e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

FOR THE QUARTER ENDED JUNE 30, 2006


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:

VITRAN CORPORATION INC.


Ontario, Canada		(I.R.S. Employer
(State of incorporation)		Identification No.)

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

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

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. Yes þ No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Exchange Act).


Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


		Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

The number of shares of common stock outstanding at July 19, 2006 was 12,744,936.

Part I. Financial Information

Item 1: Financial Statements

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

(In thousands of United States dollars except for per share amounts)


	Three months			Three months			Six months			Six months
	Ended			Ended			Ended			Ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
	(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)

Revenue	$	123,641		$	105,050		$	238,768		$	198,991
Operating expenses		101,307			86,742			198,428			166,886
Selling, general and administrative expenses		11,737			9,795			22,480			18,612
Other income		(40	)		(17	)		(156	)		(27	)
Depreciation and amortization expense		2,509			1,517			4,916			2,848

Total operating expenses		115,513			98,037			225,668			188,319

Income from operations before undernoted		8,128			7,013			13,100			10,672
Interest expense, net		171			86			347			38

Income from operations before income taxes		7,957			6,927			12,753			10,634
Income taxes		2,181			2,131			3,354			3,084

Net income before cumulative effect of change in accounting principle		5,776			4,796			9,399			7,550

Cumulative effect of a change in accounting principle (note 8)		—			—			141			—

Net income	$	5,776		$	4,796		$	9,540		$	7,550

Earnings per share:
Basic — net income before cumulative effect of a change in accounting principle	$	0.45		$	0.39		$	0.74		$	0.61
Basic — cumulative effect of a change in accounting principle		—			—			0.01			—

Basic — net income	$	0.45		$	0.39		$	0.75		$	0.61

Diluted — net income before cumulative effect of a change in accounting principle		0.45			0.38			0.73			0.59
Diluted — cumulative effect of a change in accounting principle		—			—			0.01			—

Diluted — net income	$	0.45		$	0.38		$	0.74		$	0.59


Weighted average number of shares:
Basic		12,732,644			12,447,300			12,692,582			12,429,732
Diluted		12,964,761			12,778,285			12,950,673			12,767,134

See accompanying notes to consolidated financial statements

VITRAN CORPORATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars)


	June 30, 2006		Dec. 31, 2005		Dec. 31, 2005
					(CDN GAAP
					as previously
	(US GAAP)		(US GAAP)		reported)
	(Unaudited)		(Audited)		(Audited)

Assets
Current assets:
Cash and cash equivalents	$	13,317	$	14,592	$	14,592
Accounts receivable		54,420		46,587		46,587
Inventory, deposits, prepaid expenses		7,148		8,396		8,396
Future income taxes		2,668		1,442		1,442

		77,553		71,017		71,017
Capital assets		75,761		66,807		66,807
Intangible assets (note 6)		2,853		2,456		2,456
Goodwill (note 7)		62,917		61,448		61,448

	$	219,084	$	201,728	$	201,728

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	49,988	$	41,362	$	41,362
Income and other taxes payable		1,222		1,124		1,124
Current portion of long-term debt		2,161		5,845		5,845

		53,371		48,331		48,331
Long-term debt		7,401		8,588		8,588
Future income taxes		6,805		5,007		5,007

Shareholders’ equity:
Common shares, no par value, unlimited authorized, 12,744,936 and 12,647,636 issued and outstanding at June 30, 2006 and December 31, 2005, respectively		64,130		63,604		63,604
Additional paid-in capital		1,177		956		956
Retained earnings		81,093		71,553		72,310
Cumulative translation adjustment		—		—		2,932
Accumulated other comprehensive income		5,107		3,689		—

		151,507		139,802		139,802

	$	219,084	$	201,728	$	201,728

Contingent liabilities (note 11)

See accompanying notes to consolidated financial statements.

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited, US GAAP)


										Accumulated
					Additional					other		Total
	Common shares				Paid-in			Retained		comprehensive		Shareholders’
	Shares		Amount		Capital			Earnings		income		Equity

December 31, 2005		12,647,636	$	63,604	$	956		$	71,553	$	3,689	$	139,802
Shares issued upon exercise of employee stock options		97,300		526		(47	)					$	479
Net income									9,540			$	9,540
Other comprehensive income											1,418	$	1,418
Share based compensation						409						$	409
Cumulative effect of a change in accounting principle						(141	)					$	(141	)

June 30, 2006		12,744,936	$	64,130	$	1,177		$	81,093	$	5,107	$	151,507


												Accumulated
							Additional					other			Total
	Common shares						Paid-in		Retained			comprehensive			Shareholders’
	Shares			Amount			Capital		Earnings			income			Equity

December 31, 2004		12,419,678		$	60,798		$	323	$	54,215		$	3,849		$	119,185
Shares issued upon exercise of employee stock options		13,500			42										$	42
Shares repurchased for cancellation		(55,800	)		(273	)				(558	)				$	(831	)
Net income										7,550					$	7,550
Other comprehensive income													(1,656	)	$	(1,656	)
Share based compensation								293							$	293
Shares issued upon acquisition of subsidiary		202,458			2,800										$	2,800

June 30, 2005		12,579,836		$	63,367		$	616	$	61,207		$	2,193		$	127,383

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands of United States dollars)


	Three months			Three months			Six months			Six months
	Ended			Ended			Ended			Ended
	June 30, 2006			June 30, 2005			June 30, 2006			June 30, 2005
	(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)

