##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
 
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    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
    
    (I.R.S. Employer(State or other jurisdiction of
    
    Identification No.)incorporation or organization)
 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5  (Address of principal executive offices) (Zip Code)
 (Registrants telephone number, including area code)  (416) 596-7664
  Title of each class
    
    Name of each exchange on which registeredCommon Shares
    
    Toronto Stock Exchange  TSX®NASDAQ  National Market
  o þ
 o þ
 þ o
 o
 
 o þ o
 o þ
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



TABLE OF CONTENTS
 PageItemPART I1. Business
    
    
    31. a Risk Factors
    
    
    71. b Unresolved Staff Comments
    
    
    72. Properties
    
    
    73. Legal Proceedings
    
    
    74. Submission of Matters to a Vote of Security Holders
    
    
    7PART II5. Market for Registrants Common Equity and Related Stockholder Matters
    
    
    86. Selected Financial Data
    
    
    107. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    137. a Quantitative and Qualitative Disclosures about Market Risk
    
    
    258. Financial Statements and Supplementary Data
    
    
    269. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    609. a Controls and Procedures
    
    
    609. b Other Information
    
    
    62PART III10. Directors and Executive Officers of the Registrant
    
    
    6211. Executive Compensation
    
    
    6212. Security Ownership of Certain Beneficial Owners and Management
    
    
    6313. Certain Relationships and Related Transactions
    
    
    6314. Principal Accounting Fees and Services
    
    
    63PART IV15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    63Exhibit 31.1Exhibit 32.1
  2




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##### Table of Contents



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




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Logistics
  Supply Chain Solutions.
 Freight Brokerage.
 Truckload
  THE TRUCKING INDUSTRY
  4




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




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##### Table of Contents



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




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##### Table of Contents



ITEM 1. aRISK FACTORS
 RISKS AND UNCERTAINTIES
  
 ITEM 1. bUNRESOLVED STAFF COMMENTS
  
 ITEM 2PROPERTIES
 .
   Terminals
    
    Doors
    
    Owned/ LeasedToronto
    
    
    132
    
    
    LeasedIndianapolis
    
    
    116
    
    
    LeasedToledo
    
    
    101
    
    
    OwnedPhiladelphia
    
    
    92
    
    
    LeasedMontreal
    
    
    85
    
    
    OwnedVancouver
    
    
    85
    
    
    OwnedChicago
    
    
    81
    
    
    LeasedPittsburgh
    
    
    80
    
    
    OwnedWinsted
    
    
    78
    
    
    OwnedDetroit
    
    
    74
    
    
    Owned
  
 ITEM 3LEGAL PROCEEDINGS
  
 ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  7




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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
     TSX
    
    NASDAQQuarter
    
    High
    
    Low
    
    Volume
    
    High
    
    Low
    
    Volume(in Canadian dollars)
    
    (in United States dollars)2006Fourth Quarter
    
    $
    22.31
    
    
    $
    18.10
    
    
    
    381,700
    
    
    $
    19.78
    
    
    $
    16.03
    
    
    
    1,860,000Third Quarter
    
    $
    27.99
    
    
    $
    19.94
    
    
    
    104,400
    
    
    $
    25.72
    
    
    $
    16.74
    
    
    
    1,506,100Second Quarter
    
    $
    27.37
    
    
    $
    21.01
    
    
    
    340,500
    
    
    $
    24.75
    
    
    $
    19.00
    
    
    
    3,273,000First Quarter
    
    $
    24.50
    
    
    $
    21.50
    
    
    
    425,800
    
    
    $
    20.90
    
    
    $
    18.61
    
    
    
    1,654,5002005Fourth Quarter
    
    $
    23.50
    
    
    $
    19.00
    
    
    
    322,700
    
    
    $
    20.00
    
    
    $
    15.55
    
    
    
    1,894,700Third Quarter
    
    $
    21.99
    
    
    $
    18.85
    
    
    
    406,800
    
    
    $
    18.19
    
    
    $
    15.28
    
    
    
    1,865,500Second Quarter
    
    $
    19.90
    
    
    $
    16.50
    
    
    
    654,600
    
    
    $
    16.39
    
    
    $
    13.41
    
    
    
    2,435,700First Quarter
    
    $
    21.00
    
    
    $
    17.95
    
    
    
    676,600
    
    
    $
    17.25
    
    
    $
    14.05
    
    
    
    2,295,800
 TSX
    
    NASDAQ2006 Monthly
    
    High
    
    Low
    
    Volume
    
    High
    
    Low
    
    Volume(in Canadian dollars)
    
    (in United States dollars)December
    
    $
    20.75
    
    
    $
    19.17
    
    
    
    229,200
    
    
    $
    17.85
    
    
    $
    16.57
    
    
    
    449,300November
    
    $
    20.25
    
    
    $
    18.56
    
    
    
    74,900
    
    
    $
    17.56
    
    
    $
    16.49
    
    
    
    491,900October
    
    $
    22.31
    
    
    $
    18.10
    
    
    
    77,600
    
    
    $
    19.78
    
    
    $
    16.03
    
    
    
    918,800September
    
    $
    22.99
    
    
    $
    19.94
    
    
    
    43,100
    
    
    $
    20.10
    
    
    $
    16.74
    
    
    
    354,100August
    
    $
    23.00
    
    
    $
    20.02
    
    
    
    20,400
    
    
    $
    20.92
    
    
    $
    17.62
    
    
    
    385,200July
    
    $
    27.99
    
    
    $
    22.34
    
    
    
    40,900
    
    
    $
    25.72
    
    
    $
    19.61
    
    
    
    766,800June
    
    $
    27.37
    
    
    $
    22.52
    
    
    
    66,900
    
    
    $
    24.75
    
    
    $
    20.02
    
    
    
    1,046,000May
    
    $
    25.00
    
    
    $
    22.50
    
    
    
    215,900
    
    
    $
    22.59
    
    
    $
    19.85
    
    
    
    1,818,000April
    
    $
    24.20
    
    
    $
    21.01
    
    
    
    57,700
    
    
    $
    21.00
    
    
    $
    19.00
    
    
    
    409,000March
    
    $
    24.50
    
    
    $
    22.40
    
    
    
    221,600
    
    
    $
    20.90
    
    
    $
    18.76
    
    
    
    557,500February
    
    $
    23.42
    
    
    $
    21.60
    
    
    
    133,200
    
    
    $
    20.55
    
    
    $
    18.64
    
    
    
    613,000January
    
    $
    23.30
    
    
    $
    21.50
    
    
    
    71,000
    
    
    $
    20.00
    
    
    $
    18.61
    
    
    
    484,000
 8




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##### Table of Contents



Stock Option Plan
 Number of securities
    
    
    
    
    
    Number of securitiesto be issued upon
    
    
    
    
    
    remaining available forexercise of
    
    Weighted average
    
    future issuanceoutstanding
    
    exercise price of
    
    (excluding securitiesPlan Category
    
    options
    
    outstanding options
    
    reflected in column (a))(a
    )
    
    
    (b
    )
    
    
    (c
    )Equity compensation plans approved by security holders
    
    
    767,700
    
    
    $
    11.42
    
    
    
    214,500Equity compensation plans not approved by security holders
    
    
    
    
    
    
    
    
    
    
    Total (1)
    
    
    767,700
    
    
    $
    11.42
    
    
    
    214,500
 (1)
    
    As at December 31, 2006.  Purchases of Equity Securities
  Maximum numberTotal number of
    
    of common sharesNumber of
    
    Average price paid
    
    common shares as
    
    that may yet becommon shares
    
    per common share
    
    part of a publicly
    
    purchased under thePeriod
    
    purchased
    
    (CAD)
    
    announced plan
    
    planOct. 1 to Oct. 31, 2006
    
    
    2,000
    
    
    $
    18.30
    
    
    
    2,000
    
    
    
    630,381Nov. 1 to Nov. 30, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630,381Dec. 1 to Dec. 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    630,381Total
    
    
    2,000
    
    
    $
    18.30
    
    
    
    2,000
  Transfer Agents
 Computershare Investor Services Inc.
    
    Montreal, Toronto
    
    CanadaComputershare Trust Company Inc.
    
    Denver
    
    United States
 9




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ITEM 6SELECTED FINANCIAL DATA
  Selected Financial Data
 Year
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002United States GAAP
Statements of IncomeRevenue
    
    $
    514,059
    
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595Income from continuing
operations before depreciation
and amortization expense
(1)
    
    
    40,530
    
    
    
    32,392
    
    
    
    24,183
    
    
    
    20,044
    
    
    
    17,373Income from continuing operations
    
    
    28,040
    
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,550
    
    
    
    12,065Net income from continuing
operations
    
    
    19,258
    
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    6,494Change in method for accounting
for goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,023
    )Cumulative effect of change in
accounting principle
    
    
    141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    3,471Earnings per share basic:Net income from continuing
operations
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.67Net income (loss)
    
    $
    1.50
    
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.36Weighted average number of shares
    
    
    12,887,401
    
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901
    
    
    
    9,691,041Earnings per share diluted:Net income from continuing
operations
    
    $
    1.47
    
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.66Net income (loss)
    
    $
    1.48
    
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.35Weighted average number of shares
    
    
    13,124,865
    
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
    
    
    
    9,784,066Canadian GAAP(2)Statements of incomeRevenue
    
    $
    514,059
    
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595Income from continuing
operations before depreciation
and amortization expense
(1)
    
    
    40,530
    
    
    
    32,392
    
    
    
    24,183
    
    
    
    20,308
    
    
    
    17,817Income from continuing operations
    
    
    28,040
    
    
    
    25,427
    
    
    
    18,977
    
    
    
    14,814
    
    
    
    12,509Net income from continuing
operations
    
    
    19,258
    
    
    
    17,938
    
    
    
    14,943
    
    
    
    10,336
    
    
    
    6,938Net income (loss)
    
    $
    19,258
    
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    6,938
 10




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##### Table of Contents



Selected Financial Data (continued)
 Year
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Earnings per share basic:Net income from
continuing operations
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.72Net income (loss)
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22
    
    
    $
    1.07
    
    
    $
    0.72Weighted average number of shares
    
    
    12,887,401
    
    
    
    12,516,265
    
    
    
    12,285,400
    
    
    
    9,684,901
    
    
    
    9,691,041Earnings per share diluted:Net income from continuing
operations
    
    $
    1.47
    
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.71Net income (loss)
    
    $
    1.47
    
    
    $
    1.40
    
    
    $
    1.17
    
    
    $
    1.01
    
    
    $
    0.71Weighted average number of shares
    
    
    13,124,865
    
    
    
    12,848,360
    
    
    
    12,740,477
    
    
    
    10,263,211
    
    
    
    9,784,066Dividends per share $US
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    NilDividends per share $Cdn
    
    Nil
    
    Nil
    
    Nil
    
    Nil
    
    Nil
 Year
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Balance Sheets (United States GAAP)Assets:Current assets
    
    $
    80,021
    
    
    $
    71,017
    
    
    $
    90,177
    
    
    $
    85,046
    
    
    $
    46,746Property and equipment, net
    
    
    145,129
    
    
    
    66,807
    
    
    
    37,563
    
    
    
    35,102
    
    
    
    30,787Intangible assets
    
    
    15,888
    
    
    
    2,456
    
    
    
    
    
    
    
    
    
    
    
    Goodwill, net
    
    
    117,146
    
    
    
    61,448
    
    
    
    45,304
    
    
    
    44,865
    
    
    
    43,869Other assets
    
    
    150
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    Total assets
    
    $
    358,334
    
    
    $
    201,728
    
    
    $
    173,050
    
    
    $
    165,013
    
    
    $
    121,402Liabilities and Stockholders
Equity:Current liabilities
    
    $
    84,915
    
    
    $
    48,331
    
    
    $
    38,806
    
    
    $
    46,412
    
    
    $
    36,061Long-term debt
    
    
    93,139
    
    
    
    8,588
    
    
    
    11,507
    
    
    
    17,931
    
    
    
    30,504Other non-current liabilities
    
    
    6,983
    
    
    
    5,007
    
    
    
    3,546
    
    
    
    2,715
    
    
    
    2,767Total stockholders equity
    
    $
    173,297
    
    
    $
    139,802
    
    
    $
    119,191
    
    
    $
    97,955
    
    
    $
    51,853Balance Sheets (Canadian GAAP)(2)Assets:Current assets
    
    $
    80,021
    
    
    $
    71,017
    
    
    $
    90,177
    
    
    $
    85,046
    
    
    $
    46,746Property and equipment, net
    
    
    145,129
    
    
    
