the undernoted
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,814Interest on long-term debt
    
    
    (771
    )
    
    
    (718
    )
    
    
    (1,346
    )Interest income
    
    
    473
    
    
    
    667
    
    
    
    26(298
    )
    
    
    (51
    )
    
    
    (1,320
    )Income from operations before income taxes
    
    
    25,129
    
    
    
    18,926
    
    
    
    13,494Income taxes (recovery) (note 7):Current
    
    
    3,506
    
    
    
    2,717
    
    
    
    3,450Future
    
    
    3,685
    
    
    
    1,266
    
    
    
    (292
    )7,191
    
    
    
    3,983
    
    
    
    3,158Net income
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336Earnings per share:Basic  net income
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07Diluted  net income
    
    
    1.40
    
    
    
    1.17
    
    
    
    1.01Weighted average number of shares:Weighted average number of
shares outstanding
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901Potential exercise of options
    
    
    332,095
    
    
    
    455,077
    
    
    
    578,310Diluted shares
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
   28




---



##### 



Consolidated Statements of Contributed Surplus
(Amounts in thousands of United States dollars, except per share amounts) Years ended December 31, 2005 and 2004 2005
    
    
    2004Contributed surplus, beginning of year
    
    $
    323
    
    
    $
    Stock-based compensation on employee options
    
    
    654
    
    
    
    323Exercise of employee stock options
    
    
    (21
    )
    
    
    Contributed surplus, end of year
    
    $
    956
    
    
    $
    323
 
  2005
    
    
    2004
    
    
    2003Retained earnings, beginning of year
    
    $
    54,972
    
    
    $
    40,029
    
    
    $
    30,044Net income
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336Cost of repurchase of common
shares in excess of book value
    
    
    (600
    )
    
    
    
    
    
    
    (351
    )Retained earnings, end of year
    
    $
    72,310
    
    
    $
    54,972
    
    
    $
    40,029
  29




---



##### 



2005
    
    
    2004
    
    
    2003Cash provided by (used in):Operations:Net income
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336Items not involving cash from operations:Depreciation and amortization
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494Future income taxes
    
    
    3,685
    
    
    
    1,266
    
    
    
    (292
    )Loss (gain) on sale of capital assets
    
    
    (41
    )
    
    
    (146
    )
    
    
    136Foreign exchange gains
    
    
    
    
    
    
    
    
    
    
    (264
    )Stock-based compensation expense
    
    
    654
    
    
    
    323
    
    
    
    29,201
    
    
    
    21,592
    
    
    
    15,410Change in non-cash working capital components
    
    
    (2,034
    )
    
    
    (6,839
    )
    
    
    3,33927,167
    
    
    
    14,753
    
    
    
    18,749Investments:Purchase of capital assets
    
    
    (22,863
    )
    
    
    (6,242
    )
    
    
    (6,895
    )Proceeds on sale of capital assets
    
    
    97
    
    
    
    248
    
    
    
    423Acquisition of subsidiary
    
    
    (28,192
    )
    
    
    
    
    
    
    Marketable securities
    
    
    31,974
    
    
    
    (3,981
    )
    
    
    (26,996
    )(18,984
    )
    
    
    (9,975
    )
    
    
    (33,468
    )Financing:Change in revolving credit facility
    
    
    2,947
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (3,030
    )
    
    
    (11,716
    )
    
    
    (11,396
    )Issue of common shares upon exercise of
stock options
    
    
    282
    
    
    
    1,440
    
    
    
    1,607Issue of common shares in public offering
    
    
    
    
    
    
    
    
    
    
    29,385Repurchase of common shares
    
    
    (921
    )
    
    
    
    
    
    
    (644
    )(722
    )
    
    
    (10,276
    )
    
    
    18,952Effect of translation adjustment on cash
    
    
    (244
    )
    
    
    456
    
    
    
    182Increase (decrease) in cash and cash equivalents
    
    
    7,217
    
    
    
    (5,042
    )
    
    
    4,415Cash and cash equivalents, beginning of year
    
    
    7,375
    
    
    
    12,417
    
    
    
    8,002Cash and cash equivalents, end of year
    
    $
    14,592
    
    
    $
    7,375
    
    
    $
    12,417Change in non-cash working capital components:Accounts receivable
    
    $
    (3,419
    )
    
    $
    (4,439
    )
    
    $
    (6,053
    )Inventory, deposits and prepaid expenses
    
    
    (1,963
    )
    
    
    (77
    )
    
    
    348Income and other taxes recoverable/payable
    
    
    (1,275
    )
    
    
    (1,608
    )
    
    
    2,266Accounts payable and accrued liabilities
    
    
    4,623
    
    
    
    (715
    )
    
    
    6,778$
    (2,034
    )
    
    $
    (6,839
    )
    
    $
    3,339Supplemental cash flow information:Interest paid
    
    $
    769
    
    
    $
    722
    
    
    $
    1,552Income taxes paid
    
    
    5,063
    
    
    
    4,608
    
    
    
    2,617Non-cash transactions:Issuance of common shares to seller in acquisition
    
    $
    2,800
    
    
    $
    
    
    
    $
    
  30




---



##### 



1.
    
    Significant accounting policies:
 (a)
    
    Description of the business:Vitran Corporation Inc. (Vitran or the Company) is a North American provider of
freight services and distribution solutions to a wide variety of companies and
industries. Vitran offers less-than-truckload service throughout Canada and the United
States. Vitran Logistics offers supply chain solutions in Canada and the United States,
including warehousing, inventory management and flow-through distribution facilities, as
well as freight brokerage services. Vitran also provides same-day and next-day
truckload services in the United States.(b)
    
    Basis of presentation:These consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany transactions and balances have
been eliminated on consolidation.All amounts in these consolidated financial statements are expressed in United States
dollars, unless otherwise stated.(c)
    
    Foreign currency translation:A majority of the Companys shareholders, customers and industry analysts are located in
the United States. Accordingly, the Company has adopted the United States dollar as its
reporting currency.The United States dollar is the functional currency of the Companys operations in the
United States. The Canadian dollar is the functional currency of the Companys Canadian
operations.Each operation translates foreign currency-denominated transactions into its functional
currency using the rate of exchange in effect at the date of the transaction.Monetary assets and liabilities denominated in a foreign currency are translated into
the functional currency of the operation using the year-end rate of exchange giving rise
to a gain or loss which is recognized in income during the current period.For reporting purposes, the Canadian operations are translated into United States
dollars using the current rate method. Under this method, all assets and liabilities
are translated at the year-end rate of exchange and all revenue and expense items are
translated at the average rate of exchange for the year. The resulting translation
adjustment is recorded as a separate component of shareholders equity. United States
dollar debt of $11.4 million (2004  $14.4 million) is designated as a hedge of the
investment in the United States self-sustaining foreign operations
 31




---



##### 



1.
    
