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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
   FORM 10-K
 
 (Mark One) [X]
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2003 OR [   ]
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _____________ to ______________. 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 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on which registeredTitle of each classTSX ®Class A Voting Common Stock
    
    AMEX®
 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [   ] No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the
registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K [   ]. Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). [   ] Yes [X] No The number of shares of common stock outstanding at February 23, 2004 was
12,112,278. The aggregate market value of the voting stock of the registrant,
excluding directors, officers and registered holders of 10% as of February 23,
2004 was approximately $198,650,884.00. DOCUMENTS INCORPORATED BY REFERENCE 1) Proxy statement to be filed on or about March 23, 2004 (Only those portions
referenced herein are incorporated in this Form 10-K). 1




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TABLE OF CONTENTS Item
    
    
    
    PagePART I1.
    
    Business
    
    
    32.
    
    Properties
    
    
    143.
    
    Legal Proceedings
    
    
    144.
    
    Submission of Matters to a Vote of Security Holders
    
    
    14PART II5.
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    156.
    
    Selected Financial Data
    
    
    177.
    
    Management Discussion and Analysis
    
    
    197a.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    288.
    
    Financial Statements and Supplementary Data
    
    
    289.
    
    Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
    
    
    619a.
    
    Controls and Procedures
    
    
    61PART III10.
    
    Directors and Executive Officers of the Registrant
    
    
    6111.
    
    Executive Compensation
    
    
    6212.
    
    Security Ownership of Certain Beneficial Owners and Management
    
    
    6213.
    
    Certain Relationships and Related Transactions
    
    
    6214.
    
    Principle Accounting Fees and Services
    
    
    62PART IV15.
    
    Exhibits, Financial Statements Schedules and Reports on Form 8-K
    
    
    62EX-31EX-32




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Unless otherwise indicated all dollar references herein are in U.S. dollars. 
 PART I 
 ITEM 1 BUSINESS THE TRUCKING INDUSTRY According to estimates made by the American Trucking Associations and
Global Insight (formerly DRI-WEFA), the United States trucking industry in 2002
accounted for approximately $585 billion, or approximately 87% of total
domestic freight transportation revenue. Trucks provide freight transportation
services to virtually every industry operating in the United States and Canada
and generally offer higher levels of reliability, shipment integrity, and speed
than other surface transportation options. The trucking industry is highly
competitive on the basis of service and price. The less-than-truckload portion of the industry accounted for
approximately $58 billion of revenue during 2002. According to the American
Trucking Associations and Global Insight, LTL volume is forecasted to grow in
the United States at an average rate of 3.1% per year through 2008. LTL carriers transport freight for multiple customers to multiple
destinations on each trailer. This service requires a network of local pick-up
and delivery terminals, hub facilities, and driver fleets. The LTL business is
capital intensive, and achieving significant density of operations in a given
region can afford a competitive advantage since greater freight volumes are
better able to support fixed costs. Vitran Corporation Inc. (Vitran or the
Company) believes the regional LTL industry offers a favourable operating
model and provides substantial growth opportunities for the following reasons:  
    
    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 predominately 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. BUSINESS Vitran is a leading, predominately non-union, provider of surface
transportation and related logistics services throughout Canada and in 18
states in the central and southern United States (the Central States). Its
business consists of: (1) less-than-truckload services (LTL), (2) logistics
services, and (3) truckload services. These services are provided by
stand-alone business units. Depending on a customers needs, the units can
operate independently or in a complementary manner. For the years ended
December 31, 2003 and 2002, the Company had revenues of approximately $331.8
million, and $303.6 million, respectively. Corporate History Vitran was incorporated under the laws of Ontario by certificate of
incorporation effective April 29, 1981. Vitran commenced operations in 1983
with the acquisition of G&W Freightways Ltd., an Ontario / Quebec regional LTL
company. On August 5, 1987, in connection with its initial public offering,
Vitran listed its shares under the Toronto Stock Exchange on the symbol VTN.A.
In August 1989, Vitran acquired Northern Pool Express Limited (NPEL). NPEL
and certain subsidiaries operating under the name Trans Western Express and
provided a freight forwarding operation which specialized in LTL amounts of
general freight primarily from Ontario and Quebec to all parts of Western
Canada. On March 2, 1995, Vitran acquired all of the outstanding shares of the
Overland Group, a primarily over-the-road short haul regional LTL carrier
operating in 12 central U.S. states. On September 9, 1998 Vitran acquired
Quast Transfer Inc., a Minnesota-based regional overnight LTL carrier operating
in nine states in the central U.S. In April 1999 Overland and Quast were
combined to and the name was changed to Vitran Express Inc. In December 2002,
Vitrans Canadian LTL operations were rebranded and now operate under the name
Vitran Express Canada Inc. 3




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During December 2003 Vitran raised gross proceeds of $31.6 million in
share capital from an underwritten public offering. In February 2004, the
Board of Directors determined that the number of the Companys U.S.
shareholders exceeded 50% of the total number of the Companys shareholders and
therefore Vitran ceased to be a foreign private issuer under U.S. securities
laws. Accordingly, Vitran is required to file U.S. domestic issuer forms in
complying with its U.S. reporting obligations. In 2004, the Company also
elected to change its reporting currency from Canadian dollars to U.S. dollars. As of December 31, 2003 Vitran was primarily engaged in providing a broad
range of freight services that is composed of the following subsidiaries and
operating units: Vitran Express Canada, Vitran Express, Vitran Logistics, and
Frontier Transport. Corporate Structure Vitrans business is carried on through its subsidiaries with a number of
these affiliated corporations holding the relevant licenses that permit the
operations of the Vitrans business. The following chart sets forth Vitrans
principal operating subsidiaries (including their jurisdiction of
incorporation) as at December 31, 2003. Unless otherwise noted, all
subsidiaries are wholly owned. (ORGANIZATION CHART) LTL Services Vitrans LTL business represented approximately 81.4% of its revenue for
the year ended December 31, 2003. Within the United States, the Company
operates primarily within the Central States and delivers approximately 90% of
its freight shipments within one or two days. In addition, the Company offers
its services to the other regions in the United States (other than Alaska and
Hawaii) through its strategic relationships with New England Motor Freight Inc.
and SAIA Motor Freight Line Inc. Vitrans US LTL regional business represented
approximately 47.2% of its revenues for the year ended December 31, 2003.
Within Canada, the Company provides next-day service within Ontario and Quebec
and parts of western Canada, and generates most of its revenue from the
movement of LTL freight within the three to five day east/west lanes. Most of
its trans-Canada freight is shipped by rail under an intermodal agreement
with CN Rail, under which the Companys containers are loaded onto CN Rail cars
and shipped to various points where Vitrans network of owner operators pick up
and deliver the freight to various destinations. Vitrans Canadian LTL business
represented approximately 34.3% of its revenues for the year ended December 31,
2003. The Company believes that it is able to efficiently deliver freight
using, in the Companys belief, the largest, Canadian LTL non-railroad owned
fleet of intermodal containers in Canada and by using its network of owner
operators for the pick-up and delivery segment of the shipment. 4




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Vitran has grown organically and made strategic acquisitions to build a
comprehensive LTL network throughout Canada and in the Central States. The LTL
segment consists of two main business units: Canadian LTL and US LTL. The main
operating companies within those units are Vitran Express Canada and Vitran
Express US, respectively. Vitran Express Canada Within Canada, Vitran Express Canada provides next-day service within
Ontario and Quebec and parts of western Canada, and generates most of the
Companys revenue from the movement of LTL freight within the three to five day
east/west lanes. Vitran believes that the Canadian LTL, in conjunction with its
167 owner operators, provides the most comprehensive LTL services within
Canada. The Canadian LTL business unit consists of four subunits: 
    
    Vitrans National Service Solutioncovers the entire Canadian
marketplace and Washington and Oregon. It utilizes 11 terminal
facilities from Montreal to Vancouver and has contracted agents in the
eastern provinces of Canada. Within this three to five day lane,
Canadian LTL utilizes intermodal rail through CN Rail to transport
primarily Vitran-owned containers from the origin to destination city.
The Company believes that among Canadian regional LTL companies Vitran
Express Canada has the most significant presence in intermodal rail;
    
    Vitrans Expedited Service Solutioncovers the same geographic area
as the National Service Solution. Vitran Express Canada offers its
customers a premium service using over-the-road driver teams to provide
linehaul service. Since it offers to complete these moves in a shorter
time frame than its National Service Solution, the Company is able to
charge its customers a higher rate for this service;
    
    Vitrans Regional Service Solutionoperates in one to two day lanes
within the Ontario/Quebec marketplace utilizing its trailers to provide
linehaul and pick-up and delivery service through a terminal network
located in seven major cities in the two provinces; and
    
    Vitrans Transborder Service Solution(inter-regional) provides
over-the-road service primarily between Canadian LTL and Vitrans US LTL
business unit in the Central States. This is the Companys highest
margin and fastest growing service, achieving approximately 30.3% year
over year volume growth for the year ended December 31, 2003. In
addition, through strategic relationships with New England Motor Freight
Inc. and SAIA Motor Freight Line Inc., it offers transborder freight
services to the remainder of the continental United States. Vitran Express US Vitran Express US provides primarily regional next day and second day LTL
service throughout the Central States. The service is provided by road, mostly
by Company drivers, which allows US LTL more control in servicing these time
sensitive shipments. As an integral part of its service solution, US LTL was
one of the first regional LTL companies to offer an unconditional money back
service guarantee to its customers. US LTL also provides an LTL service between
the Central States and 10 states in the Northeast United States as well the
District of Columbia and Puerto Rico, through its strategic relationship with
New England Motor Freight Inc. Vitran Express US also has a strategic
relationship with SAIA Motor Freight Line Inc., thereby offering transborder
freight services to the remainder of the continental United States. Vitran Logistics Vitrans logistics business, which represented approximately 8.6% of its
revenues for the year ended December 31, 2003, consists of two principal lines
of businesses: (1) supply chain solutions in Canada and the United States
including warehousing, inventory management and flow-through distribution
facilities, and (2) freight brokerage which coordinates the transport of truck
and container loads from sales offices in Toronto, Montreal, Los Angeles and
Atlanta. 5




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Supply Chain Solutions.Supply chain solutions involve the transportation
and management of goods and the provision of information about such goods as
they pass through the supply chain from manufacturer to end user. Vitran
Logistics role is to design a supply chain network for a customer, contract
with the necessary suppliers (including Vitran Express US and Vitran Express
Canada), and implement the design and manage the logistical system. Demand for
supply chain services has grown as businesses outsource the management of the
transportation and distribution function in order to reduce their own logistics
costs, to concentrate on their core business or to improve customer service. Our supply chain services unit offers a range of services in Canada and
the United States including warehousing, inventory management and flow through
distribution facilities, focusing primarily on long-term logistics solutions. Freight Brokerage.Vitrans freight brokerage unit is headquartered in
Toronto, Ontario, with sales offices in Toronto, Montreal, Los Angeles, and
Atlanta so as to capitalize on international traffic flows. Vitran Logistics
coordinates the transport of truck and container loads directly from a
customers facility to the customers consignee, anywhere in North America. The
freight brokerage unit offers both intermodal and highway solutions to clients
with any type of full load requirement. Vitran Logistics supports the movement
of freight through direct computer links with both its carriers and customers.
It provides customers with real-time tracking, customer support information and
expediting as required. Truckload Vitrans truckload business, operating as Frontier Transport Corporation
(Frontier), provides truckload service. Frontier principally utilizes its
company-owned trailing equipment and tractor owner operators. The business is
primarily dry van with a small temperature controlled service available.
Frontier operates out of two terminals, one in Atlanta, and the other in
Indianapolis where the main administration office is located. Frontier
principally delivers within a 400-mile radius utilizing 247 owner operators
with company-owned or leased trailing fleet. Company Information Vitran Corporation Inc. was incorporated in Ontario, under the Business
Corporations Act (Ontario) and the registered and principal office is located
at 185 The West Mall, Suite 701, Toronto, Ontario M9C 5L5. The telephone number
is (416) 596-7664 and the telecopier number is (416) 596-8039. Infrastructure Equipment.At December 31, 2003, Vitran operated a fleet of 699 tractors
and a trailing fleet of approximately 4,780 units. In its US LTL operation, the
Company generally uses new tractors in linehaul operations for approximately
two to four years and then transfers them to pickup and delivery for the
remainder of their useful lives. In a number of Vitrans terminals, tractors
perform pickup and delivery functions during the day and linehaul functions at
night in order to maximize tractor utilization. In Vitrans Canadian LTL
operation, it contracts with owner operators to provide the tractors for pickup
and delivery and linehaul services. Vitran primarily uses 53-foot dry vans its pickup and delivery operations
in Canada and the United States. However, over the course of 2001 and 2002 the
Company converted its US LTL linehaul fleet to tandem 26 foot pup trailers
equipped with load bars to maximize density and minimize claims issues. The chart below shows the breakdown of Vitrans fleet by operating segment
at December 31, 2003. Segment
    
    Tractors
    
    Trailers
    
    Containers
    
    ChassisLTL
    
    
    692
    
    
    
    3,160
    
    
    
    387
    
    
    
    304Truckload
    
    
    
    
    
    
    867
    
    
    
    
    
    
    
    Logistics
    
    
    7
    
    
    
    62
    
    
    
    
    
    
    
    Total
    
    
    699
    
    
    
    4,089
    
    
    
    387
    
    
    
    304
 6




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Terminals and Distribution Facilities.Vitran operates 70 terminals, 15
of which are located in Canada and 55 of which are located in the United
States. The Companys LTL segment operates 65 terminals with a total of 1,555
loading doors in the United States and with a total of 558 loading doors in
Canada. The 10 largest terminals in Vitrans LTL segment, in terms of the
number of loading doors, are listed below. Terminals
    
    Doors
    
    Owned/ LeasedToronto
    
    
    132
    
    
    LeasedIndianapolis
    
    
    116
    
    
    LeasedMontreal
    
    
    85
    
    
    OwnedVancouver
    
    
    85
    
    
    OwnedChicago
    
    
    81
    
    
    LeasedWinsted
    
    
    78
    
    
    OwnedEdmonton
    
    
    69
    
    
    OwnedSt. Louis
    
    
    65
    
    
    LeasedMinneapolis
    
    
    62
    
    
    LeasedCalgary
    
    
    47
    
    
    Leased
 Over the last five years, the Canadian LTL operation has been
transitioning its LTL terminal network from outmoded railspur boxcar facilities
to intermodal facilities to better facilitate the movement of freight in
Canada. The program is almost complete, and only the Toronto terminal requires
conversion to an intermodal facility. Vitran is waiting for CN Rails
determination of the location of their intermodal yard before finalizing its
new location in Toronto. Vitran anticipates that the terminal will be
constructed and completed by the end of 2005. In addition to two warehouse facilities, Vitrans logistics business
operates two dedicated flow-through facilities, one in Canada, and the other in
the United States, for major retailers in the respective markets. Vitrans
truckload business operates two terminals, one in Indianapolis and the other in
Atlanta. Marketing and Customers Vitran derives its revenue from thousands of customers from a variety of
geographic regions and industries in Canada and the United States. The
Companys largest customer represents less than 2.0% of Vitrans revenues. At
December 31, 2003, it had a sales staff of 143 employees and the sales force is
compensated with a base salary and a variable compensation package tailored to
their business unit operating environment. The LTL segment utilizes a computerized freight-costing model to determine
the price level that is appropriate for each particular shipment of freight.
When necessary, Vitran competes to secure revenue by participating in bid
solicitations, provided its customer recognizes the Company as a core carrier
over a contracted period of time. In the logistics business Vitran customizes each solution to fit the needs
of the customer. The logistics operation pursues opportunities that will not
only increase the profitability of that segment but will supplement
profitability in Vitrans LTL segment as well. The freight brokerage business maintains sales offices in Toronto,
Montreal, Los Angeles and Atlanta, to capitalize on international traffic
flows. The freight brokerage unit offers both intermodal and over-the-road
truckload solutions to clients. Employees At December 31, 2003, Vitran employed approximately 2,299 full and
part-time employees and contracted with approximately 461 owner operators. The
chart below depicts the employees and owner operators by segment. Non-Driver Employees
    
    Company DriversVitran Corporation Inc.
    