Cash provided by (used in):

Net income	$	5,776		$	4,796		$	9,540		$	7,550
Items not involving cash from operations
Depreciation and amortization expense		2,509			1,517			4,916			2,848
Future income taxes		195			82			572			647
Stock based compensation expense		219			164			409			293
Gain on sale of capital assets		(40	)		(17	)		(156	)		(27	)
Cumulative effect of a change in accounting principle		—			—			(141	)		—
Change in non-cash working capital components		(1,509	)		254			446			(1,995	)

		7,150			6,796			15,586			9,316
Investments:
Purchase of capital assets		(9,651	)		(623	)		(11,529	)		(6,845	)
Proceeds on sale of capital assets		1,384			24			1,554			38
Marketable securities		—			27,412			—			28,781
Acquisition of subsidiary		—			(26,499	)		—			(26,499	)
Acquisition of business assets		—			—			(2,251	)		—

		(8,267	)		314			(12,226	)		(4,525	)
Financing:
Repayment of revolving credit facility		—			—			(2,985	)		—
Repayment of long-term debt		(631	)		(570	)		(1,952	)		(1,140	)
Issue of common shares upon exercise of stock options		158			25			479			42
Repurchase of common shares		—			(164	)		—			(856	)

		(473	)		(709	)		(4,458	)		(1,954	)
Effect of translation adjustment on cash		(63	)		(630	)		(177	)		(676	)

Increase (decrease) in cash position		(1,653	)		5,771			(1,275	)		2,161
Cash position, beginning of period		14,970			3,765			14,592			7,375

Cash position, end of period	$	13,317		$	9,536		$	13,317		$	9,536

Change in non-cash working capital components:
Accounts receivable	$	(4,083	)	$	(386	)	$	(6,429	)	$	(3,747	)
Inventory, deposits and prepaid expenses		1,438			(1,779	)		1,626			(1,455	)
Income and other taxes payable		510			349			98			(412	)
Accounts payable and accrued liabilities		626			2,070			5,151			3,619

	$	(1,509	)	$	254		$	446		$	(1,995	)

See accompanying notes to consolidated financial statements.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

(In thousands of United States dollars except for per share amounts)

1. Accounting Policies

The interim consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles with a reconciliation to Canadian generally accepted accounting principles in note 13. 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. The interim consolidated financial statements do not contain all the disclosures required by United States and Canadian generally accepted accounting principles. The interim consolidated financial statements have been prepared in accordance with instructions to Quarterly Report on Form 10-Q. The interim consolidated financial statements should be read in conjunction with the Company’s 2005 Annual Report and the 2005 Annual Report on Form 10-K with emphasis on note 16 which describes the differences between United States and Canadian GAAP. The interim consolidated financial statements follow the same accounting principles and methods of application as the most recent annual consolidated financial statements as there are no material differences in the Company’s accounting policies between United States and Canadian GAAP at June 30, 2006 other than as denoted in note 13.

These unaudited consolidated interim financial statements reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the results of the interim period presented. Operating results for the quarter ended June 30, 2006 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2006.

All amounts in these consolidated interim financial statements are expressed in United States dollars, unless otherwise stated.

2. New Accounting Pronouncements

SFAS 156 amends SFAS Statement No.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 56 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 155 amends SFAS 133, Accounting for Derivatives and Hedging Activities, and No. 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 earnings. SFAS 155 will be adopted January 1, 2007 as required by the statement. The requirements of SFAS 155 are not expected to have an effect on the Company’s consolidated financial statements.

3. Foreign Currency Translation

The United States dollar is the functional currency of the Company’s operations in the United States. The Canadian dollar is the functional currency of the Company’s Canadian operations.

Each operation translates foreign currency denominated transactions into its functional currency using the rate of exchange in effect at the date of the transaction.

Monetary assets and liabilities denominated in foreign currency are translated into the functional currency of the operation using the period-end rate of exchange giving rise to a gain or loss that 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 period-end rate of exchange and all revenue and expense items are translated at the average rate of exchange for the period. The resulting translation adjustment is recorded as a separate component of shareholders equity. United States dollar debt of $9.5 million is designated as a hedge of the investment in the United States dollar functional operations.

4. Deferred Share Units

In addition to the Directors DSU plan disclosed in the Company’s 2005 Annual Report on Form 10-K, 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 and $20,000 per annum. The Company records compensation expense and the corresponding liability each period based on changes in the market price of common shares.

5. Acquisition

On 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 was an asset purchase with an aggregate purchase price of $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 following table summarizes the final estimated fair value of the assets acquired and selected liabilities assumed at the date of the acquisition.


