vitran10q.htm

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 Ended June 30, 2008			Three months Ended June 30, 2007			Six months Ended June 30, 2008			Six months Ended June 30, 2007

Revenue	$	195,990		$	170,144		$	373,497		$	324,280
Operating expenses		165,102			140,780			318,201			269,236
Selling, general and administrative expenses		17,769			15,283			34,690			30,382
Other income		(134	)		(101	)		(133	)		(72	)
Depreciation and amortization expense		5,205			5,109			10,765			10,054
Total operating expenses		187,942			161,071			363,523			309,600
Income from operations before undernoted		8,048			9,073			9,974			14,680
Interest expense, net		2,122			2,115			4,252			4,179
Income from operations before income taxes		5,926			6,958			5,722			10,501
Income taxes		1,349			1,425			11			1,581
Net income	$	4,577		$	5,533		$	5,711		$	8,920
Income per share:
Basic	$	0.34		$	0.41		$	0.42		$	0.66
Diluted	$	0.34		$	0.41		$	0.42		$	0.65

Weighted average number of shares:
Basic		13,483,159			13,463,374			13,474,258			13,450,790
Diluted		13,630,974			13,661,467			13,621,759			13,656,765

See accompanying notes to consolidated financial statements

VITRAN CORPORATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars)

	June 30, 2008		Dec. 31, 2007
	(Unaudited)		(Audited)
Assets
Current assets:
Accounts receivable	$	93,837	$	74,261
Inventory, deposits and prepaid expenses		12,238		11,325
Income and other taxes recoverable		1,237		2,232
Deferred income taxes		3,205		2,599
		110,517		90,417
Property and equipment		166,881		169,062
Intangible assets		14,542		13,645
Goodwill		121,967		124,375
	$	413,907	$	397,499
Liabilities and Shareholders’ Equity
Current liabilities:
Bank overdraft	$	3,677	$	390
Accounts payable and accrued liabilities		76,457		67,468
Current portion of long-term debt		16,755		18,144
		96,889		86,002
Long-term debt		109,858		109,831
Other		3,560		3,512
Deferred income taxes		8,058		7,810

Shareholders’ equity:
Common shares, no par value, unlimited authorized, 13,483,159 and 13,448,159 issued and outstanding at June 30, 2008 and December 31, 2007 respectively		77,424		77,246
Additional paid-in capital		3,005		2,436
Retained earnings		110,189		104,478
Accumulated other comprehensive income		4,924		6,184
		195,542		190,344
	$	413,907	$	397,499

Contingent liabilities (note 10)

See accompanying notes to consolidated financial statements.

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Unaudited)

(In thousands of United States dollars, except share amounts)

	Common shares				Additional Paid-in			Retained		Accumulated other comprehensive			Total Shareholders’
	Shares		Amount		Capital			Earnings		income			Equity
December 31, 2007		13,448,159	$	77,246	$	2,436		$	104,478	$	6,184		$	190,344
Shares issued upon exercise of employee stock options		35,000		178		-			-		-			178
Net income		-		-		-			5,711		-			5,711
Other comprehensive income (loss)		-		-		-			-		(1,260	)		(1,260	)
Share-based compensation		-		-		569			-		-			569
June 30, 2008		13,483,159	$	77,424	$	3,005		$	110,189	$	4,924		$	195,542



	Common shares				Additional Paid-in			Retained		Accumulated other comprehensive			Total Shareholders’
	Shares		Amount		Capital			Earnings		income			Equity
December 31, 2006		13,419,859	$	76,913	$	1,607		$	90,933	$	3,844		$	173,297
Shares issued upon exercise of employee stock options		46,500		255		(48	)		-		-			207
Net income		-		-		-			8,920		-			8,920
Other comprehensive income		-		-		-			-		1,722			1,722
Share-based compensation		-		-		459			-		-			459
June 30, 2007		13,466,359	$	77,168	$	2,018		$	99,853	$	5,566		$	184,605

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands of United States dollars)

	Three months Ended June 30, 2008			Three months Ended June 30, 2007			Six months Ended June 30, 2008			Six months Ended June 30, 2007
Cash provided by (used in):