    
    
    
    
    Total
    
    OwnerSegment
    
    Full-time
    
    Part-time
    
    Full-time
    
    Part-time
    
    Employees
    
    Operators
    
    TotalLTL
    
    
    1,033
    
    
    
    223
    
    
    
    *800
    
    
    
    *26
    
    
    
    2,082
    
    
    
    178
    
    
    
    2,260Logistics
    
    
    154
    
    
    
    4
    
    
    
    9
    
    
    
    
    
    
    
    167
    
    
    
    36
    
    
    
    203Truckload
    
    
    44
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    45
    
    
    
    247
    
    
    
    292Corporate Office
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5
    7




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All of Vitrans drivers and owner operators are required to have valid
commercial drivers licenses and pass stringent Company screening process.
Where permitted, the Company periodically conducts drug and alcohol screening
tests. Only 133 of Vitrans employees are represented by labour unions. Two of
Vitrans terminals in Canada operate with unionized dock workers represented by
the International Brotherhood of Teamsters and the Canadian Autoworkers
Association. The Company has two collective agreements with its unionized
employees. These agreements expire on March 31, 2008, and on September 30,
2008, respectively. Information Technology Vitran uses technology to reduce costs, improve productivity, and enhance
its customer service. Vitran allows its customers to access or exchange
information with the Company via Vitrans website, published web services,
electronic data interchange, or over the telephone. The Company uses
sophisticated freight handling software to maximize its load average, reduce
freight handling, reduce transit times, and improve tracking of shipments
through its system. Vitran has integrated its tracking systems with the systems
maintained by SAIA Motor Freight Lines Inc. and New England Motor Freight Inc. Competition The transportation industry is highly competitive on the basis of both
price and service. The Company competes with regional, inter-regional and
national LTL carriers, truckload carriers, third party logistics companies and
to a lesser extent, small package carriers, air freight carriers and railroads.
The Company competes effectively in its markets by providing high quality and
timely service at competitive prices. Seasonality In the trucking industry for a typical year, the months of September and
October usually have the highest business levels, while the months of December,
January and February generally have the lowest business levels. Adverse
weather conditions, generally experienced in the first quarter of the year,
such as heavy snow and ice storms, have a negative impact on operating results.
Accordingly revenue and profitability are generally lowest in the first
quarter. 8




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RISK FACTORS Risks Relating to Vitran Corporation Inc.  The trucking industry is highly competitive, and Vitrans business will
suffer if the Company is unable to adequately address potential downward
pricing pressures and other factors that may adversely affect operations and
profitability. Numerous competitive factors could impair Vitrans ability to maintain its
current profitability. These factors include the following:  
    
    Vitran competes with many other transportation service providers of
varying sizes, many of which have more equipment, a broader coverage
network, a wider range of services and greater capital resources than
Vitran does or have other competitive advantages;
    
    some of Vitrans competitors periodically reduce their prices to gain
business, especially during times of reduced growth rates in the
economy, which may limit Vitrans ability to maintain or increase its
prices or maintain significant growth in its business;
    
    many customers reduce the number of carriers they use by selecting
so-called core carriers as approved transportation service providers,
and in some instances Vitran may not be selected;
    
    many customers periodically accept bids from multiple carriers for
their shipping needs, and this process may depress prices or result in
the loss of some business to competitors;
    
    the trend towards consolidation in the surface transportation
industry may create other large carriers with greater financial
resources than Vitran and other competitive advantages relating to their
size;
    
    advances in technology require increased investments to remain
competitive, and Vitrans customers may not be willing to accept higher
prices to cover the cost of these investments; and
    
    competition from non-asset-based logistics and freight brokerage
companies may adversely affect the Companys customer relationships and
prices.  Unsuccessful execution of Vitrans acquisition strategy could cause the
Companys business and future growth prospects to suffer. Vitran may not be able to implement its strategy to acquire other
transportation companies, which depends in part on the availability of suitable
candidates. In addition, Vitran may face competition for the acquisition of
attractive carriers from other consolidators in the freight transportation
industry who may be larger or better financed than Vitran is. Furthermore,
there can be no assurance that if the Company acquires what it considers to be
a suitable candidate in accordance with its growth strategy, Vitran will be
able to successfully integrate the operations of the acquired company into its
operations on an accretive basis. Significant ongoing capital requirements could limit growth and affect
profitability. Vitrans business is highly capital intensive. The Companys capital
expenditures for the years ended December 31, 2003 and December 31, 2002 were
$6.9 million and $4.6 million, respectively. Vitran expects its capital
expenditures for 2004 to be in the range of $8.0 million to $10.0 million.
However, it is the Companys plan, within the next two years, to build a new
LTL/intermodal terminal in Toronto that would cost Vitran approximately Cdn $15
million to Cdn $17 million. This could increase the estimated capital
expenditures for 2004 and/or 2005. 9




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Vitran depends on operating leases, lines of credit, secured equipment
financings and cash flow from operations to finance the purchase of tractors,
trailing fleet, IT hardware and terminals. If the Company is unable in the
future to raise sufficient capital or borrow sufficient funds to make these
purchases, Vitran will be forced to limit its growth and operate its trucks for
longer periods of time, which could have a material adverse effect on its
business, operations or financial condition.  Vitran is subject to general economic factors that are largely out of its
control, any of which could have a material adverse effect on its business,
results of operations and financial condition. Vitrans business is subject to a number of general economic factors, many
of which are largely out of its control, that may have a material adverse
effect on its prospects, business, results of operations and financial
condition. These include recessionary economic cycles and downturns in its
customers business cycles, as well as downturns in the principal regional
economies where its operations are located. Economic conditions may adversely
affect its customers business levels and the amount of transportation services
that they need. Furthermore, customers encountering adverse economic conditions
may have difficulty in paying for Vitrans services. Finally, terrorist
activities, anti-terrorist efforts, war or other armed conflicts involving the
United States or its interests abroad may have a material adverse effect on the
United States and global economies and on Vitrans business, operations or
financial condition. Vitran is a foreign- based corporation. Vitran is a Canadian based corporation with substantial operations in the
United States. Changes in United States laws or the application thereof,
including regulatory, homeland security or taxation, that primarily impact
foreign corporations could have a material adverse effect on Vitrans
prospects, business, financial condition and results of operations. Fluctuations in the price and availability of fuel may adversely impact
profitability. Fuel is a significant operating expense. Vitran does not hedge against the
risk of fuel price increases. Any increase in fuel taxes or fuel prices or any
change in federal, state or provincial regulations that results in such an
increase, to the extent that the increase is not offset by freight rate
increases or fuel surcharges to customers, or any interruption in the supply of
fuel, could have a material adverse effect on Vitrans business, operations or
financial condition.  The trucking industry is subject to numerous laws and regulations in Canada
and the United States, exposing Vitran to potential claims and compliance
costs that could adversely affect Vitrans business. Regulatory agencies exercise broad powers over the trucking industry
business, generally governing such activities as authorization to engage in
motor carrier operations, safety and financial reporting. The industry also may
become subject to new or more restrictive regulations relating to fuel
emissions, ergonomics, or limits on vehicle weight and size. Additional changes
in the laws and regulations governing the trucking industry could affect the
economics of the industry by requiring changes in operating practices or by
influencing the demand for, and the costs of providing, services to customers. From time to time, various legislative proposals that might affect the
trucking industry are introduced, including proposals to increase federal,
state, provincial or local taxes, including taxes on motor fuels. Vitran cannot
predict whether, or in what form, any increase in such taxes applicable to the
Company will be enacted. Increased taxes could adversely affect Vitrans
profitability. Vitrans employees and owner operators also must comply with the safety
and fitness regulations promulgated by the US Department of Transportation
(DOT), including those relating to drug and alcohol testing and hours of
service.  The DOT adopted revised hours-of-service regulations that could reduce the
amount of allowable driving time, resulting in increased costs of compliance
with, or liability for violation of, these regulations which could have a
material adverse effect on Vitran business. 10




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On April 28, 2003, the DOT adopted revised hours-of-service regulations,
which must be complied with beginning January 4, 2004. This change could reduce
the amount of time that drivers are allowed to spend driving if those drivers
are called upon to assist shippers in non-driving activities, such as loading,
unloading, and waiting. Vitran believes the new regulations will have greater
impact on truckload carriers and long-haul national LTL carriers than on
regional LTL carriers. However, some consequences may not be readily apparent.
Vitran does not expect the new regulations to materially affect its pick-up and
delivery operations, but some effect is possible. The linehaul operations
between terminals could be affected if either the Companys own drivers or the
drivers of third parties with whom Vitran contracts are unable to maintain the
schedules the Company desires. In such event, Vitran could be forced to alter
its processes or its pick-up and delivery schedules for customers, either of
which could impose additional costs or change its service standards and cause
customers to seek alternative service. If these changes increase the Companys
costs and Vitran cannot pass the additional costs through to shippers, or if
business is lost because of changes in service levels, Vitrans operating
results could be materially and adversely affected. Changes in governmental regulation may impact future cash flows and
profitability. Notwithstanding the fact that the freight transportation industry is
largely deregulated in the area of operating authorities, each carrier must
obtain a license issued by each provincial transport board in order to carry
goods extra-provincially or to transport goods within any province. Licensing
from US regulatory authorities is also required for the transportation of goods
between Canada and the United States and within the United States. Any change
in these regulations could have an impact on the scope of the Companys
activities. There is no assurance that Vitran will be in full compliance at all
times with such policies and guidelines. As a result, Vitran could be required,
at some future date, to incur significant costs in order to maintain or improve
its compliance record. Results of operations may be affected by seasonal factors and harsh weather
conditions. Vitrans business is subject to seasonal fluctuations. In the trucking
industry for a typical year, the months of September and October usually have
the highest business levels while December and January generally have the
lowest business levels. Adverse weather conditions such as heavy snow or ice
storms have a negative impact on operating results. If additional employees unionize, Vitran s operating costs would increase. Two of Vitrans terminals in Canada, representing approximately 5.8% of
its workforce, operate with unionized dockworkers represented by the
International Brotherhood of Teamsters and the Canadian Autoworkers
Association. The collective bargaining agreements between Vitran and its
unionized employees expire on March 31, 2008, and on September 30, 2008,
respectively. Vitran has no assurance that other employees will not unionize in
the future. From time to time there have been efforts to organize the Companys
employees at various terminals, which could increase its operating costs and
force Vitran to alter its operating methods. This could, in turn, have a
material adverse effect on Vitrans business, operations or financial
condition.  Various environmental laws and regulations, and costs of compliance with,
liabilities under, or violations of, existing or future environmental laws or
regulations could adversely affect Vitrans results. Vitran is subject to various federal, state, provincial and local
environmental laws and regulations regulating, among other things, the emission
and discharge of hazardous materials into the environment from its properties
and vehicles, fuel storage tanks and the discharge or retention of storm water.
Under specific environmental laws, Vitran could also be held responsible for
any costs relating to contamination at its past or present facilities and at
third-party waste disposal sites. Environmental laws have become, and are
expected to become, increasingly more stringent over time, and there can be no
assurance that costs of complying with current or future environmental laws or
liabilities arising under such laws will not have a material adverse effect on
the Companys business, operations or financial condition. 11




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##### Table of Contents



The US Environmental Protection Agency has issued regulations that require
progressive reductions in exhaust emissions from certain diesel engines through
2007. New emissions standards under the regulations and a judicial consent
decree went into effect for certain engines beginning in October 2002. In
addition, the regulations require subsequent reductions in the sulfur content
of diesel fuel beginning in June 2006 and the introduction of emissions
after-treatment devices on newly-manufactured engines and vehicles beginning
with the model year 2007. Each of these requirements could result in higher
prices for tractors and diesel engines and increased fuel and maintenance
costs. These adverse effects, combined with the uncertainty as to the
reliability of the vehicles equipped with newly-designed diesel engines and the
residual values that will be realized from the disposition of these vehicles,
could increase the Companys costs and have a material adverse effect on Vitran
business, operations or financial condition. Loss of key personnel could harm Vitrans business, operations or financial
condition. Vitran is dependent on certain management personnel for the successful
operation of its business. Furthermore, the Companys success is dependent upon
its ability to recruit and retain key employees. Interest rate fluctuations will impact Vitrans financial results. Vitran is subject to fluctuations in interest rates. At December 31, 2003,
the Company had approximately $26.1 million in debt borrowed at variable
interest rates. Exchange rate and currency risks may impact Vitrans financial results. Vitran prepares its financial statements in U.S. dollars. Since
approximately one-third of its operations are Canadian-based, this has a
significant impact on the Companys results. 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. Certain of Vitrans Canadian operating entities revenues are generated in
US dollars, exposing the Company to exchange rate and currency risks. In
preparing its financial statements, Vitran must convert all Canadian dollar
profits to U.S. dollars at varying rates of exchange. This may ultimately
result in a currency gain or loss at the end of each fiscal year, the outcome
of which cannot be predicted. Insurance and claims expenses could significantly reduce Vitrans
profitability. Vitrans operations are subject to risks normally inherent in the freight
transportation industry, including potential liability which could result from,
among other circumstances, personal injury or property damage arising from
accidents or incidents involving trucks operated by the Company or the
Companys agents. The availability of, and ability to collect on, insurance
coverage is subject to factors beyond Vitrans control. In addition, Vitran may
become subject to liability for hazards which it cannot or may not elect to
insure because of high premium costs or other reasons, or for occurrences which
exceed maximum coverage under its policies. The Companys future insurance and
claims expenses might exceed historical levels, which could reduce its
earnings. Insurance carriers have raised premiums for most trucking companies
over the last three years and increases to the Companys premiums could further
increase its insurance and claims expense as current coverages expire or cause
Vitran to raise its self-insured retention. If the number or severity of claims
for which Vitran is self- insured increases, the Company suffers adverse
development in claims compared with its reserves, or any claim exceeded the
limits of its insurance coverage, this could have a material adverse effect on
Vitrans business, operations or financial condition. Moreover, any accident or incident involving Vitran, even if the Company
is fully insured or not held to be liable, could negatively affect its
reputation among customers and the public, thereby making it more difficult for
Vitran to compete effectively, and could significantly affect the cost and
availability of insurance in the future. 12




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##### Table of Contents



Vitran relies on purchased transportation, making it vulnerable to increases
in costs of these services. In Canada, Vitran uses purchased transportation, primarily intermodal rail
from CN Rail, to provide cost effective service on its east west national LTL
service offering. In the United States, the Company uses purchased
transportation primarily to handle lane imbalances and to accommodate surges in
business. For example, Vitran moves trailer loads in one direction using
purchased transportation in situations when scheduling one of its drivers to
move the load would result in the driver returning with empty trailers. The
Company will also, on occasion, augment its linehaul capacity during certain
peak periods through the use of purchased transportation. A reduction in the
availability of purchased transportation may require the Company to incur
increased costs to satisfy customer shipping orders. The Company may be unable
to pass along increases in third party shipping prices to its customers. Any of
these factors could have a material adverse effect on Vitrans business,
operations or financial condition. Vitrans business may be adversely affected by anti-terrorism measures. In the aftermath of the September 11, 2001 terrorist attacks in the United
States, federal, state and municipal authorities have implemented and are
continuing to implement various security measures, including checkpoints and
travel restrictions on large trucks. New DOT measures, which became effective
on March 25, 2003, impose additional security planning and training obligations
on shippers of hazardous materials. We have developed a security plan,
including the training required under these new measures, which will be
implemented on or before the dates specified in these measures. However, if
additional security measures disrupt or impede the timing of the Companys
deliveries, Vitran may fail to meet the needs of its customers or may incur
increased expenses to do so. Vitran cannot assure you that these measures will
not have a material adverse effect on Vitrans business, operations or
financial condition. An increase in the cost of healthcare benefits in the United States could
have a negative impact on Vitrans profitability. Vitran sponsors health insurance for its United States employees, retirees
and their dependents through Preferred Provider Organizations, or PPOs, and
offers a competitive healthcare program to attract and retain its employees.
These benefits comprise a significant portion of its operating expenses. It is
possible that healthcare costs could become increasingly cost prohibitive,
either forcing Vitran to make changes to its benefits program or negatively
impacting its future profitability. Difficulty in attracting qualified drivers could adversely affect Vitrans
profitability and ability to grow. The freight transportation industry experiences difficulty in attracting
and retaining qualified drivers, including owner operators. If the Company is
unable to attract drivers and contract with owner operators, Vitran could be
required to adjust its compensation package, let trucks sit idle, or operate

with fewer owner operators and face difficulties meeting customer demands, all
of which could adversely affect Vitrans growth and profitability. Available Information Vitran makes available free of charge on or through its Web site at
www.vitran.com, its annual report on Form 10K, historical quarterly reports and
other information releases on Form 6-K. Commencing 2004, Vitran will be filing
Form 10-Q for quarterly reports and current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after such
material is electronically filed with or furnished to the Securities and
Exchange Commission. 13




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##### Table of Contents



ITEM 2 PROPERTIES Vitrans corporate office is located at 185 The West Mall, Suite 701,
Toronto, Ontario, Canada, M9C 5L5.The 2,700 square foot office is occupied
under a lease terminating in March 2008. Each of Vitrans operating subsidiaries also maintains a head office as
well as numerous operating facilities. Vitran has not experienced and do not
anticipate difficulties in renewing existing leases on favorable terms or
obtaining new facilities as and when required. Please see Item 1 Terminals and Distribution Facilities on Form 10-K for
more information regarding the Companys properties. 
 ITEM 3 LEGAL PROCEEDINGS Vitran is involved in various legal proceedings and claims that have
arisen in the ordinary course of its business that have not been fully
adjudicated. Many of these are covered in whole or in part by insurance. The
management of Vitran does not believe that these actions, when finally
concluded and determined, will have a significant adverse effect upon Vitrans
financial position or results of operations. 
 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14