    Significant accounting policies (continued):
 In respect of other transactions denominated in currencies other than the Canadian
dollar, the monetary assets and liabilities of the Company are translated at the
year-end rates. Revenue and expenses are translated at rates of exchange prevailing on
the transaction dates. All of the exchange gains or losses resulting from these other
transactions are recognized in income.(d)
    
    Revenue recognition:The Companys less-than-truckload, truckload business units and freight brokerage
operations recognize revenue upon the delivery of the related freight and direct
shipment costs as incurred. Revenue for the logistics operations is recognized as the
management services are provided.(e)
    
    Cash and cash equivalents:Cash and cash equivalents include cash on account and short-term investments with
maturities of three months or less at the date of purchase and are stated at cost, which
approximates market value.(f)
    
    Marketable securities:Marketable securities are recorded at the lower of cost and market value. The
securities are classified as available for sale.(g)
    
    Inventory:Inventory consists of tires and spare parts and is valued at the lower of average cost
and replacement cost.(h)
    
    Capital assets:Capital assets are recorded at cost. Depreciation of capital assets is provided on a
straight-line basis from the date assets are put in service over their estimated useful
lives as follows:
 Buildings
    
    2031.5 yearsLeasehold interests and improvements
    
    Over term of leaseVehicles:Trailers and containers
    
    12 yearsTrucks
    
    8 yearsMachinery and equipment
    
    510 years
 32




---



##### 



1.
    
    Significant accounting policies (continued):
 Tires purchased as part of a vehicle are capitalized as a cost to the vehicle.
Replacement tires are expensed when placed in service.(i)
    
    Goodwill and intangible assets:As at September 30, 2005 and September 30, 2004, the Company completed its annual
goodwill impairment test and concluded there was no impairment. The change in goodwill
is attributable to translating the Canadian dollar-denominated goodwill to the United
States dollar reporting currency and due to the acquisition of a subsidiary (note 2).Intangible assets consist of not-to-compete covenants and customer relationships and are
amortized on a straight-line basis over their expected lives ranging from five to eight
years.(j)
    
    Income taxes:The Company uses the asset and liability method of accounting for income taxes. Under
the asset and liability method, future tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.
Future tax assets and liabilities are measured using enacted or substantively enacted
tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on future tax assets
and liabilities of a change in tax rates is recognized in income in the year that
includes the date of enactment or substantive enactment.(k)
    
    Stock-based compensation:Prior to January 1, 2003, The Canadian Institute of Chartered Accountants (CICA)
Handbook Section 3870, Stock-based Compensation and Other Stock-based Payments, required
that effective January 1, 2002, all stock-based compensation to non-employees and direct
awards of stock to employees be accounted for using the fair value method. The Company
has not granted any such awards.The Company has a stock option plan for employees and directors. In 2002, in accordance
with the standard, the Company had elected to use the settlement method for stock
options granted to employees and no compensation expense was recorded. Consideration
paid by employees on the exercise of options is recorded as share capital.The CICA Accounting Standards Board amended CICA Handbook Section 3870, Stock-based
Compensation and Other Stock-based Payments, to require entities to account for stock
options granted to employees and directors using the fair value-based method, beginning
January 1, 2004, with the option to adopt effective January 1, 2003. Under the fair
value-based method,
 33




---



##### 



1.
    
    Significant accounting policies (continued):
 compensation cost is measured at fair value at the date of grant and is expensed over
the awards vesting period and forfeitures are accounted for as they occur. In
accordance with a transitional option permitted under amended CICA Handbook Section
3870, the Company has prospectively applied the fair value-based method to all stock
options granted on or after January 1, 2003. Note 8(d) provides supplemental disclosure
for the Companys stock options.(l)
    
    Advertising costs:Advertising costs are expensed as incurred. Advertising costs amounted to $538 in 2005
(2004 $526; 2003  $501).(m)
    
    Impairment of long-lived assets:An impairment is recognized when the carrying amount of a long-lived asset to be held
and used exceeds the sum of undiscounted cash flows expected from its use and disposal
and is measured as the amount by which the carrying amount of assets exceeds its fair
value. A long-lived asset should be tested when events or circumstances indicate that
its carrying amount may not be recoverable. During 2004 and 2005, the Company has not
identified any indicators that would require testing for impairment.(n)
    
    Claims and insurance accruals:Claims and insurance accruals reflect the estimated total cost of claims, including
amounts for claims incurred but not reported, for cargo loss and damage, bodily injury
and property damage, workers compensation, long-term disability and group health. In
Canada and the United States, the Company has self-insurance retention amounts per
incident for auto liability, casualty and cargo claims. In the United States, the
Company has self-insurance retention amounts per incident for workers compensation and
employee medical. In establishing these accruals, management evaluates and monitors
each claim individually and uses factors such as historical experience, known trends and
third party estimates to determine the appropriate reserves for potential liability.(o)
    
    Deferred share units:During the year the Company adopted a deferred share unit plan (DSU) for all
directors. Under this plan all directors receive units at the end of each quarter based
on the market price of common shares equivalent to Cdn $2,500. The Company records
compensation expense and the corresponding liability each period initially for Cdn
$2,500 and subsequently based on changes in the market price of common shares.
 34




---



##### 



1.
    
    Significant accounting policies (continued):
 (p)
    
    Use of estimates:The preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the year. Actual results could differ
from those estimates.
 2.
    
    Acquisition:On May 31, 2005, the Company acquired 100% of the outstanding shares of R.A. Christopher,
Inc. and Kansas Motor Freight Corporation collectively operating as Chris Truck Line (CTL).
CTL is a Kansas-based regional less-than-truckload carrier operating in 11 states in the
midwestern and southwestern United States. The results of operations of CTL are included in
the consolidated results of the Company commencing June 1, 2005.The aggregate purchase price was $31.0 million, comprised of $26.5 million of cash and
202,458 common shares valued at $2.8 million. During the third quarter, Vitran executed a
joint election with the seller to structure the transaction as an asset sale for tax
purposes, and an additional $1.7 million of cash will be payable in April 2006. The cash
portion of the transaction was financed from existing cash and marketable securities
balances. The total amount of goodwill is expected to be deductible for tax purposes.The following table summarizes the estimated fair value of the assets acquired and
liabilities assumed at the date of the acquisition, as based on independent appraisals and
management estimates:
 Current assets
    
    $
    3,557Capital assets
    
    
    12,375Identifiable intangible assets:Covenant not-to-compete (5-year useful life)
    
    
    240Customer relationships (8-year useful life)
    
    
    2,300Goodwill
    
    
    15,88534,357Current liabilities
    
    
    3,362Total purchase price
    
    $
    30,995
 35




---



##### 



2.
    
