SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

(Mark One)

þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2004

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.

185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5
(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)
(416) 596-7664

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). þ Yes o No.

The number of shares of common stock outstanding at February 14, 2005 was 12,423,678. The aggregate market value of the voting stock of the registrant, excluding directors, officers and registered holders of 10% as of February 14, 2005 was approximately $185,006,029.00.

DOCUMENTS INCORPORATED BY REFERENCE

1) Proxy statement to be filed on or about March 24, 2005 (Only those portions referenced herein are incorporated in this Annual Report on Form 10-K).
 

TABLE OF CONTENTS

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Unless otherwise indicated all dollar references herein are in United States dollars.

PART I

ITEM 1— BUSINESS

OVERVIEW

          Vitran Corporation Inc. (“Vitran” or the “Company”) is a leading, predominately non-union, provider of surface transportation and related logistics services throughout Canada and in 18 states in the central and southern United States (the “Central States”). Its business consists of less-than-truckload services (“LTL”), logistics services, and truckload services. These services are provided by stand-alone business units within their respective regions. The business units operate independently or in a complementary manner to provide solutions depending on a customer’s needs. For the years ended December 31, 2004 and 2003, the Company had revenues of approximately $374.6 million, and $331.8 million, respectively.

CORPORATE STRUCTURE

          Vitran’s registered office is located at 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5. Vitran Corporation Inc. was incorporated in Ontario under the Business Corporation Act (Ontario).

          Vitran’s business is carried on through its subsidiaries with a number of these affiliated corporations holding the relevant licenses and permits required to carry on business. The following are Vitran’s principal operating subsidiaries, all wholly owned (including their jurisdiction of incorporation) as at December 31, 2004: Vitran Express Canada Inc. (Ontario); Can-Am Logistics Inc. (Ontario); Vitran Logistics Ltd. (Ontario); Expéditeur T.W. Ltée (Canada); Vitran Corporation (Nevada); Vitran Express Inc. (Indiana); Frontier Transport Corporation (Indiana); Vitran Logistics Corp. (Delaware); Vitran Logistics Inc. (Indiana).

OPERATING SEGMENTS

          Segment financial information is included in Note 9 to the Consolidated Financial Statements.

LTL Services

          Vitran has grown organically and made strategic acquisitions to build a comprehensive LTL network throughout Canada and in the Central United States. Over the past year, Vitran’s LTL business has continued to focus on providing premium service to its customers.

          Vitran’s LTL business represented approximately 80.9% of its revenue for the year ended December 31, 2004. Within the United States, the Company operates primarily within the Central United States and delivers approximately 90.0% of its freight shipments within one or two days. In addition, the Company offers its services to the other regions in the United States (other than Alaska and Hawaii) through its strategic inter-regional relationships. The service is provided over-the-road, mostly by Company drivers, which allows US LTL more control in servicing these time sensitive shipments. As an integral part of its service solution, US LTL was one of the first regional LTL companies to offer an unconditional money back service guarantee to its customers. Vitran’s US LTL regional business represented approximately 46.0% of its revenues for the year ended December 31, 2004.

          Within Canada, the Company provides next-day service within Ontario, Quebec and within parts of western Canada, and generates most of its revenue from the movement of LTL freight within the three to five day east/west lanes. Most of its trans-Canada freight is shipped by rail under an “intermodal” agreement with CN Rail, under which the Company’s containers are loaded onto CN Rail cars and shipped to various points where Vitran’s network of owner operators pick up and deliver the freight to various destinations. An expedited service solution is also offered nationally using over-the-road driver teams to complete these moves in a shorter time-frame. Vitran’s Canadian LTL business represented approximately 34.9% of its revenues for the year ended December 31, 2004.

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          Vitran’s Transborder Service Solution (inter-regional) provides over-the-road service primarily between its Canadian LTL and US LTL business units. This is the Company’s highest margin and fastest growing service, achieving approximately 29.3% year-over-year revenue growth for the year ended December 31, 2004. In addition, through strategic inter-regional relationships it offers transborder freight services to the remainder of the continental United States.

Logistics

          Vitran’s Logistics business, which represented approximately 9.5% of its revenues for the year ended December 31, 2004, consists of two principal lines of business: (1) supply chain solutions in Canada and the United States including warehousing, inventory management and flow-through distribution facilities, and (2) Freight Brokerage which coordinates the transport of truck and container loads from sales offices in Toronto, Montreal, and Los Angeles.

          Supply Chain Solutions. Supply chain solutions involve the transportation, management of goods and the provision of information about such goods as they pass through the supply chain from manufacturer to end user. Vitran Logistics’ role is to design a supply chain network for a customer, contract with the necessary suppliers (including Vitran’s LTL services), and implement the design and manage the logistical system. Vitran’s supply chain services unit offers a range of services in Canada and the United States including warehousing, inventory management and flow-through distribution facilities, focusing primarily on long-term logistics solutions.

          Freight Brokerage. Vitran’s Freight Brokerage unit is headquartered in Toronto, Ontario, with sales offices in Toronto, Montreal and Los Angeles so as to capitalize on international traffic flows. Vitran Logistics coordinates the transport of truck and container loads directly from a customer’s facility to the customer’s consignee, anywhere in North America. The Freight Brokerage unit offers both intermodal and highway solutions to customers with any type of full load requirement. Vitran Logistics supports the movement of freight through direct computer links with both its carriers and customers. It provides customers with real-time tracking, customer support information and expediting as required.

Truckload

          Vitran’s Truckload business, operating as Frontier Transport Corporation (“Frontier”), provides truckload service within the United States. Frontier principally utilizes its company-owned trailing equipment and tractor owner operators. The business is primarily dry van with a small temperature controlled service available. Frontier operates out of two terminals, one in Atlanta, and the other in Indianapolis where the main administration office is located. Frontier principally delivers within a 400-mile radius utilizing 257 owner operators with company-owned or leased trailing fleet.

THE TRUCKING INDUSTRY

          According to estimates made by the American Trucking Associations and Global Insight (formerly DRI-WEFA), the United States trucking industry in 2002 accounted for approximately $585 billion, or approximately 87% of total domestic freight transportation revenue. Trucks provide freight transportation services to virtually every industry operating in the United States and Canada and generally offer higher levels of reliability, shipment integrity, and speed than other surface transportation options. The trucking industry is highly competitive on the basis of service and price.