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##### Table of Contents



PART II 
 ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Description of Share Capital Vitrans authorized capital consists of an unlimited number of Class A
Voting shares, Class B Non-Voting shares and first preference shares, issuable
in series. At December 31, 2003, there were 12,094,278 Class A Voting shares
issued and outstanding and there were no Class B Non-Voting shares or first
preference shares issued and outstanding. The holders of the Class A Voting
shares are entitled to one vote for each Class A Voting share on all matters
voted on at any meetings of Vitrans shareholders, to any dividends that may be
declared by the Companys board of directors thereon and, in the event of the
liquidation, dissolution or winding up of the Company will be entitled to
receive the remaining property. The
Company at the April 21st, 2004 annual meeting of shareholders is
requesting shareholder approval to amend its articles, to eliminate from the
Companys authorized capital the Class B Non-Voting shares and the first
preference shares so that the authorized capital will consist only of an
unlimited number of Class A Voting shares which will be redesignated as Common
Shares. Vitrans Class A Voting shares trade on The Toronto Stock Exchange
(TSX®) and the American Stock Exchange (AMEX®) under the symbols: vtn.a and
vvn respectively. On February 23, 2004, there were approximately
61 registered
holders of the Companys Class A Voting shares. Vitran did not pay any dividends on Class A Voting shares in fiscal 2003
and 2002. The Company ceased paying dividends in December 2001. The board of
directors is responsible for determining the Companys dividend policy and does
not intend to declare dividends in the foreseeable future. The following table sets forth the high and low bid prices of our common
stock for the periods indicated, as reported by the TSX® and the AMEX®: TSX
    
    AMEXQuarter
    
    High
    
    Low
    
    Volume
    
    High
    
    Low
    
    Volume(in Canadian dollars)
    
    (in US dollars)2003Fourth Quarter
    
    $
    20.00
    
    
    $
    13.90
    
    
    
    729,900
    
    
    $
    15.00
    
    
    $
    10.30
    
    
    
    4,356,000Third Quarter
    
    $
    14.50
    
    
    $
    9.25
    
    
    
    2,770,200
    
    
    $
    10.75
    
    
    $
    7.00
    
    
    
    3,351,300Second Quarter
    
    $
    9.00
    
    
    $
    8.25
    
    
    
    1,402,566
    
    
    $
    7.00
    
    
    $
    5.65
    
    
    
    577,600First Quarter
    
    $
    9.08
    
    
    $
    7.96
    
    
    
    1,375,700
    
    
    $
    6.00
    
    
    $
    5.05
    
    
    
    521,0002002Fourth Quarter
    
    $
    8.24
    
    
    $
    6.83
    
    
    
    77,700
    
    
    $
    5.29
    
    
    $
    4.55
    
    
    
    104,600Third Quarter
    
    $
    7.95
    
    
    $
    6.07
    
    
    
    98,300
    
    
    $
    5.12
    
    
    $
    3.80
    
    
    
    117,000Second Quarter
    
    $
    8.20
    
    
    $
    4.26
    
    
    
    217,100
    
    
    $
    5.43
    
    
    $

    2.80
    
    
    
    179,400First
Quarter
    
    $
    5.35
    
    
    $
    3.25
    
    
    
    217,300
    
    
    $
    3.48
    
    
    $
    1.98
    
    
    
    61,8002001Fourth Quarter
    
    $
    3.94
    
    
    $
    3.20
    
    
    
    765,000
    
    
    $
    2.45
    
    
    $
    2.00
    
    
    
    102,400Third
Quarter
    
    $
    4.24
    
    
    $
    2.99
    
    
    
    39,000
    
    
    $
    2.95
    
    
    $
    2.35
    
    
    
    94,600Second Quarter
    
    $
    4.75
    
    
    $
    3.50
    
    
    
    49,500
    
    
    $
    3.00
    
    
    $
    2.15
    
    
    
    172,600First Quarter
    
    $
    5.50
    
    
    $
    4.00
    
    
    
    180,400
    
    
    $
    3.63
    
    
    $
    2.90
    
    
    
    207,9002000Fourth Quarter
    
    $
    6.45
    
    
    $
    4.85
    
    
    
    158,900
    
    
    $
    4.44
    
    
    $
    2.63
    
    
    
    404,500Third Quarter
    
    $
    6.50
    
    
    $
    4.90
    
    
    
    28,900
    
    
    $
    4.56
    
    
    $
    3.38
    
    
    
    98,200Second Quarter
    
    $
    6.00
    
    
    $
    4.25
    
    
    
    1,039,500
    
    
    $
    4.25
    
    
    $
    2.91
    
    
    
    908,600First Quarter
    
    $
    7.25
    
    
    $
    4.55
    
    
    
    157,800
    
    
    $
    5.13
    
    
    $
    3.00
    
    
    
    554,500
 15




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##### Table of Contents



TSX
    
    AMEX2003 Monthly
    
    High
    
    Low
    
    Volume
    
    High
    
    Low
    
    Volume(in Canadian dollars)
    
    (in US dollars)December
    
    $
    20.00
    
    
    $
    17.02
    
    
    
    76,900
    
    
    $
    15.00
    
    
    $
    13.01
    
    
    
    1,880,200November
    
    $
    19.25
    
    
    $
    17.25
    
    
    
    334,100
    
    
    $
    14.80
    
    
    $
    13.01
    
    
    
    1,004,400October
    
    $
    18.62
    
    
    $
    13.90
    
    
    
    318,900
    
    
    $
    14.20
    
    
    $
    10.30
    
    
    
    1,471,400September
    
    $
    14.50
    
    
    $
    13.50
    
    
    
    809,000
    
    
    $
    10.75
    
    
    $
    9.95
    
    
    
    933,700August
    
    $
    13.20
    
    
    $
    11.20
    
    
    
    1,433,600
    
    
    $
    9.78
    
    
    $
    8.02
    
    
    
    1,301,500July
    
    $
    11.50
    
    
    $
    9.25
    
    
    
    527,600
    
    
    $
    8.49
    
    
    $
    7.00
    
    
    
    1,116,100June
    
    $
    9.00
    
    
    $
    8.46
    
    
    
    565,703
    
    
    $
    7.00
    
    
    $
    6.16
    
    
    
    172,600May
    
    $
    8.87
    
    
    $
    8.49
    
    
    
    803,263
    
    
    $
    6.50
    
    
    $
    5.88
    
    
    
    89,800April
    
    $
    8.50
    
    
    $
    8.25
    
    
    
    33,600
    
    
    $
    5.94
    
    
    $
    5.65
    
    
    
    315,200March
    
    $
    8.85
    
    
    $
    8.50
    
    
    
    37,700
    
    
    $
    5.92
    
    
    $
    5.70
    
    
    
    343,000February
    
    $
    9.03
    
    
    $
    8.50
    
    
    
    232,700
    
    
    $
    5.95
    
    
    $
    5.67
    
    
    
    88,100January
    
    $
    9.08
    
    
    $
    7.96
    
    
    
    1,105,300
    
    
    $
    5.90
    
    
    $
    5.07
    
    
    
    89,900
 Stock Option Plan Vitran maintains a stock option to assist in attracting, retaining and
motivating its directors, officers and employees. The details of the
authorized stock option plans are described in Note 7 of the Consolidated
Financial Statements. Proposed amendments to the existing stock option plan
are described in Companys proxy statement for the 2004 Annual Meeting of its
Shareholders, reference to which is hereby made, and the information therein is
incorporated herein by reference. Use of Proceeds In December of 2003 Vitran, together with the lead underwriting firm,
Avondale Partners, issued 2,300,000 Class A Voting common shares for gross
proceeds of $31.6 million in a public offering. Commissions to the
underwriters amounted to $1.6 million and other expenses of the offering
amounted to $0.6 million resulting in net proceeds of $29.4 million. As of
December 31, 2003, it is still the intention of Vitrans management to use the
net proceeds from the public offering to fund possible future acquisitions,
capital expenditures and repay amounts outstanding under credit facilities. Transfer Agents Computershare Trust Company of Canada
    
    Montreal, Toronto
    
    CanadaComputershare Trust Company Inc.
    
    Denver
    
    United States
 16




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##### Table of Contents



ITEM 6 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with the
consolidated financial statements and notes under Item 8 of this Form 10-K.
For a summary of quarterly financial data for fiscal 2003 and 2002 please see
the Supplemental Schedule of Quarterly Financial Information included in the
2003 Annual Report. For a summary of measurement and disclosure differences
between Canadian United States accounting policies please see Note 14 to the
Consolidated Financial Statements. Please note that there is no a difference
in Vitrans 2003 reported net income under Canadian and U.S. GAAP. Selected Financial Data Year
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999(Thousands of dollars, except per share amounts)Statements of IncomeRevenue
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477
    
    
    $
    323,223
    
    
    $
    312,616Income from continuing operations
before depreciation expense (1)
    
    
    20,444
    
    
    
    18,106
    
    
    
    14,662
    
    
    
    23,419
    
    
    
    22,593Income from continuing operations
before depreciation expense as a
percentage of revenue
    
    
    6.2
    %
    
    
    6.0
    %
    
    
    4.7
    %
    
    
    7.2
    %
    
    
    7.2
    %Income from continuing operations
    
    
    14,950
    
    
    
    12,798
    
    
    
    8,310
    
    
    
    16,514
    
    
    
    15,822Income from operations as a percentage
of revenue
    
    
    4.5
    %
    
    
    4.2
    %
    

    
    2.7
    %
    
    
    5.1
    %
    
    
    5.1
    %Interest expense, net
    
    
    1,320
    
    
    
    3,289
    
    
    
    3,833
    
    
    
    4,859
    
    
    
    5,054Loss on sale of capital assets
    
    
    136
    
    
    
    289
    
    
    
    724
    
    
    
    673
    
    
    
    178Income from continuing operations
before income taxes, minority interest
and amortization of goodwill
    
    
    13,494
    
    
    
    9,220
    
    
    
    3,753
    
    
    
    10,982
    
    
    
    10,590Net income from continuing operations
    
    
    10,336
    
    
    
    6,938
    
    
    
    2,335
    
    
    
    6,665
    
    
    
    6,021Net income (loss) on discontinued
operations, net of tax
    
    
    
    
    
    
    
    
    
    
    (3,696
    )
    
    
    (278
    )
    
    
    342Net income (loss)
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    (1,361
    )
    
    $
    6,387
    
    
    $
    6,363Earnings per share basic:Net income from continuing operations
    
    $
    1.07
    
    
    $
    0.72
    
    
    $
    0.24
    
    
    $
    0.67
    
    
    $
    0.61Net income (loss)
    
    
    1.07
    
    
    
    0.72
    
    
    
    (0.14
    )
    
    
    0.65
    
    
    
    0.64Weighted average number of shares
    
    
    9,684,901
    
    
    
    9,691,041
    
    
    
    9,859,296
    
    
    
    9,894,727
    
    
    
    9,919,209Earnings per share dilutedNet income from continuing operations
    
    $
    1.01
    
    
    $
    0.71
    
    
    $
    0.24
    
    
    $
    0.67
    
    
    $
    0.59Net income (loss)
    
    
    1.01
    
    
    
    0.71
    
    
    
    (0.14
    )
    
    
    0.65
    
    
    
    0.62Weighted average number of shares
    
    
    10,263,211
    
    
    
    9,784,066
    
    
    
    9,859,296
    
    
    
    9,894,727
    
    
    
    10,191,879Dividends per share Cdn $
    
    Nil
    
    Nil
    
    $
    0.035
    
    
    $
    0.070
    
    
    $
    0.070Balance SheetsAssets:Current assets
    
    $
    85,046
    
    
    $
    46,746
    
    
    $
    52,537
    
    
    $
    54,165
    
    
    $
    47.016Property and equipment, net
    
    
    35,102
    
    
    
    30,787
    
    
    
    32,032
    
    
    
    39,434
    
    
    
    42,598Goodwill, net
    
    
    44,865
    
    
    
    43,869
    
    
    
    46,874
    
    
    
    48,653
    
    
    
    50,355Total assets
    
    $
    165,013
    
    
    $
    121,402
    
    
    $
    131,443
    
    
    $
    142,252
    
    
    $
    139,969Liabilities and Stockholders Equity:Current liabilities
    
    $
    46,412
    
    
    $
    36,061
    
    
    $
    37,993
    
    
    $
    43,515
    
    
    $
    38,426Long-term debt
    
    
    17,931
    
    
    
    30,504
    
    
    
    40,013
    
    
    
    40,341
    
    
    
    47,565Other non-current liabilities
    
    
    2,952
    
    
    
    2,767
    
    
    
    3,602
    
    
    
    4,184
    
    
    
    4,576Minority interest
    
    Nil
    
    Nil
    
    Nil
    
    
    397
    
    
    
    447Total stockholders equity
    
    $
    97,135
    
    
    $
    52,070
    
    
    $
    49,836
    
    
    $
    53,356
    
    
    $
    48,955Total commitments under operating lease
    
    $
    48,138
    
    
    $
    57,475
    
    
    $
    56,338
    
    
    $
    53,907
    
    
    $
    45,984
 17




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##### Table of Contents



Year
    
    2003
    
    2002
    
    2001
    
    2000
    
    1999(Thousands of dollars, except per share amounts)Operating Ratios(2)Total company
    
    
    95.5
    %
    
    
    95.8
    %
    
    
    97.3
    %
    
    
    94.9
    %
    
    
    94.9
    %Less-than-truckload
    
    
    94.3
    %
    
    
    94.6
    %
    
    
    96.4
    %
    
    
    93.5
    %
    
    
    93.6
    %Logistics
    
    
    96.1
    %
    
    
    96.5
    %
    
    
    99.8
    %
    
    
    98.7
    %
    
    
    98.9
    %Truckload
    
    
    98.0
    %
    
    
    97.4
    %
    
    
    97.0
    %
    
    
    94.9
    %
    
    
    92.8
    %Operating Statistics(LTL business units)Canadian LTL (in Canadian Dollars)Revenue
    
    $
    157,737
    
    
    $
    143,263
    
    
    $
    137,907
    
    
    $
    136,354
    
    
    $
    130,870Number of shipments (3)
    
    
    885,010
    
    
    
    823,661
    
    
    
    808,803
    
    
    
    842,953
    
    
    
    807,611Weight (000s of lbs) (4)
    
    
    1,695,205
    
    
    
    1,589,269
    
    
    
    1,636,934
    
    
    
    1.788,598
    
    
    
    1,790,862Revenue per shipment (5)
    
    $
    178.23
    
    
    $
    173.93
    
    
    $
    170.51
    
    
    $
    161.76
    
    
    $
    162.05Revenue per hundredweight (6)
    
    $
    9.30
    
    
    $
    9.01
    
    
    $
    8.42
    
    
    $
    7.62
    
    
    $
    7.31us ltlRevenue
    
    $
    156,230
    
    
    $
    150,525
    
    
    $
    153,257
    
    
    $
    161,344
    
    
    $
    145,775Number of shipments (3)
    
    
    1,426,925
    
    
    
    1,414,458
    
    
    
    1,396,438
    
    
    
    1,463,209
    
    
    
    1,350,425Weight (000s of lbs) (4)
    
    
    1,985,778
    
    
    
    1,946,734
    
    
    
    1,845,192
    
    
    
    1,957,522
    
    
    
    1,806,688Revenue per shipment (5)
    
    $
    109.49
    
    
    $
    106.42
    
    
    $
    109.75
    
    
    $
    110.27
    
    
    $
    107.95Revenue per hundredweight (6)
    
    $
    7.87
    
    
    $
    7.73
    
    
    $
    8.31
    
    
    $
    8.24
    
    
    $
    8.07
  (1)
    
    Income from continuing operations before depreciation expense (EBITD)
is a non-GAAP financial measure which does not have any standardized
meaning prescribed by GAAP. EBITD represents net income from continuing
operations, plus amortization of goodwill, minus minority interest, plus
(minus) income tax expense (benefit), plus net interest expense, plus loss
on sale of fixed assets and plus depreciation. The Company believes EBITD
is useful in evaluating its operating performance compared to that of
other companies in its industry, as the calculation of EBITD 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 EBITD 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 EBITD may not be comparable to similarly titled measures
used by other companies. EBITD is reconciled to net income as follows: Year ended December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Net income from continuing
operations
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    2,335
    
    
    $
    6,665
    
    
    $
    6,021Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    1,350
    
    
    
    1,211
    
    
    
    1,707Minority interest
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    (33
    )
    
    
    4Income tax expense
    
    
    3,158
    
    
    
    2,282
    
    
    
    (153
    )
    
    
    3,139
    
    
    
    2,858Interest expense, net
    
    
    1,320
    
    
    
    3,289
    
    
    
    3,833
    
    
    
    4,859
    
    
    
    5,504Loss on sale of fixed assets
    
    
    136
    
    
    
    289
    
    
    
    724
    
    
    
    673
    
    
    
    178Depreciation
    
    
    5,494
    
    
    
    5,308
    
    
    
    6,352
    
    
    
    6,905
    
    
    
    6,772EBITD
    
    $
    20,444
    
    
    $
    18,106
    
    
    $
    14,662
    
    
    $
    23,419
    
    
    $
    22,593
  (2)
    
    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 and
depreciation expense, divided by revenue. Although OR is not a recognized
financial measure defined by GAAP, it is a widely recognized measure in
the transportation industry which the Company believes provides a
comparable benchmark for evaluating its 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 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Operating expenses
    
    $
    282,016
    
    
    $
    254,405
    
    
    $
    263,524
    
    
    $
    268,131
    
    
    $
    257,471Selling, general and
administrative
expenses
    
    
    29,366
    
    
    
    31,084
    
    
    
    32,291
    
    
    
    31,673
    
    
    
    32,552Depreciation expense
    
    
    5,494
    
    
    
    5,308
    
    
    
    6,352
    
    
    
    6,905
    
    
    