    66,807
    
    
    
    37,563
    
    
    
    35,102
    
    
    
    30,787Intangible assets
    
    
    15,888
    
    
    
    2,456
    
    
    
    
    
    
    
    
    
    
    
    Goodwill, net
    
    
    117,146
    
    
    
    61,448
    
    
    
    45,304
    
    
    
    44,865
    
    
    
    43,869Other assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total assets
    
    $
    358,184
    
    
    $
    201,728
    
    
    $
    173,044
    
    
    $
    165,013
    
    
    $
    121,402Liabilities and Stockholders
Equity:Current liabilities
    
    $
    84,915
    
    
    $
    48,331
    
    
    $
    38,806
    
    
    $
    46,412
    
    
    $
    36,061Long-term debt
    
    
    93,139
    
    
    
    8,588
    
    
    
    11,507
    
    
    
    17,931
    
    
    
    30,504Other non-current liabilities
    
    
    6,983
    
    
    
    5,007
    
    
    
    3,546
    
    
    
    2,715
    
    
    
    2,767Total stockholders equity
    
    $
    173,171
    
    
    $
    139,802
    
    
    $
    119,185
    
    
    $
    97,955
    
    
    $
    52,070Total commitments under operating
leases
    
    $
    38,827
    
    
    $
    40,239
    
    
    $
    46,564
    
    
    $
    48,580
    
    
    $
    57,475
 11




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##### Table of Contents



Selected Financial Data (continued)  Operating Ratios (3)
 Total company
    
    
    94.5
    %
    
    
    94.1
    %
    
    
    94.9
    %
    
    
    95.5
    %
    
    
    95.9
    %Less-than-truckload
    
    
    93.7
    %
    
    
    93.1
    %
    
    
    94.2
    %
    
    
    94.3
    %
    
    
    94.6
    %Logistics
    
    
    93.3
    %
    
    
    94.7
    %
    
    
    95.3
    %
    
    
    96.2
    %
    
    
    96.5
    %Truckload
    
    
    94.7
    %
    
    
    93.5
    %
    
    
    94.5
    %
    
    
    98.2
    %
    
    
    98.0
    %
 
  (1)
    
    Income from continuing operations before depreciation and amortization expense (EBITDA) is
a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP.
EBITDA represents net income, minus cumulative change in accounting policy, plus (minus)
income tax expense (benefit), plus net interest expense, and plus depreciation and
amortization. The Company uses EBITDA in evaluating its operating performance compared to that
of other companies in its industry, as the calculation of EBITDA eliminates the effects of
financing, income taxes and the accounting effects of capital spending, which items may vary
for different companies for reasons unrelated to overall operating performance. When
analyzing its operating performance, however, investors should use EBITDA in addition to, not
as an alternative for, income from operations and net income, as those items are defined by
GAAP. Investors should also note that the Companys
presentation of EBITDA may not be comparable to similarly titled measures used by other companies.
EBITDA is reconciled to net income as follows: Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    10,336
    
    
    $
    6,938Cumulative change in accounting principle
    
    
    (141
    )Income tax expense
    
    
    6,122
    
    
    
    7,191
    
    
    
    3,983
    
    
    
    3,158
    
    
    
    2,282Interest expense, net
    
    
    2,660
    
    
    
    298
    
    
    
    51
    
    
    
    1,320
    
    
    
    3,289Depreciation and amortization
    
    
    12,490
    
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494
    
    
    
    5,308EBITDA
    
    $
    40,530
    
    
    $
    32,392
    
    
    $
    24,183
    
    
    $
    20,308
    
    
    $
    17,817
 (2)
    
    Please see Note 17 to the Consolidated Financial Statements for differences between United
States and Canadian GAAP.(3)
    
    Operating ratio (OR) is a non-GAAP financial measure which does not have any standardized
meaning prescribed by GAAP. OR is the sum of operating expenses, selling, general and
administrative expenses, other expenses (income), and depreciation and amortization expense,
divided by revenue. OR allows management to measure the Company and its various segments
operating efficiency. OR is a widely recognized measure in the transportation industry which
provides a comparable benchmark for evaluating the Companys performance compared to its
competitors. Investors should also note that the Companys presentation of OR may not be
comparable to similarly titled measures by other companies. OR is calculated as follows: Year ended December 31,2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002Operating expenses
    
    $
    426,515
    
    
    $
    357,960
    
    
    $
    319,295
    
    
    $
    282,016
    
    
    $
    254,405Selling, general and administrative expenses
    
    
    47,448
    
    
    
    37,881
    
    
    
    31,263
    
    
    
    29,366
    
    
    
    31,084Other expenses (income)
    
    
    (434
    )
    
    
    (41
    )
    
    
    (146
    )
    
    
    136
    
    
    
    289Depreciation and amortization expense
    
    
    12,490
    
    
    
    6,965
    
    
    
    5,206
    
    
    
    5,494
    
    
    
    5,308$
    486,019
    
    
    $
    402,765
    
    
    $
    355,618
    
    
    $
    317,012
    
    
    $
    291,086Revenue
    
    $
    514,059
    
    
    $
    428,192
    
    
    $
    374,595
    
    
    $
    331,826
    
    
    $
    303,595Operating ratio (OR)
    
    
    94.5
    %
    
    
    94.1
    %
    
    
    94.9
    %
    
    
    95.5
    %
    
    
    95.9
    %
 12




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##### Table of Contents



ITEM 7MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Forward-Looking Statements:
 This MD&A and the documents incorporated by reference contains forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities laws concerning Vitrans business, operations, and financial
performance and condition.
 Forward-looking statements may be generally identifiable by use of the words believe,
anticipate, intend, estimate, expect, project, may, plans, continue, will,
focus, should, endeavor or the negative of these words or other variation on these words or
comparable terminology. These forward-looking statements are based on current expectations and are
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.
 The MD&A and the documents incorporated by reference herein contain forward-looking statements
regarding, but not limited to, the following:
 
    
    the Companys objective to expand, or acquire a less-than-truckload operation, in a new
regional market;
    
    the Companys objective to achieve profitable revenue growth in the less-than-truckload
segment;
    
    the Companys intention to improve results from yield improvement and operating
efficiencies in the less-than-truckload segment;
    
    the Companys objective to complete information technology initiatives;
    
    the Companys intention to achieve above average transborder and inter-regional growth rates;
    
    the Companys intention to develop profitable accounts in the Logistics segment;
    
    the Companys ability to attract qualified drivers in the Truckload segment; and
    
    the Companys intention to purchase a specified level of capital assets and to finance
such acquisitions with cash flow from operations and, if necessary, from the Companys
unused credit facilities;
 Such forward-looking statements involve known and unknown risks, uncertainties and other factors
that may cause Vitrans actual results, performance or achievements to differ materially from
any future results, performance or achievements expressed or implied by such forward-looking
statements. Factors that may cause such differences include but are not limited to
technological change, increase in fuel costs, regulatory change, the general health of the
economy, changes in labor relations, geographic expansion, capital requirements, availability
of financing, claims and insurance costs, environmental hazards, availability of qualified
drivers and competitive factors. More detailed information about these and other factors is
included in the MD&A. Many of these factors are beyond the Companys control; therefore, future
events may vary substantially from what the Company currently foresees. You should not place
undue reliance on such forward-looking statements. Vitran Corporation Inc. does not assume the
obligation to revise or update these forward-looking statements after the date of this document
or to revise them to reflect the occurrence of future unanticipated events, except as may be
required under applicable securities laws.
 Unless otherwise indicated all dollar references herein are in U.S. dollars. The Companys
Annual Report on Form 10-K , as well as all the Companys other required filings, may be obtained
from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov/edgar.shtml .
 13




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OVERVIEW
     EXECUTIVE SUMMARY
   .
  14




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##### Table of Contents



RESULTS OF OPERATIONS 2006 COMPARED TO 2005
 CONSOLIDATED RESULTS
  (in thousands)
    
    2006
    
    2005
    
    2004
    
    2006 vs 2005
    
    2005 vs 2004Revenue
    
    $
    514,059
    
    
    $
    428,192
    
    
    $
    374,595
    
    
    
    20.0
    %
    
    
    14.3
    %Operating expenses
    
    
    426,515
    
    
    
    357,960
    
    
    
    319,295
    
    
    
    19.2
    %
    
    
    12.1
    %SG&A expenses
    
    
    47,448
    
    
    
    37,881
    
    
    
    31,263
    
    
    
    25.3
    %
    
    
    21.2
    %Other expenses
(income)
    
    
    (434
    )
    
    
    (41
    )
    
    
    (146
    )
    
    
    958.5
    %
    
    
    (71.9
    %)Depreciation and
amortization
    
    
    12,490
    
    
    
    6,965
    
    
    
    5,206
    
    
    
    79.3
    %
    
    
    33.8
    %Income from
operations
    
    
    28,040
    
    
    
    25,427
    
    
    
    18,977
    
    
    
    10.3
    %
    
    
    34.0
    %Interest expense,
net
    
    
    2,660
    
    
    
    298
    
    
    
    51
    
    
    
    792.6
    %
    
    
    484.3
    %Net income
    
    
    19,399
    
    
    
    17,938
    
    
    
    14,943
    
    
    
    8.1
    %
    
    
    20.0
    %
 2006
    
    2005
    
    2004
    
    2006 vs 2005
    
    2005 vs 2004Earnings per
share:Basic
    
    $
    1.50
    
    
    $
    1.43
    
    
    $
    1.22
    
    
    
    4.9
    %
    
    
    17.2
    %Diluted
    
    $
    1.48
    
    
    $
    1.40
    
    
    $
    1.17
    
    
    
    5.7
    %
    
    
    19.6
    %Operating ratio
    
    
    94.5
    %
    
    
    94.1
    %
    
    
    94.9
    %
     15




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##### Table of Contents



SEGMENTED RESULTS
 LTL (Less-than-truckload)
  (in thousands)
    
    2006
    
    2005
    
    2004
    
    2006 vs 2005
    
    2005 vs 2004Revenue
    
    $
    441,499
    
    
    $
    352,693
    
    
    $
    303,017
    
    
    
    25.2
    %
    
    
    16.4
    %Income from operations
    
    
    28,029
    
    
    
    24,494
    
    
    
    17,604
    
    
    
    14.4
    %
    
    
    39.1
    %Operating ratio
    
    
    93.7
    %
    
    
    93.1
    %
    
    
    94.2
    %Number of shipments(1)
    
    
    3,007,985
    
    
    
    2,484,064
    
    
    
    2,371,030
    
    
    
    21.1
    %
    
    
    4.8
    %Weight (000s of lbs)(2)
    
    
    4,669,777
    
    
    
    3,922,323
    
    
    
    3,827,231
    
    
    
    19.1
    %
    
    
    2.5
    %Revenue per shipment(3)
    
    $
    146.78
    
    
    $
    141.99
    
    
    $
    127.80
    
    
    
    3.4
    %
    
    
    11.1
    %Revenue per hundredweight(4)
    
    
    9.45
    
    
    
    8.99
    
    
    
    7.92
    
    
    
    5.1
    %
    
    
    13.5
    %
  16




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##### Table of Contents



Logistics
  (in thousands)
    
    2006
    
    2005
    
    2004
    
    2006 vs 2005
    
    2005 vs 2004Revenue
    
    $
    39,762
    
    
    $
    40,261
    
    
    $
    35,499
    
    
    
    (1.2
    %)
    
    
    13.4
    %Income from
operations
    
    
    2,679
    
    
    
    2,141
    
    
    
    1,668
    
    
    
    25.1
    %
    
    
    28.4
    %Operating ratio
    
    
    93.3
    %
    
    
    94.7
    %
    
    
    95.3
    %
  Truckload
  (in thousands)
    
    2006
    
    2005
    
    2004
    
    2006 vs 2005
    
    2005 vs 2004Revenue
    
    $
    32,798
    
    
    $
    35,238
    
    
    $
    36,079
    
    
    
    (6.9
    %)
    
    
    (2.3
    %)Income from
operations
    
    
    1,734
    
    
    
    2,308
    
    
    
    1,968
    
    
    
    (24.9
    %)
    
    
    17.3
    %Operating ratio
    
    
    94.7
    %
    
    
    93.5
    %
    
    
    94.5
    %
 (5)
 RESULTS OF OPERATIONS 2005 COMPARED TO 2004
 CONSOLIDATED RESULTS
  17




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SEGMENTED RESULTS
 LTL (Less-than-truckload)
   18