    Acquisition (continued):The following pro forma financial information reflects the results of operations of Vitran as
if the acquisition of CTL had taken place on January 1, 2004. The pro forma financial
information is not necessarily indicative of the results as it would have been if the
acquisition had been effected on the assumed date and is not necessarily indicative of future
results:
 2005
    
    
    2004Pro forma revenue
    
    $
    440,379
    
    
    $
    401,075Pro forma net income
    
    
    19,080
    
    
    
    17,188Pro forma diluted earnings per share
    
    
    1.48
    
    
    
    1.33
 3.
    
    Marketable securities:The marketable securities are invested in highly rated treasury bills, investment grade notes
and investment grade commercial paper. A portion of the securities is invested in highly
rated preferred shares. The market value of all securities approximates the cost.4.
    
    Capital assets:
 2005
    
    
    2004Land
    
    $
    15,904
    
    
    $
    6,341Buildings
    
    
    27,317
    
    
    
    24,749Leasehold interests and improvements
    
    
    1,856
    
    
    
    1,558Vehicles
    
    
    48,703
    
    
    
    28,078Machinery and equipment
    
    
    19,803
    
    
    
    16,447113,583
    
    
    
    77,173Less accumulated depreciation
    
    
    46,776
    
    
    
    39,610$
    66,807
    
    
    $
    37,563
  36




---



##### 



5.
    
    Intangible assets:
 2005
    
    
    2004Customer relationships
    
    $
    2,300
    
    
    $
    Covenants not-to-compete
    
    
    240
    
    
    
    2,540
    
    
    
    Less accumulated amortization
    
    
    84
    
    
    
    $
    2,456
    
    
    $
    
 Amortization expense will be $335 for the years 2006 to 2009; $324 in 2010; and the remaining
$792 will be expensed thereafter.6.
    
    Long-term debt:
 2005
    
    
    2004Term bank credit facility (a)
    
    $
    11,435
    
    
    $
    14,434Revolving credit facility (b)
    
    
    2,923
    
    
    
    Capital lease (c)
    
    
    75
    
    
    
    10314,433
    
    
    
    14,537Less current portion
    
    
    5,845
    
    
    
    3,030$
    8,588
    
    
    $
    11,507
 (a)
    
    The term bank credit facility is secured by accounts receivable and general
security agreements of the Company and of all its subsidiaries.During 2005, the Company repaid $3.0 million of borrowings. At December 31, 2005, $11.4
million (2004  $14.4 million), bearing interest at 5.45% (2004  3.49%), was drawn
under this facility. The agreement requires approximately 51% of the total principal to
be repaid in 2006, and additional quarterly instalments to September 30, 2007. The
provisions of the term facility impose certain financial maintenance tests.(b)
    
    The Company has a revolving credit facility of up to $35 million, maturing
September 30, 2007. At December 31, 2005, $2.9 million, bearing interest at 4.65%, was
drawn as cash under this facility. At December 31, 2005, the Company had $26.8 million
unused in the credit facility, net of cash drawn and outstanding letters of credit of
$5.3 million.(c)
    
    The Company has financed certain equipment by entering into a capital leasing
arrangement expiring in 2007. The capital lease bears interest at approximately 6.79%.
 37




---



##### 



6.
    
    Long-term debt (continued):At December 31, 2005, the required future principal repayments on all long-term debt and
capital lease are as follows:
 Year ending December 31:2006
    
    $
    5,8452007
    
    
    8,588$
    14,433
 7.
    
    Income taxes:Income tax expense differs from the amount which would be obtained by applying statutory
federal, state and provincial income tax rates to the respective years income from
operations before income taxes as follows:
 2005
    
    
    2004
    
    
    2003Effective statutory federal, state
and provincial income tax rate
    
    
    36.12
    %
    
    
    36.12
    %
    
    
    35.37
    %Effective tax expense on income before
income taxes
    
    $
    9,077
    
    
    $
    6,836
    
    
    $
    4,773Increase (decrease) results from:Valuation allowance
    
    
    
    
    
    
    (693
    )
    
    
    Non-deductible stock-based
compensation expense
    
    
    237
    
    
    
    114
    
    
    
    Non-taxable foreign exchange gain
    
    
    
    
    
    
    
    
    
    
    (104
    )Income taxed at different rates
in foreign jurisdictions
    
    
    (1,888
    )
    
    
    (1,930
    )
    
    
    (1,852
    )Other
    
    
    (235
    )
    
    
    (344
    )
    
    
    341Actual income tax expense
    
    $
    7,191
    
    
    $
    3,983
    
    
    $
    3,158
 38




---



##### 



7.
    
    Income taxes (continued):Income tax expense:
 2005
    
    
    2004
    
    
    2003Current income tax expense:Canada:Federal
    
    $
    1,053
    
    
    $
    976
    
    
    $
    1,478Provincial
    
    
    625
    
    
    
    585
    
    
    
    723United States:Federal
    
    
    1,339
    
    
    
    777
    
    
    
    943State
    
    
    208
    
    
    
    121
    
    
    
    147Other
    
    
    281
    
    
    
    258
    
    
    
    1593,506
    
    
    
    2,717
    
    
    
    3,450Future income tax expense:Canada:Federal
    
    
    1,280
    
    
    
    16
    
    
    
    (181
    )Provincial
    
    
    760
    
    
    
    10
    
    
    
    (88
    )United States:Federal
    
    
    1,424
    
    
    
    1,073
    
    
    
    (20
    )State
    
    
    221
    
    
    
    167
    
    
    
    (3
    )3,685
    
    
    
    1,266
    
    
    
    (292
    )$
    7,191
    
    
    $
    3,983
    
    
    $
    3,158
 39




---



##### 



7.
    
    Income taxes (continued):A summary of the principal components of future income tax assets and liabilities is as
follows:
 2005
    
    
    2004Current future income tax assets:Losses carried forward
    
    $
    
    
    
    $
    1,655Allowance for doubtful accounts
    
    
    314
    
    
    
    277Insurance reserves
    
    
    946
    
    
    
    1,372Financing costs
    
    
    182
    
    
    
    3631,442
    
    
    
    3,667Current future income tax liabilities
    
    
    
    
    
    
    $
    1,442
    
    
    $
    3,667Non-current future income tax assets:Losses carried forward
    
    $
    
    
    
    $
    304Financing costs
    
    
    207
    
    
    
    177207
    
    
    
    481Non-current future income tax liabilities:Capital assets
    
    
    (2,020
    )
    
    
    (1,371
    )Goodwill
    
    
    (3,156
    )
    
    
    (2,249
    )Other
    
    
    (38
    )
    
    
    (407
    )(5,214
    )
    
    
    (4,027
    )$
    (5,007
    )
    
    $
    (3,546
    )
 8.
    