    6,772$
    316,876
    
    
    $
    290,797
    
    
    $
    302,167
    
    
    $
    306,709
    
    
    $
    296,795Revenue
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477
    
    
    $
    323.223
    
    
    $
    312,616Operating ratio (OR)
    
    
    95.5
    %
    
    
    95.8
    %
    
    
    97.3
    %
    
    
    94.9
    %
    
    
    94.9
    %
  (3)
    
    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.  (4)
    
    Weight represents the total pounds shipped by each LTL business unit.  (5)
    
    Revenue per shipment represents revenue divided by the number of
shipments.  (6)
    
    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. 18




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##### Table of Contents



ITEM 7 MANAGEMENT DISCUSSION AND ANALYSIS Forward-Looking Statements:This Annual Report contains forward-looking
statements within the meaning of theUnited States Private Securities
Litigation Reform Act of 1995 concerning Vitran Corporation Inc.s business,
operations, and financial performance and condition. When used in this Annual
Report, the words believe, anticipate, intend, estimate, expect,
project 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. Factors that may cause such differences include but
are not limited to technological change, regulatory change, the general health
of the economy and competitive factors. More detailed information about these
and other factors is included in this Annual Report and the Companys Form 10K
in respect of 2003. 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 Information Form on Form 10K, as
well all the Companys other required filings, may be obtained from the Company
atwww.vitran.com or fromwww.sedar.com or fromwww.sec.gov. Overview The 2003 fiscal year proved to be another successful year for Vitran with
record profitability despite a number of adverse factors. These included harsh
winter weather, the third quarter power black out in the eastern U.S. and
central Canada, and a tepid freight environment that persisted for most of the
year. From an operating perspective management maintained its focus on
efficiency programs, asset utilization and cost control throughout the Company.
The LTL segment improved yield measures and continued to grow its cross-border
activity. The Logistics segment launched a new 80,000 square foot distribution
facility and added another significant multi-year distribution contract. The
Truckload segment, although behind 2002, showed positive momentum in the fourth
quarter of 2003 as volume gains were achieved. As a result of the above
measures and activities, the consolidated operating ratio improved from 95.8%
in 2002 to 95.5% in 2003. See footnote 2 on page 18 for a description of
operating ratio. The improved operating results, combined with the lowest debt levels in
five years, lower interest rates, and reduced spreads on borrowings,
contributed to an all-time high earnings per share and market value for the
Companys shareholders. Earnings per share basic improved to $1.07 from $0.72
while the Companys stock reached a high of $15.00 per share on the American
Stock Exchange. The Company raised gross proceeds of $31.6 million in share
capital from an underwritten public offering completed in December of 2003. Subsequent to the equity offering, the number of the Companys U.S.
shareholders exceeded 50% of the total number of the Companys shareholders and
Vitran ceased to be a foreign private issuer under U.S. securities laws.
Accordingly, Vitran is required to file U.S. domestic issuer forms in
compliance with its U.S. reporting obligations. Given the increased number of
its U.S. shareholders and the fact that over 60.5% of Vitrans business is U.S.
based, the Company elected to change its reporting currency from Canadian
dollars to U.S. dollars. As well, the Companys annual financial statements in
respect of 2003 contain a reconciliation of Canadian GAAP to United States GAAP
to reflect its new status as a U.S. domestic filer. See note 14 to the
Consolidated Financial Statements. Since the Company now reports in U.S. dollars, foreign exchange
fluctuations impact the reported results of Canadian dollar denominated
business units. As a result of the strengthening Canadian dollar, which moved
from an average exchange rate of Cdn $1.57 for each $1.00 in 2002 to Cdn $1.39
for each $1.00 in 2003, translated Canadian dollar denominated revenue was
positively impacted by $15.4 million and translated Canadian dollar income from
operations was positively impacted by $1.2 million. See note 1(b) to the
Consolidated Financial Statements. 19




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##### Table of Contents



2003 Compared to 2002 Consolidated Results The following table summarizes the Consolidated Statements of Income for
the three years ended December 31: (in thousands)
    
    2003
    
    2002
    
    2001
    
    2003 vs 2002
    
    2002 vs 2001Revenue
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477
    
    
    
    9.3
    %
    
    
    (2.2
    %)Income from continuing operations
    
    
    14,950
    
    
    
    12,798
    
    
    
    8,310
    
    
    
    16.8
    %
    
    
    54.0
    %Interest on long-term debt
    
    
    1,346
    
    
    
    3,369
    
    
    
    3,978
    
    
    
    (60.0
    %)
    
    
    (15.3
    %)Net income from continuing
operations
    
    
    10,336
    
    
    
    6,938
    
    
    
    2,335
    
    
    
    49.0
    %
    
    
    197.1
    %Net income from discontinued
operations
    
    Nil
    
    Nil
    
    
    (3,696
    )
    
    
    
    
    
    
    Net Income
    
    
    10,336
    
    
    
    6,938
    
    
    
    (1,361
    )
    
    
    49.0
    %
    
    
    610
    %Operating Ratio
    
    
    95.5
    %
    
    
    95.8
    %
    
    
    97.3
    %
 Revenue increased 9.3% to $331.8 million in 2003 from $303.6 million in
2002. Revenue in the LTL segment and Logistics segment increased 11.7% and
3.5% respectively, contributing to the consolidated improvement in revenue,
despite a lacklustre economy for most of the year. Offsetting this progress
was a 3.0% decline in revenue in the Truckload segment. Income from operations rose by 16.8% from $12.8 million in 2002 to $15.0
million in 2003 driven by the improvement in revenue as well as operating
improvements. Ongoing cost controls and the reduction of discretionary
spending also contributed to improved operating income. In 2003, Vitran
recorded foreign exchange gains totalling $0.4 million from the repatriation of
capital from a foreign subsidiary and from the sale of proceeds from the equity
offering. The Companys 2002 results include foreign exchange gains of $0.6
million offset by the one-time special retirement bonus of $0.6 million to the
founding President and Chief Executive Officer. The net impact of the items
discussed above was that the consolidated operating ratio for 2003 improved to
95.5% compared to 95.8% in 2002. Interest expense net of interest income was $1.3 million in 2003 compared
to $3.3 million in 2002. The decline is attributable to the Company repaying
$11.4 million of its outstanding debt obligations and a 50-basis-point
reduction in interest rate spreads due to the Company meeting certain debt
obligations in 2003. As well, the Companys 8.95% fixed interest rate swap
expired on January 26, 2003 and was not renewed. Accordingly, all of the
Companys borrowings were at floating interest rates based on LIBOR. Income tax expense in 2003 was $3.2 million compared to $2.3 million in
2002, reflecting higher profitability in 2003. The effective tax rate,
however, was lower in 2003 than in 2002 resulting from declines in statutory
rates as well as a higher proportion of income being earned in lower tax
jurisdictions. Net income improved by 49.0% to $10.3 million in 2003 compared to $6.9
million in 2002. This resulted in record earnings of $1.07 per share basic and
$1.01 per share diluted in 2003, compared to $0.72 per share basic and $0.71
per share diluted in 2002. The weighted average number of shares for 2003 was
similar to 2002 at 9.7 million; however the diluted number of shares increased
to 10.3 million in 2003 compared to 9.8 in 2002. The increase is primarily
attributable to the significant increase in the market price of the Company
stock compared to the average historical price of the Companys stock options.
As at December 31, 2003 all outstanding stock options were in the money. 20




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##### Table of Contents



Segmented Results Less-Than-Truckload (LTL) The table below provides summary information for the LTL segment for the
three years ended December 31: (in thousands)
    
    2003
    
    2002
    
    2001
    
    2003 vs 2002
    
    2002 vs 2001Revenue
    
    $
    270,189
    
    
    $
    241,916
    
    
    $
    242,074
    
    
    
    11.7
    %
    
    
    0.01
    %Income from
operations
    
    
    15,440
    
    
    
    13,051
    
    
    
    8,762
    
    
    
    18.3
    %
    
    
    49.0
    %Operating ratio
    
    
    94.3
    %
    
    
    94.6
    %
    
    
    96.4
    %
 In spite of the continued lackluster performance of the North American
economy, revenue at the LTL segment increased from $241.9 million in 2002 to
$270.2 million in 2003, of which $13.4 million resulted from the strengthening
Canadian dollar. Of particular note was the 30.3% growth in the LTL
transborder activity during 2003. This is an important part of Vitrans
business because it provides the opportunity to add significant value to
customers and, accordingly, is the Companys highest margin business. The LTL
segments operating ratio improved to 94.3% in 2003 from 94.6% in 2002.
Improvements were demonstrated in both the Canadian LTL and U.S. LTL business
units. The continuing effect of fuel price pressures in 2003 was successfully
offset by the Companys ability to pass through fuel price increases to its
customers. The Canadian LTL business unit achieved superior performance in 2003,
improving both revenue and operating ratio year-over-year. Revenue increases
were recorded in all four lines of business, being national, regional,
expedited and, most notably, the transborder offering. Shipments, tonnage and
revenue per hundredweight increased 7.4%, 6.7%, and 3.2% respectively, largely
as a result of market share gains. The stronger revenue and yield led to an
improved operating ratio and offset increased costs generated by significant
changes in the business units major third party linehaul supplier. The U.S. LTL business unit also surpassed its 2002 results and posted
improvements in both revenue and operating ratio for 2003. In addition to
terminal rationalization and linehaul optimization programs that yielded a 4.4%
reduction in pick-up and delivery expenses, increases in shipments, tonnage and
revenue per hundredweight of 1.0%, 2.0%, and 1.8% respectively, bolstered
income from operations for 2003. However, these achievements were partially
offset by increases in insurance and workers compensation expenses in 2003. Logistics The table below provides summary information for the Logistics segment for
the three years ended December 31: (in thousands)
    
    2003
    
    2002
    
    2001
    
    2003 vs 2002
    

    2002 vs 2001Revenue
    
    $
    28,642
    
    
    $
    27,665
    
    
    $
    36,539
    
    
    
    3.5
    %
    
    
    (24.3
    %)Income from
operations
    
    
    1,111
    
    
    
    955
    
    
    
    64
    
    
    
    16.3
    %
    
    
    1,392.2
    %Operating ratio
    
    
    96.1
    %
    
    
    96.5
    %
    
    
    99.8
    %
 Revenues for the Logistics segment were up 3.5% for 2003, and operating
ratio improved to 96.1% in 2003 from 96.5% in 2002. Revenue increases at the
Logistics business unit were attributable to the increased occupancy at the new
80,000 square foot distribution facility in Canada and the addition of a new
five-year contract with a major Canadian shoe retailer. These results were
tempered by a 37.7% reduction of revenue at the U.S. Freight Brokerage business
unit. This reduction is the result of the program that was initiated in 2002
and completed in the third quarter of 2003 to eliminate customers providing
inadequate profitability. 21




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##### Table of Contents



Truckload (TL) The table below provides summary information for the TL segment for the
three years ended December 31: (in thousands)
    
    2003
    
    2002
    
    2001
    
    2003 vs 2002
    
    2002 vs 2001Revenue
    
    $
    32,995
    
    
    $
    34,014
    
    
    $
    31,864
    
    
    
    (3.0
    %)
    
    
    6.7
    %Income from
operations
    
    
    657
    
    
    
    885
    
    
    
    971
    
    
    
    (25.8
    %)
    
    
    (8.9
    %)Operating ratio
    
    
    98.0
    %
    
    
    97.4
    %
    
    
    97.0
    %
 Revenue for the Truckload segment declined 3.0% to $33.0 million in 2003
from $34.0 million in 2002. While the Truckload segment successfully increased
revenue per mile by 2.9% in 2003, overall volumes declined due to the sluggish
mid-west manufacturing sector and the plant relocation of a significant
customer. Consolidated shipments declined 8.4% in 2003, which had a negative
impact on profitability, and the operating ratio increased to 98.0% in 2003
from 97.4% in 2002. 2002 Compared to 2001 Consolidated Results Revenue from continuing operations decreased 2.2% to $303.6 million in
2002 from $310.5 million in 2001. This is partly due to the continued subdued
North American economic environment, particularly in the United States, but is
mainly a result of reduced revenue at the Logistics segment where the Freight
Brokerage business unit has been merged with Vitran Logistics and restructured
to focus on profitable long-term business. Income from continuing operations improved by 54.0% from $8.3 million in
2001 to $12.8 million in 2002. Operating efficiencies were achieved throughout
the Company, but the largest improvements were recorded in the U.S. LTL and
Logistics business units. Redundancies eliminated by merging the Freight
Brokerage business unit and cost-cutting programs put in place at the U.S. LTL
business unit contributed to the reduction in costs. Foreign exchange gains of
$0.6 million were generated on the repatriation of capital from a foreign
subsidiary both in 2002 and in 2001. Expenses in 2002 were also $0.6 million
higher than in 2001 due to the one-time special retirement bonus to the
founding President and Chief Executive Officer. Depreciation expense as a
percentage of revenue was 1.7% for 2002 compared to 2.0% for 2001 due to the
continued reduction of older redundant equipment and improved asset
utilization. As a result of the operating improvements, the consolidated
operating ratio improved to 95.8% in 2002 from 97.3% in 2001. Interest expense, net of interest income, was $3.3 million for 2002
compared to $3.8 million for 2001. The decline is attributable to the Company
making its final payment of $5.7 million on its 9.04% senior notes and further
reducing its other debt obligations by $6.8 million during 2002. In addition,
the Company met certain financial covenants that reduced its interest rate on
floating rate debt by 50 basis points during 2002. Income tax expense for the year was $2.3 million in 2002 compared to $0.2
million in 2001, reflecting improved profitability. Net income was $6.9 million in 2002, yielding $0.72 earnings per share
basic compared to a net loss of $1.4 million in 2001 and $0.14 loss per share
basic. On a diluted share basis, net income yielded earnings of $0.71 per share
diluted in 2002 compared to a loss of $0.14 per share diluted in 2001. The
2001 results include a net loss of $3.7 million on the sale of the Companys
non-core environmental business. The weighted average number of shares
outstanding decreased from 9.9 million in 2001 to 9.7 million in 2002 as a
result of the repurchase of 298,100 shares for cancellation. From a continuing
operations perspective, net income increased by 197.1% to $6.9 million for 2002
compared to $2.3 million for 2001. This improvement is even more noteworthy
given the unfavourable economic conditions under which it was achieved. 22




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##### Table of Contents



Segmented Results Less-Than-Truckload (LTL) Notwithstanding the sluggish North American economy, revenue at the LTL
segment only was in line with 2001 at $241.9 million in 2002. The income from
operations, however, increased significantly by 49.0% to $13.1 million in 2002
due to operating efficiencies achieved in both Canada and the U.S., but more
particularly at the U.S. LTL business unit. Fuel price pressure that persisted
throughout 2002 was offset by the Companys ability to pass through fuel price
increases to its customers. The Canadian LTL business unit continued its stalwart performance in 2002
compared to 2001, improving both revenue and operating ratio year over year.
Revenue and income from operations gains were most notable in the expedited and
cross-border markets, offset slightly by declines in the national market.
However, the national business finished strongly in the fourth quarter of 2002
with the addition of new customers. Another notable achievement was yield
improvement, where revenue per hundredweight improved by 8.5%. Revenue at the U.S. LTL business unit of $150.5 million in 2002 was
essentially in line with the 2001 figure of $153.3 million. While revenue per
hundredweight declined by 6.5%, tonnage and shipments increased by 5.5% and
1.3%, respectively, in 2002. Operating initiatives have led to improved
earnings momentum, and the U.S. LTL business unit more than doubled income from
operations in 2002. The most significant improvements were a 19.3% reduction in
maintenance, a 9.6% reduction in claims expense and other initiatives that
reduced total SG&A by 10.0% for 2002 compared to 2001. The improvement in
earnings has been achieved not only under difficult economic conditions, but
also in the face of significantly rising liability insurance and health care
costs. Logistics Revenues for the Logistics segment were down 24.3% in 2002, primarily the
result of a 30.3% reduction of revenue at the Freight Brokerage business unit.
This reduction resulted from the redesign of the business model whereby all
management and information systems were integrated under a common umbrella and
unprofitable customer relationships were discontinued. As a result of the
success of these initiatives and the continued superior performance at the rest
of the Logistics segment, the operating ratio improved from 99.8% in 2001 to
96.5% in 2002, and income from operations increased dramatically from $0.1
million in 2001 to $1.0 million in 2002. Truckload (TL) Revenue for the TL segment increased in 2002 by 6.7% to $34.0 million from
$31.9 million in 2001. Significant growth was achieved at the southern region
but was somewhat offset by a competitive market in the northern region with
overall revenue per trailer increasing 6.8% yearoveryear. Income from
operations declined 8.9% in 2002 compared to 2001, primarily due to a 92.9%
increase in liability insurance and 114.2% increase in health care insurance.
These large increases were somewhat offset by operating efficiency gains in
trailer utilization, reduced empty miles driven, and driver safety programs. GENERAL RISKS AND UNCERTAINTIES The Company is exposed to a number of general risks and uncertainties that
could impact the results. The Companys business is sensitive to general economic conditionsand
seasonal fluctuations, although these factors are mitigated somewhat by the
variable nature of many of the Companys costs. In the trucking industry for a
typical year, the months of September and October usually have the highest
business levels, while the months of December, January and February generally
have the lowest business levels. Adverse weather conditions, generally
experienced in the first quarter of the year, such as heavy snow and ice
storms, have a negative impact on operating results. Accordingly revenue and
profitability are generally lowest in the first quarter The Companys exposure to credit riskis not significant as it is not
dependent on any particular industry or customer. The Companys single largest
customer accounted for 1.5% of revenue in 2003. 23