---



##### Table of Contents



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




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credit risk
 labor relations
 qualified drivers key management
 foreign currency risk
 diesel fuel expenses
 laws and regulation
 strengthen border security regulations
 interest rate risk
 highly capital intensive
 availability of rolling
stock availability and price of terminal
facilities.
 insurance and claims expenses.
 20




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
       Year ended December 31,(in thousands of dollars)
    
    2006
    
    
    2005
    
    
    2004Real estate and buildings
    
    $
    14,459
    
    
    $
    7,632
    
    
    $
    346Tractors
    
    
    3,056
    
    
    
    2,793
    
    
    
    1,275Trailing fleet
    
    
    7,587
    
    
    
    10,969
    
    
    
    3,339Information technology
    
    
    761
    
    
    
    938
    
    
    
    626Leasehold improvements
    
    
    186
    
    
    
    277
    
    
    
    143Other equipment
    
    
    1,087
    
    
    
    254
    
    
    
    513Total
    
    $
    27,136
    
    
    $
    22,863
    
    
    $
    6,242
  21




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##### Table of Contents



off-balance
sheet
 Payments due by period(in thousands of dollars)
    
    Total
    
    
    2007
    
    
    2008 & 2009
    
    
    2010 & 2011
    
    
    ThereafterContractual ObligationsTerm credit facilities (LIBOR 4.74% to 7.24%)
    
    $
    81,930
    
    
    $
    9,020
    
    
    $
    72,106
    
    
    $
    804
    
    
    $
    NilRevolving credit facilities (LIBOR 7.23%)
    
    
    7,215
    
    
    Nil
    
    
    
    7,215
    
    
    Nil
    
    
    NilCapital lease obligations
    
    
    19,718
    
    
    
    6,704
    
    
    
    9,329
    
    
    
    2,933
    
    
    
    752Amounts due to vendors of acquisitions
    
    
    7,434
    
    
    
    7,434
    
    
    Nil
    
    
    Nil
    
    
    NilSub-total
    
    
    116,297
    
    
    
    23,158
    
    
    
    88,650
    
    
    
    3,737
    
    
    
    752Off-balance sheet commitmentsOperating leases
    
    
    38,827
    
    
    
    13,225
    
    
    
    16,929
    
    
    
    6,537
    
    
    
    2,136Total contractual obligations
    
    $
    155,124
    
    
    $
    36,383
    
    
    $
    105,579
    
    
    $
    10,274
    
    
    $
    2,888
   OUTLOOK
    22




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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
   Revenue Recognition
  Allowance for Doubtful Accounts
  Claims and Insurance Accruals
  Goodwill and Intangible Assets
  23




---



##### Table of Contents



Property and equipment
  Share-based Compensation
  CHANGES IN ACCOUNTING POLICY
  RELATED PARTIES
  24




---



##### Table of Contents



ITEM 7aQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 INTEREST RATE SENSITIVITY
  Payments due by period(in thousands of dollars)
    
    Total
    
    
    2007
    
    
    2008 & 2009
    
    
    2010 & 2011
    
    
    ThereafterLong-term debtVariable RateTerm bank facility
    
    $
    78,000
    
    
    $
    8,000
    
    
    $
    70,000
    
    
    $
    Nil
    
    
    $
    NilAverage interest rate (LIBOR)
    
    
    7.24
    %
    
    
    7.24
    %
    
    
    7.24
    %Revolving bank facility
    
    
    7,215
    
    
    Nil
    
    
    
    7,215
    
    
    Nil
    
    
    NilAverage interest rate (LIBOR)
    
    
    7.23
    %
    
    
    
    
    
    
    7.23
    %Fixed RateTerm bank facility
    
    
    3,930
    
    
    
    1,020
    
    
    
    2,106
    
    
    
    804
    
    
    NilAverage interest rate
    
    
    4.74
    %
    
    
    4.74
    %
    
    
    4.74
    %
    
    
    4.74
    %Capital lease obligations
    
    
    19,718
    
    
    
    6,704
    
    
    
    9,329
    
    
    
    2,933
    
    
    
    752Average interest rate
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %
    
    
    6.00
    %Total
    
    $
    108,863
    
    
    $
    15,724
    
    
    $
    88,650
    
    
    $
    3,737
    
    
    $
    752
    25




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##### Table of Contents



ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
   MANAGEMENT RESPONSIBILITY OVER FINANCIAL REPORTING
    26




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##### Table of Contents



INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 AUDITORS REPORT TO THE SHAREHOLDERS
 
       
 27




---



##### Table of Contents



2006
    
    
    2005
    
    
    2005(US GAAP)
    
    
    (US GAAP)
    
    
    (CDN GAAP)(As previouslyreported)AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,454
    
    
    $
    14,592
    
    
    $
    14,592Accounts receivable
    
    
    66,051
    
    
    
    46,587
    
    
    
    46,587Inventory, deposits and prepaid expenses
    
    
    10,796
    
    
    
    8,396
    
    
    
    8,396Deferred income taxes (note 8)
    
    
    1,720
    
    
    
    1,442
    
    
    
    1,442Total current assets
    
    
    80,021
    
    
    
    71,017
    
    
    
    71,017Property and equipment (note 4)
    
    
    145,129
    
    
    
    66,807
    
    
    
    66,807Intangible assets (note 6)
    
    
    15,888
    
    
    
    2,456
    
    
    
    2,456Goodwill (note 5)
    
    
    117,146
    
    
    
    61,448
    
    
    
    61,448Other
    
    
    150
    
    
    
    
    
    
    
    Total assets
    
    $
    358,334
    
    
    $
    201,728
    
    
    $
    201,728Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    67,916
    
    
    $
    41,362
    
    
    $
    41,362Income and other taxes payable
    
    
    1,275
    
    
    
    1,124
    
    
    
    1,124Current portion of long-term debt (note 7)
    
    
    15,724
    
    
    
    5,845
    
    
    
    5,845Total current liabilities
    
    
    84,915
    
    
    
    48,331
    
    
    
    48,331Long-term debt (note 7)
    
    
    93,139
    
    
    
    8,588
    
    
    
    8,588Deferred income taxes (note 8)
    
    
    6,983
    
    
    
    5,007
    
    
    
    5,007Shareholders equity:Common shares, no par value, unlimited
authorized, 13,419,859 and 12,647,636
issued and outstanding in 2006
and 2005, respectively (note 9)
    
    
    76,913
    
    
    
    63,604
    
    
    
    63,604Additional paid-in capital
    
    
    1,607
    
    
    
    956
    
    
    
    956Retained earnings
    
    
    90,933
    
    
    
    71,553
    
    
    
    72,310Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    2,932Accumulated other comprehensive income (note 3)
    
    
    3,844
    
    
    
    3,689
    
    
    
    Total shareholders equity
    
    
    173,297
    
    
    
    139,802
    
    
    
    139,802Lease commitments (note 14)Contingent liabilities (note 16)Total liabilities and shareholders equity
    
    $
    358,334
    
    
    $
    201,728
    
    
    $
    201,728
 On behalf of the Board:/s/ RICHARD D. McGRAW

Chairman
    
    
    
    /s/ JOHN R. GOSSLING

Director
  28




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##### Table of Contents



2005
    
    
    20042006
    
    
    (US and
    
    
    (US and(US GAAP)
    
    
    CDN GAAP)
    
    
    (CDN GAAP)Revenue
    
    $
    514,059
    
    
    $
    428,192
    
    
    $
    374,595Operating expenses
    
    
    426,515
    
    
    
    357,960
    
    
    
    319,295Selling, general and administrative expenses
    
    
    47,448
    
    
    
    37,881
    
    
    
    31,263Other income
    
    
    (434
    )
    
    
    (41
    )
    
    
    (146
    )Depreciation and amortization
    
    
    12,490
    
    
    
    6,965
    
    
    
    5,206486,019
    
    
    
    402,765
    
    
    
    355,618Income from operations before the undernoted
    
    
    28,040
    
    
    
    25,427
    
    
    
    18,977Interest on long-term debt
    
    
    (2,887
    )
    
    
    (771
    )
    
    
    (718
    )Interest income
    
    
    227
    
    
    
    473
    
    
    
    667(2,660
    )
    
    
    (298
    )
    
    
    (51
    )Income from operations before income taxes
    
    
    25,380
    
    
    
    25,129
    
    
    
    18,926Income taxes (note 8):Current
    
    
    4,177
    
    
    
    3,506
    
    
    
    2,717Deferred
    
    
    1,945
    
    
    
    3,685
    
    
    
    1,2666,122
    
    
    
    7,191
    
    
    
    3,983Net income before cumulative effect of
change in accounting principle
    
    
    19,258
    
    
    
    17,938
    
    
    
    14,943Cumulative effect of change in
accounting principle
    
    
    141
    
    
    
    
    
    
    
    Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943
  29




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##### Table of Contents



2005
    
    
    20042006
    
    
    (US and
    
    
    (US and(US GAAP)
    
    
    CDN GAAP)
    
    
    CDN GAAP)Income per share:Basic:Net income before cumulative effect
of change in accounting principle
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22Cumulative effect of change in
accounting principle
    
    
    0.01
    
    
    
    
    
    
    
    Net income
    
    $
    1.50
    
    
    $
    1.43
    
    
    $
    1.22Diluted:Net income before cumulative effect
of change in accounting principle
    
    $
    1.47
    
    
    $
    1.40
    
    
    $
    1.17Cumulative effect of change in
accounting principle
    
    
    0.01
    
    
    
    
    
    
    
    Net income
    
    $
    1.48
    
    
    $
    1.40
    
    
    $
    1.17Weighted average number of shares:Basic
    
    
    12,887,401
    
    
    
    12,516,265
    
    
    
    12,285,400Diluted
    
    
    13,124,865
    
    
    
    12,848,360
    
    
    
    12,740,477
  30




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    TotalCommon shares
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    shareholdersNumber
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income
    
    
    equityDecember 31, 2005
    
    
    12,647,636
    
    
    $
    63,604
    
    
    $
    956
    
    
    $
    71,553
    
    
    $
    3,689
    
    
    $
    139,802Shares issued upon exercise of
employee stock options
    
    
    97,300
    
    
    
    526
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    479Shares repurchased for
cancellation
    
    
    (2,000
    )
    
    
    (14
    )
    
    
    
    
    
    
    (19
    )
    
    
    
    
    
    
    (33
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,399
    
    
    
    
    
    
    
    19,399Other comprehensive
income (note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155
    
    
    
    155Share-based compensation
    
    
    
    
    
    
    
    
    
    
    839
    
    
    
    
    
    
    
    
    
    
    
    839Shares issued upon acquisition of
subsidiary (note 2)
    
    
    676,923
    
    
    
    12,797
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,797Cumulative effect of change in
accounting principle (note 1(l))
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    (141
    )December 31, 2006
    
    
    13,419,859
    
    
    $
    76,913
    
    
    $
    1,607
    
    
    $
    90,933
    
    
    $
    3,844
    
    
    $
    173,297
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    TotalCommon shares
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    shareholdersNumber
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income
    
    
    equityDecember 31, 2004
    
    
    12,419,678
    
    
    $
    60,798
    
    
    $
    323
    
    
    $
    54,215
    
    
    $
    3,855
    
    
    $
    119,191Shares issued upon exercise of
employee stock options
    
    
    85,300
    
    
    
    303
    
    
    
    (21
    )
    
    
    
    
    
    
    
    
    
    
    282Shares repurchased for
cancellation
    
    
    (59,800
    )
    
    
    (297
    )
    
    
    
    
    
    
    (600
    )
    
    
    
    
    
    
    (897
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,938
    
    
    
    
    
    
    
    17,938Other comprehensive
loss (note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (166
    )
    
    
    (166
    )Share-based compensation
    
    
    
    
    
    
    
    
    
    
    654
    
    
    
    
    
    
    
    
    
    
    
    654Shares issued upon acquisition
of subsidiary (note 2)
    
    
    202,458
    
    
    
    2,800
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,800December 31, 2005
    
    
    12,647,636
    
    
    $
    63,604
    
    
    $
    956
    
    
    $
    71,553
    
    
    $
    3,689
    
    
    $
    139,802
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    TotalCommon shares
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    shareholdersNumber
    
    
    Amount
    
    
    capital
    
    
    earnings
    
    
    income
    
    
    equityDecember 31, 2003
    
    
    12,094,278
    
    
    $
    59,358
    
    
    $
    
    
    