Current assets	$	1,776
Capital assets		2,127
Identifiable intangible assets:
Covenants not-to-compete (3-year useful life)		45
Customer relationships (8-year useful life)		540
Goodwill		1,164

		5,652
Current liabilities		3,155

Total purchase price	$	2,497

The following pro forma financial information reflects the results of operations of Vitran as if the acquisition of SWE had taken place on January 1, 2005. The pro forma financial information also reflects the results of operations of Chris Truck Line (“CTL”) as if the acquisition had taken place on January 1, 2005. The CTL acquisition took place on May 31, 2005 and was previously disclosed in Vitran’s 2005 Annual Report on Form 10-K. The pro forma financial information is not necessarily indicative of the results as it would have been if the acquisition had been effected on the assumed date and is not necessarily indicative of future results:


	Three months		Six months
	Ended		Ended
	June 30, 2005		June 30, 2005

Pro forma revenue	$	114,118	$	219,284
Pro forma net income	$	5,529	$	9,036
Pro forma diluted earnings per share	$	0.43	$	0.70

6. Intangible Assets


	June 30, 2006			December 31, 2005

Customer relationship	$	2,840		$	2,300
Covenants not-to compete		285			240

		3,125			2,540
Accumulated amortization		(272	)		(84	)


	$	2,853		$	2,456

7. Goodwill


	Goodwill

Balance at December 31, 2005	$	61,448
Foreign exchange on CDN$ denominated goodwill		305
Acquisition of business assets		1,164


Balance at June 30, 2006	$	62,917

8. Stock Option Plan

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 and its affiliates 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 ten 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, stock-based compensation to employees was 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 Payment”, 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 provision of SFAS 123(R).

The Company recorded in income $0.1 million related to the cumulative effect of a 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. Compensation expense recognized under SFAS 123(R) for the six months ended June 30, 2006 was $0.4 million (June 30, 2005 — $0.3 million).

The fair value of each stock option granted was estimated using the Black-Scholes fair value option-pricing model with the following assumptions:


	2006

Options granted		102,500
Risk-free interest rate		4.19	%
Dividend yield		—
Volatility factor of the future expected market price of the Company’s common shares		33.22	%
Expected life of the options	6 years

The weighted average estimated fair value at the date of grant for the options granted in 2006 was $7.69 per share.

9. Comprehensive income (loss)

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.

The following are the components of other comprehensive income, net of income taxes:


	Three months		Three months			Six months		Six months
	Ended		Ended			Ended		Ended
	June 30, 2006		June 30, 2005			June 30, 2006		June 30, 2005

Net income	$	5,776	$	4,796		$	9,540	$	7,550
Translation adjustment (1)		1,779		(1,256	)		1,418		(1,656	)

Other comprehensive income	$	1,779	$	(1,256	)	$	1,418	$	(1,656	)
Comprehensive net income	$	7,555	$	3,540		$	10,958	$	5,894


(1)		The cumulative translation adjustment represents the unrealized translation gains and losses from the translation of the Canadian dollar functional currency to the United States dollar reporting currency.

10. Computation of Earnings per Share


	Three months		Three months		Six months		Six months
	Ended		Ended		Ended		Ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005

Numerator:
Net income	$	5,776	$	4,796	$	9,540	$	7,550

Denominator:
Basic weighted-average shares outstanding		12,732,644		12,447,300		12,692,582		12,429,732
Dilutive stock options		232,117		330,985		258,091		337,402
Dilutive weighted-average shares outstanding		12,964,761		12,778,285		12,950,673		12,767,134


Basic earnings per share before cumulative effect of a change in accounting principle	$	0.45	$	0.39	$	0.74	$	0.61
Effect of a change in accounting principle	$	—	$	—	$	0.01	$	—
Basic earnings per share	$	0.45	$	0.39	$	0.75	$	0.61

Diluted earnings per share before cumulative effect of a change in accounting principle	$	0.45	$	0.38	$	0.73	$	0.59
Effect of a change in accounting principle	$	—	$	—	$	0.01	$	—
Diluted earnings per share	$	0.45	$	0.38	$	0.74	$	0.59

Diluted earnings per share exclude the effect of 465,900 options.

11. 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.

12. Segmented Information


Three months ended	Less-than-										Corporate Office			Consolidated
June 30, 2006	truckload			Logistics		Truckload		Total			and Other			Totals

Revenue	$	105,213		$	10,251	$	8,177	$	123,641		$	—		$	123,641
Operating, selling, general and administrative expenses		95,023			9,509		7,446		111,978			1,066			113,044
Other income		(43	)		—		3		(40	)		—			(40	)
Depreciation and amortization		2,194			104		198		2,496			13			2,509

Income (loss) from operations	$	8,039		$	638	$	530	$	9,207		$	(1,079	)		8,128
Interest expense, net															171
Income taxes															2,181

Net income														$	5,776


Three months ended	Less-than-											Corporate Office			Consolidated
June 30, 2005	truckload			Logistics		Truckload			Total			and Other			Totals

Revenue	$	86,429		$	9,615	$	9,006		$	105,050		$	—		$	105,050
Operating, selling, general and administrative expenses		78,527			8,910		8,170			95,607			930			96,537
Other income		(2	)		—		(15	)		(17	)		—			(17	)
Depreciation		1,279			90		135			1,504			13			1,517

Income (loss) from operations	$	6,625		$	615	$	716		$	7,956		$	(943	)		7,013
Interest income, net																86
Income taxes																2,131

Net income															$	4,796

12. Segmented Information (continued)


Six months ended	Less-than-										Corporate Office			Consolidated
June 30, 2006	truckload			Logistics		Truckload		Total			and Other			Totals

Revenue	$	202,636		$	19,663	$	16,469	$	238,768		$	—		$	238,768
Operating, selling, general and administrative expenses		185,370			18,323		15,140		218,833			2,075			220,908
Other income		(159	)		—		3		(156	)		—			(156	)
Depreciation and amortization		4,318			188		386		4,892			24			4,916