          The LTL portion of the industry accounted for approximately $58 billion of revenue during 2002. According to the American Trucking Associations and Global Insight, LTL volume is forecasted to grow in the United States at an average rate of 3.1% per year through 2008.

          LTL carriers transport freight for multiple customers to multiple destinations on each trailer. This service requires a network of local pick-up and delivery terminals, hub facilities, and driver fleets. The LTL business is capital intensive, and achieving significant density of operations in a given region can afford a competitive advantage since greater freight volumes are better able to support fixed costs. Vitran believes the regional LTL

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industry offers a favorable operating model and provides substantial growth opportunities for the following reasons:

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

MARKETING AND CUSTOMERS

          Vitran derives its revenue from thousands of customers from a variety of geographic regions and industries in Canada and the United States. The Company’s largest customer represents less than 3.0% of Vitran’s revenues.

          The LTL segment utilizes a computerized freight-costing model to determine the price level that is appropriate for each particular shipment of freight. When necessary, Vitran competes to secure revenue by participating in bid solicitations, provided its customer recognizes the Company as a core carrier over a contracted period of time.

          In the Logistics business, Vitran customizes each solution to fit the needs of the customer. The Logistics operation pursues opportunities that will not only increase the profitability of that segment but will supplement profitability in Vitran’s LTL segment as well.

          The Freight Brokerage business maintains sales offices in Toronto, Montreal, and Los Angeles, to capitalize on international traffic flows. The freight brokerage unit offers both intermodal and over-the-road truckload solutions to clients.

EMPLOYEES

          At December 31, 2004, Vitran employed approximately 2,498 full- and part-time employees and contracted with approximately 421 owner operators.

          All of Vitran’s 1,256 drivers and owner operators are required to have valid commercial driver’s licenses and pass a stringent Company screening process. Where permitted, the Company periodically conducts drug and alcohol screening tests.

          Only 132 of Vitran’s employees are represented by labor unions. Two of Vitran’s terminals in Canada operate with unionized dock workers represented by the International Brotherhood of Teamsters and the Canadian Autoworkers Association. The Company has two collective agreements with its unionized employees. These agreements expire on March 31, 2008, and on September 30, 2008, respectively.

INFORMATION TECHNOLOGY

          Vitran uses technology to reduce costs, improve productivity, and enhance its customer service. Vitran allows its customers to access or exchange information with the Company via Vitran’s website, published web services, electronic data interchange, or over the telephone. The Company uses sophisticated freight handling software to maximize its load average, reduce freight handling, reduce transit times, and improve tracking of shipments through its system.

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SEASONALITY

          In the trucking industry for a typical year, the months of September and October usually have the highest business levels, while the months of December, January and February generally have the lowest business levels. Adverse weather conditions, generally experienced in the first quarter of the year, such as heavy snow and ice storms, have a negative impact on operating results. Accordingly, revenue and profitability are generally lowest in the first quarter.

REGULATION

          Regulatory agencies exercise broad powers over the trucking industry business, generally governing such activities as authorization to engage in motor carrier operations, safety and financial reporting. The industry also may become subject to new or more restrictive regulations relating to fuel emissions, ergonomics, or limits on vehicle weight and size. Additional changes in the laws and regulations governing the trucking industry could affect the economics of the industry by requiring changes in operating practices or by influencing the demand for, and the costs of providing, services to customers.

          From time to time, various legislative proposals that might affect the trucking industry are introduced, including proposals to increase federal, state, provincial or local taxes, including taxes on motor fuels. Vitran cannot predict whether, or in what form, any increase in such taxes applicable to the Company will be enacted. Increased taxes could adversely affect Vitran’s profitability.

          Vitran’s employees and owner operators also must comply with the safety and fitness regulations promulgated by the U.S. Department of Transportation (“DOT”) and various regulatory authorities in Canada, including those relating to drug and alcohol testing and hours of service.

COMPETITION

          Vitran competes with many other transportation service providers of varying sizes within Canada and the United States. In the United States, Vitran competes mainly in the central states. The transportation industry is highly competitive on the basis of both price and service. The Company competes with regional, inter-regional and national LTL carriers, truckload carriers, third party logistics companies and, to a lesser extent, small package carriers, air freight carriers and railroads. The Company competes effectively in its markets by providing high quality and timely service at competitive prices.

RISKS AND UNCERTAINTIES

          Information on the risks and uncertainties relating to the Company appears in the Company’s management discussion and analysis (“MD&A”) for the year ended December 31, 2004, Item 7, reference to which is hereby made, and the information therein is incorporated herein by reference.

AVAILABLE INFORMATION

          Vitran makes available free of charge on or through its website at www.vitran.com, its Annual Report on Form 10-K (including the MD&A at December 31, 2004), Quarterly Reports on Form 10-Q, current reports on Form 8-K and other information releases including all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (SEC) and System for Electronic Document Analysis and Retrieval (SEDAR). The information can also be accessed through EDGAR at www.sec.gov/edgar.shtml or SEDAR at www.sedar.com.

ITEM 2— PROPERTIES

          Vitran’s corporate office is located at 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5. The 2,700 square foot office is occupied under a lease terminating in March 2008.

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          Each of Vitran’s operating subsidiaries also maintains a head office as well as numerous operating facilities. Vitran has not experienced and does not anticipate difficulties in renewing existing leases on favorable terms or obtaining new facilities as and when required.

          Vitran operates 70 terminals, 15 of which are located in Canada and 55 of which are located in the United States. The Company’s LTL segment operates 65 terminals with a total of 1,555 loading doors in the United States and with a total of 558 loading doors in Canada. The 10 largest terminals in Vitran’s LTL segment, in terms of the number of loading doors, are listed below.

          In addition to two warehouse facilities, Vitran’s Logistics business operates two dedicated flow-through facilities, one in Canada, and the other in the United States, for major retailers in their respective markets. Vitran’s Truckload business operates two terminals, one in Indianapolis and the other in Atlanta.

ITEM 3— LEGAL PROCEEDINGS

          Vitran is subject to various legal proceedings and claims that have arisen in the ordinary course of its business that have not been fully adjudicated. Many of these are covered in whole or in part by insurance. The management of Vitran does not believe that these actions, when finally concluded and determined, will have a significant adverse effect upon Vitran’s financial condition, results of operations or cash flows.

ITEM 4— SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          None.