    $
    39,272
    
    
    $
    (675
    )
    
    $
    97,955Shares issued upon exercise of
employee stock options
    
    
    325,400
    
    
    
    1,440
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,440Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,943
    
    
    
    
    
    
    
    14,943Other comprehensive
income (note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,530
    
    
    
    4,530Share-based compensation
    
    
    
    
    
    
    
    
    
    
    323
    
    
    
    
    
    
    
    
    
    
    
    323December 31, 2004
    
    
    12,419,678
    
    
    $
    60,798
    
    
    $
    323
    
    
    $
    54,215
    
    
    $
    3,855
    
    
    $
    119,191
  
 31




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##### Table of Contents



2005
    
    
    20042006
    
    
    (US and
    
    
    (US and(US GAAP)
    
    
    CDN GAAP)
    
    
    CDN GAAP)Cash provided by (used in):Operations:Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943Items not involving cash from operations:Depreciation and amortization
    
    
    12,490
    
    
    
    6,965
    
    
    
    5,206Deferred income taxes
    
    
    1,945
    
    
    
    3,685
    
    
    
    1,266Gain on sale of property and equipment
    
    
    (434
    )
    
    
    (41
    )
    
    
    (146
    )Share-based compensation expense
    
    
    839
    
    
    
    654
    
    
    
    323Cumulative effect of change in accounting principle
    
    
    (141
    )
    
    
    
    
    
    
    Change in non-cash working capital components
    
    
    1,026
    
    
    
    (2,034
    )
    
    
    (6,839
    )35,124
    
    
    
    27,167
    
    
    
    14,753Investments:Purchases of property and equipment
    
    
    (27,136
    )
    
    
    (22,863
    )
    
    
    (6,242
    )Proceeds on sale of property and equipment
    
    
    2,490
    
    
    
    97
    
    
    
    248Acquisition of subsidiary, net
    
    
    (89,284
    )
    
    
    (28,192
    )
    
    
    Acquisition of business assets
    
    
    (2,251
    )
    
    
    
    
    
    
    Marketable securities
    
    
    
    
    
    
    31,974
    
    
    
    (3,981
    )(116,181
    )
    
    
    (18,984
    )
    
    
    (9,975
    )Financing:Change in revolving credit facility
    
    
    4,230
    
    
    
    2,947
    
    
    
    Proceeds from long-term debt
    
    
    70,500
    
    
    
    
    
    
    
    Repayment of long-term debt
    
    
    (5,825
    )
    
    
    (3,030
    )
    
    
    (11,716
    )Repayment of capital leases
    
    
    (1,644
    )
    
    
    
    
    
    
    Issue of common shares upon exercise of stock options
    
    
    479
    
    
    
    282
    
    
    
    1,440Repurchase of common shares
    
    
    (33
    )
    
    
    (921
    )
    
    
    67,707
    
    
    
    (722
    )
    
    
    (10,276
    )Effect of translation adjustment on cash
    
    
    212
    
    
    
    (244
    )
    
    
    456Increase (decrease) in cash and cash equivalents
    
    
    (13,138
    )
    
    
    7,217
    
    
    
    (5,042
    )Cash and cash equivalents, beginning of year
    
    
    14,592
    
    
    
    7,375
    
    
    
    12,417Cash and cash equivalents, end of year
    
    $
    1,454
    
    
    $
    14,592
    
    
    $
    7,375Change in non-cash working capital components:Accounts receivable
    
    $
    2,278
    
    
    $
    (3,419
    )
    
    $
    (4,439
    )Inventory, deposits and prepaid expenses
    
    
    598
    
    
    
    (1,963
    )
    
    
    (77
    )Income and other taxes recoverable/payable
    
    
    151
    
    
    
    (1,275
    )
    
    
    (1,608
    )Accounts payable and accrued liabilities
    
    
    (2,001
    )
    
    
    4,623
    
    
    
    (715
    )$
    1,026
    
    
    $
    (2,034
    )
    
    $
    (6,839
    )Supplemental cash flow information:Interest paid
    
    $
    2,480
    
    
    $
    769
    
    
    $
    722Income taxes paid
    
    
    5,586
    
    
    
    5,063
    
    
    
    4,608Supplemental disclosure of non-cash transactions:Issuance of shares to seller in acquisition
    
    
    12,797
    
    
    
    2,800
    
    
    
    
  32




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##### Table of Contents



1.
    
    Significant accounting policies:
 (a)
    
    Description of the business:Vitran Corporation Inc. (Vitran or the Company) is a North American provider of
freight services and distribution solutions to a wide variety of companies and industries.
Vitran offers less-than-truckload (LTL) service throughout Canada and the United
States. Vitran Logistics offers supply chain solutions in Canada and the United States,
including warehousing, inventory management and flow-through distribution facilities, as
well as freight brokerage services. Vitran also provides same-day and next-day truckload
services in the United States.(b)
    
    Basis of presentation:These consolidated financial statements include the accounts of the Company and its wholly
owned subsidiaries. All material intercompany transactions and balances have been
eliminated on consolidation.These consolidated financial statements have been prepared in accordance with United
States generally accepted accounting principles (GAAP) with a reconciliation to Canadian
generally accepted accounting principles in note 17. The Ontario Business Corporations
Act (OBCA) regulations allow issuers that are required to file reports with the
Securities and Exchange Commission in the United States to file financial statements under
United States GAAP to meet their continuous disclosure obligations in Canada. Prior to
2006, Vitran prepared its consolidated financial statements in accordance with Canadian
GAAP with a reconciliation to United States GAAP.All amounts in these consolidated financial statements are expressed in United States
dollars, unless otherwise stated.(c)
    
    New accounting pronouncements:SFAS Statement 155 amends SFAS Statement 133, Accounting for Derivatives and Hedging
Activities, and SFAS Statement 140, Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities, and allows an entity to remeasure at fair value
a hybrid financial instrument that contains an embedded derivative that otherwise would
require bifurcation from the host, if the holder irrevocably elects to account for the
whole instrument on a fair value basis. Subsequent changes in the fair value of the
instrument would be recognized in income. SFAS Statement 155 will be adopted January 1,
2007 as required by the statement. The requirements of SFAS Statement 155 are not
expected to have an effect on the Companys consolidated financial statements.
 33




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 SFAS Statement 156 amends SFAS Statement 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, with respect to the accounting for
separately recognized servicing assets and servicing liabilities. The Statement addresses
the recognition and measurement of separately recognized servicing assets and liabilities
and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.
SFAS 156 will be adopted January 1, 2007 as required by the statement. The requirements
of SFAS 156 are not expected to have an effect on the Companys consolidated financial
statements.SFAS Statement 157, Fair Value Measurements, defines fair values, establishes a framework
for measuring fair value in GAAP, and requires enhanced disclosures about fair value
measurements. This statement applies when other accounting pronouncements require or
permit fair value measurements. SFAS Statement 157 will be adopted January 1, 2008 as
required by the statement.SFAS Statement 158, Employers Accounting for Defined Benefit Pension and Other
Post-retirement Plans  an amendment of SFAS Statements 87, 88, 106 and 132(R), requires
an employer to recognize in its balance sheet the overfunded or underfunded status of a
defined benefit post-retirement plan measured as the difference between the fair value of
the plan assets and the benefit obligation. Employers must also recognize as a component
of other comprehensive income, net of tax, the actuarial and experience gains and losses
and the prior service costs and credits. SFAS Statement 158 will be adopted January 1,
2007 as required by the statement. The requirements of SFAS Statement 158 are not
expected to have an effect on the consolidated financial statements.FASB Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes  an
interpretation of FASB Statement 109, clarifies the criteria for recognizing tax benefits
under FASB Statement 109. It also requires additional financial statement disclosures
about uncertain tax positions. FIN 48 will be adopted January 1, 2007 as required by the
FIN. The Company is currently evaluating the effect of FIN 48 on the Companys
consolidated financial statements.(d)
    
    Foreign currency translation:A majority of the Companys shareholders, customers and industry analysts are located in
the United States. Accordingly, the Company has adopted the United States dollar as its
reporting currency.The United States dollar is the functional currency of the Companys operations in the
United States. The Canadian dollar is the functional currency of the Companys Canadian
operations.Each operation translates foreign currency-denominated transactions into its functional
currency using the rate of exchange in effect at the date of the transaction.
 34




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 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 $85.2 million (2005  $11.4 million) is designated as a hedge of the
investment in the United States dollar functional operation, such that related transaction
gains and losses are recorded in the separate component of shareholders equity.In respect of other transactions denominated in currencies other than the Canadian dollar,
the monetary assets and liabilities of the Company are translated at the year-end rates.
Revenue and expenses are translated at rates of exchange prevailing on the transaction
dates. All of the exchange gains or losses resulting from these other transactions are
recognized in income.(e)
    
    Revenue recognition:The Companys less-than-truckload, truckload business units and freight brokerage
operations recognize revenue upon the delivery of the related freight and direct shipment
costs as incurred. Revenue for the logistics operations is recognized as the management
services are provided.(f)
    
    Accounts receivable:Accounts receivable are presented net of allowance for doubtful accounts of $2.2 million
at December 31, 2006 
 (2005  $1.3 million).(g)
    
    Cash and cash equivalents:Cash and cash equivalents include cash on account and short-term investments with
maturities of three months or less at the date of purchase and are stated at cost, which
approximates market value.(h)
    
    Inventory:Inventory consists of tires and spare parts and is valued at the lower of average cost and
replacement cost.
 35




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 (i)
    
    Property and equipment:Property and equipment are recorded at cost. Depreciation of property and equipment is
provided on a straight-line basis from the date assets are put in service over their
estimated useful lives as follows:
 Buildings
    
    30-31.5 yearsLeasehold interests and improvements
    
    Over term of leaseVehicles:Trailers and containers
    
    12 yearsTrucks
    
    8 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.(j)
    
    Goodwill and intangible assets:As at September 30, 2006 and September 30, 2005, the Company completed its annual goodwill
impairment test and concluded there was no impairment. The change in goodwill is
attributable to translating the Canadian dollar-denominated goodwill to the United States
dollar reporting currency and to the acquisition of a subsidiary and acquisition of a
business. (note 2).Intangible assets consist of not-to-compete covenants and customer relationships and are
amortized on a straight-line basis over their expected lives ranging from three to eight
years.(k)
    
    Income taxes:The Company uses the asset and liability method of accounting for income taxes. Under the
asset and liability method, deferred 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.
Deferred tax assets and liabilities are measured using 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 deferred tax assets and liabilities of a change in
tax rates is recognized in income in the year that includes the date of enactment.
 36




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 (l)
    
    Share-based compensation:Under the Companys stock option plan, options to purchase common shares of the Company
may be granted to key employees, officers and directors of the Company by the Board of
Directors or by the Companys Compensation Committee. There are 767,700 options
outstanding under the plan. The term of each option is 10 years and the vesting period is
generally five years. The exercise price for options is the trading price of the Common
Shares of the Company on the Toronto Stock Exchange on the day of the grant.For all stock option grants prior to January 1, 2003, share-based compensation to
employees were accounted for based on the intrinsic value method under APB No. 25 and
related interpretations. On January 1, 2003, in accordance with a transitional option
permitted under amended SFAS 148, the Company had prospectively applied the
fair-value-based method to all stock options granted on or after January 1, 2003. The
Company recognized share-based compensation for all stock options granted on or after
January 1, 2003 and presented the disclosures required by SFAS 123.On January 1, 2006, the Company adopted SFAS 123(R), Share-Based Payments, using the
modified prospective transition method. In accordance with the modified prospective
transition method, the consolidated financial statements have not been restated to reflect
the impact of SFAS 123(R).Under SFAS 123(R), using the modified prospective method, compensation expense is
recognized for all share-based payments granted prior to, but not yet vested as of,
January 1, 2006 based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123 and compensation expense is recognized for all share-based
payments granted on or after January 1, 2006, based on the grant date fair value estimated
in accordance with the provisions of SFAS 123(R).The Company recorded in income $0.1 million related to the cumulative effect of change in
accounting principle as of January 1, 2006. In accordance with SFAS 123, the Company
recognized compensation expense assuming all awards will vest and reversed recognized
compensation expense for forfeited awards only when the awards were actually forfeited.
SFAS 123(R) requires an estimate of forfeitures when recognizing share-based compensation
expense. Note 9(b) provides supplemental disclosure for the Companys stock options.(m)
    
    Advertising costs:Advertising costs are expensed as incurred. Advertising costs amounted to $595 in 2006
(2005  $538; 2004  $526).
 37




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 (n)
    
    Impairment of long-lived assets:An impairment is recognized when the carrying amount of a long-lived asset to be held and
used exceeds the sum of undiscounted cash flows expected from its use and disposal, and is
measured as the amount by which the carrying amount of the asset exceeds its fair value.
A long-lived asset should be tested when events or circumstances indicate that its
carrying amount may not be recoverable. During 2006 and 2005, the Company has not
identified any indicators that would require testing for an impairment.(o)
    
    Derivative instruments:Derivative instruments are used to hedge the Companys exposure to changes in interest
rates. All derivatives are recognized on the Consolidated Balance Sheet at fair value
based on quoted market prices and are recorded in either current or non-current assets or
liabilities based on their maturity. Changes in the fair values of derivatives are
recorded in income or other comprehensive income, based on whether the instrument is
designated as a hedge transaction and, if so, the type of hedge transaction. Gain or
losses on derivative instruments reported in other comprehensive income are reclassified
to income in the period the hedged item affects income. If the underlying hedged
transaction ceases to exist, any associated amounts reported in other comprehensive income
are reclassified into income at that time. Any ineffectiveness is recognized in income in
the current period.(p)
    
    Claims and insurance accruals:Claims and insurance accruals reflect the estimated total cost of claims, including
amounts for claims incurred but not reported, for cargo loss and damage, bodily injury and
property damage, workers compensation, long-term disability and group health. In Canada
and the United States, the Company has self-insurance retention amounts per incident for
auto liability, casualty and cargo claims. In the United States, the Company has
self-insurance retention amounts per incident for workers compensation and employee
medical. In establishing these accruals, management evaluates and monitors each claim
individually, and uses factors such as historical experience, known trends and third party
estimates to determine the appropriate reserves for potential liability.
 38




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##### Table of Contents



1.
    