Income (loss) from operations	$	13,107		$	1,152	$	940	$	15,199		$	(2,099	)		13,100
Interest expense, net															347
Income taxes															3,354

Net income before cumulative effect of a change in accounting principle															9,399

Effect of change in accounting principle															141

Net income														$	9,540


Six months ended	Less-than-											Corporate Office			Consolidated
June 30, 2005	truckload			Logistics		Truckload			Total			and Other			Totals

Revenue	$	162,533		$	18,492	$	17,966		$	198,991		$	—		$	198,991
Operating, selling, general and administrative expenses		150,297			17,329		16,246			183,872			1,626			185,498
Other income		(12	)		—		(15	)		(27	)		—			(27	)
Depreciation		2,361			183		277			2,821			27			2,848

Income (loss) from operations	$	9,887		$	980	$	1,458		$	12,325		$	(1,653	)		10,672
Interest income, net																38
Income taxes																3,084

Net income															$	7,550

13. 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 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 and Shareholders’ equity reconciled to Canadian GAAP is as follows:


	Net Income				Net income
	Three months ended				Six months ended					Shareholders’ equity
	2006		2005		2006			2005		2006			2005

Balance as at June 30 based on United States GAAP	$	5,776	$	4,796	$	9,540		$	7,550	$	151,507		$	127,383
Effect of a change in accounting principle (1)		—		—		(141	)		—		(141	)		—
Foreign exchange adjustment (2)		—		—		—			—		858			858
Unrealized foreign exchange loss on derivative instrument		—		—		—			—		(101	)		(101	)
Accumulated other comprehensive income adjustment (3)		—		—		—			—		(757	)		(757	)


Balance as at June 30 based on Canadian GAAP	$	5,776	$	4,796	$	9,399		$	7,550	$	151,366		$	127,383

(1)		The adoption of SFAS 123(R) – Share Based Payments as described in note 8 only applies to United States GAAP. Therefore, the effect of a change in accounting principle does not impact Canadian GAAP net income.

(2)		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 $0.9 million with a corresponding decrease to the cumulative translation adjustment.

(3)		The concept of Comprehensive Income is not currently a requirement under Canadian GAAP. The CICA has issued a new accounting standard “Comprehensive Income” which the Company will adopt effective January 1, 2007.

		Earnings per share


	Three months		Three months		Six months		Six months
	Ended		Ended		Ended		Ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005

Earnings per share under Canadian GAAP
Basic	$	0.45	$	0.39	$	0.74	$	0.61
Diluted	$	0.45	$	0.38	$	0.73	$	0.59


	Three months		Three months		Six months		Six months
	Ended		Ended		Ended		Ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005

Weighted average number of shares:
Basic		12,732,644		12,447,300		12,692,582		12,429,732
Potential exercise of stock options		232,117		330,985		258,091		337,402
Diluted		12,964,761		12,778,285		12,950,673		12,767,134

(b)		Stock-based compensation

		Pro forma stock option disclosure:

		Effective January 1, 2006 the Company adopted SFAS 123(R) as described in Note 7. 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 earnings per share disclosure for stock option grants during 2002:


	Three months		Three months		Six months		Six months
	Ended		Ended		Ended		Ended
	June 30, 2006		June 30, 2005		June 30, 2006		June 30, 2005

Net income, as reported under Canadian GAAP	$	5,776	$	4,796	$	9,399	$	7,550
Pro forma net income	$	5,764	$	4,785	$	9,376	$	7,528
Pro forma basic earnings per share	$	0.45	$	0.38	$	0.74	$	0.61
Pro forma diluted earnings per share	$	0.44	$	0.37	$	0.72	$	0.59

14. Comparative figures

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted in the current year.

Item 2. Management’s Discussion and Analysis of Results of Operation

This MD&A contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws. 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 variations on these words or comparable terminology. 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.

This 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 within the LTL operation;

	•		the Company’s objective to achieve profitable revenue growth;

	•		the Company’s intention to improve results from operating efficiencies in the LTL segment;

	•		the Company’s intention to develop profitable accounts in the Logistics segment;

	•		the Company’s objective for sequential quarterly improvement with the Truckload segment ;

	•		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; and

	•		the Company’s intention to realize contributions from LTL cross-selling initiatives.

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 those projected in the forward-looking statements. Factors that may cause such differences include, but are not limited to technological change, increases in fuel costs, regulatory change, the general health of the economy, seasonal fluctuations, unanticipated changes in railroad capacities, exposure to credit risks, changes in labour relations and competitive factors. More detailed information about these and other factors is included in the annual MD&A on Form 10K under the heading “General Risks and Uncertainties.” 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.

OVERVIEW

The second quarter of 2006 was a record quarter for Vitran and the nineteenth consecutive quarter-over-quarter of improved net income. Vitran posted all-time quarterly bests in revenue of $123.6 million and per share earnings of $0.45 diluted. Net income improved 20.4% for the 2006 second quarter compared to the same period a year ago. The LTL segment posted the most noteworthy increase in income from operations of 21.3% for the quarter. For the 2006 six-month period revenue, income from operations and net income exceeded the 2005 six-month period 20.0%, 22.8% and 26.4%, respectively.

In addition on January 3, 2006, the Company purchased all the assets and selected liabilities of Sierra West Express Inc. (“SWE”), a regional LTL carrier operating in three states in the Western U.S. The acquisition further expanded Vitran’s existing LTL operating footprint to California, Nevada, and Arizona. The 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.