PART II

ITEM 5— MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Description of Share Capital

          The Company at the April 21^st, 2004 Annual and Special Meeting of Shareholders received approval to eliminate from the Company’s authorized capital the Class B non-voting shares and the first preference shares. The Class A voting shares were redesignated as common shares.

          At December 31, 2004, there were an unlimited number of shares authorized and 12,419,678 common shares issued and outstanding. The holders of the common shares are entitled to one vote for each common share on all matters voted on at any meetings of Vitran’s shareholders, to any dividends that may be declared by the Company’s Board of Directors thereon and, in the event of the liquidation, dissolution or winding up of the Company, will be entitled to receive the remaining property.

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          Vitran’s common shares trade on The Toronto Stock Exchange (“TSX”) and the American Stock Exchange (“AMEX”) under the symbols: vtn and vvn respectively. On February 14, 2005, there were approximately 46 registered holders of record of the Company’s common shares.

          Vitran did not pay any dividends on common shares in fiscal 2004 and 2003. The Company ceased paying dividends in December 2001. The board of directors is responsible for determining the Company’s dividend policy and does not intend to declare dividends in the foreseeable future.

          The following table sets forth the high and low bid prices of our common stock for the periods indicated, as reported by the TSX and the AMEX:

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Stock Option Plan

          Vitran maintains a stock option plan to assist in attracting, retaining and motivating its directors, officers and employees. The details of the Company’s authorized stock option plan are described in Note 7 of the Consolidated Financial Statements.

Use of Proceeds

          In December of 2003, Vitran, together with the lead underwriting firm, Avondale Partners, issued 2,300,000 common shares for gross proceeds of $31.6 million in a public offering. Commissions to the underwriters amounted to $1.6 million and other expenses of the offering amounted to $0.6 million resulting in net proceeds of $29.4 million. It is the intention of Vitran’s management to use the net proceeds from the public offering to fund possible future acquisitions, capital expenditures and repay amounts outstanding under credit facilities.

Transfer Agents

ITEM 6— SELECTED FINANCIAL DATA

          The following selected financial data should be read in conjunction with the Consolidated Financial Statements and Notes under Item 8 of this Annual Report on Form 10-K. For a summary of quarterly financial data for fiscal 2004 and 2003 please see the Supplemental Schedule of Quarterly Financial Information included in the Consolidated Financial Statements. For a summary of measurement and disclosure differences between Canadian and United States accounting policies please see Note 14 to the Consolidated Financial Statements. Please note that there is no difference in Vitran’s 2004 reported net income under Canadian and United States GAAP.

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Selected Financial Data (Thousands of dollars, except per share amounts)

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Selected Financial Data (continued) (Thousands of dollars, except per share amounts)

(1)

Income from continuing operations before depreciation expense (“EBITD”) is a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP. EBITD represents net income, plus net loss on discontinued operations, plus amortization of goodwill, minus minority interest, plus (minus) income tax expense (benefit), plus net interest expense, and plus depreciation. The Company believes EBITD is useful in evaluating its operating performance compared to that of other companies in its industry, as the calculation of EBITD eliminates the effects of financing, income taxes and the accounting effects of capital spending, which items may vary for different companies for reasons unrelated to overall operating performance. When analyzing its operating performance, however, investors should use EBITD in addition to, not as an alternative for, income from operations and net income, as those items are defined by GAAP. Investors should also note that the Company’s presentation of EBITD may not be comparable to similarly titled measures used by other companies. EBITD is reconciled to net income as follows:

(2)	Please see Note 14 to the Consolidated Financial Statements for differences between Canadian and United States GAAP.

(3)

Operating ratio (“OR”) is a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP. OR is the sum of operating expenses, selling, general and administrative expenses, other expenses (income), and depreciation 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:

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ITEM 7— MANAGEMENT DISCUSSION AND ANALYSIS

Forward-Looking Statements:

          This MD&A contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 concerning Vitran’s business, operations, and financial performance and condition.

          When used in this MD&A the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “may”, “plans”, “continue”, “focus”, “endeavor” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements are based on current expectations and are naturally subject to uncertainty and changes in circumstances that may cause actual results to differ materially from those expressed or implied by such forward-looking statements.

          Specifically, but not limited to, this MD&A and the documents incorporated by reference contain forward-looking statements regarding:

	•	our objective to expand or acquire an LTL operation in a new regional market
	•	our intention to achieve an above average transborder growth rate
	•	our plan to develop revenue, density and yield improvements
	•	our intention to improve linehaul efficiency and dock operations
	•	our focus on driver retention

          Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Vitran’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to technological change, regulatory change, the general health of the economy and competitive factors. More detailed information about these and other factors is included in the MD&A. Many of these factors are beyond the Company’s control; therefore, future events may vary substantially from what the Company currently foresees. You should not place undue reliance on such forward-looking statements. Vitran Corporation Inc. is under no obligation to update or alter such forward-looking statements whether as a result of new information, future events or otherwise. Unless otherwise indicated all dollar references herein are in U.S. dollars. The Company’s Annual Report on Form 10-K, as well as all the Company’s other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov.

OVERVIEW

          Vitran Corporation Inc. (“Vitran” or the “Company”) is a leading, predominately non-union, provider of surface transportation and related logistics services throughout Canada and in 18 states in the central and southern United States (the “Central States”). Its business consists of three operating segments: (1) Less-than-truckload services (“LTL”), (2) Logistics services, and (3) Truckload services. These services are provided by stand-alone business units within their respective regions. Depending on a customer’s needs, the units can operate independently or in a complementary manner. As more fully described in Item 1 “Business”, the LTL segment transports shipments in less than full trailer load quantities through freight service center networks, the Logistics segment provides supply chain solutions and freight brokerage services and the Truckload segment delivers full trailer loads point to point on a predominantly short haul basis.

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          Vitran’s operating results are generally expected to depend on the number and weight of shipments transported, the prices received for the services provided, and the mix of services supplied to clients. Therefore, Vitran must manage its fixed and variable operating cost infrastructure to fluctuating volumes to realize appropriate margins while maintaining the quality service expected by its customers.

          The long-term mission of the Company is to build a North American transportation infrastructure with national and regional coverage in both Canada and the United States offering regional, interregional, national, and transborder LTL services. In conjunction with the LTL services, Vitran will also focus on logistics service offerings that are not only profitable as stand-alone business opportunities, but also increase the utilization of LTL freight service assets where appropriate.