    Significant accounting policies (continued):
 (q)
    
    Accounts payable and accrued liabilities:
 2006
    
    
    2005Accounts payable
    
    $
    26,548
    
    
    $
    21,074Accrued wages and benefits
    
    
    10,075
    
    
    
    6,283Accrued claims, self insurance and
workers compensation
    
    
    8,672
    
    
    
    4,148Amounts payable to vendors of acquisitions
    
    
    7,434
    
    
    
    Other
    
    
    15,187
    
    
    
    9,857$
    67,916
    
    
    $
    41,362
 (r)
    
    Deferred share units:The Company maintains a deferred share unit plan (DSU) for all directors. Under this
plan, all directors receive units at the end of each quarter based on the market price of
common shares equivalent to Cdn. $2,500.00. The Company records compensation expense and
the corresponding liability each period initially for Cdn. $2,500.00 and subsequently
based on changes in the market price of common shares.In addition to the Directors DSU plan, commencing January 1, 2006, the Company adopted a
DSU plan for senior executives. Under this plan, eligible senior executives receive units
at the end of each quarter based on the market price of common shares equivalent to the
senior executives entitlement. The entitlement amount varies based on the senior
executives position in the Company and the years of eligible service. The maximum
entitlement amount varies between $2,500.00 and $20,000.00 per annum. The Company records
compensation expense and the corresponding liability each period based on the market price
of common shares.(s)
    
    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. These include and are not limited to,
allowance for doubtful accounts, claims and insurance accruals, fair value of reporting
units for the purposes of goodwill impairment testing and useful lives of property and
equipment. Actual results could differ from those estimates.
 39




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##### Table of Contents



2.
    
    Acquisitions:PJAX Freight SystemOn October 2, 2006, the Company acquired 100 percent of the outstanding shares of PJAX, Inc.
and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LP,
collectively known as PJAX Freight System (PJAX). The aggregate purchase consideration was
approximately $111.6 million (including transaction costs) excluding assumed debt. This is
comprised of approximately $80.0 million in cash, Vitran common shares valued at $12.8 million
(676,923 common shares valued at $18.90 per share) and holdbacks of $11.7 million payable
during the year subsequent to the date of acquisition. During the 2006 fourth quarter, $9.8
million of the holdbacks was paid to the vendors. Transaction costs amounted to approximately
$1.6 million. During the 2006 fourth quarter, Vitran executed a joint election with the seller
to structure the transaction as an asset sale for tax purposes and approximately an additional
$5.5 million of cash will be payable in April 2007. In addition, the Company assumed debt of
approximately $27.1 million bringing the aggregate purchase consideration to $138.7 million.
The results of operations of PJAX are included in the consolidated results of the Company
commencing October 2, 2006. The cash portion of the transaction was financed from existing
cash and proceeds from long-term debt. The total amount of goodwill is expected to be
deductible for tax purposes.Sierra West ExpressOn January 3, 2006, the Company acquired all the assets and selected liabilities of Sierra
West Express Inc. (SWE), a private LTL carrier headquartered in Sparks, Nevada. SWE added
eight new terminals to Vitrans network in the states of Nevada, California and Arizona. The
acquisition aggregate purchase price was $2.5 million, comprised of $2.3 million of cash and a
$0.2 million note payable to the vendor in April 2007. The results of operations of SWE are
included in the consolidated results of the Company commencing January 3, 2006. The cash
portion of the transaction was financed from existing cash on-hand. The total amount of
goodwill is expected to be deductible for tax purposes.Chris Truck LineOn May 31, 2005, the Company acquired 100 percent of the outstanding shares of R.A.
Christopher, Inc. and Kansas Motor Freight Corporation collectively operating as Chris Truck
Line (CTL). CTL is a Kansas-based regional less-than-truckload carrier operating in 11
states in the Midwestern and Southwestern United States. The results of operations of CTL are
included in the consolidated results of the Company commencing June 1, 2005. The aggregate
purchase price was $31.0 million, comprised of $26.5 million of cash and 202,458 common shares
valued at $2.8 million. During the 2005 third quarter, Vitran executed a joint election with
the seller to structure the transaction as an asset sale for tax purposes and an additional
$1.7 million of cash was paid in April 2006. The cash portion of the transaction was financed
from existing cash and marketable securities balances. The total amount of goodwill is
expected to be deductible for tax purposes.
 40




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##### Table of Contents



2.
    
    Acquisitions (continued):The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed at the date of the acquisition, as based on independent appraisals and management
estimates:
 2006
    
    
    2005SWE
    
    
    PJAX
    
    
    CTLCurrent assets
    
    $
    1,776
    
    
    $
    25,087
    
    
    $
    3,557Capital assets
    
    
    2,127
    
    
    
    62,848
    
    
    
    12,375Identifiable intangible assets:Covenants not-to-compete
(3 to 6 year useful life)
    
    
    45
    
    
    
    2,700
    
    
    
    240Customer relationships (8 year useful life)
    
    
    540
    
    
    
    11,000
    
    
    
    2,300Other assets
    
    
    
    
    
    
    165
    
    
    
    Goodwill
    
    
    1,164
    
    
    
    54,595
    
    
    
    15,8855,652
    
    
    
    156,395
    
    
    
    34,357Current liabilities
    
    
    3,155
    
    
    
    17,646
    
    
    
    3,362Capital leases
    
    
    
    
    
    
    21,319
    
    
    
    Term loans
    
    
    
    
    
    
    5,785
    
    
    
    Net assets acquired
    
    $
    2,497
    
    
    $
    111,645
    
    
    $
    30,995
  2006
    
    
    2005Pro forma revenue
    
    $
    645,422
    
    
    $
    620,025Pro forma net income
    
    
    16,186
    
    
    
    18,370Pro forma diluted income per share
    
    
    1.19
    
    
    
    1.35
 41




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3.
    
    Comprehensive income:The components of other comprehensive income (loss) such as changes in foreign currency
adjustments are required to be added to the Companys reported net income to arrive at
comprehensive net income (loss). Other comprehensive income (loss) items have no impact on
the reported net income as presented on the Consolidated Statements of Income.
 Foreign currency
    
    Marketable
    
    Interest ratetranslation
    
    securities
    
    swap
    
    TotalBalance at December 31, 2003
    
    $
    (675
    )
    
    $
    
    
    
    $
    
    
    
    $
    (675
    )Translation adjustment
    
    
    4,524
    
    
    
    
    
    
    
    
    
    
    
    4,524Unrealized gain
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Other comprehensive income
    
    
    4,524
    
    
    
    6
    
    
    
    
    
    
    
    4,530Balance at December 31, 2004
    
    
    3,849
    
    
    
    6
    
    
    
    
    
    
    
    3,855Translation adjustment
    
    
    (160
    )
    
    
    
    
    
    
    
    
    
    
    (160
    )Realized gain
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (6
    )Other comprehensive income (loss)
    
    
    (160
    )
    
    
    (6
    )
    
    
    
    
    
    
    (166
    )Balance at December 31, 2005
    
    
    3,689
    
    
    
    
    
    
    
    
    
    
    
    3,689Translation adjustment
    
    
    170
    
    
    
    
    
    
    
    
    
    
    
    170Unrealized loss
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Other comprehensive income (loss)
    
    
    170
    
    
    
    
    
    
    
    (15
    )
    
    
    155Balance at December 31, 2006
    
    $
    3,859
    
    
    $
    
    
    
    $
    (15
    )
    
    $
    3,844
 2006
    
    
    2005
    
    
    2004Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943Other comprehensive income (loss)
    
    
    155
    
    
    
    (166
    )
    
    
    4,530Comprehensive net income
    
    $
    19,554
    
    
    $
    17,772
    
    
    $
    19,473
 42




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4.
    
    Property and equipment:
 2006
    
    
    2005Land
    
    $
    32,295
    
    
    $
    15,904Buildings
    
    
    54,992
    
    
    
    27,317Leasehold interests and improvements
    
    
    1,954
    
    
    
    1,856Vehicles
    
    
    89,619
    
    
    
    48,703Machinery and equipment
    
    
    21,182
    
    
    
    19,803200,042
    
    
    
    113,583Less accumulated depreciation
    
    
    54,913
    
    
    
    46,776$
    145,129
    
    
    $
    66,807
 Interest costs of $25 attributable to the construction of a new facility in Toronto have been
capitalized at December 31, 2006 (2005  $63).5.
    
    Goodwill
 2006
    
    
    2005Opening balance
    
    $
    61,448
    
    
    $
    45,304Foreign exchange on CDN dollar denominated goodwill
    
    
    (61
    )
    
    
    259Acquired goodwill
    
    
    55,759
    
    
    
    15,885$
    117,146
    
    
    $
    61,448
 6.
    
    Intangible assets:
 2006
    
    
    2005Customer relationships
    
    $
    2,300
    
    
    $
    Acquired customer relationships
    
    
    11,540
    
    
    
    2,30013,840
    
    
    
    2,300Covenants not-to-compete
    
    
    240
    
    
    
    Acquired covenants not-to-compete
    
    
    2,745
    
    
    
    2402,985
    
    
    
    240Less accumulated amortization
    
    
    937
    
    
    
    84$
    15,888
    
    
    $
    2,456
 43




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##### Table of Contents



6.
    
    Intangible assets (continued):Amortization expense was $0.9 million in 2006 (2005  $0.1 million). Amortization expense for
the following five years and thereafter is estimated to be as follows:
 Year ending December 31:2007
    
    $
    2,2432008
    
    
    2,2432009
    
    
    2,2322010
    
    
    2,2162011
    
    
    2,180Thereafter
    
    
    4,774$
    15,888
 7.
    
    Long-term debt:
 2006
    
    
    2005Term bank credit facilities (a)
    
    $
    81,930
    
    
    $
    11,435Revolving credit facility (b)
    
    
    7,215
    
    
    
    2,923Capital leases (c)
    
    
    19,718
    
    
    
    75108,863
    
    
    
    14,433Less current portion
    
    
    15,724
    
    
    
    5,845$
    93,139
    
    
    $
    8,588
 
 (a)
    
    The term bank credit facilities are secured by accounts receivable and general
security agreements of the Company and of all its subsidiaries.During 2006, the Company amended its credit agreement to provide an $80.0 million term
credit facility maturing September 30, 2009. At December 31, 2006, $78.0 million (2005 -
$11.4 million), bearing interest at 7.24% (2005  5.45%), was drawn under this facility.
The provisions of the term facility impose certain financial maintenance tests that
require the Company to achieve stated levels of financial performance, if not achieved,
could cause an acceleration of the payment schedule.On October 2, 2006, as part of the acquisition of PJAX, the Company assumed a term loan,
under a term credit facility, of $4.2 million. During the remainder of 2006, the Company
repaid $0.3 million of borrowings. At December 31, 2006, $3.9 million, bearing interest
at a fixed rate of 4.74%, was outstanding. The Company also assumed a $1.6 million term
loan which was repaid subsequent to the acquisition. 44




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##### Table of Contents



7.
    