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##### Table of Contents



Labor represents Vitrans most significant cost and key to service
quality. The Company has a history of positive labor relationsthat will
continue to be important to future success. Approximately 5.8% of the
Companys labor force is represented by unions. While diesel fuel expensesrepresent an important cost component to
Vitran, the extensive use of owner/operators and the ability to share
significant fuel increases with customers reduces this risk. Measures taken by the U.S. and Canadian governments to enhance regulations
and strengthen border securitycould impact service levels. Vitrans
cross-border activity represented approximately 5.5% of the LTL segment revenue
in 2003 and the Company has responded to the new requirements to ensure
compliance and safety without jeopardizing the quality of service. The Company is exposed to interest rate riskat December 31, 2003 as its
entire debt portfolio bears interest at floating rates. In the past,
management has used fixed interest rate instruments to mitigate the exposure to
fluctuations in interest rates and on an ongoing basis continues to evaluate
the Companys need to fix interest rates. The Company has exposure to foreign currency riskas fluctuations in the
U.S. dollar against the Canadian dollar can impact the financial results of the
Company. Management has designated the Companys $26.1 million of U.S.
denominated long-term debt as a hedge to the foreign currency exposure
generated by the Companys U.S. operations. The Companys Canadian operations
realize foreign exchange gains and losses on the U.S. dollar revenue generated
against expenses denominated in Canadian dollars. Furthermore, the Company
reports its results in U.S. dollars thereby exposing the results of the
Companys Canadian operations to foreign currency fluctuations. LIQUIDITY AND CAPITAL RESOURCES In 2003 the Company demonstrated improved cash flow, reducing
interest-bearing debt and raising additional proceeds from an equity offering.
As well, the Company amended its existing credit agreement. Under the amended
credit agreement, the available revolving credit facility was increased from
Cdn $10.0 million to Cdn $25.0 million, and the term facility was extended six
months to August 31, 2006. Cash flow from continuing operations before working capital changes for
the year increased to $15.4 million in 2003 compared to $12.0 million in 2002
due primarily to the increase in net income. Non-cash working capital changes
generated $3.3 million in 2003 compared to $4.1 million in 2002. While
accounts receivable increased in the current year due to higher revenue, this
was more than offset by increases in accounts payable and income taxes payable.
LTL revenue for the month of December 2003 exceeded LTL revenue for the month
of December 2002 and corresponding accounts receivable increased. Interest-bearing debt decreased to $26.2 million at the end of 2003 from
$37.5 million at the end of 2002. The interest-bearing debt is comprised of
$26.1 million drawn under the term bank credit facility and a capital lease of
$0.1 million. During the year the Company repaid $11.4 million of
interest-bearing debt. At December 31, 2003, the Company had Cdn $21.6 million
of unused credit facilities. In December 2003, the Company issued and sold, in an underwritten public
offering, 2,300,000 shares of Class A Voting stock in consideration for net
proceeds of $29.4 million. The proceeds of the offering are to be used to fund
possible future acquisitions and capital expenditures and may be used to repay
amounts outstanding under the Companys credit facilities. At December 31, 2003, the Company had $12.4 million of cash on hand as
well as Cdn $35.0 million invested in redeemable shares of a mutual fund
corporation. The shares of the mutual fund corporation track the underlying
investment of money market mutual fund that invest in highly rated government
securities, treasury bills and investment grade commercial paper. The
investment provides certain tax advantages and is redeemable at any time at the
option of the Company. 24




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##### Table of Contents



Capital expenditures amounted to $6.9 million for 2003 and were funded out
of operating cash flows of the Company. The table below sets forth the
Companys capital expenditures for the years ended December 31, 2003, 2002 and
2001. Year Ended December 31,(in thousands of dollars)
    
    2003
    
    2002
    
    2001Real estate and buildings
    
    $
    359
    
    
    $
    2,349
    
    
    $
    1,290Tractors
    
    
    520
    
    
    
    726
    
    
    
    44Trailing fleet
    
    
    4,488
    
    
    
    483
    
    
    
    52Information technology
    
    
    896
    
    
    
    464
    
    
    
    1,250Leasehold improvements
    
    
    77
    
    
    
    241
    
    
    
    283Other equipment
    
    
    555
    
    
    
    335
    
    
    
    679Total
    
    $
    6,895
    
    
    $
    4,598
    
    
    $
    3,598
 Management estimates that cash capital expenditures for 2004 will be
between $8.0 million and $10.0 million, the majority of which will be for
tractors and trailers. The Company also anticipates entering into operating
leases to fund the acquisition of equipment with a capital cost of between $7.3
and $9.3 million. The Company has contractual obligations that include long-term debt
consisting of a term debt facility, capital leases for operating equipment in
the Logistics segment and off-balance sheetoperating leases primarily
consisting of tractor, trailing fleet and real estate leases. Operating leases
form an integral part of the Companys financial structure and operating
methodology as they provide an alternative cost effective and flexible form of
financing. The following table summarizes our significant contractual
obligations and commercial commitments as of December 31, 2003: (in thousands of dollars)
    
    Payments due by periodContractual Obligations
    
    Total
    
    2004
    
    2005 & 2006
    
    2007 & 2008
    
    ThereafterLong-term debt
    
    $
    26,122
    
    
    $
    8,287
    
    
    $
    17,835
    
    
    $Nil
    
    $NilCapital lease obligations
    
    
    122
    
    
    
    26
    
    
    
    58
    
    
    
    38
    
    
    NilSub-total
    
    
    26,244
    
    
    
    8,313
    
    
    
    17,893
    
    
    
    38
    
    
    NilOff-balance sheet commitmentsOperating leases
    
    
    48,580
    
    
    
    15,429
    
    
    
    20,057
    
    
    
    9,371
    
    
    
    3,723Total contractual obligations
    
    $
    74,824
    
    
    $
    23,742
    
    
    $
    37,950
    
    
    $
    9,409
    
    
    $
    3,723
 In addition to the above noted contractual obligations, the Company, as at
December 31, 2003, utilized the revolving credit facility for a standby letter
of credit of $2.6 million expiring in November 2004. The letter of credit is
used as collateral for self-insured retention of insurance claims. A significant decrease in demand for our services could limit the
Companys ability to generate cash flow and affect its profitability. The
Companys credit agreement contains covenants that require the Company to
achieve stated levels of financial performance, which if not achieved could
cause an acceleration of the payment schedules. Management does not anticipate
a significant decline in business levels or financial performance and expects
that existing working capital, together with available revolving facilities, is
sufficient to fund operating and capital requirements in 2004 as well as
service the contractual obligations. OUTLOOK The Company made significant achievements in 2003, resulting in record net
earnings. The Company raised net proceeds of $29.4 million from a public
offering to be used to fund possible future acquisitions and may be used to
repay amounts outstanding under the Companys credit facilities. Vitrans
objective is to acquire an LTL operation in a new regional market contiguous to
the existing network. Management intends to maintain its focus on the LTL transborder business
with a view to achieving double-digit year-over-year revenue growth. The
Canadian LTL business unit will endeavour to further develop revenue and yield
achievements made in 2003 and focus on improving third party linehaul
efficiency activities. Management will evaluate the need to change certain
linehaul activities to Company-controlled rolling stock in order to improve the
operating ratio. 25




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##### Table of Contents



The U.S. business unit plans to execute sales initiatives that will
increase revenue and density throughout the operation without negatively
impacting yield and on-time delivery performance. Furthermore, focus will be
on linehaul efficiency and dock operations with the objective of further
reducing claims expense in 2004. The Logistics segment will continue to concentrate on gaining new
profitable business that also utilizes the services of the Companys LTL
infrastructure. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Company prepares its financial statements in accordance with generally
accepted accounting principles (GAAP) in Canada together with a reconciliation
to United States GAAP, as disclosed in note 14 to the Consolidated Financial
Statements. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Significant accounting policies and methods used in
preparation of the financial statements are described in note 1 to the
Consolidated Financial Statements. The Company evaluates its estimates and
assumptions on a regular basis, based on historical experience and other
relevant factors. Significant estimates are used in determining, but not
limited to, the allowance for doubtful accounts, income tax valuation
allowances and the fair value of reporting units for purposes of goodwill
impairment tests. Actual results could differ materially from those estimates
and assumptions. Revenue Recognition The Companys Less-than-Truckload and truckload business units and Freight
Brokerage operations recognize revenue and direct shipment costs upon the
delivery of the related freight. Revenue for the Logistics operations is
recognized as the management services are provided. Allowance for Doubtful Accounts The Company records an allowance for doubtful accounts related to accounts
receivable that may potentially be impaired. The allowance is based on the
Companys knowledge of the financial condition of its customers, the aging of
the receivables, current business environment, customer and industry
concentrations, and historical experience. A change to these factors could
impact the estimated allowance and the provision for bad debts recorded in
selling, general and administrative expenses. Income Tax Valuation Allowance The Company records a valuation allowance against future income tax assets
generated when management believes it is more likely than not that some portion
or all of the future income tax assets will not be realized. Management
considers such factors as projected future taxable income and tax planning
strategies. A change to these factors could impact the estimated valuation
allowance and income tax expense. Claims and Insurance Accruals Claims and insurance accruals reflect the estimated ultimate 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 establishing these accrued expenses,
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. Changes in
severity of previously reported claims, significant changes in the medical
costs and legislative changes affecting the administration of the plans could
significantly impact the determination of appropriate reserves in future
periods. 26




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##### Table of Contents



Goodwill The Company performs its annual goodwill impairment tests in the third
quarter of each year and, more frequently, if events or changes in
circumstances indicate that an impairment loss may have incurred. Impairment
is tested at the reporting unit level by comparing the reporting units
carrying amount to its fair value. The process of determining fair values is
subjective and requires management to exercise judgment in making assumptions
about future results, including revenue and cash flow projections at the
reporting unit level. As at September 30, 2003, Vitran completed its annual
goodwill impairment test and concluded that there was no impairment. Future
goodwill impairment tests may result in impairment charges. Changes in Accounting Policy Foreign currency translation: The Company has the option to report its Consolidated Financial Statements
in Canadian dollars or U.S. dollars; however effective December 31, 2003, the
Company elected to change its reporting currency to U.S. dollars. The change
in accounting policy is a result of the majority of the Companys shareholders,
customers and industry analysts being located in the United States. 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. The Company restated prior year comparative balances
to reflect the change in accounting policy. Stock based compensation: The CICA Accounting Standards Board has 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. Under the fair value
based method, compensation cost is measured at fair value at the date of grant
and is expensed over the awards vesting period. In accordance with one of the
transitional options 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. In December of 2002, the FASB issued Statement No. 148, Accounting for
Stock-based Compensation  Transition and Disclosure, an amendment of FASB SFAS
No. 123, Accounting for Stock-based Compensation, to provide alternative
methods of transition for change to the fair value method of accounting for
stock-based employee compensation. 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. Had the Company not elected the prospective option in 2003 according to
FASB 148, the Company would have had to apply the fair value method retroactive
to January 1, 1995 for fiscal year end December 31, 2004. The Company did not
grant any stock options in 2003. RELATED PARTIES Carl Cook, one of the directors of the Company, leases a terminal to
Vitrans U.S. Truckload operation at market rates. Lease expense for this
terminal amounted to $76,800 in 2003. The lease expires in December of 2004. 27




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##### Table of Contents



ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Sensitivity The Company is exposed to the impact of interest rate changes. The
Companys exposure to changes in interest rates is limited to borrowings under
the revolving credit facility and the term bank facility that have variable
interest rates tied to the LIBOR rate. The weighted-average annual interest
rate on borrowings under this revolving credit facility was 2.9% in 2003. The
revolving credit facility was repaid in the fourth quarter of 2003. The term
bank credit facility of $26.1 million had a weighted-average annual interest
rate on borrowings of 3.47% in 2003. We estimate that the fair value of the
term credit facility approximates the carrying value. (in thousands of dollars)
    
    Payments due by periodLong-term debt
    
    Total
    
    2004
    
    2005&2006
    
    2007&2008
    
    ThereafterVariable RateTerm bank facility
    
    $
    26,122
    
    
    $
    8,287
    
    
    $
    17,835
    
    
    $Nil
    
    $NilAverage interest rate
    
    
    3.47
    %
    
    
    3.47
    %
    
    
    3.47
    %Fixed RateCapital lease obligation
    
    
    122
    
    
    
    26
    
    
    
    58
    
    
    
    38
    
    
    NilAverage interest rate
    
    
    6.79
    %
    
    
    6.79
    %
    
    
    6.79
    %
    
    
    6.79
    %Total
    
    $
    26,244
    
    
    $
    8,313
    
    
    $
    17,893
    
    
    $
    38
    
    
    $Nil
 In addition to the information disclosed above, further information
required by Item 7A of Form 10-K appears in Item 7 of this report under the
headings Liquidity and Capital Resources and General Risks and
Uncertainties. 
 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Consolidated Balance Sheets as at December 31, 2003, and 2002 and the
Consolidated Statements of Income, Retained Earnings and Cash Flow for the
years ended December 31, 2003, 2002, and 2001, reported on by KPMG LLP,
Chartered Accountants. These statements are prepared in accordance with
generally accepted accounting principles (GAAP) in Canada and in the United
States. A reconciliation of the differences between Canadian and U.S. GAAP is
included on Note 14 to the financial statements. 28




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##### Table of Contents



AUDITORS REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Vitran Corporation Inc. as
at December 31, 2003 and 2002 and the consolidated statements of income,
retained earnings and cash flows for each of the years in the three-year period
ended December 31, 2003. These financial statements are the responsibility of
the Corporations management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Corporation as at December 31,
2003 and 2002 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2003 in accordance with
Canadian generally accepted accounting principles. (KPMG LLP)
Chartered Accountants Toronto, Canada
January 30, 2004 29




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##### Table of Contents



VITRAN CORPORATION INC.
Consolidated Balance Sheets
(Amounts in thousands of United States dollars) December 31, 2003 and 2002 2003
    
    2002AssetsCurrent assets:Cash and cash equivalents
    
    $
    12,417
    
    
    $
    8,002Marketable securities (note 3)
    
    
    26,996
    
    
    
    Accounts receivable
    
    
    35,685
    
    
    
    29,632Inventory, deposits and prepaid expenses
    
    
    5,847
    
    
    
    6,195Future income tax assets (note 6)
    
    
    4,101
    
    
    
    2,91785,046
    
    
    
    46,746Capital assets (note 4)
    
    
    35,102
    
    
    
    30,787Goodwill
    
    
    44,865
    
    
    
    43,869$
    165,013
    
    
    $
    121,402Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    34,092
    
    
    $
    27,314Income and other taxes payable
    
    
    4,007
    
    
    
    1,741Current portion of long-term debt (note 5)
    
    
    8,313
    
    
    
    7,00646,412
    
    
    
    36,061Long-term debt (note 5)
    
    
    17,931
    
    
    
    30,504Future income tax liabilities (note 6)
    
    
    2,715
    
    
    
    2,767Shareholders equity:Capital stock (note 7)
    
    
    59,358
    
    
    
    27,857Retained earnings
    
    
    40,029
    
    
    
    30,044Cumulative translation adjustment (note 8)
    
    
    (1,432
    )
    
    
    (5,831
    )97,955
    
    
    
    52,070$
    165,013
    
    
    $
    121,402
 Lease commitments (note 11)
Contingent liabilities (note 12)
On behalf of the Board: Director
    
    Director
 See accompanying notes to consolidated financial statements. 30




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VITRAN CORPORATION INC.
Consolidated Statements of Income
(Amounts in thousands of United States dollars, except per share amounts) Years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Revenue
    
    $
    331,826
    
    
    $
    303,595
    
    
    $
    310,477Operating expenses
    
    
    282,016
    
    
    
    254,405
    
    
    
    263,524Selling, general and administrative expenses
    
    
    29,366
    
    
    
    31,084
    
    
    
    32,291311,382
    
    
    
    285,489
    
    
    
    295,815Income from continuing operations
before depreciation
    
    
    20,444
    
    
    
    18,106
    
    
    
    14,662Depreciation
    
    
    5,494
    
    
    
    5,308
    
    
    
    6,352Income from continuing operations
before the undernoted
    
    
    14,950
    
    
    
    12,798
    
    
    
    8,310Interest on long-term debt
    
    
    (1,346
    )
    
    
    (3,369
    )
    
    
    (3,978
    )Interest income
    
    
    26
    
    
    
    80
    
    
    
    145Loss on sale of capital assets
    
    
    (136
    )
    
    
    (289
    )
    
    
    (724
    )(1,456
    )
    
    
    (3,578
    )
    
    
    (4,557
    )Income from continuing operations before
income taxes, minority interest and
amortization of goodwill
    
    
    13,494
    
    
    
    9,220
    
    
    
    3,753Income taxes (recovery) (note 6):Current
    
    
    3,450
    
    
    
    2,341
    
    
    
    803Future
    
    
    (292
    )
    
    
    (59
    )
    
    
    (650
    )3,158
    
    
    