EXECUTIVE SUMMARY

          In 2004 Vitran achieved its all-time best financial results. Notwithstanding the CN Railway strike in the first quarter and subsequent rail capacity issues that persisted through 2004 that affected its LTL segment and a 23% dilution of the Company’s outstanding common shares due the Company’s equity offering completed in the fourth quarter of 2003, records were achieved in:

          All three of the Company’s operating segments, LTL, Truckload and Logistics, contributed to the year-over-year improvements that were driven by an improved economy, company-specific initiatives and tighter capacity. In its fourth quarter, although a seasonally challenging quarter, Vitran posted its thirteenth consecutive quarter of year-over-year improved net income.

          The Company generated cash flows from operations of $21.6 million in 2004 of which $11.7 million was used to reduce long-term debt to a ten-year low of $14.5 million. During the fourth quarter, the Company improved its financial capacity to pursue opportunistic growth strategies by increasing the availability under its revolving credit facility to $35.0 million and extending the repayment of its term credit facility an additional thirteen months.

CONSOLIDATED RESULTS

          The following table summarizes the Consolidated Statements of Income for the three years ended December 31:

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Consolidated Results (continued)

Results of Operations 2004 Compared to 2003

          Revenue increased 12.9% to $374.6 million in 2004 from $331.8 million in 2003. Revenue in the LTL, Truckload and Logistics segments increased 12.2%, 9.3% and 23.9%, respectively, contributing to the consolidated improvement. Income from operations improved 28.1% to $19.0 million in 2004 from $14.8 million in 2003. All three segments, LTL, Truckload and Logistics, contributed to the improvement posting increases of 14.4%, 226.9% and 53.9%, respectively, to their income from operations. Accordingly, the Company’s consolidated operating ratio improved to 94.9% in 2004 from 95.5% in 2003. Detailed explanations for the improvements in revenue and income from operations are discussed below in “Segmented Results”.

          Selling, general and administrative expenses (“SG&A”) increased 6.5% to $31.3 million in 2004 from $29.4 million in 2003. The increase is partially attributable to the earlier adoption of new accounting standards for the expensing of employee stock options. The new standard was applied prospectively and in 2004 resulted in a $0.3 million non-cash employee stock option expense compared to nil in 2003. An increase in Sarbanes-Oxley 404 certification expenses added an additional $0.2 million in 2004 compared to 2003. The Company’s 2003 results include a foreign exchange gain of $0.4 million from the repatriation of capital from a foreign subsidiary and from the sale proceeds from the equity offering in the fourth quarter of 2003. The remaining component of the increase is primarily the result of increases to workers’ compensation and health care expenses in the United States.

          Depreciation expense declined 5.2% to $5.2 million in 2004 from $5.5 million in 2003. The Company changed the estimated useful life for its tractors from seven years to eight years and its trailers from ten years to twelve years to more accurately reflect the actual useful life of its equipment. This change in estimate was recorded prospectively and resulted in a $0.7 million reduction in depreciation expense for 2004 compared to 2003.

          Interest expense net of interest income was $0.1 million for 2004 compared to $1.3 million for 2003. This reduction was primarily due to the Company’s $33.1 million in short-term investments generating interest income of $0.7 million. As well, the Company repaid $11.7 million of its outstanding debt obligations and had a 50-basis- point reduction in interest rate spreads starting in February 2004.

          Income tax expense for 2004 was $4.0 million compared to $3.2 million in 2003. In the fourth quarter of 2004, the Company recorded a one-time deferred tax benefit of $0.7 million attributable to the reduction in the valuation allowance on loss carryforwards. The effective tax rate, excluding the one-time deferred tax benefit, was 24.7% for 2004 compared to 23.4% 2003. The increase in the effective tax rate can be attributed to an increase in statutory rates as well as a higher proportion of income being earned in higher tax jurisdictions.

          Net income improved by 44.6% to $14.9 million for 2004, compared to $10.3 million in 2003. This resulted in basic and diluted earnings per share of $1.22 and $1.17 for the current year, compared to $1.07 and $1.01 in 2003. The weighted average number of shares for 2004 was 12.3 million basic and 12.7 million diluted compared to 9.7 million basic and 10.3 million diluted shares in 2003. The weighted average number of shares for 2004 includes the Company’s 2.3 million share equity offering in the fourth quarter of 2003, and dilution resulting from a majority of outstanding stock options in the money in 2004.

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SEGMENTED RESULTS

LTL (Less-than-truckload)

          The table below provides summary information for the LTL segment for the three years ended December 31:

          In spite of the CN Railway strike in the first quarter and railway capacity issues that persisted through the remainder of 2004 that significantly reduced LTL revenue, the segment increased revenue by 12.2% to $303.0 million from $270.2 million in 2003. Revenue increases were recorded throughout the Canadian and U.S. infrastructure in all lines of business: regional, national, expedited and, most notably, a 29.3% increase in transborder revenue. A firm pricing environment within the LTL segment coupled with an improved economy led to increased shipments, tonnage and revenue per hundredweight of 4.47%, 5.79% and 5.99%, respectively. Consequently, income from operations improved 14.4% to $17.6 million in 2004 compared to $15.4 million in 2003.

          Despite the 14.4% improvement in income from operations, the 2004 LTL segment operating ratio of 94.2% was only slightly better than the 94.3% recorded in 2003. The aforementioned CN Railway strike in the first quarter of 2004, as well as railway capacity and railway operating challenges that persisted through the balance of the year, caused expenses in the national line of business to rise. This resulted in an increase in linehaul expenses and dock wages as a percentage of revenue compared to same period last year.

Logistics

          The table below provides summary information for the Logistics segment for the three years ended December 31:

          Revenue and income from operations for the Logistics segment were up 23.9% and 53.9% for 2004 compared to 2003. Revenue increases were attributable to improvements across all the Logistics business units with strong growth coming from the supply chain unit. Revenue growth outpaced income from operations increases, as the supply chain unit worked to fill the capacity of its new distribution facility opened at the end of the 2004 second quarter. Gross margin declined 1.5% in the second half of 2004 compared to 2003; however, once the capacity of the new facility is fully utilized in 2005, operating expenses as a percentage of revenue should decline and gross margin and operating ratio should improve.