    Common shares:
 (a)
    
    Authorized:The Companys capital stock consists of an unlimited number of common shares.(b)
    
    Issued:Common shares
 2005
    
    
    2004Number
    
    
    Amount
    
    
    Number
    
    
    AmountBalance, beginning of year
    
    
    12,419,678
    
    
    $
    60,798
    
    
    
    12,094,278
    
    
    $
    59,358Shares repurchased for
cancellation
    
    
    (59,800
    )
    
    
    (297
    )
    
    
    
    
    
    
    Shares issued upon exercise
of employees stock options
    
    
    85,300
    
    
    
    303
    
    
    
    325,400
    
    
    
    1,440Shares issued upon
acquisition of Subsidiary
    
    
    202,458
    
    
    
    2,800Balance, end of year
    
    
    12,647,636
    
    
    $
    63,604
    
    
    
    12,419,678
    
    
    $
    60,798
 40




---



##### 



8.
    
    Common shares (continued):
 (c)
    
    Normal course issuer bid:The Company purchased 59,800 common shares for cancellation
during 2005 (2004  nil)
under a normal course issuer bid. The cost of the repurchase in excess of the book
value of the shares in 2005 was $600 (2004  nil).(d)
    
    Stock options:The Company provides a stock option plan to key employees, officers and directors to
encourage executives to acquire a meaningful equity ownership interest in the Company
over a period of time and, as a result, reinforce executives attention on the long-term
interest of the Company and its shareholders. Under the plan, options to purchase
common shares of the Company may be granted to key employees, officers and directors of
the Company and its affiliates by the Board of Directors or by the Companys
Compensation Committee. There are 777,500 options authorized under the plan. The term
of each option is 10 years and the vesting period is five years. The exercise price for
options is the trading price of the common shares of the Company on the Toronto Stock
Exchange on the day of the grant.The following table outlines the impact if the compensation cost for the Companys stock
options granted from January 1, 2002 through to December 31, 2002 were determined under
the fair value-based method. The Company has applied the pro forma disclosure
provisions of the standard to these awards. The pro forma effect of awards granted
prior to January 1, 2002 has not been included.
 2005
    
    
    2004
    
    
    2003Options granted
    
    
    78,000
    
    
    
    355,000
    
    
    
    Net income, as reported
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336Pro forma net income
    
    
    17,895
    
    
    
    14,902
    
    
    
    10,298Pro forma earnings
per share  basic
    
    
    1.43
    
    
    
    1.21
    
    
    
    1.06Pro forma earnings
per share  diluted
    
    
    1.39
    
    
    
    1.17
    
    
    
    1.00
 41




---



##### 



8.
    
    Common shares (continued):The weighted average estimated fair value at the date of the grant for the options
granted during 2005 was $7.58 (2004  $8.96; 2003  nil) per share.The fair value of each option granted was estimated on the date of grant using the
Black-Scholes fair value option pricing model with the following assumptions:
 2005
    
    
    2004Risk-free interest rate
    
    
    3.88%4.24
    %
    
    
    4.8
    %Dividend yield
    
    
    
    
    
    
    Volatility factor of the future expected market
price of the Companys common shares
    
    
    33.8434.39
    %
    
    
    34.836.0
    %Expected life of the options
    
    8 years
    
    10 years
  2005
    
    
    2004Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exerciseShares
    
    
    price
    
    
    Shares
    
    
    priceOutstanding,
beginning of year
    
    
    796,800
    
    
    $
    8.44
    
    
    
    825,600
    
    
    $
    3.73Granted
    
    
    78,000
    
    
    
    16.01
    
    
    
    355,000
    
    
    
    15.84Forfeited
    
    
    (12,000
    )
    
    
    11.90
    
    
    
    (58,400
    )
    
    
    11.47Exercised
    
    
    (85,300
    )
    
    
    3.31
    
    
    
    (325,400
    )
    
    
    3.96Outstanding, end of year
    
    
    777,500
    
    
    
    9.71
    
    
    
    796,800
    
    
    
    8.44Exercisable, end of year
    
    
    399,700
    
    
    $
    5.78
    
    
    
    385,900
    
    
    $
    3.90
 42




---



##### 



8.
    
    Common shares (continued):At December 31, 2005, the range of exercise prices, the weighted average exercise price and
the weighted average remaining contractual life are as follows:
 Options outstanding
    
    
    Options exercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    Weightedremaining
    
    
    average
    
    
    
    
    
    
    averageRange of exercise
    
    Number
    
    
    contractual
    
    
    exercise
    
    
    Number
    
    
    exerciseprices
    
    outstanding
    
    
    life (years)
    
    
    price
    
    
    exercisable
    
    
    price$2.20$4.00
    
    
    194,500
    
    
    
    5.02
    
    
    $
    2.49
    
    
    
    138,700
    
    
    $
    2.57$4.77$5.44
    
    
    200,000
    
    
    
    2.98
    
    
    
    4.92
    
    
    
    200,000
    
    
    
    4.92$15.23$16.97
    
    
    383,000
    
    
    
    8.70
    
    
    
    15.88
    
    
    
    61,000
    
    
    
    15.87$2.20$16.97
    
    
    777,500
    
    
    
    6.31
    
    
    
    9.71
    
    
    
    399,700
    
    
    
    5.78
 Compensation expense related to stock options was $654 for the year ended December 31, 2005
(2004  $323; 2003  nil).9.
    
    Cumulative translation adjustment:The cumulative translation adjustment represents the unrealized translation gains and losses
from the translation of the Canadian dollar functional currency to the United States dollar
reporting currency.
 43




---



##### 



10.
    