    2,282
    
    
    
    153Income from continuing operations before
minority interest and amortization of
goodwill
    
    
    10,336
    
    
    
    6,938
    
    
    
    3,600Minority interest
    
    
    
    
    
    
    
    
    
    
    85Income from continuing operations before
amortization of goodwill
    
    
    10,336
    
    
    
    6,938
    
    
    
    3,685Amortization of goodwill, net of income
taxes of nil (2002 - nil; 2001 - $188)
    
    
    
    
    
    
    
    
    
    
    1,350Net income from continuing operations
    
    
    10,336
    
    
    
    6,938
    
    
    
    2,335Loss from discontinued operations (note 2)
    
    
    
    
    
    
    
    
    
    
    (3,696
    )Net income (loss)
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    (1,361
    )
 31




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##### Table of Contents



VITRAN CORPORATION INC.
Consolidated Statements of Income (continued)
(Amounts in thousands of United States dollars, except per share amounts) Years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Earnings (loss) per share:Basic - continuing operations
before amortization of goodwill
    
    $
    1.07
    
    
    $
    0.72
    
    
    $
    0.37Basic - continuing operations
    
    
    1.07
    
    
    
    0.72
    
    
    
    0.24Basic - discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.37
    )Basic - net income (loss)
    
    
    1.07
    
    
    
    0.72
    
    
    
    (0.14
    )Diluted - continuing operations
before amortization of goodwill
    
    
    1.01
    
    
    
    0.71
    
    
    
    0.37Diluted - continuing operations
    
    
    1.01
    
    
    
    0.71
    
    
    
    0.24Diluted - discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.37
    )Diluted - net income (loss)
    
    
    1.01
    
    
    
    0.71
    
    
    
    (0.14
    )Weighted average number of shares:Weighted average number of
shares outstanding
    
    
    9,684,901
    
    
    
    9,691,041
    
    
    
    9,859,296Potential exercise of options
    
    
    578,310
    
    
    
    93,025
    
    
    
    Diluted shares
    
    
    10,263,211
    
    
    
    9,784,066
    
    
    
    9,859,296
 Diluted earnings per share exclude the effect of out of the money options
(2002 - 464,000; 2001 - 901,300). See accompanying notes to consolidated financial statements. 32




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##### Table of Contents



VITRAN CORPORATION INC.
Consolidated Statements of Retained Earnings
(Amounts in thousands of United States dollars, except per share amounts) Years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Retained earnings, beginning of year
    
    $
    30,044
    
    
    $
    26,602
    
    
    $
    28,191Effect of adoption of new goodwill
accounting standard (note 1(h))
    
    
    
    
    
    
    (3,023
    )
    
    
    30,044
    
    
    
    23,579
    
    
    
    28,191Net income (loss)
    
    
    10,336
    
    
    
    6,938
    
    
    
    (1,361
    )Dividends - nil per share (2002 - nil;
2001 - Cdn. $0.035 per share)
    
    
    
    
    
    
    
    
    
    
    (228
    )Cost of repurchase of Class A voting
shares in excess of book value
    
    
    (351
    )
    
    
    (473
    )
    
    
    Retained earnings, end of year
    
    $
    40,029
    
    
    $
    30,044
    
    
    $
    26,602
 See accompanying notes to consolidated financial statements. 33




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VITRAN CORPORATION INC.
Consolidated Statements of Cash Flows
(Amounts in thousands of United States dollars) Years ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Cash provided by (used in):Operations:Net income from continuing operations
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    2,335Items not involving cash from operations:Depreciation and amortization
    
    
    5,494
    
    
    
    5,308
    
    
    
    7,890Future income taxes
    
    
    (292
    )
    
    
    (59
    )
    
    
    (650
    )Loss on sale of capital assets
    
    
    136
    
    
    
    289
    
    
    
    724Foreign exchange gains
    
    
    (264
    )
    
    
    (444
    )
    
    
    (414
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    (85
    )15,410
    
    
    
    12,032
    
    
    
    9,800Change in non-cash working capital components
    
    
    3,339
    
    
    
    4,090
    
    
    
    1,46818,749
    
    
    
    16,122
    
    
    
    11,268Investments:Purchase of capital assets
    
    
    (6,895
    )
    
    
    (4,598
    )
    
    
    (3,598
    )Proceeds on sale of capital assets
    
    
    423
    
    
    
    712
    
    
    
    3,021Proceeds on sale of discontinued operations
    
    
    
    
    
    
    1,692
    
    
    
    Marketable securities
    
    
    (26,996
    )
    
    
    
    
    
    
    (33,468
    )
    
    
    (2,194
    )
    
    
    (577
    )Financing:Change in revolving credit facility
    
    
    
    
    
    
    (3,099
    )
    
    
    (2,020
    )Repayment of long-term debt
    
    
    (11,396
    )
    
    
    (9,399
    )
    
    
    (5,825
    )Issue of long-term debt
    
    
    
    
    
    
    
    
    
    
    4,618Dividends
    
    
    
    
    
    
    
    
    
    
    (228
    )Issue of Class A voting shares upon exercise of
stock options
    
    
    1,607
    
    
    
    33
    
    
    
    Issue of Class A voting shares in public offering
    
    
    29,385
    
    
    
    
    
    
    
    Repurchase of Class A voting shares
    
    
    (644
    )
    
    
    (1,354
    )
    
    
    (32
    )18,952
    
    
    
    (13,819
    )
    
    
    (3,487
    )Cash used in discontinued operations (note 2)
    
    
    
    
    
    
    
    
    
    
    (1,458
    )Effect of translation adjustment on cash
    
    
    182
    
    
    
    (193
    )
    
    
    (915
    )Increase (decrease) in cash and cash equivalents
    
    
    4,415
    
    
    
    (84
    )
    
    
    4,831Cash and cash equivalents, beginning of year
    
    
    8,002
    
    
    
    8,086
    
    
    
    3,255Cash and cash equivalents, end of year
    
    $
    12,417
    
    
    $
    8,002
    
    
    $
    8,086Change in non-cash working capital components:Accounts receivable
    
    $
    (6,053
    )
    
    $
    1,759
    
    
    $
    7,589Inventory, deposits and prepaid expenses
    
    
    348
    
    
    
    (732
    )
    
    
    (977
    )Income and other taxes recoverable/payable
    
    
    2,266
    
    
    
    914
    
    
    
    (1,347
    )Accounts payable and accrued liabilities
    
    
    6,778
    
    
    
    2,149
    
    
    
    (3,797
    )$
    3,339
    
    
    $
    4,090
    
    
    $
    1,468Supplemental cash flow information:Interest paid
    
    $
    1,552
    
    
    $
    3,336
    
    
    $
    4,430Income taxes paid
    
    
    2,617
    
    
    
    1,773
    
    
    
    2,803
 See accompanying notes to consolidated financial statements. 34




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  1.
    
    Significant accounting policies:  (a)
    
    Basis of presentation:These consolidated financial statements include the accounts of the
Corporation 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.(b)
    
    Foreign currency translation:A majority of the Corporations shareholders, customers and industry
analysts are located in the United States. Accordingly, the
Corporation adopted the United States dollar as its reporting currency
effective December 31, 2003 and all prior periods have been restated.The United States dollar is the functional currency of the Companys
operations in the U.S. 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 $26.1 million (2002 - $37.1 million) is
designated as a hedge of the investment in the United States
self-sustaining foreign operations. 35




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  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
Corporation 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.(c)
    
    Revenue recognition:The Corporations less-than-truckload, truckload business units and
freight brokerage operations recognize revenue and direct shipment
costs upon the delivery of the related freight. Revenue for the
logistics operations is recognized as the management services are
provided.(d)
    
    Cash and cash equivalents:Cash and cash equivalents include cash on account and short-term
investments with original maturities of three months or less and are
stated at cost, which approximates market value.(e)
    
    Marketable securities:Marketable securities are recorded at the lower of cost or market
value.(f)
    
    Inventory:Inventory consists of tires and spare parts and is valued at the lower
of cost and replacement cost. 36




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  1.
    
    Significant accounting policies (continued):  (g)
    
    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
    
    10 yearsTrucks
    
    7 yearsMachinery and equipment
    
    5 - 10 years
  Tires purchased as part of a vehicle are capitalized as a cost to the
vehicle. Replacement tires are expensed when placed in service.(h)
    
    Goodwill:Goodwill represents the excess of acquisition cost over the fair value
of net assets of businesses acquired. Prior to January 1, 2002,
goodwill was amortized over 40 years on a straight-line basis.Effective January 1, 2002, the Corporation adopted The Canadian
Institute of Chartered Accountants (CICA) new accounting standard for
goodwill and other intangible assets. The Corporation no longer
amortizes goodwill but annually compares the fair value of its
reporting units to the carrying value to determine if an impairment
loss has occurred. A transitional impairment was recognized as an
effect of a change in accounting policy and was charged to opening
retained earnings as of January 1, 2002. 37




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  1.
    
    Significant accounting policies (continued):  As at June 30, 2002, the Corporation completed its initial goodwill
impairment test and concluded that an impairment existed. As at
September 30, 2002, the amount of the charge was quantified. Charges
of $0.8 million and $2.2 million, respectively, were recorded in the
freight brokerage and the truckload reporting units to adjust the
carrying value of goodwill for each reporting unit to its implied fair
value. Such amount has been reflected as a direct charge to retained
earnings effective January 1, 2002 without restatement of prior period
figures.As at September 30, 2003, the Corporation completed its annual goodwill
impairment test and concluded there was no impairment.(i)
    
    Income taxes:The Corporation 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.(j)
    
    Stock-based compensation:Prior to January 1, 2003, 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 to be accounted for using the fair
value method. The Corporation has not granted any such awards.The Corporation has a stock option plan for employees and directors.
In 2002, in accordance with the standard, the Corporation 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. 38




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  1.
    
    Significant accounting policies (continued):  The CICA Accounting Standards Board has 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, compensation cost is measured at fair value at the
date of grant and is expensed over the awards vesting period. In
accordance with a transitional option permitted under amended CICA
Handbook Section 3870, the Corporation has prospectively applied the
fair value based method to all stock options granted on or after
January 1, 2003. The Corporation did not grant any stock options in
2003. Note 7(d) provides supplemental disclosure for the Corporations
stock options.(k)
    
    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.
    
    Acquisitions and divestitures:  The Freight Connection Inc.:During the third quarter of 2001, the Corporation acquired the remaining
18.9% of the voting shares of The Freight Connection Inc. (TFCI). There
was no goodwill recorded on the transaction. Subsequent to the
purchase of shares, the Corporation delisted and restructured TFCI as a private
company.Environmental Services Group:On May 15, 2001, the Corporation determined that it planned to divest its
Environmental Services Business. A provision for the loss on sale of
discontinued business was recorded to account for the sale of capital
assets and estimated realizable value of the remaining assets and
liabilities. Effective January 2, 2002, the Corporation sold substantially
all the capital assets of the business to Metro Waste Paper Recovery Inc.
for cash proceeds of $1.7 million. 39




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  2.
    
    Acquisitions and divestitures (continued):  As a result of the plan of disposal, the results of operations for
discontinued operations were reported as discontinued operations and
previously reported financial statements were restated. Interest was
allocated to discontinued operations based on the debt directly
attributable to the business and for debt not directly attributable to the
business based on its share of the Corporations net assets. Income taxes
were allocated based on the effective tax rate of the discontinued
operations.The summarized statement of operations for discontinued operations for 2001
is as follows: Revenue
    
    $
    12,690Loss from operations
    
    $
    (1,430
    )Interest expense
    
    
    (363
    )Other loss
    
    
    (55
    )Loss before income taxes
    
    
    (1,848
    )Income tax recovery
    
    
    (762
    )Loss before provision for loss
on sale of discontinued operations
    
    
    (1,086
    )Provision for loss on sale of
discontinued operations
    
    
    (2,610
    )Net loss from discontinued operations
    
    $
    (3,696
    )Cash used in discontinued operations for 2001 is as follows:Operating activities
    
    $
    (1,245
    )Investing activities
    
    
    (165
    )Financing activities
    
    
    (48
    )Cash used in discontinued operations
    
    $
    (1,458
    )
 40




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  3.
    
    Marketable securities:  The Corporation has Cdn. $35.0 million (U.S. $27.0 million) invested in
redeemable shares of a mutual fund corporation. The mutual fund
corporation tracks the underlying investment in a Canadian money market
fund. This fund invests in highly rated government securities, treasury
bills and investment grade commercial paper. Gains on redemption of
the shares are included in income in the period of realization.  4.
    
    Capital assets: 2003
    
    2002Land
    
    $
    6,028
    
    
    $
    5,256Buildings
    
    
    23,229
    
    
    
    20,260Leasehold interests and improvements
    
    
    1,680
    
    
    
    1,919Vehicles
    
    
    23,724
    
    
    
    18,957Machinery and equipment
    
    
    15,264
    
    
    
    13,63869,925
    
    
    
    60,030Less accumulated depreciation
    
    
    34,823
    
    
    
    29,243$
    35,102
    
    
    $
    30,787
 41




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  5.
    
    Long-term debt: 2003
    
    2002Term bank credit facility (a)
    
    $
    26,122
    
    
    $
    37,100Mortgages payable (b)
    
    
    
    
    
    
    410Capital lease (c)
    
    
    122
    
    
    
    26,244
    
    
    
    37,510Less current portion
    
    
    8,313
    
    
    
    7,006$
    17,931
    
    
    $
    30,504
  (a)
    
    The term bank credit facility is secured by accounts receivable
and general security agreements of the Corporation and of all its
subsidiaries.During 2003, the Corporation repaid $11.0 million of borrowings. At
December 31, 2003, $26.1 million (2002 - $37.1 million) bearing
interest at LIBOR plus 1.25% was drawn under this facility. The
agreement requires 31.7% of the total principal to be repaid in 2004,
with escalating annual repayments, payable in quarterly instalments to
August 31, 2006. The provisions of the term facility impose certain
financial maintenance tests.(b)
    
    The mortgages were secured by certain land and buildings and were
repaid during 2003.(c)
    
    The Corporation has financed certain equipment by entering into a
capital leasing arrangement expiring in 2007. The capital lease bears
interest at approximately 6.79%.(d)
    
    The Corporation has a revolving credit facility of up to Cdn.
$25.0 million, of which letters of credit of U.S. $2.6 million were
outstanding at December 31, 2003. 42




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  5.
    
    Long-term debt (continued):  At December 31, 2003, the required future principal repayments on all
long-term debt and capital lease are as follows:  Year ending
December 31:2004
    
    $
    8,3132005
    
    
    8,6752006
    
    
    9,2182007
    
    
    38$
    26,244
  6.
    
    Income taxes:  Income tax expense differs from the amount which would be obtained by
applying statutory federal and provincial income tax rates to the
respective years income from continuing operations before income taxes,
minority interest and amortization of goodwill as follows: 2003
    
    2002
    
    2001Effective statutory federal
and provincial income tax rate
    
    
    35.37
    %
    
    
    38.62
    %
    
    
    41.75
    %Effective tax expense on income before
income taxes and minority interest
    
    $
    4,773
    
    
    $
    3,561
    
    
    $
    1,567Increase (decrease) results from:Capital losses on asset disposition
    
    
    
    
    
    
    
    
    
    
    151Non-taxable foreign exchange gain
    
    
    (104
    )
    
    
    (245
    )
    
    
    (276
    )Deductible foreign exchange loss
    
    
    
    
    
    

    (111
    )
    
    
    (58
    )Income taxed at different rates
in foreign jurisdictions
    
    
    (1,852
    )
    
    
    (1,376
    )
    
    
    (1,636
    )Effect of tax rate changes
on loss carryforwards
    
    
    
    
    
    
    
    
    
    
    255Other
    
    
    341
    
    
    
    453
    
    
    
    150Actual income tax expense
    
    $
    3,158
    
    
    $
    2,282
    
    
    $
    153
 43




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  6.
    
    Income taxes (continued): Income tax expense
    
    2003
    
    2002
    
    2001Canada
    
    $
    1,932
    
    
    $
    2,512
    
    
    $
    612United States
    
    
    1,067
    
    
    
    (442
    )
    
    
    (636
    )Other
    
    
    159
    
    
    
    212
    
    
    
    177$
    3,158
    
    
    $
    2,282
    
    
    $
    153
  A summary of the principal components of future income tax assets and
liabilities is as follows: 2003
    
    2002Future income tax assets:Losses carried forward
(net of valuation allowance)
    
    $
    1,391
    
    
    $
    1,412Allowance for doubtful accounts
    
    
    339
    
    
    
    563Insurance reserves
    
    
    941
    
    
    
    753Financing costs
    
    
    767
    
    
    
    Other
    
    
    663
    
    
    
    189$
    4,101
    
    
    $
    2,917Future income tax liabilities:Capital assets
    
    $
    956
    
    
    $
    977Goodwill
    
    
    1,488
    
    
    
    1,405Other
    
    
    271
    
    
    
    385$
    2,715
    
    
    $
    2,767
  The Corporation has Canadian non-capital tax loss carryforwards of
approximately $3.9 million (2002 - $4.2 million) expiring over the next six
years and for which the tax benefit has been recognized as set out above. 44




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  7.
    