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Truckload

          The table below provides summary information for the Truckload segment for the three years ended December 31:

          Revenue for the Truckload segment increased 9.3% to $36.1 million in 2004 from $33.0 million in 2003. With a strong pricing environment in the midwestern U.S. attributable to a tight driver market that reduced capacity in the truckload market place, the Company’s Truckload segment focused on better yielding freight in 2004. Consequently, revenue per total mile ⁽⁵⁾ has increased by 12.5% while empty miles have decreased by 19.9%. Total shipments for 2004 decreased 5.8% compared to 2003; however, this was offset by the 16.2% increase in revenue per shipment versus 2003. The aforementioned revenue quality development and yield progress increased gross margin to 15.5% in 2004, resulting in the operating ratio improving to 94.5% from 98.2% in 2003.

RESULTS OF OPERATIONS 2003 COMPARED TO 2002

Consolidated Results

          Revenue increased 9.3% to $331.8 million in 2003 from $303.6 million in 2002. Revenue in the LTL segment and Logistics segment increased 11.7% and 3.5%, respectively, contributing to the consolidated improvement in revenue, despite a lackluster economy for most of the year. Offsetting this progress was a 3.0% decline in revenue in the Truckload segment.

          Income from operations rose by 18.4% from $12.5 million in 2002 to $14.8 million in 2003 driven by the improvement in revenue as well as operating improvements. Ongoing cost controls and the reduction of discretionary spending also contributed to improved operating income. In 2003, Vitran recorded foreign exchange gains totaling $0.4 million from the repatriation of capital from a foreign subsidiary and from the sale of proceeds from the equity offering. The Company’s 2002 results include foreign exchange gains of $0.6 million offset by the one-time special retirement bonus of $0.6 million to the founding President and Chief Executive Officer. The net impact of the items discussed above was that the consolidated operating ratio for 2003 improved to 95.5% compared to 95.9% in 2002.

          Interest expense net of interest income was $1.3 million in 2003 compared to $3.3 million in 2002. The decline is attributable to the Company repaying $11.4 million of its outstanding debt obligations and a 50-basis-point reduction in interest rate spreads due to the Company meeting certain debt obligations in 2003. As well, the Company’s 8.95% fixed interest rate swap expired on January 26, 2003 and was not renewed. Accordingly, all of the Company’s borrowings were at floating interest rates based on LIBOR.

          Income tax expense in 2003 was $3.2 million compared to $2.3 million in 2002, reflecting higher profitability in 2003. The effective tax rate, however, was lower in 2003 than in 2002 resulting from declines in statutory rates as well as a higher proportion of income being earned in lower tax jurisdictions.

          Net income improved by 49.0% to $10.3 million in 2003 compared to $6.9 million in 2002. This resulted in record earnings of $1.07 per share basic and $1.01 per share diluted in 2003, compared to $0.72 per share basic and $0.71 per share diluted in 2002. The weighted average number of shares for 2003 was similar to 2002 at 9.7 million; however, the diluted number of shares increased to 10.3 million in 2003 compared to 9.8 million in 2002. The increase is primarily attributable to the significant increase in the market price of the Company stock compared to the average historical price of the Company’s stock options. As at December 31, 2003 all outstanding stock options were in the money.

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Segmented Results

LTL (Less-than-truckload)

          In spite of the continued lackluster performance of the North American economy, revenue at the LTL segment increased from $241.9 million in 2002 to $270.2 million in 2003, of which $13.4 million resulted from the strengthening Canadian dollar. Of particular note was the 30.3% growth in the LTL transborder activity during 2003. This is an important part of Vitran’s business because it provides the opportunity to add significant value to customers and, accordingly, is the Company’s highest margin business. The LTL segment’s operating ratio improved to 94.3% in 2003 from 94.6% in 2002. Improvements were demonstrated in both the Canadian LTL and US LTL business units. The continuing effect of fuel price pressures in 2003 was successfully offset by the Company’s ability to pass through fuel price increases to its customers.

          The Canadian LTL business unit achieved superior performance in 2003, improving both revenue and operating ratio year over year. Revenue increases were recorded in all four lines of business, being national, regional, expedited and, most notably, the transborder offering. Shipments, tonnage and revenue per hundredweight increased 7.4%, 6.7%, and 3.2%, respectively, largely as a result of market share gains. The stronger revenue and yield led to an improved operating ratio and offset increased costs generated by significant changes in the business unit’s major third party linehaul supplier.

          The US LTL business unit also surpassed its 2002 results and posted improvements in both revenue and operating ratio for 2003. In addition to terminal rationalization and linehaul optimization programs that yielded a 4.4% reduction in pick-up and delivery expenses, increases in shipments, tonnage and revenue per hundredweight of 1.0%, 2.0%, and 1.8%, respectively, bolstered income from operations for 2003. However, these achievements were partially offset by increases in insurance and workers’ compensation expenses in 2003.

Logistics

          Revenues for the Logistics segment were up 3.5% for 2003, and operating ratio improved to 96.2% in 2003 from 96.5% in 2002. Revenue increases at the Logistics business unit were attributable to the increased occupancy at the new 80,000 square foot distribution facility in Canada and the addition of a new five-year contract with a major Canadian shoe retailer. These results were tempered by a 37.7% reduction of revenue at the U.S. Freight Brokerage business unit. This reduction is the result of the program that was initiated in 2002 and completed in the third quarter of 2003 to eliminate customers providing inadequate profitability.

Truckload

          Revenue for the Truckload segment declined 3.0% to $33.0 million in 2003 from $34.0 million in 2002. While the Truckload segment successfully increased revenue per mile by 2.9% in 2003, overall volumes declined due to the sluggish mid-west manufacturing sector and the plant relocation of a significant customer. Consolidated shipments declined 8.4% in 2003, which had a negative impact on profitability, and the operating ratio increased to 98.2% in 2003 from 98.0% in 2002.

(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.

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GENERAL RISKS AND UNCERTAINTIES

          The Company is exposed to a number of general risks and uncertainties that could impact the results.

          The transportation industry is highly competitive on the basis of both price and service. The Company competes with regional, inter-regional and national LTL carriers, truckload carriers, third party logistics companies and, to a lesser extent, small package carriers, air freight carriers and railroads. The Company competes effectively in its markets by providing high quality and timely service at competitive prices.