    Long-term debt (continued):
 
 (b)
    
    During 2006, the Company also amended its revolving credit facility to provide up
to $60.0 million, maturing on September 30, 2009. At December 31, 2006, $7.2 million
(2005  $2.9 million), bearing interest at 7.23% (2005  $4.65%), was drawn under this
facility. At December 31, 2006, the Company had $37.0 million unused in the credit
facility, net of draw down and outstanding letters of credit of $15.8 million.The Company has a second revolving credit facility to provide up to $20.0 million,
maturing on September 30, 2009. At December 31, 2006, this facility remained undrawn.(c)
    
    On October 2, 2006, as part of the acquisition of PJAX, the Company assumed capital
leases of $21.3 million, bearing interest at a weighted average of 6.00%. At December
31, 2006, $19.7 million was outstanding.  Year ending December 31:2007
    
    $
    15,7242008
    
    
    15,0712009
    
    
    73,5792010
    
    
    2,6082011
    
    
    1,129Thereafter
    
    
    752$
    108,863
 45




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##### Table of Contents



8.
    
    Income taxes:Income tax expense differs from the amount which would be obtained by applying statutory
federal, state and provincial income tax rates to the respective years income from operations
before income taxes as follows:
 2006
    
    
    2005
    
    
    2004Effective statutory federal, state
and provincial income tax rate
    
    
    36.12
    %
    
    
    36.12
    %
    
    
    36.12
    %Effective tax expense on income before
income taxes
    
    $
    9,167
    
    
    $
    9,077
    
    
    $
    6,836Increase (decrease) results from:Valuation allowance
    
    
    
    
    
    
    
    
    
    
    (693
    )Non-deductible share-based
compensation expense
    
    
    303
    
    
    
    237
    
    
    
    114Income taxed at different rates
in foreign jurisdictions
    
    
    (3,072
    )
    
    
    (1,888
    )
    
    
    (1,930
    )Other
    
    
    (276
    )
    
    
    (235
    )
    
    
    (344
    )Actual income tax expense
    
    $
    6,122
    
    
    $
    7,191
    
    
    $
    3,983
 Income tax expense:
 2006
    
    
    2005
    
    
    2004Current income tax expense (recovery):Canada:Federal
    
    $
    2,922
    
    
    $
    1,053
    
    
    $
    976Provincial
    
    
    1,695
    
    
    
    625
    
    
    
    585United States:Federal
    
    
    (602
    )
    
    
    1,339
    
    
    
    777State
    
    
    12
    
    
    
    208
    
    
    
    121Other
    
    
    150
    
    
    
    281
    
    
    
    2584,177
    
    
    
    3,506
    
    
    
    2,717Deferred income tax expense (recovery):Canada:Federal
    
    
    (754
    )
    
    
    1,280
    
    
    
    16Provincial
    
    
    (437
    )
    
    
    760
    
    
    
    10United States:Federal
    
    
    2,398
    
    
    
    1,424
    
    
    
    1,073State
    
    
    738
    
    
    
    221
    
    
    
    1671,945
    
    
    
    3,685
    
    
    
    1,266$
    6,122
    
    
    $
    7,191
    
    
    $
    3,983
 46




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##### Table of Contents



8.
    
    Income taxes (continued):A summary of the principal components of deferred income tax assets and liabilities is as
follows:
 2006
    
    
    2005Current deferred income tax assets:Allowance for doubtful accounts
    
    $
    397
    
    
    $
    314Insurance reserves
    
    
    1,229
    
    
    
    946Financing costs
    
    
    94
    
    
    
    1821,720
    
    
    
    1,442Current deferred income tax liabilities
    
    
    
    
    
    
    $
    1,720
    
    
    $
    1,442Non-current deferred income tax assets:Financing costs
    
    $
    147
    
    
    $
    207Other
    
    
    2,241
    
    
    
    2,388
    
    
    
    207Non-current deferred income tax liabilities:Property and equipment
    
    
    (5,123
    )
    
    
    (2,020
    )Goodwill and intangibles
    
    
    (4,248
    )
    
    
    (3,156
    )Other
    
    
    
    
    
    
    (38
    )(9,371
    )
    
    
    (5,214
    )$
    (6,983
    )
    
    $
    (5,007
    )
 9.
    
    Common shares:
 (a)
    
    Normal course issuer bid:The Company purchased 2,000 common shares for cancellation during 2006 (2005  59,800)
under a normal course issuer bid. The cost of the repurchase in excess of the book value
of the shares in 2006 was $19 (2005  $600).(b)
    
    Stock options:The Company provides a stock option plan to key employees, officers and directors to
encourage executives to acquire a meaningful equity ownership interest in the Company over
a period of time and, as a result, reinforce executives attention on the long-term
interest of the Company and its shareholders. Under the plan, options to
 47




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##### Table of Contents



9.
    
    Common shares (continued):purchase common shares of the Company may be granted to key employees, officers and
directors of the Company by the Board of Directors or by the Companys Compensation
Committee. There are 767,700 options outstanding under the plan. The term of each option
is 10 years and the vesting period is five years. The exercise price for options is the
trading price of the common shares of the Company on the Toronto Stock Exchange on the day
of the grant. The Company adopted SFAS Statement 123(R) on January 1, 2006 as described
in note 1(l).The weighted average estimated fair value at the date of the grant for the options granted
during 2006 was $7.69 (2005  $7.58) 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:
 2006
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    4.19
    %
    
    
    3.88% - 4.24
    %
    
    
    4.8
    %Dividend yield
    
    
    
    
    
    
    
    
    
    
    Volatility factor of the future expected
market price of the Companys
common shares
    
    
    33.22
    %
    
    
    33.84% - 34.39
    %
    
    
    34.8% - 36.0
    %Expected life of the options
    
    6 years
    
    8 years
    
    10 years
 Details of stock options are as follows:
 2006
    
    
    2005Weighted
    
    
    
    
    
    
    Weightedaverage
    
    
    
    
    
    
    averageexercise
    
    
    
    
    
    
    exerciseNumber
    
    
    price
    
    
    Number
    
    
    priceOutstanding,
beginning of year
    
    
    777,500
    
    
    $
    9.71
    
    
    
    796,800
    
    
    $
    8.44Granted
    
    
    102,500
    
    
    
    18.99
    
    
    
    78,000
    
    
    
    16.01Forfeited
    
    
    (15,000
    )
    
    
    16.53
    
    
    
    (12,000
    )
    
    
    11.90Exercised
    
    
    (97,300
    )
    
    
    4.92
    
    
    
    (85,300
    )
    
    
    3.31Outstanding, end of year
    
    
    767,700
    
    
    
    11.42
    
    
    
    777,500
    
    
    
    9.71Exercisable, end of year
    
    
    406,900
    
    
    $
    7.48
    
    
    
    399,700
    
    
    $
    5.78
 48




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##### Table of Contents



9.
    
    Common shares (continued):At December 31, 2006, the range of exercise prices, the weighted average exercise price and
the weighted average remaining contractual life are as follows:
 Options outstanding
    
    
    Options exercisableWeightedaverage
    
    
    Weighted
    
    
    
    
    
    
    Weightedremaining
    
    
    average
    
    
    
    
    
    
    averageRange of exercise
    
    Number
    
    
    contractual
    
    
    exercise
    
    
    Number
    
    
    exerciseprices
    
    outstanding
    
    
    life (years)
    
    
    price
    
    
    exercisable
    
    
    price$2.20  $2.61
    
    
    174,300
    
    
    
    4.07
    
    
    $
    2.48
    
    
    
    151,400
    
    
    $
    2.52$4.77  $5.44
    
    
    127,500
    
    
    
    1.72
    
    
    
    4.93
    
    
    
    127,500
    
    
    
    4.93$15.23  $18.99
    
    
    465,900
    
    
    
    8.10
    
    
    
    16.54
    
    
    
    128,000
    
    
    
    15.87$2.20  $18.99
    
    
    767,700
    
    
    
    6.12
    
    
    
    11.42
    
    
    
    406,900
    
    
    
    7.48
 Compensation expense related to stock options was $839 for the year ended December 31, 2006
(2005  $654; 2004  $323).
 49




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##### Table of Contents



10.
    
    Computation of income per share:
 2006
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943Denominator:Basic weighted average
shares outstanding
    
    
    12,887,401
    
    
    
    12,516,265
    
    
    
    12,285,400Dilutive stock options
    
    
    237,464
    
    
    
    332,095
    
    
    
    455,077Dilutive weighted-average
shares outstanding
    
    
    13,124,865
    
    
    
    12,848,360
    
    
    
    12,740,477Basic income per share before
cumulative effect of a change
in accounting principle
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22Effect of a change in accounting
principle
    
    
    0.01
    
    
    
    
    
    
    
    Basic income per share
    
    
    1.50
    
    
    
    1.43
    
    
    
    1.22Dilutive income per share
before cumulative effect of a
change in accounting principle
    
    
    1.47
    
    
    
    1.40
    
    
    
    1.17Effect of a change in accounting
principle
    
    
    0.01
    
    
    
    
    
    
    
    Diluted income per share
    
    
    1.48
    
    
    
    1.40
    
    
    
    1.17
 Diluted income per share excludes the effect of 465,900 (2005  383,000; 2004  315,000)
anti-dilutive options.
 50




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##### Table of Contents



11.
    
    Risk management activities:The Company is exposed to interest rate volatility with regard to existing variable rate debt.
On October 2, 2006, the Company assumed a variable-to-fixed interest rate swap on variable
rate debt assumed as part of the PJAX acquisition. The swap is accounted for as a cash flow
hedge. Effectiveness is assessed based on the perfectly effective hypothetical derivative
method. Amounts deferred to Accumulated Other Comprehensive Income are reclassified into
income over the life of the associated debt. The amount of hedge ineffectiveness was nil in
2006. At December 31, 2006, the notional amount of the swap was $3.9 million, with the
average pay rate being 2.99% and the average receive rate being 5.3%. The swap matures in
September 2010.12.
    
    Segmented information:The Companys business operations are grouped into three operating segments:
less-than-truckload, logistics and truckload, which provide transportation services in Canada
and the United States.Segmented information is presented below for each of the years ended December 31, 2006, 2005
and 2004:
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2006
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    441,499
    
    
    $
    39,762
    
    
    $
    32,798
    
    
    $
    514,059
    
    
    $
    
    
    
    $
    514,059Operating, selling,
general and administrative expenses
    
    
    402,729
    
    
    
    36,661
    
    
    
    30,217
    
    
    
    469,607
    
    
    
    4,356
    
    
    
    473,963Other income
    
    
    (433
    )
    
    
    
    
    
    
    (1
    )
    
    
    (434
    )
    
    
    
    
    
    
    (434
    )Depreciation and amortization expense
    
    
    11,174
    
    
    
    422
    
    
    
    848
    
    
    
    12,444
    
    
    
    46
    
    
    
    12,490Income (loss) from operations
before the undernoted
    
    $
    28,029
    
    
    $
    2,679
    
    
    $
    1,734
    
    
    $
    32,442
    
    
    $
    (4,402
    )
    
    
    28,040Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,660Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,122Net income before cumulative effect of change
in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,258Cumulative effect of change in accounting principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    141Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    19,399Capital expenditures
    
    $
    18,620
    
    
    $
    6,966
    
    
    $
    1,265
    
    
    $
    26,851
    
    
    $
    285
    
    
    $
    27,136Goodwill
    
    $
    111,255
    
    
    $
    1,126
    
    
    $
    4,765
    
    
    $
    117,146
    
    
    $
    
    
    
    $
    117,146Total assets
    
    $
    314,530
    
    
    $
    13,270
    
    
    $
    14,841
    
    
    $
    342,641
    
    
    $
    15,693
    
    
    $
    358,334
 51




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##### Table of Contents



12.
    