    Segmented information:The Companys business operations are grouped into three operating segments:
less-than-truckload, logistics and truckload, which provide transportation services in Canada
and the United States.Segmented information is presented below for each of the years ended December 31, 2005, 2004
and 2003:
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2005
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    352,693
    
    
    $
    40,261
    
    
    $
    35,238
    
    
    $
    428,192
    
    
    $
    
    
    
    $
    428,192Operating, selling,
general and administrative expenses
    
    
    322,262
    
    
    
    37,745
    
    
    
    32,373
    
    
    
    392,380
    
    
    
    3,461
    
    
    
    395,841Other income
    
    
    (21
    )
    
    
    
    
    
    
    (20
    )
    
    
    (41
    )
    
    
    
    
    
    
    (41
    )Income (loss) from operations
before depreciation
and amortization
    
    
    30,452
    
    
    
    2,516
    
    
    
    2,885
    
    
    
    35,853
    
    
    
    (3,461
    )
    
    
    32,392Depreciation and amortization expense
    
    
    5,958
    
    
    
    375
    
    
    
    577
    
    
    
    6,910
    
    
    
    55
    
    
    
    6,965Income (loss) from operations
before the undernoted
    
    $
    24,494
    
    
    $
    2,141
    
    
    $
    2,308
    
    
    $
    28,943
    
    
    $
    (3,516
    )
    
    
    25,427Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (298
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,191
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,938Capital expenditures
    
    $
    19,240
    
    
    $
    120
    
    
    $
    3,488
    
    
    $
    22,848
    
    
    $
    15
    
    
    $
    22,863Goodwill
    
    $
    55,557
    
    
    $
    1,126
    
    
    $
    4,765
    
    
    $
    61,448
    
    
    $
    
    
    
    $
    61,448Total assets
    
    $
    165,173
    
    
    $
    7,901
    
    
    $
    14,661
    
    
    $
    187,735
    
    
    $
    13,993
    
    
    $
    201,728
 44




---



##### 



10. Segmented information (continued):
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2004
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    303,017
    
    
    $
    35,499
    
    
    $
    36,079
    
    
    $
    374,595
    
    
    $
    
    
    
    $
    374,595Operating, selling,
general and administrative expenses
    
    
    281,109
    
    
    
    33,500
    
    
    
    33,748
    
    
    
    348,357
    
    
    
    2,201
    
    
    
    350,558Other expenses (income)
    
    
    (150
    )
    
    
    6
    
    
    
    (2
    )
    
    
    (146
    )
    
    
    
    
    
    
    (146
    )Income (loss) from operations
before depreciation
    
    
    22,058
    
    
    
    1,993
    
    
    
    2,333
    
    
    
    26,384
    
    
    
    (2,201
    )
    
    
    24,183Depreciation expense
    
    
    4,454
    
    
    
    325
    
    
    
    365
    
    
    
    5,144
    
    
    
    62
    
    
    
    5,206Income (loss) from operations
before the undernoted
    
    $
    17,604
    
    
    $
    1,668
    
    
    $
    1,968
    
    
    $
    21,240
    
    
    $
    (2,263
    )
    
    
    18,977Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,983
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,943Capital expenditures
    
    $
    4,699
    
    
    $
    721
    
    
    $
    801
    
    
    $
    6,221
    
    
    $
    21
    
    
    $
    6,242Goodwill
    
    $
    39,418
    
    
    $
    1,121
    
    
    $
    4,765
    
    
    $
    45,304
    
    
    $
    
    
    
    $
    45,304Total assets
    
    $
    122,209
    
    
    $
    5,504
    
    
    $
    12,083
    
    
    $
    139,796
    
    
    $
    33,248
    
    
    $
    173,044
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2003
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    270,189
    
    
    $
    28,642
    
    
    $
    32,995
    
    
    $
    331,826
    
    
    $
    
    
    
    $
    331,826Operating, selling,
general and administrative expenses
    
    
    250,047
    
    
    
    27,289
    
    
    
    31,843
    
    
    
    309,179
    
    
    
    2,203
    
    
    
    311,382Other expenses
    
    
    54
    
    
    
    27
    
    
    
    55
    
    
    
    136
    
    
    
    
    
    
    
    136Income (loss) from operations
before depreciation
    
    
    20,088
    
    
    
    1,326
    
    
    
    1,097
    
    
    
    22,511
    
    
    
    (2,203
    )
    
    
    20,308Depreciation expense
    
    
    4,702
    
    
    
    242
    
    
    
    495
    
    
    
    5,439
    
    
    
    55
    
    
    
    5,494Income (loss) from operations
before the undernoted
    
    $
    15,386
    
    
    $
    1,084
    
    
    $
    602
    
    
    $
    17,072
    
    
    $
    (2,258
    )
    
    
    14,814Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,320
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,158
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,336Capital expenditures
    
    $
    5,699
    
    
    $
    390
    
    
    $
    794
    
    
    $
    6,883
    
    
    $
    12
    
    
    $
    6,895
 45




---



##### 



10.
    
    Segmented information (continued):Geographic information for revenue from point of origin and total assets is as follows:
 2005
    
    
    2004
    
    
    2003Revenue:Canada
    
    $
    175,805
    
    
    $
    151,485
    
    
    $
    131,084United States
    
    
    252,387
    
    
    
    223,110
    
    
    
    200,742$
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
 2005
    
    
    2004Total assets:Canada
    
    $
    57,829
    
    
    $
    70,321United States
    
    
    143,899
    
    
    
    102,723$
    201,728
    
    
    $
    173,044
 2005
    
    
    2004Total long-lived assets:Canada
    
    $
    39,484
    
    
    $
    27,526United States
    
    
    91,227
    
    
    
    55,341$
    130,711
    
    
    $
    82,867
 11.
    
    Financial instruments:The fair values of cash and cash equivalents, marketable securities, accounts receivable, and
accounts payable and accrued liabilities approximate the carrying values because of the
short-term nature of these instruments. The fair value of the Companys long-term debt,
determined based on the future cash flows associated with each debt instrument discounted
using an estimate of the Companys current borrowing rate for similar debt instruments of
comparable maturity, is approximately equal to the carrying values at December 31, 2005 and
2004.
 46




---



##### 



12.
    
    Lease commitments:At December 31, 2005, future minimum rental payments relating to operating leases for
premises and equipment are as follows:
 Year ending December 31:2006
    
    $
    13,7222007
    
    
    10,1392008
    
    
    7,2962009
    
    
    4,3322010
    
    
    2,049Thereafter
    
    
    2,701$
    40,239
 Total rental expense under operating leases was $17.3 million for the year ended December 31,
2005 (2004  $16.7 million; 2003  $17.9 million).The Company has guaranteed a portion of the residual values of certain assets under operating
leases. If the market value of the assets at the end of the lease terms is less than the
guaranteed residual value, the Company must, under certain circumstances, compensate the
lessor for a portion of the shortfall. The maximum exposure under these guarantees is $5.1
million.13.
    
    Employee benefits:The Company sponsors defined contribution plans in Canada and the United States. In Canada,
the Company matches the employees contribution to their registered retirement savings plan
up to a maximum contribution. In the United States the Company sponsors 401(k) savings
plans. The Company matches a percentage of the employees contribution subject to a maximum
contribution. The expense related to the plans was $1.6 million for the year ended December
31, 2005 (2004  $1.5 million).14.
    
    Contingent liabilities:The Company is subject to legal proceedings that arise in the ordinary course of business.
In the opinion of management, the aggregate liability, if any, with respect to these actions,
will not have a material adverse effect on the consolidated financial position, results of
operations or cash flows. Legal costs are expensed as incurred.15.
    