CONSOLIDATED RESULTS

The following table summarizes the Consolidated Statements of Income for the periods ended:


	For the three months ended June 30									For the six months ended June 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005

Revenue	$	123,641		$	105,050			17.7	%	$	238,768		$	198,991			20.0	%
Operating expenses		101,307			86,742			16.8	%		198,428			166,886			18.9	%
SG&A expenses		11,737			9,795			19.8	%		22,480			18,612			20.8	%
Other expenses (income)		(40	)		(17	)		135.3	%		(156	)		(27	)		477.8	%
Depreciation and amortization		2,509			1,517			65.4	%		4,916			2,848			72.6	%
Income from operations		8,128			7,013			15.9	%		13,100			10,672			22.8	%
Interest expense, net		171			86			98.8	%		347			38			813.2	%

Net income		5,776			4,796			20.4	%		9,540			7,550			26.4	%

Earnings per share:
Basic –net income	$	0.45		$	0.39					$	0.75		$	0.61
Diluted –net income	$	0.45		$	0.38					$	0.74		$	0.59

Operating Ratio⁽¹⁾		93.4	%		93.3	%					94.5	%		94.6	%

Revenue increased 17.7% to $123.6 million for the second quarter of 2006 compared to $105.1 million in the second quarter of 2005. Revenue in the LTL and Logistics segments increased 21.7% and 6.6% respectively, offsetting a 9.2% decrease in the Truckload segment. For the six months ended June 30, 2006 revenue increased 20.0% to $238.8 million compared to $199.0 million for the same period in 2005. Once again revenue in the LTL and Logistics segments increased 24.7% and 6.3% respectively, offsetting a 8.3% decrease in the Truckload segment in the six month period. The revenue increases in the LTL segment for the quarter and six month period ended June 30, 2006 benefited from the acquisitions of Chris Truck Line (“CTL”) on May 31, 2005 and SWE on January 3, 2006. Detailed explanations for the improvement in revenue are discussed below in the “Segmented Results”.

Income from operations for the 2006 second quarter improved 15.9% to $8.1 million compared to $7.0 million in the second quarter of 2005. The LTL and Logistics segments recorded quarter over prior-year quarter improvements in income from operations of 21.3% and 3.7% respectively offsetting the decline of 26.0% at the Truckload segment. As a result, the Company posted a consolidated operating ratio 93.4% for the second quarter of 2006 compared to 93.3% in the second quarter of 2005. For the six months ended June 30, 2006 income from operations increased 22.7% to $13.1 million compared to $10.7 million for the same period in 2005, resulting in a consolidated operating ratio of 94.5% in 2006 compared to 94.6% in 2005. Detailed explanations for the fluctuation in income from operations are discussed below in “Segmented Results”.

Selling, general and administrative expenses (“SG&A”) increased 19.8% to $11.7 million in the second quarter compared to $9.8 million in the second quarter of 2005. For the six month period ended June 30, 2006 SG&A increased 20.8% to $22.5 million compared to $18.6 million for the same period a year ago. The increase for both the quarter and six-month period can primarily be attributed to the additional SG&A expenses related to the acquisitions of CTL and SWE, not included in the 2005 comparative figures. The remainder of the increase can be attributed to increases in non-cash employee stock options expense, healthcare expense as well as director and employee compensation related expenses. With the addition of SWE and the increase in on-going compensation related expenses, SG&A should continue to be higher than the prior year periods.

The Company incurred $0.2 million of net interest expense for the quarter ended June 30, 2006 compared to $0.1 million in the prior year quarter. Interest expense was incurred on the Company’s $9.6 million of debt in the second quarter of 2006 compared to interest income that was generated on the Company’s $31.5 million of short-term investments up to May 31, 2005 that partially offset the Company’s interest expense in the second quarter of 2005.

Income tax expense for the second quarter of 2006 was $2.2 million compared to $2.1 million for the same quarter a year ago. The effective tax rate was 27.4% for the second quarter of 2006 compared to 30.8% for the second quarter in 2005. For the six months ended June 30, 2006 the effective tax rate was 26.3% compared to 29.0% for the same period a year ago. The decrease in the effective rate can be attributed to a higher proportion of the Company’s income being earned in lower tax jurisdictions.

Net income improved by 20.4% to $5.8 million for the second quarter compared to $4.8 million for the same quarter in 2005. This resulted in basic and diluted earnings per share of $0.45 for the second quarter of 2006 compared to basic and diluted earnings per share $0.39 and $0.38, respectively for the second quarter of 2005. The weighted average number of shares for the current quarter was 12.7 million basic and 13.0 million diluted shares compared to 12.4 million basic and 12.8 million diluted shares in the second quarter of 2005. For the six months ended June 30, 2006 net income before cumulative effect of a change in accounting principle improved 24.5% to $9.4 million compared to $7.6 million in the same period a year ago. This resulted in basic and diluted earnings per share before change in cumulative effect of change in accounting principle of $0.74 and $0.73, respectively for the 2006 six-month period, compared to basic and diluted earnings per share $0.61 and $0.59 in the same period in 2005. The weighted average number of shares for the six month period of 2006 was 12.7 million basic and 13.0 million diluted shares compared to 12.4 million basic and 12.8 million diluted shares in the six-month period of 2005.