Operations:
Net income	$	4,577		$	5,533		$	5,711		$	8,920
Items not involving cash from operations
Depreciation and amortization expense		5,205			5,109			10,765			10,054
Deferred income taxes		1,302			1,628			104			2,595
Share-based compensation expense		292			251			569			459
Gain on sale of property and equipment		(134	)		(101	)		(133	)		(72	)
Change in non-cash working capital components		(9,419	)		(2,066	)		(10,532	)		(5,763	)
		1,823			10,354			6,484			16,193
Investments:
Purchase of property and equipment		(2,040	)		(6,870	)		(9,148	)		(11,420	)
Proceeds on sale of property and equipment		261			167			452			238
Additional payment due to acquisition of subsidiary		-			(6,383	)		-			(6,921	)
		(1,779	)		(13,086	)		(8,696	)		(18,103	)

Financing:
Change in revolving credit facility and bank overdraft		4,703			6,838			11,328			10,122
Repayment of long-term debt		(2,575	)		(2,255	)		(5,146	)		(4,510	)
Repayment of capital leases		(2,001	)		(1,674	)		(4,242	)		(3,314	)
Issue of common shares upon exercise of stock options		-			80			178			207
		127			2,989			2,118			2,505
Effect of translation adjustment on cash		(171	)		(753	)		94			(1,002	)
Increase in cash and cash equivalents		-			(496	)		-			(407	)
Cash and cash equivalents, beginning of period		-			1,543			-			1,454
Cash and cash equivalents, end of period	$	-		$	1,047		$	-		$	1,047

Change in non-cash working capital components:
Accounts receivable	$	(11,905	)	$	(6,354	)	$	(19,576	)	$	(13,364	)
Inventory, deposits and prepaid expenses		(512	)		696			(913	)		1,083
Income and other taxes recoverable		(163	)		(1,301	)		968			(3,898	)
Accounts payable and accrued liabilities		3,161			4,893			8,989			10,416
	$	(9,419	)	$	(2,066	)	$	(10,532	)	$	(5,763	)

Supplemental disclosure of non-cash transactions cash flow information:
Capital lease additions		$	-			$	3,740			$	-			$	3,740

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. 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. The interim consolidated financial statements do not contain all the disclosures required by United States 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 2007 Annual Report on Form 10-K. The interim consolidated financial statements follow the same accounting principles and methods of application as the most recent annual consolidated financial statements.

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 and six-months ended June 30, 2008 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2008.

2. New Accounting Pronouncements

SFAS Statement 157, “Fair Value Measurements”, defines fair values, establishes a framework for measuring fair value in GAAP, and requires enhanced disclosures about fair value measurements. This statement applies when other accounting pronouncements require or permit fair value measurements. SFAS Statement 157 was adopted January 1, 2008 as described in note 11.

SFAS Statement 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of SFAS Statement 115” permits entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis. SFAS Statement 159 was adopted January 1, 2008 as required by the statement. The requirements of SFAS Statement 159 did not have an effect on the Company’s consolidated financial statements.

SFAS Statement 161, “Disclosures about Derivative Instruments and Hedging Activities - - an amendment of FASB Statement No. 133”, required enhanced disclosures about the Company’s derivative and hedging activities. The Company will be required to provided enhanced disclosure about a) how and why an entity uses derivative instruments, b) how derivative instruments and related hedged items are accounted for under Statement 133 and c) how derivative instruments and related hedged items affect and entity’s financial position and cash flows. SFAS Statement 161 will be adopted January 1, 2009 as required by the statement.

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 $80.2 million is designated as a hedge of the investment in the United States dollar functional operations, such that related transaction gains and losses are recorded in the separate component of shareholders’ equity.

4. Acquisition

On November 30, 2007, the Company acquired 100 percent of the outstanding shares of Las Vegas/L.A. Express, Inc. ("LVLA"). The aggregate purchase consideration was approximately $8.45 million (including transaction costs). Approximately $4.35 million of additional cash consideration is contingent on LVLA meeting certain future financial metrics. All additional contingent consideration paid to the vendors will be allocated to goodwill. The total amount of goodwill will not be deductible for tax purposes.

The following table summarizes the final estimated fair value of the assets acquired and liabilities assumed at the date of acquisition.