    Subsequent events:On January 3, 2006, the Company closed a transaction to purchase all the assets and selected
liabilities of Sierra West Express Inc. (SWE), a private LTL carrier headquartered in Reno,
Nevada. SWE adds eight new terminals to Vitrans network in the states of Nevada, California
and Arizona. The acquisition was structured as an asset purchase with an aggregate purchase
price of $2.5 million, comprised of $2.3 million of cash and a contingent $0.2 million note
payable to the vendor in April 2007.
 47




---



##### 



16.
    
    Canadian and United States accounting policy differences:
 (a)
    
    Consolidated reconciliation of shareholders equity:United States GAAP requires the inclusion of a reconciliation of shareholders equity
between Canadian and United States GAAP for each year a statement of income is
presented. Shareholders equity reconciled to United States GAAP is as follows:
 Net income
    
    

Shareholders equity2005
    
    
    2004
    
    
    2003
    
    
    2005
    
    
    2004
    
    
    2003Balance, December 31,
based on
Canadian GAAP
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    139,802
    
    
    $
    119,185
    
    
    $
    97,955Foreign exchange
adjustment (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (858
    )
    
    
    (858
    )
    
    
    (858
    )Balance, before
other comprehensive
income and accumulated
other comprehensive
income, December 31,
based on United
States GAAP
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    138,944
    
    
    
    118,327
    
    
    
    97,097Other comprehensive
income:Change in cumulative
translation
adjustment
    
    
    (160
    )
    
    
    4,524
    
    
    
    4,399
    
    
    
    
    
    
    
    
    
    
    
    Change in obligation
of derivative
instrument (ii)
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    (101
    )
    
    
    (101
    )
    
    
    (101
    )Unrealized gains on
marketable securities
    
    
    (6
    )
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    Foreign exchange
adjustment (i)
    
    
    
    
    
    
    
    
    
    
    (264
    )
    
    
    594
    
    
    
    594
    
    
    
    594Balance, December 31,
based on United
States GAAP
    
    $
    17,772
    
    
    $
    19,473
    
    
    $
    14,587
    
    
    $
    139,437
    
    
    $
    118,826
    
    
    $
    97,590
 2005
    
    
    2004
    
    
    2003Earnings (loss) per share underUnited States GAAP:Basic  net income
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07Diluted  net income
    
    
    1.40
    
    
    
    1.17
    
    
    
    1.01Weighted average number of shares:Weighted average number of
shares outstanding
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901Potential exercise of stock options
    
    
    332,095
    
    
    
    455,077
    
    
    
    578,310Diluted shares
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
 48




---



##### 



16.
    
    Canadian and United States accounting policy differences (continued):
 (i)
    
    The Company had foreign exchange gains that did not represent a
substantially complete liquidation of a foreign operation included in selling,
general and administration expenses. These gains on repatriation of capital from a
subsidiary arose from the difference between the exchange rate in effect on the date
the capital was returned to Canada compared to the historical rate in effect when
the capital was invested. The gains were recognized upon the transfer into income
of the related cumulative translation adjustment under Canadian GAAP. Under United
States GAAP, there is no reduction of the cumulative translation adjustment account,
nor recognition of associated income resulting from such capital restructurings.
This transaction was not subject to income taxes.In 2003, the Company had $264 of foreign exchange gains that represented a
substantially complete liquidation of a foreign operation that was included in
selling, general and administration expenses. As the foreign operation was
substantially liquidated, Canadian and United States GAAP require the transfer into
income of the related cumulative translation adjustment.(ii)
    
    The change in the fair value of the Companys obligation for its
interest rate swap, which is designated as a cash flow hedge, has been included net
of the income tax effect of nil (2004  nil; 2003  $78).
 (b)
    
    Consolidated statements of cash flows:Canadian GAAP permits the disclosure of a subtotal of the amount of cash provided by
operations before change in non-cash working capital in the consolidated statements of
cash flows. United States GAAP does not permit this subtotal to be included.(c)
    
    Income from operations before depreciation:United States GAAP requires that depreciation be included in the determination of income
from operations. Further, United States GAAP does not permit the disclosure of a
subtotal of the amount of income from continuing operations before this item. Canadian
GAAP requires the disclosure of a subtotal of the amount of income from operations
before this item. Income from operations based on United States GAAP is as follows:
 2005
    
    
    2004
    
    
    2003Income from operations before
depreciation, as reported
    
    $
    32,392
    
    
    $
    24,183
    
    
    $
    20,308Depreciation and amortization
expense
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494Foreign exchange gain (i)
    
    
    
    
    
    
    
    
    
    
    (264
    )Income from operations based
on United States GAAP
    
    $
    25,427
    
    
    $
    18,977
    
    
    $
    14,550
 49




---



##### 



16.
    
    Canadian and United States accounting policy differences (continued):
 (i)
    
    Under Canadian GAAP, these gains were included in selling, general and
administration expenses. Under United States GAAP, these gains should be disclosed
after income from operations. See note 16(a)(i) for further explanation.
 (d)
    
    Other disclosures:United States GAAP requires certain additional disclosures in the consolidated financial
statements, as follows:
 (i)
    
    The total allowance for doubtful accounts at December 31, 2005 was $1.3
million (2004 $1.2 million).(ii)
    
    Accounts payable and accrued liabilities:
 2005
    
    
    2004Accounts payable
    
    $
    21,074
    
    
    $
    16,524Accrued wages and benefits
    
    
    6,283
    
    
    
    4,320Accrued claims, self insurance and
workers compensation
    
    
    4,148
    
    
    
    5,600Other
    
    
    9,857
    
    
    
    6,933$
    41,362
    
    
    $
    33,377
 (e)
    
    Stock-based compensation:For all stock option grants prior to January 1, 2003, stock-based compensation to
employees was accounted for based on the intrinsic value method under APB No. 25 and
related interpretations.In accordance with one of the transitional options permitted under amended FASB 148, the
Company has prospectively applied the fair value-based method to all stock options
granted on or after January 1, 2003.Canadian GAAP requires pro forma net income and earnings per share disclosure for stock
option grants during 2002. United States GAAP requires pro forma net income and
earnings per share disclosure for stock options granted on or after January 1, 1995.
For stock option grants on or after January 1, 2003, there is no policy difference
between Canadian and United States GAAP.
 50




---



##### 



16.
    