    Segmented information (continued):
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    
    ConsolidatedYear ended December 31, 2005
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    office and other
    
    totalsRevenue
    
    $
    352,693
    
    
    $
    40,261
    
    
    $
    35,238
    
    
    $
    428,192
    
    
    $
    
    
    
    $
    428,192Operating, selling,
general and administrative expenses
    
    
    322,262
    
    
    
    37,745
    
    
    
    32,373
    
    
    
    392,380
    
    
    
    3,461
    
    
    
    395,841Other income
    
    
    (21
    )
    
    
    
    
    
    
    (20
    )
    
    
    (41
    )
    
    
    
    
    
    
    (41
    )Depreciation and amortization expense
    
    
    5,958
    
    
    
    375
    
    
    
    577
    
    
    
    6,910
    
    
    
    55
    
    
    
    6,965Income (loss) from operations
before the undernoted
    
    $
    24,494
    
    
    $
    2,141
    
    
    $
    2,308
    
    
    $
    28,943
    
    
    $
    (3,516
    )
    
    
    25,427Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    298Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,191Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    17,938Capital expenditures
    
    $
    19,240
    
    
    $
    120
    
    
    $
    3,488
    
    
    $
    22,848
    
    
    $
    15
    
    
    $
    22,863Goodwill
    
    $
    55,557
    
    
    $
    1,126
    
    
    $
    4,765
    
    
    $
    61,448
    
    
    $
    
    
    
    $
    61,448Total assets
    
    $
    165,173
    
    
    $
    7,901
    
    
    $
    14,661
    
    
    $
    187,735
    
    
    $
    13,993
    
    
    $
    201,728
 Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate
    

    
    ConsolidatedYear ended December 31, 2004
    
    truckload
        

    Logistics
        

    Truckload
        

    Total
        

    office and other
        

    totalsRevenue
    
    $
    303,017
    
    
    $
    35,499
    
    
    $
    36,079
    
    
    $
    374,595
    
    
    $
    
    
    
    $
    374,595Operating, selling,
general and administrative expenses
    
    
    281,109
    
    
    
    33,500
    
    
    
    33,748
    
    
    
    348,357
    
    
    
    2,201
    
    
    
    350,558Other expenses (income)
    
    
    (150
    )
    
    
    6
    
    
    
    (2
    )
    
    
    (146
    )
    
    
    
    
    
    
    (146
    )Depreciation expense
    
    
    4,454
    
    
    
    325
    
    
    
    365
    
    
    
    5,144
    
    
    
    62
    
    
    
    5,206Income (loss) from operations
before the undernoted
    
    $
    17,604
    
    
    $
    1,668
    
    
    $
    1,968
    
    
    $
    21,240
    
    
    $
    (2,263
    )
    
    
    18,977Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,983Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    14,943Capital expenditures
    
    $
    4,699
    
    
    $
    721
    
    
    $
    801
    
    
    $
    6,221
    
    
    $
    21
    
    
    $
    6,242
 52




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12.
    
    Segmented information (continued):Geographic information for revenue from point of origin and total assets is as follows:
 2006
    
    
    2005
    
    
    2004Revenue:Canada
    
    $
    193,656
    
    
    $
    175,805
    
    
    $
    151,485United States
    
    
    320,403
    
    
    
    252,387
    
    
    
    223,110$
    514,059
    
    
    $
    428,192
    
    
    $
    374,595
 2006
    
    
    2005Total assets:Canada
    
    $
    62,367
    
    
    $
    57,829United States
    
    
    295,967
    
    
    
    143,899$
    358,334
    
    
    $
    201,728
 2006
    
    
    2005Total long-lived assets:Canada
    
    $
    40,603
    
    
    $
    39,484United States
    
    
    237,560
    
    
    
    91,227$
    278,163
    
    
    $
    130,711
 Long-lived assets include property and equipment, goodwill and intangible assets.13.
    
    Financial instruments:The fair values of cash and cash equivalents, accounts receivable, and accounts payable and
accrued liabilities approximate the carrying values because of the short-term nature of these
instruments. The fair value of the Companys long-term debt, determined based on the future
cash flows associated with each debt instrument discounted using an estimate of the Companys
current borrowing rate for similar debt instruments of comparable maturity, is approximately
equal to the carrying values at December 31, 2006 and 2005.
 53




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##### Table of Contents



14.
    
    Lease commitments:At December 31, 2006, future minimum rental payments relating to operating leases for premises
and equipment are as follows:
 Year ending December 31:2007
    
    $
    13,2252008
    
    
    10,0712009
    
    
    6,8582010
    
    
    3,7412011
    
    
    2,796Thereafter
    
    
    2,136$
    38,827
 Total rental expense under operating leases was $16.3 million for the year ended December 31,
2006 (2005  $17.3 million; 2004  $16.7 million).The Company has guaranteed a portion of the residual values of certain assets under operating
leases. If the market value of the assets at the end of the lease terms is less than the
guaranteed residual value, the Company must, under certain circumstances, compensate the
lessor for a portion of the shortfall. The maximum exposure under these guarantees is $3.7
million.15.
    
    Employee benefits:The Company sponsors defined contribution plans in Canada and the United States. In Canada,
the Company matches the employees contribution to their registered retirement savings plan up
to a maximum contribution. In the United States, the Company sponsors 401(k) savings plans.
The Company matches a percentage of the employees contribution subject to a maximum
contribution. The expense related to the plans was $2.0 million for the year ended December
31, 2006 (2005  $1.6 million).16.
    
    Contingent liabilities:The Company is subject to legal proceedings that arise in the ordinary course of business. In
the opinion of management, the aggregate liability, if any, with respect to these actions,
will not have a material adverse effect on the consolidated financial position, results of
operations or cash flows. Legal costs are expensed as incurred.
 54




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17.
    
    United States and Canadian accounting policy differences:In accordance with the provisions of the OBCA, issuers that are required to file reports with
the Securities and Exchange Commission in the United States are allowed to file financial
statements under United States GAAP to meet their continuous disclosure obligations in Canada.
Vitran has included a reconciliation highlighting the material differences between its
consolidated financial statements prepared in accordance with United States GAAP compared to
its consolidated financial statements prepared in accordance with Canadian GAAP as described
below. This disclosure is required for a finite period of time under the Ontario Securities
Commission regulations, subsequent to the adoption of United States GAAP. Prior to 2006,
Vitran prepared its consolidated financial statements in accordance with Canadian GAAP with a
reconciliation to United States GAAP.
 (a)
    
    Consolidated reconciliation of net income and shareholders equity:
 Net income
    
    
    Shareholders' equity2006
    
    
    2005
    
    
    2004
    
    
    2006
    
    
    2005
    
    
    2004Balance, December 31,
based on United
States GAAP
    
    $
    19,399
    
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    173,297
    
    
    $
    139,802
    
    
    $
    119,191Effect of change in
accounting
principle (i)
    
    
    (141
    )
    
    
    
    
    
    
    
    
    
    
    (141
    )
    
    
    
    
    
    
    Foreign exchange
adjustment (ii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    858
    
    
    
    858
    
    
    
    858Unrealized foreign
exchange loss
on derivative
instrument
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (101
    )
    
    
    (101
    )
    
    
    (101
    )Unrealized gains on
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6
    )Unrealized loss on interest
rate swap
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    
    
    
    
    Accumulated other
comprehensive
income
adjustment (iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (757
    )
    
    
    (757
    )
    
    
    (757
    )Balance, December 31,
based on Canadian
GAAP
    
    $
    19,258
    
    
    $
    17,938
    
    
    $
    14,943
    
    
    $
    173,171
    
    
    $
    139,802
    
    
    $
    119,185
 55




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17.
    
    United States and Canadian accounting policy differences (continued):
 (i)
    
    The adoption of SFAS 123(R)  Share-Based Payments as described in note
1(l) only applies to United States GAAP. Therefore, the effect of a change in
accounting principle does not impact Canadian GAAP net income.(ii)
    
    The Company had foreign exchange gains of $0.9 million that did not
represent a substantially complete liquidation of a foreign operation. Under
Canadian GAAP, these gains were 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. Retained earnings under
Canadian GAAP is increased by $0.9 million with a corresponding decrease to the
cumulative translation adjustment.(iii)
    
    The concept of Comprehensive Income is not currently a requirement under
Canadian GAAP. The Canadian Institute of Chartered Accountants (CICA) has issued a
new accounting standard Comprehensive Income, which the Company will adopt effective
January 1, 2007.
 2006
    
    
    2005
    
    
    2004Net Income (loss) per share under
Canadian GAAP:Basic  net income
    
    $
    1.49
    
    
    $
    1.43
    
    
    $
    1.22Diluted  net income
    
    
    1.47
    
    
    
    1.40
    
    
    
    1.17Weighted average number
of shares:Weighted average number
of shares outstanding
    
    
    12,887,401
    
    
    
    12,516,265
    
    
    
    12,285,400Potential exercise of
stock options
    
    
    237,464
    
    
    
    332,095
    
    
    
    455,077Diluted shares
    
    
    13,124,865
    
    
    
    12,848,360
    
    
    
    12,740,477
 (b)
    
    Share-based compensation:Effective January 1, 2006, the Company adopted SFAS 123(R) as described in note 1(l).
SFAS 123(R) requires compensation expense be recognized for all share-based payments
granted prior to, but not yet vested, as of January 1, 2006, based on the grant date fair
value estimated in accordance with the original provisions of SFAS 123. This is not
required under Canadian GAAP based on the transitional provision of CICA HB S.3870 which
Vitran adopted January 1, 2003. Canadian GAAP requires pro forma net income and income
per share disclosure for stock option grants during 2002.
 56




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17.
    
    Canadian and United States accounting policy differences (continued):
 The following table outlines the impact if the compensation cost for the Companys stock
options granted from January 1, 2002 through to December 31, 2002 were determined under
the fair value-based method. The Company has applied the pro forma disclosure provisions
of the standard to these awards. The pro forma effect of awards granted prior to January
1, 2002 has not been included.
 2006
    
    
    2005
    
    
    2004Net income, as reported
under Canadian GAAP
    
    $
    19,258
    
    
    $
    17,938
    
    
    $
    14,943Pro forma net income
    
    
    19,213
    
    
    
    17,895
    
    
    
    14,902Pro forma income
per share  basic
    
    
    1.49
    
    
    
    1.43
    
    
    
    1.21Pro forma income
per share  diluted
    
    
    1.46
    
    
    
    1.39
    
    
    
    1.17
 (c)
    
    Derivative accountingUnder Canadian GAAP, gain and losses on derivatives that are designated as hedges and
that manage the underlying risks of anticipated transactions are not recorded until the
underlying hedged item is recorded in net income and hedge ineffectiveness is not
recorded until settlement. Under United States GAAP, for cash flow hedges, the effective
portion of the gains or losses is reported as component of other comprehensive income and
the ineffective portion is reported in net income from continuing operations immediately.
The CICA has issued a new accounting standard, Hedging, which the Company will adopt
January 1, 2007.(d)
    
    New Canadian accounting pronouncements:The CICA Accounting Standards Board has issued the following new accounting standards
that the Company will adopt effective January 1, 2007.
 (i)
    
    Comprehensive income:This section establishes standards for the reporting and disclosure of comprehensive
income and accumulated other comprehensive income.
 57




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17.
    