          The Company’s business is sensitive to general economic conditions and seasonal fluctuations, although these factors are mitigated somewhat by the variable nature of many of the Company’s costs. Recessionary economic cycles and downturns in customer business cycles, as well as downturns in the principal regional economies where the Company’s operations are located may affect results of operations. In the trucking industry for a typical year, the second and third quarters usually have the highest business levels, while the first and fourth quarters generally have the lowest business levels. The fourth quarter holiday season and adverse weather conditions, generally experienced in the first quarter of the year, such as heavy snow and ice storms, have a negative impact on operating results. Accordingly revenue and profitability are generally lowest in the first and fourth quarters.

          Vitran is dependent on a major railroad for its national LTL service in Canada. Any reduction in service by the railroad is likely to increase costs for the Company and reduce the reliability, timeliness and overall attractiveness of rail-based services. For example, the railroad labor strike in the first quarter of 2004 and other service issues with the railroad have impacted the results of operations of the Company’s LTL segment.

          The Company’s exposure to credit risk is not significant as it is not dependent on any particular industry or customer. The Company’s single largest customer accounted for 2.3% of revenue in 2004.

          Labor represents Vitran’s most significant cost and key to service quality. The Company has a history of positive labor relations that will continue to be important to future success. The two unionized terminals in Canada, representing 5.2% of the Company’s labor force, is represented by the International Brotherhood of Teamsters and the Canadian Autoworkers Association. The collective bargaining agreements between the Company and its unionized employees expire on March 31, 2008 and on September 30, 2008, respectively.

          The Company is dependent on its ability to hire and retain qualified drivers including owner operators. The ground transportation industry as a whole has experienced an imbalance in the number of qualified drivers in 2004. The shortage has not affected the Company in 2004, but should an imbalance in the number of qualified drivers persist, Vitran may adjust is compensation package or operate with fewer drivers, all of which could impact profitability. Furthermore, the Company is dependent on certain key management personnel for the successful operation of the business. Loss of key personnel could harm Vitran’s operations and financial condition.

          The Company has exposure to foreign currency risk as fluctuations in the U.S. dollar against the Canadian dollar can impact the financial results of the Company. Management has designated the Company’s $14.4 million of U.S. denominated long-term debt as a hedge to the foreign currency exposure generated by the Company’s U.S. operations. The Company’s Canadian operations realize foreign exchange gains and losses on the U.S. dollar revenue generated against expenses denominated in Canadian dollars. Furthermore, the Company reports its results in U.S. dollars thereby exposing the results of the Company’s Canadian operations to foreign currency fluctuations.

          While diesel fuel expenses represent an important cost component to Vitran, the extensive use of owner/operators and the ability to share significant fuel increases in the form of a fuel surcharge with customers reduces this risk.

          The Company is subject to numerous laws and regulation by the DOT, Environmental Protection Agency (“EPA”), and various other federal, state, provincial and municipal authorities. New or more comprehensive laws and regulation including but not limited to fuel emission, driver hours-of-service, taxation or other mandated regulation could impact profitability.

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          Measures taken by the U.S. and Canadian governments to strengthen border security regulations could impact service levels. Vitran’s cross-border activity represented approximately 5.0% of the LTL segment revenue in 2004 and the Company has responded to the new requirements to ensure compliance and safety without jeopardizing the quality of service.

          The Company is exposed to interest rate risk at December 31, 2004 as its entire debt portfolio bears interest at floating rates. In the past, management has used fixed interest rate instruments to mitigate the exposure to fluctuations in interest rates and on an ongoing basis continues to evaluate the Company’s need to fix interest rates.

          The Company operates a highly capital intensive business. Vitran depends on operating leases, lines of credit, secured equipment financing and cash flow from operations to finance the purchase of tractors, trailing fleet, information technology hardware and terminals.

LIQUIDITY AND CAPITAL RESOURCES

          In 2004, the Company demonstrated improved cash flow, reducing interest-bearing debt while preserving the proceeds from its December 2003 equity offering. As well, the Company amended its existing credit agreement. Under the amended credit agreement, the available revolving credit facility was increased from Cdn $25.0 million (US$19.0 million) to $35.0 million, and the term facility was extended thirteen months to September 30, 2007.

          Cash flow from continuing operations before working capital changes for the year increased to $21.6 million in 2004 compared to $15.4 million in 2003 due primarily to the increase in net income. Non-cash working capital changes consumed $6.8 million primarily due to an increase in accounts receivable attributable to higher revenue in 2004. The increase was, however, mitigated by improved collections that resulted in 39.7 days sales outstanding for 2004 compared to 40.0 days for 2003.

          Interest-bearing debt decreased to $14.5 million at the end of 2004 from $26.2 million at the end of 2003. The interest-bearing debt is comprised of $14.4 million drawn under the term bank credit facility and a capital lease of $0.1 million. During the year, the Company repaid $11.7 million of interest-bearing debt. At December 31, 2004, the Company had $30.6 million, of unused credit facilities, net of outstanding letters of credit.

          At December 31, 2004, the Company increased its available capital on the balance sheet by $1.4 million to $40.8 million, consisting of $7.4 million of cash on hand as well as $33.1 million of highly rated marketable securities. These investments, consisting of commercial paper and preferred shares, provide certain tax advantages and are highly liquid at the option of the Company.

          In December 2003, the Company issued and sold, in an underwritten public offering, 2,300,000 common shares in consideration for net proceeds of $29.4 million. It is the Company’s intention to use the funds for possible future acquisitions, capital expenditures or to repay amounts outstanding under the Company’s credit facilities.

          Capital expenditures amounted to $6.2 million for 2004 and were funded out of operating cash flows of the Company. The majority of capital expenditures in 2004 were for the acquisition of tractors and trailing fleet to maintain the quality of the Company’s rolling stock. The table below sets forth the Company’s capital expenditures for the years ended December 31, 2004, 2003 and 2002.

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          Management estimates that cash capital expenditures for 2005 will be between $12.0 million and $16.0 million, the majority of which will be for tractors and trailing equipment. The Company also anticipates entering into operating leases to fund the acquisition of equipment with a capital cost of between $3.0 million and $5.0 million.