    Canadian and United States accounting policy differences (continued):Pro forma stock option disclosure:The following table outlines the pro forma impact if the compensation cost for the
Companys stock options is determined under the fair value method for awards granted on
or after January 1, 1995:
 2005
    
    
    2004
    
    
    2003Net income, as reported,
based on United States GAAP
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336Add stock-based compensation
expense included in reported
net income
    
    
    654
    
    
    
    323
    
    
    
    Deduct total stock-based
compensation expense
determined using fair value
method for all grants
    
    
    (733
    )
    
    
    (412
    )
    
    
    (212
    )Pro forma net income
    
    $
    17,859
    
    
    $
    14,854
    
    
    $
    10,124Earnings per share:Basic  as reported
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07Basic  pro forma
    
    
    1.43
    
    
    
    1.21
    
    
    
    1.05Diluted  as reported
    
    
    1.40
    
    
    
    1.17
    
    
    
    1.01Diluted  pro forma
    
    
    1.39
    
    
    
    1.17
    
    
    
    0.99
  2005
    
    
    2004Risk-free interest rate
    
    
    3.88%  4.24
    %
    
    
    4.8
    %Dividend yield
    
    
    
    
    
    
    Volatility factor of the future expected market
price of the Companys common shares
    
    
    33.84%  34.39
    %
    
    
    34.8%  36.0
    %Expected life of the options
    
    8 years
    
    
    10 years
 (f)
    
    New United States accounting pronouncement:In May 2005, FASB Statement No. 154, Accounting Changes and Error Corrections  a
replacement of APB Opinion No. 20 and FASB Statement No. 3 was issued. This statement
changes the accounting for, and reporting of, a change in accounting principles. The
statement requires retroactive application in prior years financial statements of
voluntary changes in accounting principles and when new standards do not provide for a
transitional provision. Vitran will adopt the statement effective January 1, 2006 as
required by the statement for all accounting changes and corrections subsequent to that
date.
 51




---



##### 



First
    
    
    Second
    
    
    Third
    
    
    Fourth2005 (Unaudited)
    
    quarter
    
    
    quarter
    
    
    quarter
    
    
    quarterRevenue:Less-than-truckload
    
    $
    76,105
    
    
    $
    86,429
    
    
    $
    96,658
    
    
    $
    93,501Logistics
    
    
    8,876
    
    
    
    9,615
    
    
    
    10,652
    
    
    
    11,118Truckload
    
    
    8,960
    
    
    
    9,006
    
    
    
    8,916
    
    
    
    8,356Total revenue
    
    $
    93,941
    
    
    $
    105,050
    
    
    $
    116,226
    
    
    $
    112,975Income from operations
after depreciation
    
    $
    3,659
    
    
    $
    7,013
    
    
    $
    7,818
    
    
    $
    6,937Net income
    
    
    2,754
    
    
    
    4,796
    
    
    
    5,376
    
    
    
    5,012Earnings per share:Basic
    
    $
    0.22
    
    
    $
    0.39
    
    
    $
    0.43
    
    
    $
    0.40Diluted
    
    
    0.22
    
    
    
    0.38
    
    
    
    0.42
    
    
    
    0.39
  First
    
    
    Second
    
    
    Third
    
    
    Fourth2004 (Unaudited)
    
    quarter
    
    
    quarter
    
    
    quarter
    
    
    quarterRevenue:Less-than-truckload
    
    $
    70,259
    
    
    $
    75,958
    
    
    $
    78,727
    
    
    $
    78,073Logistics
    
    
    8,167
    
    
    
    8,768
    
    
    
    8,936
    
    
    
    9,628Truckload
    
    
    8,720
    
    
    
    9,205
    
    
    
    9,332
    
    
    
    8,822Total revenue
    
    $
    87,146
    
    
    $
    93,931
    
    
    $
    96,995
    
    
    $
    96,523Income from operations
after depreciation
    
    $
    2,177
    
    
    $
    5,870
    
    
    $
    6,193
    
    
    $
    4,737Net income
    
    
    1,649
    
    
    
    4,387
    
    
    
    4,542
    
    
    
    4,365Earnings per share:Basic
    
    $
    0.14
    
    
    $
    0.36
    
    
    $
    0.37
    
    
    $
    0.35Diluted
    
    
    0.13
    
    
    
    0.34
    
    
    
    0.36
    
    
    
    0.34
  52




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##### 



ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  ITEM 9aCONTROLS AND PROCEDURES
    Managements Report on Internal Control Over Financial Reporting
      
 53




---



##### 



llp
 
 54




---



##### 



ITEM 9b OTHER INFORMATION
  PART III
 ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    Position
    
    HistoryRichard E. Gaetz
(Mississauga, Canada)
    
    
    48
    
    
    President and Chief Executive
Officer
    
    Mr. Gaetz has been working in the transportation and logistics industry for more than 25 years. He
has been actively involved with the growth and development of Vitran and has been responsible for
Vitrans freight and logistics operations since he joined in 1989. He was elected to the Board of
Directors of Vitran in 1995. Mr. Gaetz has extensive experience on both sides of the border. Prior
to joining Vitran, he spent ten years with Clarke Transport, a large Canadian freight company, in
various positions including Vice President. Mr. Gaetz received a Bachelor of Commerce degree from
Dalhousie University in Halifax in 1979 and attended the MBA program at Western Washington
University. He is a Director of the Ontario Trucking Association and the Canadian Trucking Alliance.Sean P. Washchuk
(Burlington, Canada)
    
    
    33
    
    
    Vice President Finance and
Chief Financial Officer
    
    Mr. Washchuk joined Vitran in 2000 as the Corporate Controller and was appointed Chief Financial
Officer and Vice President Finance in 2004. Prior to joining Vitran in 2000, he was a Controller at a
North American plastics recycling company and was also a manager at PricewaterhouseCoopers in the
assurance and business advisory services practice. Mr. Washchuk is a Chartered Accountant with the
Canadian Institute and received a Bachelor of Accounting degree from Brock University in Ontario.
 CODE OF ETHICS
 www.vitran.com
 55




---



##### 



ITEM 11EXECUTIVE COMPENSATION
  ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES
  Year ended December 31,2005
    
    
    2004Audit and audit related fees
    
    $
    469,489
    
    
    $
    383,256Tax fees
    
    Nil
    

    
    NilAll other fees
    
    Nil
    

    
    Nil$
    469,489
    
    
    $
    383,256
   PART IV
 ITEM 15EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
 (a)
    
    (1) Financial Statements
   56




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##### 



(2)
    
    Financial Statements Schedule:
 Schedule IIValuation and Qualifying Accounts
   Allowance for Doubtful Accounts (000s $)Balance at
    
    
    Charges to
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    at endDescription
    
    of year
    
    
    expenses
    
    
    Deductions
    
    
    of yearYear ended December 31, 2003Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,866
    
    
    $
    1,105
    
    
    $
    (1,705
    )
    
    $
    1,266Year ended December 31, 2004Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,266
    
    
    $
    584
    
    
    $
    (657
    )
    
    $
    1,193Year ended December 31, 2005Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,193
    
    
    $
    757
    
    
    $
    (675
    )
    
    $
    1,275
  Tax Valuation Allowance (000s $)Balance at
    
    
    Charges to
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    at endDescription
    
    of year
    
    
    expenses
    
    
    Deductions
    
    
    of yearYear ended December 31, 2003Tax valuation allowance
    
    $
    693
    
    
    $
    
    
    
    $
    
    
    
    $
    693Year ended December 31, 2004Tax valuation allowance
    
    $
    693
    
    
    $
    
    
    
    $
    (693
    )
    
    $
    Year ended December 31, 2005Tax valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 (3)
    
    Exhibits Filed
  57




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##### 



Exhibit Index
 Exhibit No.
    