Current assets	$	4,146
Property and equipment		2,485
Identifiable intangible assets:
Covenants not-to-compete (5-year useful life)		160
Customer relationships (8-year useful life)		2,000
Goodwill		2,415
		11,206
Current liabilities		2,611
Deferred income tax liability		92
Capital leases		624
Term loan		1,285
Net assets acquired		6,594

5. Goodwill


Balance at December 31, 2007	$	124,375
Transfer of goodwill to identifiable intangible assets (note 4)		(2,160	)
Foreign exchange		(248	)
Balance at June 30, 2008	$	121,967

6. Long-term debt

On April 10, 2008, the Company amended its credit agreement in respect of certain financial maintenance tests. The amendment is effective March 31, 2008 to December 31, 2008. As at June 30, 2008, the Company is in compliance with these amended maintenance tests and management expects to be for the balance of 2008.

7. 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 884,200 options outstanding under the plan. The term of each option is ten years and the vesting period is five years. The exercise price for options is the trading price of the Common Shares of the Company on the Toronto Stock Exchange on the day of the grant.

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

2008
Options granted		99,000
Risk-free interest rate		3.93	%
Dividend yield		-
Volatility factor of the future expected market price of the Company’s common shares		34.12	%
Expected life of the options	6 years

The weighted average estimated fair value at the date of grant for the options granted in 2008 was $5.27 per share.

8. 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 for the three and six months ended June 30, 2008 and 2007:

	Three months Ended June 30, 2008			Three months Ended June 30, 2007			Six months Ended June 30, 2008			Six months Ended June 30, 2007
Net income	$	4,577		$	5,533		$	5,711		$	8,920
Translation adjustment		(264	)		1,652			(1,289	)		1,747
Interest rate swaps		1,452			2			55			(62	)
Tax effect		(481	)		(1	)		(26	)		37
Other comprehensive income (loss)	$	707		$	1,653		$	(1,260	)	$	1,722
Comprehensive net income (loss)	$	5,284		$	7,186		$	4,451		$	10,642

9. Computation of Income per Share

	Three months Ended June 30, 2008		Three months Ended June 30, 2007		Six months Ended June 30, 2008		Six months Ended June 30, 2007
Numerator:
Net income	$	4,577	$	5,533	$	5,711	$	8,920
Denominator:
Basic weighted-average shares outstanding		13,483,159		13,463,374		13,474,258		13,450,790
Dilutive stock options		147,815		198,093		147,501		205,575
Dilutive weighted-average shares outstanding		13,630,974		13,661,467		13,621,759		13,656,765

Basic income per share	$	0.34	$	0.41	$	0.42	$	0.66

Diluted income per share	$	0.34	$	0.41	$	0.42	$	0.65

Diluted income per share excludes the effect of 658,900 (2007 - 575,900) anti-dilutive options.

10. 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.

11. Risk Management Activities and Fair Value Measurements

The Company is exposed to interest rate volatility with regard to existing variable rate debt. The Company has entered into variable-to-fixed interest rate swaps on variable rate term debt and revolving debt. The swaps are accounted for as cash flow hedges. The effective portions of changes in fair value of the interest rate swaps are recorded in Accumulated Other Comprehensive Income and are recognized into earnings in the same period in which the hedged forecasted transaction affects earnings. Ineffective portions of changes in fair value are recognized into earnings as they occur. At June 30, 2008, the notional amount of the swaps was $64.4 million, with the average pay rate being 4.94% and the average receive rate being 2.8%. The swaps mature at various dates up to December 31, 2011.

Effective January 1, 2008, the Company adopted SFAS No. 157, which provides a framework for measuring fair value under GAAP. As defined in SFAS No. 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that the Company believes market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The Company is able to classify fair value balances based on the observability of those inputs.

SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

Assets and liabilities measured at fair value on a recurring basis include the following as of June 30, 2008:

	Fair Value Measurements Using									Liabilities
(in thousands)	Level 1			Level 2			Level 3			At Fair Value
Liabilities
Interest rate swaps		$	-		$	1,500		$	-		$	1,500
Total liabilities		$	-		$	1,500		$	-		$	1,500

12. Segmented Information

Three months ended June 30, 2008	Less-than- truckload			Logistics			Truckload			Total			Corporate Office and Other			Consolidated Totals

Revenue	$	168,161		$	19,314		$	8,515		$	195,990		$	-		$	195,990
Operating, selling, general and administrative expenses		155,244			18,053			7,951			181,248			1,623			182,871
Other expense (income)		(124	)		(4	)		(6	)		(134	)		-			(134	)
Depreciation and amortization		4,500			434			249			5,183			22			5,205
Income (loss) from operations	$	8,541		$	831		$	321		$	9,693		$	(1,645	)		8,048
Interest expense, net																	2,122
Income taxes																	1,349
Net income																$	4,577

Three months ended June 30, 2007	Less-than- truckload			Logistics			Truckload			Total			Corporate Office and Other			Consolidated Totals

Revenue	$	150,615		$	11,225		$	8,304		$	170,144		$	-		$	170,144
Operating, selling, general and administrative expenses		137,022			10,348			7,643			155,013			1,050			156,063
Other expense (income)		(101	)		-			-			(101	)		-			(101	)
Depreciation and amortization		4,692			142			256			5,090			19			5,109
Income (loss) from operations	$	9,002		$	735		$	405		$	10,142		$	(1,069	)		9,073
Interest expense, net																	2,115
Income taxes																	1,425
Net income																$	5,533

Six months ended June 30, 2008	Less-than- truckload			Logistics			Truckload			Total			Corporate Office and Other			Consolidated Totals

Revenue	$	317,576		$	39,074		$	16,847		$	373,497		$	-		$	373,497
Operating, selling, general and administrative expenses		297,641			36,690			15,648			349,979			2,912			352,891
Other expense (income)		(102	)		(20	)		(11	)		(133	)		-			(133	)
Depreciation and amortization		9,359			853			510			10,722			43			10,765
Income (loss) from operations	$	10,678		$	1,551		$	700		$	12,929		$	(2,955	)		9,974
Interest expense, net																	4,252
Income taxes																	11
Net income																$	5,711

Six months ended June 30, 2007	Less-than- truckload			Logistics			Truckload			Total			Corporate Office and Other			Consolidated Totals

Revenue	$	286,772		$	20,888		$	16,620		$	324,280		$	-		$	324,280
Operating, selling, general and administrative expenses		262,348			19,452			15,419			297,219			2,399			299,618
Other expense (income)		(77	)		-			(5	)		(72	)		-			(72	)
Depreciation and amortization		9,269			261			496			10,026			28			10,054
Income (loss) from operations	$	15,232		$	1,175		$	700		$	17,107		$	(2,427	)		14,680
Interest expense, net																	4,179
Income taxes																	1,581
Net income																$	8,920

13. 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 and the documents incorporated by reference contains forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws concerning Vitran’s business, operations, and financial performance and condition.

Forward-looking statements may be generally identifiable by use of the words “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, “may”, “plans”, “continue”, “will”, “focus”, “should”, “endeavor” or the negative of these words or other variation on these words or comparable terminology. These forward-looking statements are based on current expectations and are subject to uncertainty and changes in circumstances that may cause actual results to differ materially from those expressed or implied by such forward-looking statements.

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

•

the Company’s objective to expand or acquire a less-than-truckload (“LTL”) or logistics operations;

•

the Company’s objective to complete the consolidation of employee groups and eliminate redundant facilities within the U.S. LTL business unit;

•

the Company’s objective to realize revenue growth and operating efficiencies and inter-regional revenue growth within its U.S. LTL business unit;

•

the Company’s objective to realize operating efficiencies at the new Toronto service centre and develop revenue growth initiatives in its Canadian LTL business unit;

•

the Company’s objective to fully utilize the new dedicated facility in its Logistics segment and improve revenue and income from operations;

•

the Company’s intention to continue to grow its cross-border and inter-regional LTL revenue at above average rates;

•

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 revolving credit facilities.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Vitran’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to technological change, increase in fuel costs, regulatory change, changes in tax legislation, the general health of the economy, changes in labor relations, geographic expansion, capital requirements, availability of financing, claims and insurance costs, environmental hazards, availability of qualified drivers and competitive factors. More detailed information about these and other factors is included in the MD&A. Many of these factors are beyond the Company’s control; therefore, future events may vary substantially from what the Company currently foresees. You should not place undue reliance on such forward-looking statements. Vitran Corporation Inc. does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws.