          The Company has contractual obligations that include long-term debt consisting of a term debt facility, capital leases for operating equipment in the Logistics segment and off-balance sheet operating leases primarily consisting of tractor, trailing fleet and real estate leases. Operating leases form an integral part of the Company’s financial structure and operating methodology as they provide an alternative cost effective and flexible form of financing. The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2004:

          In addition to the above noted contractual obligations, the Company, as at December 31, 2004, utilized the revolving credit facility for standby letters of credit of $4.4 million. The letters of credit are used as collateral for self-insured retention of insurance claims.

          A significant decrease in demand for our services could limit the Company’s ability to generate cash flow and affect its profitability. The Company’s credit agreement contains certain financial maintenance tests that require the Company to achieve stated levels of financial performance, which, if not achieved, could cause an acceleration of the payment schedules. Management does not anticipate a significant decline in business levels or financial performance and expects that existing working capital, together with available revolving facilities, is sufficient to fund operating and capital requirements in 2005 as well as service the contractual obligations.

OUTLOOK

          Fiscal 2004 was another rewarding year for the Company. The LTL segment achieved a double digit transborder growth rate and both the Canadian LTL and US LTL business units expanded revenue and yield. The Logistics and Truckload segments posted significant improvements in 2004 compared to 2003 by increasing their customer base and leveraging margins with existing customers. However, despite evaluating a number of LTL acquisition targets in 2004, the Company did not expand into a new regional market. Also, despite management efforts, the US LTL business unit did not reduce its claims costs to desired levels in 2004.

          For 2005, Vitran’s objective is still to acquire or develop its LTL operation in a new regional market. Management will continue to evaluate LTL expansion opportunities with a view to ensuring the appropriate fit to its existing LTL network. At December 31, 2004, the Company had $40.5 million of cash and marketable securities, of which $29.4 million was raised in the December 2003 public offering. In addition, the Company has increased its financial capacity with a new $35.0 million revolving credit facility.

          Management intends to continue its focus on the LTL transborder business with a view to maintaining above average year-over-year revenue growth. The Canadian LTL business unit will endeavor to improve third party linehaul efficiency activities and continue to evaluate the need to change certain linehaul activities to Company-controlled rolling stock. The US LTL business unit plans to execute its sales strategy that will increase revenue and density throughout the operation without negatively impacting yield and on-time delivery performance. Furthermore, focus will be on linehaul efficiency and dock operations with the objective of further reducing claims expense in 2005.

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          The Logistics segment will continue to concentrate on gaining new profitable business that also utilizes the services of the Company’s LTL infrastructure. In light of an expected tight driver market in 2005 the Truckload segment will focus on driver retention and margin expansion.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

          The Company prepares its financial statements in accordance with generally accepted accounting principles (“GAAP”) in Canada together with a reconciliation to United States GAAP, as disclosed in Note 14 to the Consolidated Financial Statements.

          The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant accounting policies and methods used in preparation of the financial statements are described in Note 1 to the Consolidated Financial Statements. The Company evaluates its estimates and assumptions on a regular basis, based on historical experience and other relevant factors. Significant estimates are used in determining, but not limited to, the allowance for doubtful accounts, income tax valuation allowances and the fair value of reporting units for purposes of goodwill impairment tests. Actual results could differ materially from those estimates and assumptions.

Revenue Recognition

          The Company’s LTL and Truckload business units and Freight Brokerage operations recognize revenue and direct shipment costs upon the delivery of the related freight. Revenue for the Logistics operations is recognized as the management services are provided.

Allowance for Doubtful Accounts

          The Company records an allowance for doubtful accounts related to accounts receivable that may potentially be impaired. The allowance is based on the Company’s knowledge of the financial condition of its customers, the aging of the receivables, current business environment, customer and industry concentrations, and historical experience. A change to these factors could impact the estimated allowance and the provision for bad debts recorded in selling, general and administrative expenses.

Income Tax Valuation Allowance

          The Company records a valuation allowance against future income tax assets generated when management believes it is more likely than not that some portion or all of the future income tax assets will not be realized. Management considers such factors as projected future taxable income and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense.

Claims and Insurance Accruals

          Claims and insurance accruals reflect the estimated ultimate total cost of claims, including amounts for claims incurred but not reported, for cargo loss and damage, bodily injury and property damage, workers’ compensation, long-term disability and group health. In Canada the Company has $42,000 (Cdn$50,000) and in the United States $350,000 self-insurance retention (“SIR”) per incident for auto liability, casualty and cargo claims. In the United States the Company has an SIR of $350,000 per incident for workers’ compensation and $250,000 per incident for employee medical. In establishing these accrued expenses, management evaluates and monitors each claim individually, and uses factors such as historical experience, known trends and third party estimates to determine the appropriate reserves for potential liability. Changes in severity of previously reported claims, significant changes in the medical costs and legislative changes affecting the administration of the plans could significantly impact the determination of appropriate reserves in future periods.

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Goodwill

          The Company performs its goodwill impairment test annually and, more frequently, if events or changes in circumstances indicate that an impairment loss may have incurred. Impairment is tested at the reporting unit level by comparing the reporting unit’s carrying amount to its implied fair value. The methodology used to measure fair value is the discounted cash flow method. The discounted cash flow method requires certain assumptions for growth in earnings before interest, taxes and depreciation, future tax rates, capital re-investment, fair value of the assets and liabilities and discount rate. The discount rate is based on the Company’s estimated weighted average cost of capital. Actual recovery of goodwill could differ from these assumptions based on market conditions and other factors. In the event goodwill is determined to be impaired a charge to earnings would be required. As at September 30, 2004, Vitran completed its annual goodwill impairment test and concluded that there was no impairment.

CHANGES IN ACCOUNTING POLICY

Impairment of Long-lived Assets

          The CICA Accounting Standard Board has issued CICA Handbook Section 3063, Impairment of Long-Lived Assets. This section establishes standards for recognizing, measuring and disclosing impairment of long-lived assets held for use. An impairment is recognized when the carrying amount of an asset to be held and used exceeds the sum of undiscounted cash flows expected from its use and disposal. A long-lived asset should be tested when events or circumstances indicate that its carrying amount may not be recoverable. The Company adopted Section 3063 on January 1, 2004, and during 2004 there have not been any events or circumstances to indicate that there may be an impairment of long-lived assets.

Asset Retirement Obligations

          The CICA Accounting Standards has issued CICA Handbook Section 3110, Asset Retirement Obligations. The section establishes standards for recognizing, measuring and disclosing certain legal obligations with respect to the retirement of long-lived tangible assets that result from the acquisition, construction and development of the assets. The requirements of Section 3110 will not have a material effect on the Company’s Consolidated Financial Statements.