    Capital stock:  (a)
    
    Authorized:The Corporations capital stock consists of an unlimited number of
Class A voting shares, Class B non-voting shares and first
preference shares, issuable in series.(b)
    
    Issued: 2003
    
    2002Class A voting shares
    
    Number
    
    Amount
    
    Number
    
    AmountBalance, beginning of year
    
    
    9,559,818
    
    
    $
    27,857
    
    
    
    9,847,278
    
    
    $
    28,705Shares repurchased for
cancellation
    
    
    (106,500
    )
    
    
    (312
    )
    
    
    (298,100
    )
    
    
    (881
    )Shares issued upon exercise
of employees stock options
    
    
    340,960
    
    
    
    1,607
    
    
    
    10,640
    
    
    
    33Share issued in public
offering, net of issue
expenses (i)
    
    
    2,300,000
    
    
    
    30,206
    
    
    
    
    
    
    
    Balance, end of year
    
    
    12,094,278
    
    
    $
    59,358
    
    
    
    9,559,818
    
    
    $
    27,857
 (i)
    
    During 2003, the Corporation entered into an underwriting
agreement and issued 2.3 million shares at $13.75 per share. This
resulted in gross proceeds of $31.6 million to the Corporation
before expenses of issue of $1.4 million, net of future income
taxes of $0.8 million.  (c)
    
    Normal course issuer bid:The Corporation repurchased for cancellation 106,500 Class A voting
shares during 2003 (2002 - 298,100) under a normal course issuer bid,
at a total cost of $644 (2002 - $1,354). The cost of the repurchase in
excess of the book value of the shares in 2003 was $351 (2002 - $473). 45




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  7.
    
    Capital stock (continued):  (d)
    
    Stock options:The Corporation provides a stock option plan to key employees, officers
and directors to encourage executives to acquire a meaningful equity
ownership interest in the Corporation over a period of time and, as a
result, reinforce executives attention on the long-term interest of
the Corporation and its shareholders. Under the plan, options to
purchase Class A voting shares of the Corporation may be granted to key
employees, officers and directors of the Corporation and its affiliates
by the Board of Directors or by the Corporations Compensation
Committee. There are 825,600 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 Class A
voting shares of the Corporation on The Toronto Stock Exchange on the
day of the grant.The following table outlines the impact if the compensation cost for
the Corporations stock options granted from January 1, 2002 through to
December 31, 2002 were determined under the fair value based method.
The Corporation has applied the pro forma disclosure provisions of the
standard to these awards. The pro formas effect of awards granted
prior to January 1, 2002 has not been included. Compensation expense
recorded for the year ended December 31, 2003 in respect of stock
options issued on or after January 1, 2003 was nil. 2003
    
    2002Options granted
    
    $
    
    
    
    $
    175,000Net income, as reported
    
    
    10,336
    
    
    
    6,938Pro forma net income
    
    
    10,298
    
    
    
    6,905Pro forma income per share - basic
    
    
    1.06
    
    
    
    0.72Pro forma income per share - diluted
    
    
    1.00
    
    
    
    0.71
 46




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted)
Years ended December 31, 2003, 2002 and 2001  7.
    
    Capital stock (continued):  The weighted average estimated fair value at the date of the grant for
the options granted during 2003 was nil (2002 - Cdn. $1.97) 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: 2002Risk-free interest rate
    
    
    5.3
    %Dividend yield
    
    
    6.0
    %Volatility factor of the future expected market
price of the Corporations common shares
    
    
    33.8Expected life of the options
    10 years
  Details of stock options are as follows: 2003
    
    2002Weighted
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    averageexercise
    
    
    
    
    
    exerciseShares
    
    price
    
    Shares
    
    priceCdn. $
    
    
    
    
    
    Cdn. $Outstanding,
beginning of year
    
    
    1,189,160
    
    
    $
    5.70
    
    
    
    1,049,800
    
    
    $
    6.08Granted
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    
    3.50Forfeited
    
    
    (22,600
    )
    
    
    6.13
    
    
    
    (25,000
    )
    
    
    6.55Exercised
    
    
    (340,960
    )
    
    
    6.27
    
    
    
    (10,640
    )
    
    
    4.82Outstanding, end of year
    
    
    825,600
    
    
    
    5.45
    
    
    
    1,189,160
    
    
    
    5.70Exercisable, end of year
    
    
    580,700
    
    
    $
    5.88
    
    
    
    774,460
    
    
    $
    6.06
 47




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  7.
    
    Capital stock (continued):At December 31, 2003, the range of exercise prices, the weighted average
exercise price and the weighted average remaining contractual life are as
follows: Options outstanding
    
    Options exercisableWeightedaverageremaining
    
    Weighted
    
    
    
    
    
    Weightedcontractual
    
    average
    
    
    
    
    
    averageRange of exercise
    
    Number
    
    life
    
    exercise
    
    Number
    
    exerciseprices (Cdn. $)
    
    outstanding
    
    (years)
    
    price
    
    exercisable
    
    price$3.50 - $6.20
    
    
    516,100
    
    
    
    5.54
    
    
    $
    4.38
    
    
    
    315,700
    
    
    $
    4.74$7.00 - $8.75
    
    
    309,500
    
    
    
    4.93
    
    
    
    7.24
    
    
    
    265,000
    
    
    
    7.24$3.50 - $8.75
    
    
    825,600
    
    
    
    5.31
    
    
    
    5.45
    
    
    
    580,700
    
    
    
    5.88
  Compensation expense related to stock options was nil for each of the years
ended December 31, 2003, 2002 and 2001.8.
    
    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. 48




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  9.
    
    Segmented information:The Corporation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, 2003, 2002 and 2001: 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
    
    
    
    311,382Income (loss) from continuing operations before
depreciation
    
    
    20,142
    
    
    
    1,353
    
    
    
    1,152
    
    
    
    22,647
    
    
    
    (2,203
    )
    
    
    20,444Depreciation
    
    
    4,702
    
    
    
    242
    
    
    
    495
    
    
    
    5,439
    
    
    
    55
    
    
    
    5,494Income (loss) from continuing operations
before the undernoted
    
    $
    15,440
    
    
    $
    1,111
    
    
    $
    657
    
    
    $
    17,208
    
    
    $
    (2,258
    )
    
    
    14,950Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,320
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (136
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,158
    )Income from continuing operations
before amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,336Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,336Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,336Capital expenditures
    
    $
    5,699
    
    
    $
    390
    
    
    $
    794
    
    
    $
    6,883
    
    
    $
    12
    
    
    $
    6,895Goodwill
    
    $
    39,021
    
    
    $
    1,079
    
    
    $
    4,765
    
    
    $
    44,865
    
    
    $
    
    
    
    $
    44,865Total assets from continuing operations
    
    $
    118,862
    
    
    $
    5,771
    
    
    $
    10,582
    
    
    $
    135,215
    
    
    $
    29,798
    
    
    $
    165,013
 49




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  9.
    
    Segmented information (continued): Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2002
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    241,916
    
    
    $
    27,665
    
    
    $
    34,014
    
    
    $
    303,595
    
    
    $
    
    
    
    $
    303,595Operating, selling, general and administrative expenses
    
    
    224,117
    
    
    
    26,495
    
    
    
    32,796
    
    
    
    283,408
    
    
    
    2,081
    
    
    
    285,489Income (loss) from continuing operations before
depreciation
    
    
    17,799
    
    
    
    1,170
    
    
    
    1,218
    
    
    
    20,187
    
    
    
    (2,081
    )
    
    
    18,106Depreciation
    
    
    4,748
    
    
    
    215
    
    
    
    333
    
    
    
    5,296
    
    
    
    12
    
    
    
    5,308Income (loss) from continuing operations
before the undernoted
    
    $
    13,051
    
    
    $
    955
    
    
    $
    885
    
    
    $
    14,891
    
    
    $
    (2,093
    )
    
    
    12,798Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,289
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (289
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,282
    )Income from continuing operations
before amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,938Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,938Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,938Capital expenditures
    
    $
    4,141
    
    
    $
    243
    
    
    $
    139
    
    
    $
    4,523
    
    
    $
    75
    
    
    $
    4,598Goodwill
    
    $
    38,050
    
    
    $
    1,054
    
    
    $
    4,765
    
    
    $
    43,869
    
    
    $
    
    
    
    $
    43,869Total assets from continuing operations
    
    $
    103,044
    
    
    $
    7,323
    
    
    $
    10,856
    
    
    $
    121,223
    
    
    $
    179
    
    
    $
    121,402
 50




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  9.
    
    Segmented information (continued): Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2001
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    242,074
    
    
    $
    36,539
    
    
    $
    31,864
    
    
    $
    310,477
    
    
    $
    
    
    
    $
    310,477Operating, selling, general and administrative expenses
    
    
    227,667
    
    
    
    36,236
    
    
    
    30,480
    
    
    
    294,383
    
    
    
    1,432
    
    
    
    295,815Income (loss) from continuing operations before
depreciation
    
    
    14,407
    
    
    
    303
    
    
    
    1,384
    
    
    
    16,094
    
    
    
    (1,432
    )
    
    
    14,662Depreciation
    
    
    5,645
    
    
    
    239
    
    
    
    413
    
    
    
    6,297
    
    
    
    55
    
    
    
    6,352Income (loss) from continuing operations
before the undernoted
    
    $
    8,762
    
    
    $
    64
    
    
    $
    971
    
    
    $
    9,797
    
    
    $
    (1,487
    )
    
    
    8,310Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,833
    )Other items, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (639
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (153
    )Income from continuing operations
before amortization of goodwill
    
    
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    
    
    
    
    
    
    3,685Amortization of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,350Income from continuing operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,335Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,696
    )Loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,361
    )Capital expenditures
    
    $
    3,029
    
    
    $
    390
    
    
    $
    123
    
    
    $
    3,542
    
    
    $
    56
    
    
    $
    3,598
 51




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  9.
    
    Segmented information (continued):Geographic information for revenue from point of origin and total assets is
as follows: 2003
    
    2002
    
    2001Revenue:Canada
    
    $
    131,084
    
    
    $
    104,165
    
    
    $
    101,262United States
    
    
    200,742
    
    
    
    199,430
    
    
    
    209,215$
    331,826
    
    
    $
    303,595
    
    
    $
    310,477
 2003
    
    2002Total assets:Canada
    
    $
    68,706
    
    
    $
    32,221United States
    
    
    96,307
    
    
    
    89,181$
    165,013
    
    
    $
    121,402
  10.
    
    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 Corporations long-term debt,
determined based on the future cash flows associated with each debt
instrument discounted using an estimate of the Corporations current
borrowing rate for similar debt instruments of comparable maturity, is
approximately equal to the carrying values at December 31, 2003 and 2002. 52




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  11.
    
    Lease commitments:At December 31, 2003, future minimum rental payments relating to operating
leases for premises and equipment are as follows:Year ending December 31: 2004
    
    $
    15,4292005
    
    
    11,6752006
    
    
    8,3822007
    
    
    5,8722008
    
    
    3,499Thereafter
    
    
    3,723$
    48,580
  12.
    
    Contingent liabilities:There exist certain legal actions against the Corporation, none of which
are expected to have a material adverse effect on the consolidated
financial position or results of operations of the Corporation.13.
    
    Comparative figures:Certain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year. 53




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences:  (a)
    
    Consolidated statements of changes in shareholders equity:United States GAAP requires the inclusion of a consolidated statement
of changes in shareholders equity for each year a statement of income
is presented. Shareholders equity under United States GAAP is as
follows: OtherCapital
    
    Retained
    
    comprehensivestock
    
    earnings
    
    income
    
    TotalBalance, December 31, 2000
    
    $
    28,737
    
    
    $
    28,191
    
    
    $
    (509
    )
    
    $
    56,419Loss for the year
    
    
    
    
    
    
    (1,775
    )
    
    
    
    
    
    
    (1,775
    )Dividends
    
    
    
    
    
    
    (228
    )
    
    
    
    
    
    
    (228
    )Shares repurchased for cancellation
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (32
    )Unrealized foreign currency gain
    
    
    
    
    
    
    
    
    
    
    1,190
    
    
    
    1,190Foreign exchange adjustment
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    414Change in obligation for derivative
instruments
    
    
    
    
    
    
    
    
    
    
    (594
    )
    
    
    (594
    )Balance, December 31, 2001
    
    
    28,705
    
    
    
    26,188
    
    
    
    501
    
    
    
    55,394Net income
    
    
    
    
    
    
    3,471
    
    
    
    
    
    
    
    3,471Shares repurchased for cancellation
    
    
    (881
    )
    
    
    (473
    )
    
    
    
    
    
    
    (1,354
    )Unrealized foreign currency loss
    
    
    
    
    
    
    
    
    
    
    (906
    )
    
    
    (906
    )Foreign exchange adjustment
    
    
    
    
    
    
    
    
    
    
    444
    
    
    
    444Change in obligation for derivative
instruments
    
    
    
    
    
    
    
    
    
    
    683
    
    
    
    683Shares issued upon exercise of
options
    
    
    33
    
    
    
    
    
    
    
    
    
    
    
    33Balance, December 31, 2002
    
    
    27,857
    
    
    
    29,186
    
    
    
    722
    
    
    
    57,765Net income
    
    
    
    
    
    
    10,336
    
    
    
    
    
    
    
    10,336Shares repurchased for cancellation
    
    
    (312
    )
    
    
    (351
    )
    
    
    
    
    
    
    (663
    )Unrealized foreign currency gain
    
    
    
    
    
    
    
    
    
    
    4,399
    
    
    
    4,399Change in obligation for derivative
instruments
    
    
    
    
    
    
    
    
    
    
    116
    
    
    
    116Shares issued upon exercise of
options
    
    
    1,607
    
    
    
    
    
    
    
    
    
    
    
    1,607Shares issued upon public offering
    
    
    30,206
    
    
    
    
    
    
    
    
    
    
    
    30,206Balance, December 31, 2003
    
    $
    59,358
    
    
    $
    39,171
    
    
    $
    5,237
    
    
    $
    103,766
 54




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences (continued):  (b)
    
    Consolidated statements of cash flows:Canadian GAAP permits the disclosure of a subtotal of the amount of
cash provided by operations before changes in non-cash working capital
items in the consolidated statements of cash flows. United States GAAP
does not permit this subtotal to be included.(c)
    
    Statement of net income (loss) and comprehensive income (loss):The following table reconciles net income for the year as reported in
the consolidated statements of operations to what would have been
reported had the statements been prepared in accordance with United
States GAAP.United States GAAP requires the disclosures of a Statement of
Comprehensive Income. Comprehensive income generally encompasses all
changes in shareholders equity, except those arising from transactions
with shareholders. 2003
    
    2002
    
    2001Net income (loss) based on
Canadian GAAP
    
    $
    10,336
    
    
    $
    6,938
    
    
    $
    (1,361
    )Foreign exchange adjustment (i)
    
    
    
    
    
    
    (444
    )
    
    
    (414
    )Net income (loss) before effect of
change in accounting principle
    
    
    10,336
    
    
    
    6,494
    
    
    
    (1,775
    )Cumulative effect of change in method
of accounting for goodwill (iii)
    
    
    
    
    
    
    (3,023
    )
    
    
    Net income (loss) based on
United States GAAP
    
    
    10,336
    
    
    
    3,471
    
    
    
    (1,775
    )Other comprehensive income:Change in cumulative translation
adjustment
    
    
    4,399
    
    
    
    (906
    )
    
    
    1,190Foreign exchange adjustment (i)
    
    
    
    
    
    
    444
    
    
    
    414Obligation for derivative instruments (ii)
    
    
    116
    
    
    
    683
    
    
    
    (656
    )Comprehensive income (loss)
based on United States GAAP
    
    $
    14,851
    
    
    $
    3,692
    
    
    $
    (827
    )
 55




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences (continued): 2003
    
    2002
    
    2001Earnings (loss) per share under
United States GAAP:Basic - continuing operations
    
    $
    1.07
    
    
    $
    0.67
    
    
    $
    0.19Basic - discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.37
    )Basic - net income (loss) before
cumulative effect of accounting change
    
    
    1.07
    
    
    
    0.67
    
    
    
    (0.18
    )Basic - cumulative effect of
change in method of accounting
for goodwill
    
    
    
    
    
    
    (0.31
    )
    
    
    Basic - net income (loss)
    
    
    1.07
    
    
    
    0.36
    
    
    
    (0.18
    )Diluted - continuing operations
    
    
    1.01
    
    
    
    0.66
    
    
    
    0.19Diluted - discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.37
    )Diluted - net before cumulative
effect of accounting change
    
    
    1.01
    
    
    
    0.66
    
    
    
    (0.18
    )Diluted - cumulative effect of
change in method of accounting
for goodwill
    
    
    
    
    
    
    (0.31
    )
    
    
    Diluted - net income (loss)
    
    
    1.01
    
    
    
    0.35
    
    
    
    (0.18
    )Weighted average number of shares:Weighted average number of
shares outstanding
    
    
    9,684,901
    
    
    
    9,691,041
    
    
    
    9,859,296Potential exercise of stock options
    
    
    578,310
    
    
    
    93,025
    
    
    
    Diluted shares
    
    
    10,263,211
    
    
    
    9,784,066
    
    
    
    9,859,296
  (i)
    
    A foreign exchange gain that did not represent a
substantially complete liquidation of a foreign operation
amounting to nil (2002  $637; 2001 - $645) was included in
selling, general and administration expenses. In prior years,
this gain 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. Of this gain, nil (2002 -