On January 1, 2006 the Company adopted SFAS 123(R), “Share-Based Payment”, using the modified prospective transition method. In accordance with the standard the company recognized $0.1 million of income as cumulative effect of a change in accounting principle. Therefore net income after cumulative effect of a change in accounting principle for 2006 six month period was $9.5 million resulting in basic and diluted earnings per share of $0.75 and $0.74 respectively.

SEGMENTED RESULTS

Less-Than-Truckload (LTL)

The table below provides summary information for the LTL segment for the periods ended June 30:


	For the three months ended June 30									For the six months ended June 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005

Revenue	$	105,213		$	86,429			21.7	%	$	202,636		$	162,533			24.7	%
Income from operations		8,039			6,625			21.3	%		13,107			9,887			32.6	%
Operating ratio		92.4	%		92.3	%					93.5	%		93.9	%

Number of shipments ⁽²⁾		687,120			631,707			8.8	%		1,351,650			1,193,877			13.2	%
Weight (000s of lbs) ⁽³⁾		1,100,523			999,131			10.1	%		2,144,103			1,884,396			13.8	%
Revenue per shipment ⁽⁴⁾	$	153.12		$	136.83			11.9	%	$	149.92		$	136.15			10.1	%
Revenue per hundredweight ⁽⁵⁾	$	9.56		$	8.65			10.5	%	$	9.45		$	8.63			9.5	%

The LTL segment showed significant growth in revenue and income from operations for the second quarter of 2006 compard to 2005 increasing 21.7% and 21.3% respectively. Shipments, tonnage and revenue per hundredweight for the 2006 second quarter increased 8.8%, 10.1% and 10.5% respectively compared to the 2005 second quarter. The acquisitions of CTL (Southwest Region) on May 31, 2005 and SWE (West Region) on January 3, 2006 were the primary contributors, however 32.2% revenue growth in the cross-border line of business also contributed to the improvement. On a regional basis the Canadian LTL business unit achieved another strong operating quarter, however, the U.S. LTL business unit’s results impacted the segments operating ratio. The acquisition of the Western Region, although operating within expected levels, unfavourably influenced the operating ratio compared to the second quarter of 2005 results. Furthermore the integration of the Kansas City service center, the final and most significant overlap service center of the new Southwest Region and the legacy Central Region was completed over the final two months of the quarter. This final step in the integration plan disrupted linehaul schedules, impacted labour productivity and claims for this two-month period. Consequently, the 2006 second quarter operating ratio was 92.4% compared to 92.3% for the 2005 second quarter. With this integration completed, early indicators in the first month of the third quarter point toward a return to a more efficient operating environment.

The results for the 2006 six-month period ended June 30, 2006 were most significantly impacted by the additions of CTL and SWE compared to the six-month period in 2005. Consequently, revenue and income from operations increased 24.7% and 32.6% respectively for the six-month period ended June 30, 2006 compared to the same period a year ago. The operating ratio improved to 93.5% in the current six month period compared to 93.9% in the 2005 year six-month period.

Logistics

The table below provides summary information for the Logistics segment for the periods ended June 30:


	For the three months ended June 30									For the six months ended June 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005

Revenue	$	10,251		$	9,615			6.6	%	$	19,663		$	18,492			6.3	%
Income from operations		638			615			3.7	%		1,152			980			17.6	%
Operating Ratio		93.8	%		93.6	%					94.1	%		94.7	%

Revenue for the Logistics segment improved 6.6% to $10.3 million for the second quarter of 2006 compared to $9.6 million in the 2005 second quarter. The Brokerage and Supply Chain business realized expected results for the quarter and posted a 3.7% improvement in income from operations compared to the second quarter of 2005. Management within the Logistics segment continue to develop new accounts that should contribute to revenue and income growth in future quarters. For the six-month period of 2006, revenue and income from operations increased 6.3% and 17.6% compared to the same period a year ago.

Truckload (TL)

The table below provides summary information for the TL segment for the periods ended June 30:


	For the three months ended June 30									For the six months ended June 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005

Revenue	$	8,177		$	9,006			(9.2	%)	$	16,469		$	17,966			(8.3	%)
Income from operations		530			716			(26.0	%)		940			1,458			(35.5	%)
Operating Ratio		93.5	%		92.0	%					94.3	%		91.9	%

Revenue for the Truckload segment in the second quarter of 2006 decreased 9.2% to $8.2 million compared to $9.0 million in the second quarter of 2005. Although the pricing environment remained stable with revenue per mile for the current quarter in line with the 2005 second quarter, a 13.6% decline in shipments resulted in a reduction in revenue and operating income. The operating ratio for the second quarter was 93.5% compared to 92.0% in the same quarter a year ago. Albeit a tight qualified driver market has impacted the segment’s desire to increase revenue and improve the operating ratio compared to 2005, on a sequential basis the quarterly operating ratio

improved to 93.5% from 95.1% in the 2006 first quarter. Should the pricing environment remain stable and driver availability not deteriorate, management expects sequential quarterly improvements for the remainder of 2006.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations for the 2006 six-month period, before working capital changes, generated $15.1 million compared to $11.3 million in 2005 period. Non-cash working capital changes contributed $0.4 million for the 2006 six-month period compared to $2.0 million consumed for the same period a year ago. While accounts receivable increased in the second quarter of 2006 compared to December 31, 2005 due to higher revenue, average days sales outstanding for the quarter was 37.0 days for the Company.