Revenue Recognition

          The Canadian Emerging Issues Committee (“EIC”) has issued EIC 141, Revenue Recognition, and EIC 142, Revenue Arrangements with Multiple Deliverables. These recommendations address revenue recognition principles on delivering services and also when and how an arrangement involving multiple deliverables should be accounted for. The Company has evaluated and adopted these recommendations and determined the recommendations will not have a material effect on the Company’s Consolidated Financial Statements.

Hedging Relationships

          The Accounting Standards Board of the CICA issued Accounting Guideline 13, Hedging Relationships. The guideline establishes criteria for derivatives to qualify for hedge accounting. A derivative will qualify as a hedge if the hedging relationship is designated; certain documentation is completed at inception and it remains effective thRough the life of the hedge. The Company has adopted the guideline and determined the guideline will not have a material effect on the Company’s Consolidated Financial Statements.

Guarantees

          The Accounting Standards Board of the CICA issued Accounting Guideline 14, Disclosure of Guarantees. The guideline establishes disclosure requirements for certain guarantees. The Company has adopted the guideline and made the required disclosures in the Company’s Consolidated Financial Statements.

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Variable Interest Entities

          The Accounting Standards Board of the CICA issued Accounting Guideline 15, Variable Interest Entities. The guideline establishes requirements for the consolidation of variable interest entities (“VIE”) into the consolidated financial statements of a company. The application of the rules to specific situations is complex and the interpretation of the rules is evolving. The Company currently accounts for its subsidiaries in accordance with the Company’s principles of consolidation. The Company has evaluated and adopted the guideline and determined the guideline will not have a material effect on the Company’s Consolidated Financial Statements.

RELATED PARTIES

     In 2003, the Company leased a terminal from a former director at market rates. Lease expense for this terminal amounted to $76,800 in 2003.

ITEM 7a— QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE SENSITIVITY

          The Company is exposed to the impact of interest rate changes. The Company’s exposure to changes in interest rates is limited to borrowings under the revolving credit facility and the term bank facility that have variable interest rates tied to the LIBOR rate. The Company did not have any borrowings under the revolving credit facility in 2004. The term bank credit facility of $14.4 million had a weighted average annual interest rate in borrowings of 2.72% in 2004. We estimate that the fair value of the term credit facility approximates the carrying value.

          The Company’s investment of $33.1 million in marketable securities is invested in highly rated treasury bills, investment grade notes and investment grade commercial paper. A portion of the marketable securities is also invested in highly rated preferred shares. The Company’s investment realized average returns of 2.4% in 2004. The Company is exposed to interest rate changes and market fluctuations in prices of preferred shares.

          The Company is exposed to foreign currency risk as fluctuations in the United States dollar against the Canadian dollar can impact the financial results of the Company. The Company’s Canadian operations realize foreign currency exchange gains and losses on the United States dollar denominated revenue generated against Canadian dollar denominated expenses. Furthermore, the Company reports its results in United States dollars thereby exposing the results of the Company’s Canadian operations to foreign currency fluctuations. In addition, the Company’s United States dollar debt of $14.4 million is designated as a hedge of the investment in the United States’ self-sustaining foreign operations.

          In addition to the information disclosed above, further information required by Item 7A of Form 10-K appears in Item 7 of this Annual Report on Form 10-K under the headings “Liquidity and Capital Resources” and “General Risks and Uncertainties”.

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ITEM 8— FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          Consolidated Balance Sheets as at December 31, 2004, and 2003 and the Consolidated Statements of Income, Retained Earnings and Cash Flow for the years ended December 31, 2004, 2003, and 2002, reported on by KPMG LLP, Chartered Accountants. These statements are prepared in accordance with GAAP in Canada and in the United States. A reconciliation of the differences between Canadian and United States GAAP is included on Note 14 to the Consolidated Financial Statements.

MANAGEMENT RESPONSIBILITY OVER FINANCIAL REPORTING

          The Consolidated Financial Statements of the Company are the responsibility of management and have been prepared in accordance with GAAP and, where appropriate, reflect estimates based on management’s judgement. In addition, all other information contained in the annual report on form 10-K is also the responsibility of management.

          The Company maintains systems of internal accounting and administrative controls designed to provide reasonable assurance that the financial information provided is accurate and complete and that all assets are properly safeguarded.

          The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the Consolidated Financial Statements. The Board appoints the Audit Committee, comprised of non-management directors, which meets with management and KPMG LLP, the external auditors, at least once a year to review, among other things, accounting policies, annual financial statements, the result of the external audit examination, and the management discussion and analysis included in the annual report on form 10-K. The Audit Committee reports it finding to the Board of Directors so that the Board may properly approve the financial statements. Additional commentary on corporate governance appears in the Company’s proxy statement for the 2005 Annual Meeting of its Shareholders, reference to which is hereby made, and the information therein is incorporated herein by reference

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INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
AUDITORS’ REPORT TO THE SHAREHOLDERS

We have audited the consolidated balance sheets of Vitran Corporation Inc. as at December 31, 2004 and 2003 and the consolidated statements of income, retained earnings and cash flows for each of the years in the three-year period ended December 31, 2004. Our audit also included the financial statement schedule listed in the Index under Part IV, Item 15(a)2. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, these consolidated financial statements and the financial statement schedule referred to above present fairly, in all material respects, the financial position of the Company as at December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2004 in accordance with Canadian generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material aspects, the information set forth therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Vitran Corporation Inc.’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 7, 2005 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

/s/ KPMG llp

Toronto, Canada
February 7, 2005

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Consolidated Balance Sheets
(Amounts in thousands of United States dollars)

December 31, 2004 and 2003

See accompanying notes to consolidated financial statements.

On behalf of the Board:

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Consolidated Statements of Income
(Amounts in thousands of United States dollars, except per share amounts)

Years ended December 31, 2004, 2003 and 2002

Diluted earnings per share excludes the effect of “out of the money” options, 315,000 in 2004 (2003 - - nil; 2002 - 464,000).

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Retained Earnings
(Amounts in thousands of United States dollars, except per share amounts)

Years ended December 31, 2004, 2003 and 2002

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows
(Amounts in thousands of United States dollars)

Years ended December 31, 2004, 2003 and 2002