$444; 2001  $414) was recognized upon the transfer into income of
the related cumulative translation adjustment. 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. 56




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences (continued):  (ii)
    
    The change in the fair value of the Corporation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
$78 (2002  -  $474; 2001  -  $426).(iii)
    
    A non-cash charge of $3.0 million, to adjust the
carrying value of goodwill to its implied value was included in
opening retained earnings without the restatement of prior period
figures. This charge was the result of the Corporations adoption
of the new Canadian accounting standard for goodwill and other
intangibles. Under United States GAAP, FAS 142, the non-cash
charge, is not recorded as a charge to opening retained earnings
but rather as a charge to income in 2002.  (d)
    
    Income from operations before depreciation and amortization:United States GAAP requires that depreciation and amortization be
included in the determination of income from operations. Further, U.S.
GAAP does not permit the disclosure of a subtotal of the amount of
income from continuing operations before this item nor goodwill
amortization to be disclosed separately net of income taxes. Canadian
GAAP requires the disclosure of a subtotal of the amount of income from
operations before this item.(e)
    
    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,
2003 was $1.3 million (2002  -  $1.9 million).(ii)
    
    Total rental expense under operating leases was $17.9
million for the year ended December 31, 2003 (2002  -  $16.9
million; 2001  -  $16.2 million).(iii)
    
    At December 31, 2003, the Corporation had an aggregate
of Cdn. $21.6 million in unused bank credit facilities. 57




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VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences (continued):  (iv)
    
    At December 31, 2003, the Corporation has $0.3 million of
foreign exchange gains that represent a substantially complete
liquidation of a foreign operation that were included in selling,
general and administration expenses.(v)
    
    Accounts payable and accrued liabilities: 2003
    
    2002Accounts payable
    
    $
    16,209
    
    
    $
    11,503Accrued wages and benefits
    
    
    3,555
    
    
    
    3,849Accrued claims, self insurance and
workers compensation
    
    
    4,670
    
    
    
    4,028Other
    
    
    9,658
    
    
    
    7,934$
    34,092
    
    
    $
    27,314
  (f)
    
    Stock-based compensation:In December 2002, the FASB issued Statement No. 148, Accounting for
Stock-based Compensation  Transition and Disclosure, an amendment of
FASB SFAS No. 123, Accounting for Stock-based Compensation, to provide
alternative methods of transition for the change to the fair value
method of accounting for stock-based employee compensation.In accordance with one of the transitional options permitted under
amended FASB 148, the Corporation has prospectively applied the fair
value based method to all stock options granted on or after January 1,
2003. The Corporation did not grant any stock options in 2003. 58




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    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 Corporations stock options is determined under the fair
value method for awards granted on or after January 1, 1995: 2003
    
    2002
    
    2001Options granted
    
    
    
    
    
    
    175,000
    
    
    
    100,000Net income (loss), as reported
    
    $
    10,336
    
    
    $
    3,471
    
    
    $
    (1,775
    )Pro forma net income (loss)
    
    
    10,124
    
    
    
    3,072
    
    
    
    (2,206
    )Pro forma basic income per share
    
    
    1.05
    
    
    
    0.32
    
    
    
    (0.22
    )Pro forma diluted income per share
    
    
    0.99
    
    
    
    0.31
    
    
    
    (0.22
    )
  Under FASB Statement 123, the weighted average estimated fair value at
the date of grant for the options granted during 2003, 2002 and 2001 was
nil, Cdn. $1.97 and Cdn. $2.42, respectively.  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: 2002
    
    2001
    
    1997-2000Risk-free interest rate
    
    
    5.3
    %
    
    
    5.4
    %
    
    
    4.9%  -  6.6
    %Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Volatility factor of the future
expected market price of the
Corporations common shares
    
    
    36.0
    %
    
    
    33.8
    %
    
    
    34.1% - 34.8
    %Expected life of the options
    
    
    10
    
    
    
    10
    
    
    
    10
 59




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##### Table of Contents



VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts, except where noted) Years ended December 31, 2003, 2002 and 2001  14.
    
    Canadian and United States accounting policy differences (continued):  (g)
    
    New United States accounting pronouncement:  In December 2003, the FASB issued FIN No. 46R, Consolidation of Variable
Interest Entities, which requires variable interest entities, previously
referred to as special purpose entities or off-balance sheet structures, to be
consolidated by a company if that company is subject to a majority of the risk
of loss from the entitys activities or is entitled to receive a majority of
the entitys returns or both. The consolidation provisions of FIN No. 46R
apply immediately to variable interest entities created after January 31, 2003
and to any entities prior to that date existing in the first fiscal year or
interim period beginning after December 31, 2003. Certain disclosure
provisions apply in financial statements issued after January 31, 2003. The
consolidation requirements of FIN No. 46R did not have an effect on the
Corporations consolidated financial statements. 60




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ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE During our last two years, there were no disagreements with KPMG LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of KPMG LLP, would have caused them to make
reference to the subject matter of the disagreement in connection with their
reports. 
  ITEM 9a CONTROLS AND PROCEDURES In order to ensure information for disclosure in our filings of periodic
reports with the Securities and Exchange Commission is identified, recorded,
processed, summarized and reported on a timely basis, we have adopted
disclosure controls and procedures. Our Chief Executive Officer, Richard E.
Gaetz, and our Chief Financial Officer, Kevin A. Glass, have reviewed and
evaluated our disclosure controls and procedures as of January 30, 2004 and
have concluded that our disclosure controls and procedures were adequate as of
that date. There have been no significant changes in our internal controls, which we
define to include our control environment, control procedures, and accounting
systems, or in other factors that could significantly affect our internal
controls, since January 30, 2004. 
  PART III 
  ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information for directors is reported in our definitive proxy
statement filed pursuant to Regulation 14A, and is incorporated by reference.
The following table sets forth certain information as of February 23, 2004
concerning our executive officers: Name
    
    Age
    
    Position
    
    Number of Shares (1)
    
    Number of Options (2)
    %
    Ownership (3)Richard E. Gaetz
    
    
    
    
    
    President and Chief(Mississauga, Canada)
    
    
    46
    
    
    Executive Officer
    
    
    131,925
    
    
    
    226,500
    
    
    
    
    
    
    
    2.9
    %Vice President,Kevin A. Glass
    
    
    
    
    
    Finance and Chief(Etobicoke, Canada)
    
    
    46
    
    
    Financial Officer
    
    
    30,000
    
    
    
    92,600
    
    
    
    
    
    
    
    1.0
    %
  (1)
    
    Approximate number of Class A Voting Shares beneficially owned
directly or indirectly or over which control or direction is exercised
as of February 23, 2004.  (2)
    
    Class A Voting Shares subject to stock options exercisable by March
19, 2004 or that become exercisable within 60 days from March 19, 2004.  (3)
    
    Class A Voting Shares subject to stock options are excluded from the
calculation of percentage ownership of any other person. Mr. Gaetz has been working in the transportation and logistics industry
for more than 24 years. He has been actively involved with the growth and
development of Vitran and has been responsible for Vitrans freight
distribution business 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. Mr. Glass has been in the Logistics business in a senior financial
management capacity for over 13 years. Prior to joining Vitran in 1998, he was
Vice President of Finance and Chief Financial Officer of the Livingston Group,
Canadas largest Logistics and Customs Brokerage Company. From 1981 to 1989,
Mr. Glass was with Price Waterhouse in various roles in the Corporate Finance,
Audit and Computer Audit groups. He received a Bachelor of Commerce, Bachelor
of Accountancy and Higher Diploma in Information Technology, all from the
University of the Watwatersrand (South Africa). Mr. Glass is a Chartered
Accountant with the Canadian Institute and received an M.B.A. from the
University of Toronto. 61




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##### Table of Contents



ITEM 11 EXECUTIVE COMPENSATION The information required by Item 11 of Form 10-K appears in the Companys
proxy statement for the 2004 Annual Meeting of its Shareholders, reference to
which is hereby made, and the information there is incorporated herein by
reference. 
 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 12 of Form 10-K appears in the Companys
proxy statement for the 2004 Annual Meeting of its Shareholders, reference to
which is hereby made, and the information there is incorporated herein by
reference. 
 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 13 of Form 10-K appears in the Companys
proxy statement for the 2004 Annual Meeting of its Shareholders, reference to
which is hereby made, and the information there is incorporated herein by
reference. 
 ITEM 14 PRINCIPLE ACCOUNTING FEES AND SERVICES KPMG LLP has served as the Corporations auditors since 1989. For the
fiscal years ended December 31, 2003 and 2002 fees billed by KPMG LLP to Vitran
for services were: Year ended December 31,2003
    
    2002Audit fees
    
    $
    176,500
    
    
    $
    160,900Tax fees
    
    nil
    
    
    16,900All other fees
    
    
    105,500
    
    
    
    16,100$
    282,000
    
    
    $
    193,900
 In 2003, KPMG LLP billed Vitran $22,200 for services in conjunction with
preparation of an implementation plan with respect to the 404 certification
requirements of the Sarbanes Oxley Act of 2002. All services provided by KPMG
to Vitran for 2003 and 2002 were approved by the audit committee. For details
regarding the audit committee approval process please review the audit
committee charter attached as an appendix to the Companys proxy statement for
the 2004 Annual Meeting of its Shareholders, reference to which is hereby made,
and the information there is incorporated herein by reference. 
 PART IV 
 ITEM 15 EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K (a)     (1) Financial Statements Consolidated Balance Sheets as at December 31, 2003, and 2002 and the
Consolidated Statements of Income, Retained Earnings and Cash Flow for the
years ended December 31, 2003, 2002, and 2001, reported on by KPMG LLP,
Chartered Accountants. These statements are prepared in accordance with
generally accepted accounting principles (GAAP) in Canada and in the United
States. A reconciliation of the differences between Canadian and U.S. GAAP is
included on Note 14 to the financial statements. 62




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##### Table of Contents



(2)
    
    Financial Statement Schedule: Schedule IIValuation and Qualifying Accounts Vitran Corporation Inc.
Three Years ended December 31, 2003 Allowance for Doubtful Accounts
(000s $)

    
    Balance atBeginning
    
    Charges toCosts and
    
    
    
    
    
    Balanceat EndDescription
    
    of Year
    
    Expenses
    
    Deductions
    
    of YearYear ended December 31, 2001Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    2,310
    
    
    $
    751
    
    
    $
    (751
    )
    
    $
    2,310Year ended December 31, 2002Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    2,310
    
    
    $
    643
    
    
    $
    (1,087
    )
    
    $
    1,866Year ended December 31, 2003Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,866
    
    
    $
    1,104
    
    
    $
    (1,705
    )
    
    $
    1,266
  (3)
    
    Exhibits Filed The exhibits listed in the accompanying Exhibit Index are filed as part of
this report.  (b)
    
    Reports on Form 8K In February 2004, the Board of Directors determined that the number of the
Companys U.S. shareholders exceeded 50% of the total number of the Companys
shareholders and therefore Vitran ceased to be a foreign private issuer under
U.S. securities laws. Accordingly, Vitran was not required to file U.S.
domestic issuer forms in complying with its U.S. reporting obligations in
fiscal 2003. 63




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Toronto,
Province of Ontario, on the 12th day of March, 2004. Vitran Corporation Inc.By:
    /s/ KEVIN A. GLASSKevin A. GlassVice President, Finance and
Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated. Signatures
    
    Title
    
    Date/s/ RICHARD D. McGRAW

Richard D. McGraw
    
    Chairman of the Board
    
    March 12, 2004/s/ RICHARD E. GAETZ

Richard E. Gaetz
    
    President and Chief Executive Officer, Director
    
    March 12, 2004/s/ CARL J. COOK

Carl J. Cook
    
    Director
    
    March 12, 2004/s/ G. MARK CURRY

G. Mark Curry
    
    Director
    
    March 12, 2004/s/ ALBERT GNAT
Albert Gnat
    
    Director
    
    March 12, 2004/s/ ANTHONY F. GRIFFITHS

Anthony F. Griffiths
    
    Director
    
    March 12, 2004/s/ GRAHAM W. SAVAGE

Graham W. Savage
    
    Director
    
    March 12, 2004/s/ KEVIN A. GLASS

Kevin A. Glass
    
    Vice President Finance & Chief Financial Officer
(Principal Financial Officer)
    
    March 12, 2004/s/ SEAN P. WASHCHUK

Sean P. Washchuk
    
    Corporate Controller
(Principle Accounting Officer)
    
    March 12, 2004
 64




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##### Table of Contents



EXHIBIT INDEX Exhibit No.
    
    Document1.1*
    

    Articles of Incorporation effective, April 29, 19811.2*
    

    Articles of Amendment effective, May 27, 19871.3*
    

    Articles of Amendment effective, July 16, 19871.4*
    

    Articles of Amendment effective, February 5, 19911.5*
    

    By-laws effective, May 27, 19871.6*
    

    By-law to authorize the directors to borrow and give security effective, July 16, 19872.1*
    

    Credit Agreement between the registrant, its subsidiaries and the Royal Bank, dated April
25, 19952.2*
    

    Credit Agreement between the Overland Group and Bank One, dated February 4, 1994 (the
Overland Credit Agreement)2.3*
    

    First Amendment to the Overland Credit Agreement, effective July 1, 19942.4*
    

    Second Amendment to the Overland Credit Agreement, effective September 30, 19942.5*
    

    Third Amendment to the Overland Credit Agreement, dated December 14, 19942.6*
    

    Fourth Amendment to the Overland Credit Agreement, dated February 1, 19952.7*
    

    Fifth Amendment to the Overland Credit Agreement, effective December 31, 19942.8*
    

    Sixth Amendment to the Overland Credit Agreement, dated March 2, 19952.9*
    

    Operating Credit Agreement between Trans Western Express Inc. and The Bank of Nova
Scotia, dated July 25, 19952.9.1*
    

    First Amending Agreement to Credit Agreement between Trans Western Express Inc. and The
Bank of Nova Scotia, dated September 3, 19982.9.2*
    

    Second Amending Agreement to Credit Agreement between Trans Western Express Inc. and The
Bank of Nova Scotia, dated January 8, 19992.9.3*
    

    Amended and Restated Credit Agreement between Vitran Corporation Inc. and Trans Western
Express Inc. and The Bank of Nova Scotia, dated January 31, 20022.10*
    

    Note Purchase Agreement between Trans Western Express Inc., the registrant and certain
purchasers, dated July 25, 1995.2.11*
    

    Amendment No. 1 to Note Agreement (Amending Agreement, dated June 28, 19962.12*
    

    Amendment No. 2 to Note Agreement (Amending Agreement, dated May 13, 19972.13*
    

    Credit Agreement between the registrant and The Bank of Nova Scotia, dated September 3,
19982.14*
    

    Credit Agreement between the registrant and The Bank of Nova Scotia and Laurentian Bank
of Canada, dated October 13, 19993.1*
    

    Underwriting Agreement dated December 16, 1994 between the registrant and Midland Walwyn
Capital Inc. and ScotiaMcLeod Inc.3.2*
    

    Special Warrant Indenture dated December 16, 1994 between the registrant and Montreal
Trust Company for Canada, as trustee3.3*

    
    Escrow agreement dated December 16, 1994 between the registrant and Messrs.
Morris/Rose/Ledgett, Barristers and Solicitors, as trustee3.4*

    
    Subscription Agreements:3.4.1*

    
    Alcan Master Trust3.4.2*

    
    Deans Knight Capital Management3.4.3*

    
    Fiducie Desjardins A/C 900111.6.423.4.4*

    
    Montreal Trust Company of Canada A/C 9856300093.4.5*

    
    Montreal Trust Company of Canada A/C 9770500093.4.6*

    
    Ontario Municipal Employees Retirement Board3.4.7*

    
    Royal Trust Corporation of Canada in Trust 01159770013.4.8*

    
    Royal Trust Corporation of Canada in Trust 0886650013.4.9*

    
    Roytor & Co.3.5*

    
    Stock Option Plan dated July 16, 19873.6*

    
    Employee Stock Option Plan approved May 17, 19953.7*

    
    Purchase and Sale agreement dated November 2, 1994 between the Registrant and Carl Cook
and Daniel L. Cook3.8*

    
    Stock Voting Agreement dated July 15, 1987 between Richard D. McGraw, Albert Gnat and
Anthony F. Griffiths3.9*

    
    Confidential Transportation Contract dated January 1, 1993 between Trans Western Express
Inc. and Canadian National Railway Company3.10*

    
    Agreement dated April 24, 1995 between the registrant, Borcross Limited, Carl Cook and
Daniel L. Cook amending the terms of the Overland Note3.11*

    
    Engagement Letter dated April 28, 1995 between the registrant and Banc One Capital
Corporation3.13*

    
    Offer of Employment dated September 30, 1998 from the registrant to Kevin Glass3.14*

    
    Share Purchase Agreement between the registrant and Randall Quast, dated July 21, 19983.15*

    
    Cancellation of Stock Voting Agreement dated February 1, 2003 between Richard D. McGraw,
Albert Gnat and Anthony F. Griffiths3.16*

    
    Code of Ethics and Professional Conduct for Directors and Senior Executives3.17*

    
    Prospectus Dated December 16, 200331

    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated January
30, 200432

    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated January
30, 2004
   *
    
    Previously filed 65