Interest-bearing debt decreased to $9.6 million at June 30, 2006 from $14.4 million at December 31, 2005. The interest-bearing debt is comprised of $9.5 million drawn under the term bank credit facility and a capital lease of $0.1 million. During the 2006 six month period the Company repaid $4.9 million of interest-bearing debt.

During the quarter the Company amended its credit agreement increasing its borrowing capacity under its revolving credit facility to $45.0 million from $35.0 million and added a $20.0 million revolving acquisition facility. The repayment period on both of the revolving facilities and the existing term debt was extended to April 30, 2009 and the Company’s interest rate spread was reduced to 75 bps from 125 bps. At June 30, 2006 the Company had $38.3 million, net of $6.7 million in letters of credit, available to be drawn under the unused revolving credit facility.

On January 3, 2006 the Company purchased all the assets and selected liabilities of SWE for an aggregate purchase price of $2.5 million, comprised of $2.3 million in cash and $0.2 note payable to the vendor in April 2007. The cash portion of the transaction was financed from existing cash on hand.

Capital expenditures amounted to $9.7 million for the second quarter of 2006 and $11.5 million for the six-month period of 2006 and were funded out of operating cash flows of the Company. The increase in capital expenditures primarily resulted from the purchase of land and building in the Chicago market for the Logistics segment and construction expenditures for the new Toronto LTL terminal. The table below sets forth the Company’s capital expenditures for the three months and six months ended June 30, 2006


	For the three months ended June 30				For the six months ended June 30
(in thousands, unaudited)	2006		2005		2006		2005

Real Estate and buildings	$	6,746	$	—	$	6,757	$	—
Tractors		548		162		832		577
Trailing fleet		1,629		230		2,447		5,430
Information technology		171		129		530		651
Leasehold improvements		37		84		56		99
Other equipment		520		18		907		88

Total	$	9,651	$	623	$	11,529	$	6,845

Management estimates that cash capital expenditures, excluding real estate additions for the remainder of 2006 will be between $8.0 million and $12.0 million the majority of which will be for tractors and trailing fleet. Real estate additions in Toronto, Ontario; Houston, Texas; Sioux Falls, South Dakota and possibly Wichita, Kansas will be between $8.0 million and $12.0 million. The Company also anticipates entering into operating leases to fund the acquisition of equipment with a value of between $2.0 million and $5.0 million. The Company expects to finance its capital equipment requirements from cash flow from operations and if required, its unused credit facilities.

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 June 30, 2006:


(in thousands of dollars)	Payments due by period
Contractual Obligations	Total		2006		2007 & 2008		2009 & 2010		Thereafter

Long-term debt (LIBOR 5.90%)	$	9,500	$	1,000	$	4,875	$	3,625	$	Nil
Capital lease obligations		62		18		44		Nil		Nil

Sub-total		9,562		1,018		4,919		3,625		Nil
Capital expenditure commitments		1,577		1,577		Nil		Nil		Nil
Operating leases		31,475		6,520		17,879		5,697		1,379

Total Contractual Obligations	$	42,614	$	9,115	$	22,798	$	9,322	$	1,379

In addition to the above noted contractual obligations, the Company, as at June 30, utilized the revolving credit facility for standby letters of credit of $6.7 million. The letters of credit are used as collateral for self-insured retention of insurance claims.

A significant decrease in demand for the Company’s 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 2006 as well as service the contractual obligations.

OUTLOOK

The second quarter of 2006 was Vitran’s nineteenth consecutive quarter of year-over-year net income improvement and a record quarter for the Company. More significantly the Company acquired SWE on January 3, 2006 and expanded its LTL footprint into the Western United States.

With final step in the integration of the Southwest Region and Vitran legacy Central Region complete, management will focus on cross-selling initiatives between the regions, yield improvement and operating efficiencies throughout the LTL segment.

Information technology initiatives and cross-selling plans are being developed for the newly acquired Western Region over the remainder of 2006. The Canadian LTL business unit will continue to focus on achieving profitable revenue and the construction of its new Toronto cross-dock facility.

Lastly, the Company remains committed to its objective to expand or acquire into new regional LTL markets contiguous to its existing LTL footprint.

QUARTERLY RESULTS

U.S. GAAP


(thousands of dollars	2006		2006		2005		2005		2005		2005		2004		2004
except per share amounts)	Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3

Revenue	$	123,641	$	115,127	$	112,975	$	116,226	$	105,050	$	93,941	$	96,523	$	96,995
Income from operations		8,128		4,972		6,937		7,647		7,013		3,659		4,737		6,193
Net Income		5,776		3,764		5,012		5,376		4,796		2,754		4,365		4,542
Earnings per share:
Basic	$	0.45	$	0.30	$	0.40	$	0.43	$	0.39	$	0.22	$	0.35	$	0.37
Diluted		0.45		0.29		0.39		0.42		0.38		0.22		0.34		0.36
Weighted average number of shares:
Basic		12,732,644		12,652,075		12,618,416		12,584,358		12,447,300		12,411,968		12,417,594		12,339,956
Diluted		12,964,761		12,934,751		12,930,661		12,921,695		12,778,285		12,754,930		12,771,235		12,774,744

Canadian GAAP ⁽⁷⁾


(thousands of dollars	2006		2006		2005		2005		2005		2005		2004		2004
except per share amounts)	Q2		Q1		Q4		Q3		Q2		Q1		Q4		Q3