    Document1.1*
    
    Underwriting Agreement dated December 16, 1994 between the registrant and Midland Walwyn Capital Inc. and ScotiaMcLeod
Inc.1.2*
    
    Special Warrant Indenture dated December 16, 1994 between the registrant and Montreal Trust Company for Canada, as trustee1.3*
    
    Escrow Agreement dated December 16, 1994 between the registrant and Messrs. Morris/Rose/Ledgett, Barristers and
Solicitors, as trustee1.4*
    
    Subscription Agreements:1.5*
    
    Stock Option Plan dated July 16, 19871.6*
    
    Employee Stock Option Plan approved May 17, 19951.7*
    
    Prospectus dated December 16, 20032.1*
    
    Purchase and Sale Agreement dated November 2, 1994 between the registrant and Carl Cook and Daniel L. Cook3.(i).1*
    
    Articles of Incorporation effective, April 29, 19813.(i).2*
    
    Articles of Amendment effective, May 27, 19873.(i).3*
    
    Articles of Amendment effective, July 16, 19873.(i).4*
    
    Articles of Amendment effective, February 5, 19913.(i).5*
    
    Articles of Amendment effective April 22, 20043.(ii).1*
    
    By-laws effective, May 27, 19873.(ii).2*
    
    By-law to authorize the directors to borrow and give security effective July 16, 19874.1*
    
    Cancellation of Stock Voting Agreement dated February 1, 2003 between Richard D. McGraw, Albert Gnat and Anthony F.
Griffiths9.1*
    
    Stock Voting Agreement dated July 15, 1987 between Richard D. McGraw, Albert Gnat and Anthony F. Griffiths10.1*
    
    Credit Agreement between the registrant, its subsidiaries and the Royal Bank, dated April 25, 199510.2*
    
    Credit Agreement between the Overland Group and Bank One, dated February 4, 1994 (the Overland Credit Agreement)10.3*
    
    First Amendment to the Overland Credit Agreement, effective July 1, 199410.4*
    
    Second Amendment to the Overland Credit Agreement, effective September 30, 199410.5*
    
    Third Amendment to the Overland Credit Agreement, dated December 14, 199410.6*
    
    Fourth Amendment to the Overland Credit Agreement, dated February 1, 199510.7*
    
    Fifth Amendment to the Overland Credit Agreement, effective December 31, 199410.8*
    
    Sixth Amendment to the Overland Credit Agreement, dated March 2, 199510.9*
    
    Operating Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia, dated July 25, 199510.9.1*
    
    First Amending Agreement to Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia,
dated September 3, 199810.9.2*
    
    Second Amending Agreement to Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia,
dated January 8, 199910.9.3*
    
    Amended and Restated Credit Agreement between Vitran Corporation Inc. and Trans Western Express Inc. and The Bank of Nova
Scotia, dated January 31, 200210.10*
    
    Note Purchase Agreement between Trans Western Express Inc., the registrant and certain purchasers, dated July 25, 199510.11*
    
    Amendment No. 1 to Note Agreement (Amending Agreement), dated June 28, 199610.12*
    
    Amendment No. 2 to Note Agreement (Amending Agreement), dated May 13, 1997
 58




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##### 



Exhibit No.
    
    Document10.13*
    
    Credit Agreement between the registrant and The Bank of Nova Scotia, dated September 3, 199810.14*
    
    Credit Agreement between the registrant and The Bank of Nova Scotia and Laurentian Bank of Canada, dated October 13, 199910.15*
    
    Confidential Transportation Contract dated January 1, 1993 between Trans Western Express Inc. and Canadian National
Railway Company10.16*
    
    Agreement dated April 24, 1995 between the registrant, Borcross Limited, Carl Cook and Daniel L. Cook amending the terms
of the Overland Note10.17*
    
    Engagement Letter dated April 28, 1995 between the registrant and Banc One Capital Corporation10.18*
    
    Offer of Employment dated September 30, 1998 from the registrant to Kevin Glass10.19*
    
    Share Purchase Agreement between the registrant and Randall Quast, dated July 21, 199810.20*
    
    Employment agreement dated November 25, 2004 from the registrant to Sean P. Washchuk10.21*
    
    Employment agreement dated April 29, 2004 from the registrant to Rick E. Gaetz10.22*
    
    Employment agreement dated April 29, 2004 from the registrant to Kevin A. Glass10.3*
    
    Share purchase agreement, by Vitran Corporation and Chris Dugan, dated May 30, 200510.4*
    
    Deferred share unit plan, dated September 14, 200514.1*
    
    Code of Ethics and Professional Conduct for Directors, Senior Executives and Employees, dated August 3, 200431.1
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Previously filed SIGNATURES
  Vitran
    Corporation Inc.By:
    
    /s/ SEAN P. WASHCHUKSean P. WashchukVice President, Finance andChief Financial Officer
 59




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##### 



Signatures
    
    Title
    
    Date/s/ RICHARD D. McGRAW

Richard D. McGraw
    
    Chairman of the Board
    
    February 8, 2006/s/ RICHARD E. GAETZ

Richard E. Gaetz
    
    President and Chief Executive Officer, Director
    
    February 8, 2006/s/ GEORGES L. HÉBERT

Georges L. Hébert
    
    Director
    
    February 8, 2006/s/ WILLIAM S. DELUCE

William S. Deluce
    
    Director
    
    February 8, 2006/s/ ANTHONY F. GRIFFITHS

Anthony F. Griffiths
    
    Director
    
    February 8, 2006/s/ JOHN R. GOSSLING

John R. Gossling
    
    Director
    
    February 8, 2006/s/ SEAN P. WASHCHUK

Sean P. Washchuk
    
    Vice President Finance and Chief Financial Officer
(Principal Financial Officer)
    
    February 8, 2006/s/ FAYAZ D. SULEMAN

Fayaz D. Suleman
    
    Corporate Controller
(Principal Accounting Officer)
    
    February 8, 2006
 60