    Canadian and United States accounting policy differences (continued):
 (ii)
    
    Equity:This section establishes standards for the presentation of equity and changes in
equity during the period. There will be a requirement to present separately each of
the changes in equity during the period.Financial instruments  recognition and measurementsThis section establishes standards for classifying, recognizing and measuring
financial assets, financial liabilities and non-financial derivatives. Specifically,
all financial asset instruments will be classified as one of the following:
Held-to-maturity, Loan and Receivables, Held-for-trading or Available-for-sale.(iii)
    
    Hedging:This section establishes standards for when and how hedge accounting may be applied.
The standard specifies criteria under which hedge accounting can be applied and how
hedge accounting can be executed for each of the permitted hedging strategies: fair
value hedges, cash flow hedges and hedges of foreign currency exposure of a net
investment in a self-sustaining foreign operation.
 58




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First
    
    
    Second
    
    
    Third
    
    
    Fourth2006 (Unaudited)
    
    quarter
    
    
    quarter
    
    
    quarter
    
    
    quarterRevenue:Less-than-truckload
    
    $
    97,423
    
    
    $
    105,213
    
    
    $
    102,858
    
    
    $
    136,005Logistics
    
    
    9,412
    
    
    
    10,251
    
    
    
    10,419
    
    
    
    9,680Truckload
    
    
    8,292
    
    
    
    8,177
    
    
    
    8,235
    
    
    
    8,094Total revenue
    
    $
    115,127
    
    
    $
    123,641
    
    
    $
    121,512
    
    
    $
    153,779Income from operations
after depreciation and amortization
    
    $
    4,972
    
    
    $
    8,128
    
    
    $
    6,797
    
    
    $
    8,143Net income  United States GAAP
    
    
    3,764
    
    
    
    5,776
    
    
    
    4,885
    
    
    
    4,974Net income  Canadian GAAP
    
    
    3,623
    
    
    
    5,776
    
    
    
    4,885
    
    
    
    4,974Earnings per share:Basic  United States GAAP
    
    $
    0.30
    
    
    $
    0.45
    
    
    $
    0.38
    
    
    $
    0.37Basic  Canadian GAAP
    
    
    0.29
    
    
    
    0.45
    
    
    
    0.38
    
    
    
    0.37Diluted  United States GAAP
    
    
    0.29
    
    
    
    0.45
    
    
    
    0.38
    
    
    
    0.37Diluted  Canadian GAAP
    
    
    0.28
    
    
    
    0.45
    
    
    
    0.38
    
    
    
    0.37
  First
    
    
    Second
    
    
    Third
    
    
    Fourth2005 (Unaudited)
    
    quarter
    
    
    quarter
    
    
    quarter
    
    
    quarterRevenue:Less-than-truckload
    
    $
    76,105
    
    
    $
    86,429
    
    
    $
    96,658
    
    
    $
    93,501Logistics
    
    
    8,876
    
    
    
    9,615
    
    
    
    10,652
    
    
    
    11,118Truckload
    
    
    8,960
    
    
    
    9,006
    
    
    
    8,916
    
    
    
    8,356Total revenue
    
    $
    93,941
    
    
    $
    105,050
    
    
    $
    116,226
    
    
    $
    112,975Income from operations
after depreciation and amortization
    
    $
    3,659
    
    
    $
    7,013
    
    
    $
    7,818
    
    
    $
    6,937Net income
    
    
    2,754
    
    
    
    4,796
    
    
    
    5,376
    
    
    
    5,012Earnings per share:Basic
    
    $
    0.22
    
    
    $
    0.39
    
    
    $
    0.43
    
    
    $
    0.40Diluted
    
    
    0.22
    
    
    
    0.38
    
    
    
    0.42
    
    
    
    0.39
  59




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ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9aCONTROLS AND PROCEDURES
   Managements Report on Internal Control over Financial Reporting
      February 7, 2007
    
    /s/ Richard E. Gaetz, President and Chief Executive Officer/s/ Sean P. Washchuk, Vice President Finance and Chief Financial Officer
 60




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61




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##### Table of Contents



ITEM 9b OTHER INFORMATION
  
 PART III
 
 ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
  Name
    
    Age
    
    Position
    
    HistoryRichard E. Gaetz
(Mississauga, Canada)
    
    
    49
    
    
    President and
Chief Executive
Officer
    
    Mr. Gaetz has been
working in the
transportation and
logistics industry
for more than 25
years. He has been
actively involved
with the growth and
development of
Vitran and has been
responsible for
Vitrans freight
and logistics
operations since he
joined in 1989. He
was elected to the
Board of Directors
of Vitran in 1995.
Mr. Gaetz has
extensive
experience on both
sides of the
border. Prior to
joining Vitran, he
spent ten years
with Clarke
Transport, a large
Canadian freight
company, in various
positions including
Vice President.
Mr. Gaetz received
a Bachelor of
Commerce degree
from Dalhousie
University in
Halifax in 1979.
He is a Director of
the Ontario
Trucking
Association, the
Canadian Trucking
Alliance and
Director and
Chairman of Drive
Products Income
Fund.Sean P. Washchuk
(Burlington, Canada)
    
    
    34
    
    
    Vice President
Finance and Chief
Financial Officer
    
    Mr. Washchuk joined
Vitran in 2000 as
the Corporate
Controller and was
appointed Chief
Financial Officer
and Vice President
Finance in 2004.
Prior to joining
Vitran in 2000, he
was a Controller at
a North American
plastics recycling
company and was
also a manager at
PricewaterhouseCoopers in the assurance
and business
advisory services
practice. Mr.
Washchuk is a
Chartered
Accountant with the
Canadian Institute
and received a
Bachelor of
Accounting degree
from Brock
University in
Ontario.
 CODE OF ETHICS
  
 ITEM 11EXECUTIVE COMPENSATION
  62




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ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  
 ITEM 14PRINCIPAL ACCOUNTING FEES AND SERVICES
  Year ended December 31,2006
    
    
    2005Audit and audit related fees
    
    $
    598,078
    
    
    $
    469,489Tax fees
    
    Nil
    
    
    NilAll other fees
    
    Nil

    
    
    Nil$
    598,078
    
    
    $
    469,489
   
 PART IV
 
 ITEM 15EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
 (a) (1) Financial Statements
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(2) Financial Statements Schedule:
 Schedule IIValuation and Qualifying Accounts
   Allowance for Doubtful Accounts (000s $)
    
    Balance at
    
    
    Charges to
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    at endDescription
    
    of year
    
    
    expenses
    
    
    Deductions
    
    
    of yearYear ended December 31, 2004Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,266
    
    
    $
    584
    
    
    $
    (657
    )
    
    $
    1,193Year ended December 31, 2005Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,193
    
    
    $
    757
    
    
    $
    (675
    )
    
    $
    1,275Year ended December 31, 2006Accounts receivable allowances for
revenue adjustments and doubtful
accounts
    
    $
    1,275
    
    
    $
    1,516
    
    
    $
    (592
    )
    
    $
    2,199
  Tax Valuation Allowance (000s $)
    
    Balance at
    
    
    Charges to
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    at endDescription
    
    of year
    
    
    expenses
    
    
    Deductions
    
    
    of yearYear ended December 31, 2004Tax valuation allowance
    
    $
    693
    
    
    $
    
    
    
    $
    (693
    )
    
    $
    Year ended December 31, 2005Tax valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Year ended December 31, 2006Tax valuation allowance
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 (3) Exhibits Filed
  64




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Exhibit Index
 ExhibitNo.
    
    Document1.1*
    
    Underwriting Agreement dated December 16, 1994 between the registrant and Midland Walwyn Capital Inc. and ScotiaMcLeod
Inc.1.2*
    
    Special Warrant Indenture dated December 16, 1994 between the registrant and Montreal Trust Company for Canada, as trustee1.3*
    
    Escrow Agreement dated December 16, 1994 between the registrant and Messrs. Morris/Rose/Ledgett, Barristers and
Solicitors, as trustee1.4*
    
    Subscription Agreements:1.5*
    
    Stock Option Plan dated July 16, 19871.6*
    
    Employee Stock Option Plan approved May 17, 19951.7*
    
    Prospectus dated December 16, 20032.1*
    
    Purchase and Sale Agreement dated November 2, 1994 between the registrant and Carl Cook and Daniel L. Cook3.(i).1*
    
    Articles of Incorporation effective April 29, 19813.(i).2*
    
    Articles of Amendment effective May 27, 19873.(i).3*
    
    Articles of Amendment effective July 16, 19873.(i).4*
    
    Articles of Amendment effective February 5, 19913.(i).5*
    
    Articles of Amendment effective April 22, 20043.(ii).1*
    
    By-laws effective May 27, 19873.(ii).2*
    
    By-law to authorize the directors to borrow and give security effective July 16, 19874.1*
    
    Cancellation of Stock Voting Agreement dated February 1, 2003 between Richard D. McGraw, Albert Gnat and Anthony F.
Griffiths9.1*
    
    Stock Voting Agreement dated July 15, 1987 between Richard D. McGraw, Albert Gnat and Anthony F. Griffiths10.1*
    
    Credit Agreement between the registrant, its subsidiaries and the Royal Bank, dated April 25, 199510.2*
    
    Credit Agreement between the Overland Group and Bank One, dated February 4, 1994 (the Overland Credit Agreement)10.3*
    
    First Amendment to the Overland Credit Agreement, effective July 1, 199410.4*
    
    Second Amendment to the Overland Credit Agreement, effective September 30, 199410.5*
    
    Third Amendment to the Overland Credit Agreement, dated December 14, 199410.6*
    
    Fourth Amendment to the Overland Credit Agreement, dated February 1, 199510.7*
    
    Fifth Amendment to the Overland Credit Agreement, effective December 31, 199410.8*
    
    Sixth Amendment to the Overland Credit Agreement, dated March 2, 199510.9*
    
    Operating Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia, dated July 25, 199510.9.1*
    
    First Amending Agreement to Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia,
dated September 3, 199810.9.2*
    
    Second Amending Agreement to Credit Agreement between Trans Western Express Inc. and The Bank of Nova Scotia,
dated January 8, 199910.9.3*
    
    Amended and Restated Credit Agreement between Vitran Corporation Inc. and Trans Western Express Inc. and The Bank of Nova
Scotia, dated January 31, 200210.9.4*
    
    Second Amended and Restated Credit Agreement between Vitran Corporation Inc. and Vitran Express Canada Inc. and The Bank
of Nova Scotia and Laurentian Bank of Canada, dated May 1, 200610.9.5*
    
    Third Amended and Restated Credit Agreement between Vitran Corporation Inc., Vitran Express Canada Inc., Vitran
Corporation and The Bank of Nova Scotia, Laurentian Bank of Canada and JP Morgan Chase, dated September 20, 2006
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##### Table of Contents



ExhibitNo.
    
    Document10.10*
    
    Note Purchase Agreement between Trans Western Express Inc., the registrant and certain purchasers, dated July 25, 199510.11*
    
    Amendment No. 1 to Note Agreement (Amending Agreement), dated June 28, 199610.12*
    
    Amendment No. 2 to Note Agreement (Amending Agreement), dated May 13, 199710.13*
    
    Credit Agreement between the registrant and The Bank of Nova Scotia, dated September 3, 199810.14*
    
    Credit Agreement between the registrant and The Bank of Nova Scotia and Laurentian Bank of Canada, dated October 13, 199910.15*
    
    Confidential Transportation Contract dated January 1, 1993 between Trans Western Express Inc. and Canadian National
Railway Company10.16*
    
    Agreement dated April 24, 1995 between the registrant, Borcross Limited, Carl Cook and Daniel L. Cook amending the terms
of the Overland Note10.17*
    
    Engagement Letter dated April 28, 1995 between the registrant and Banc One Capital Corporation10.18*
    
    Offer of Employment dated September 30, 1998 from the registrant to Kevin Glass10.19*
    
    Share Purchase Agreement between the registrant and Randall Quast, dated July 21, 199810.20*
    
    Employment agreement dated November 25, 2004 from the registrant to Sean P. Washchuk10.21*
    
    Employment agreement dated April 29, 2004 from the registrant to Rick E. Gaetz10.22*
    
    Employment agreement dated April 29, 2004 from the registrant to Kevin A. Glass10.3*
    
    Share purchase agreement, by Vitran Corporation and Chris Dugan, dated May 30, 200510.31*
    
    Share purchase agreement, by Vitran Corporation and The Shareholders of PJAX, Inc., dated October 2, 200610.4*
    
    Deferred share unit plan, dated September 14, 200510.41*
    
    Deferred share unit plan, dated March 10, 200614.1*
    
    Code of Ethics and Professional Conduct for Directors, Senior Executives and Employees, dated August 3, 200431.1
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Previously filed 
 SIGNATURES
  Vitran Corporation Inc.By:
    
    /s/ SEAN P. WASHCHUKSean P. WashchukVice President Finance andChief Financial Officer
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##### Table of Contents



Signatures
    
    Title
    
    Date/s/ RICHARD D. McGRAW
    
    Chairman of the Board
    
    February 7, 2007Richard D. McGraw/s/ RICHARD E. GAETZ
    
    President and Chief Executive Officer, Director
    
    February 7, 2007Richard E. Gaetz/s/ GEORGES L. HÉBERT
    
    Director
    
    February 7, 2007Georges L. Hébert/s/ WILLIAM S. DELUCE
    
    Director
    
    February 7, 2007William S. Deluce/s/ ANTHONY F. GRIFFITHS
    
    Director
    
    February 7, 2007Anthony F. Griffiths/s/ JOHN R. GOSSLING
    
    Director
    
    February 7, 2007John R. Gossling/s/ SEAN P. WASHCHUK
    
    Vice President Finance and Chief Financial Officer
    
    February 7, 2007Sean P. Washchuk
    
    (Principal
Financial Officer)/s/ FAYAZ D. SULEMAN
    
    Corporate Controller
    
    February 7, 2007Fayaz D. Suleman
    
    (Principal
Accounting Officer)
 67