Revenue	$	123,641	$	115,127	$	112,975	$	116,226	$	105,050	$	93,941	$	96,523	$	96,995
Income from operations		8,128		4,972		6,937		7,647		7,013		3,659		4,737		6,193
Net Income		5,776		3,623		5,012		5,376		4,796		2,754		4,365		4,542
Earnings per share:
Basic	$	0.45	$	0.29	$	0.40	$	0.43	$	0.39	$	0.22	$	0.35	$	0.37
Diluted		0.45		0.28		0.39		0.42		0.38		0.22		0.34		0.36
Weighted average number of shares:
Basic		12,732,644		12,652,075		12,618,416		12,584,358		12,447,300		12,411,968		12,417,594		12,339,956
Diluted		12,964,761		12,934,751		12,930,661		12,921,695		12,778,285		12,754,930		12,771,235		12,774,744

Definitions of non-GAAP measures:

(1)

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:


	For the three months ended June 30						For the six months ended June 30
(in thousands)	2006			2005			2006			2005

Operating expenses	$	101,307		$	86,742		$	198,428		$	166,886
Selling, general and administrative expenses		11,737			9,795			22,480			18,612
Other expenses (income)		(40	)		(17	)		(156	)		(27	)
Depreciation and amortization expense		2,509			1,517			4,916			2,848
	$	115,513		$	98,037		$	225,668		$	188,319

Revenue	$	123,641		$	105,050		$	238,768		$	198,991

Operating ratio (“OR”)		93.4	%		93.3	%		94.5	%		94.6	%

	(2)		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.

	(3)		Weight represents the total pounds shipped.

	(4)		Revenue per shipment represents revenue divided by the number of shipments.

	(5)		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.

	(6)		Revenue per total mile represents revenue divided by the total miles driven.

	(7)		Please see Note 13 to the Interim Consolidated Financial Statements for differences between United States and Canadian GAAP.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of interest rate changes. The Company is exposed to changes in interest rates on its borrowings under the term bank facility that has a variable interest rate tied to the LIBOR rate. The term bank credit of $9.5 million had a weighted-average interest rate on borrowings of 5.64% in the first six months of 2006. Management estimates that the fair value of the term credit approximates the carrying value.


	Payments due by period
(in thousands of dollars)	Total			2006			2007 & 2008			2009 & 2010			Thereafter

Long-term debt
Variable Rate
Term bank credit	$	9,500		$	1,000		$	4,875		$	3,625		$	Nil
Average interest rate		5.90	%		5.90	%		5.90	%		5.90	%
Fixed Rate
Capital lease obligation		62			18			44			Nil			Nil
Average interest rate		6.79	%		6.79	%		6.79	%

Total	$	9,562		$	1,018		$	4,919		$	3,625		$	Nil

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 $9.5 million is designated as a hedge of the investment in the United States’ self-sustaining foreign operations.

Item 4. Controls and Procedures

As of July 19, 2006, the Chief Executive Officer and the Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act for the quarter ended June 30, 2006. Based on their evaluation, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that Vitran’s disclosure controls and procedures enable Vitran to record, process, summarize and report in a timely manner the information that we are required to disclose in our Exchange Act reports.

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

The Company 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 1A. Risk Factors

See Part 1A of the Company’s 2005 Annual Report on Form 10-K.

Item 2. Changes in Securities and Use of Proceeds

On February 13, 2006 Vitran commenced a normal course issuer bid to repurchase up to 632,381 Common Shares by way of open market purchases through the facilities of the Toronto Stock Exchange. The normal course issuer bid expires on February 12, 2007. All shares repurchased are cancelled. The following table summarizes the purchases in the second quarter of 2006:


							Maximum number
					Total number of		of Common Shares
	Number of		Average price paid		Common Shares as		that may yet be
	Common Shares		per Common Share		part of a publicly		purchased under the
Period	purchased		(CAD)		announced plan		plan
Apr. 1 to Apr. 30, 2006		—		—		—		632,381
May 1 to May 31, 2006		—		—		—		632,381
June 1 to June 30, 2006		—		—		—		632,381

Total		—		—		—

Item 3. Defaults Upon Senior Securities — None

Item 4. Submission of Matters to a Vote of Security Holders — None

Item 5. Other Information — None

Item 6. Exhibits and Reports on Form 8-K

Exhibits


Exhibit
Number		Description of Exhibit

31		Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated July 19, 2006.

32		Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated July 19, 2006.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		VITRAN CORPORATION INC.

		/s/ SEAN P. WASHCHUK

		Sean P. Washchuk
Date: July 19, 2006		Vice President of Finance and
		Chief Financial Officer
		(Principle Financial Officer)

		/s/ FAYAZ D. SULEMAN

		Fayaz D. Suleman
Date: July 19, 2006		Corporate Controller
		(Principle Accounting Officer)


		Page
Item

PART I	Financial Information

1.	Financial Statements		3

2.	Management’s Discussion and Analysis		15

3.	Quantitative and Qualitative Disclosures About Market Risk		22

4.	Controls and Procedures		22

PART II	Other Information

1.	Legal Proceedings		22

2.	Changes in Securities and Use of Proceeds		23

3.	Defaults Upon Senior Securities		23

4.	Submission of Matters to a Vote of Security Holders		23

5.	Other Information		23

6.	Exhibits and Reports on Form 8-K		23