Unless otherwise indicated all dollar references herein are in U.S. dollars. The Company’s Annual Report on Form 10-K, as well as all the Company’s other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov/edgar.shtml. This MD&A and the documents incorporated by reference contain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws concerning Vitran’s business, operations, and financial performance and condition.

Overview

The second quarter of 2008 was a rewarding quarter for Vitran, operating results improved compared to the first quarter of the year despite continued pressures for high fuel prices and a lethargic economic activity in North America. Most importantly on May 19th, Vitran’s LTL segment completed the 18 month development and migration of its four U.S. regional LTL business units to the new common I.T. operating system. Furthermore, late in the second quarter the Canadian LTL business moved into its new Toronto cross-dock and national office and the Logistics segment commenced operations of the new 500,000 dedicated distribution centre.

Revenue for the quarter increased 15.2% to $196.0 million compared to the second quarter of 2007. Notable improvements were shown by the LTL segment which increased 11.6% and the Logistics segment which increased 72.1% compared to the 2007 second quarter. Income from operations for the 2008 second quarter declined 11.3% compared to the 2007 second quarter but increased 317.9% compared to the first quarter of 2008. For the 2008 six-month period the company posted revenue $373.5 million and income from operations of $10.0 million compared to revenue of $324.3 million and income from operations of $14.7 million the same period a year ago. The 2008 results for the Logistics segment included Las Vegas/L.A. Express, Inc. (“LVLA”) acquired November 30, 2007.

CONSOLIDATED RESULTS

The following table summarizes the Consolidated Statements of Income for the three- and six-month periods ended June 30:

	For the three months ended June 30									For the six months ended June 30
(in thousands)	2008			2007			2008 vs 2007			2008			2007			2008 vs 2007

Revenue	$	195,990		$	170,144			15.2	%	$	373,497		$	324,280			15.2	%
Operating expenses		165,102			140,780			17.3	%		318,201			269,236			18.2	%
SG&A expenses		17,769			15,283			16.3	%		34,690			30,382			14.2	%
Other expense (income)		(134	)		(101	)		32.7	%		(133	)		(72	)		84.7	%
Depreciation and amortization		5,205			5,109			1.9	%		10,765.765,765			10,054			7.1	%
Income from operations		8,048			9,073			(11.3	%)		9,974			14,680			(32.1	%)
Interest expense, net		2,122			2,115			0.3	%		4,252			4,179			1.7	%
Income (recovery) tax		1,349			1,425			(5.3	%)		11			1,581			(99.3	%)
Net income	$	4,577		$	5,533			(17.3	%)	$	5,711		$	8,920			(36.0	%)

Income per share:
Basic - net income	$	0.34		$	0.41					$	0.42		$	0.66
Diluted - net income	$	0.34		$	0.41					$	0.42		$	0.65

Operating Ratio (1)		95.9	%		94.7	%					97.3	%		95.5	%

Revenue increased 15.2% to $196.0 million for the second quarter of 2008 compared to $170.1 million in the second quarter of 2007. Revenue in the LTL, Logistics and Truckload segments increased 11.6%, 72.1% and 2.5%, respectively. Domestic U.S. revenue accounts for 70.3% of total revenue in the second quarter of 2008 compared to 70.0% in the second quarter of 2007. For the six months ended June 30, 2008 revenue increased 15.2% to $373.5 million compared to $324.3 million for the same period in 2007. Revenue for the second quarter and six-month period of 2008 compared to same periods in 2007 were augmented by the contribution of LVLA, acquired on November 30, 2007. Detailed explanations for the fluctuations in revenue are discussed below in “Segmented Results”.

Income from operations for the second quarter declined to $8.0 million compared to $9.1 million in the same quarter a year ago. The Company’s consolidated operating ratio was 95.9% for the second quarter of 2008 compared to 94.7% in the second quarter of 2007. Income from operations for the second quarter of 2008 improved by 317.9% compared to the first quarter of 2008 resulting in a significant improvement in the operating ratio to 95.9% compared to 98.9% in the first quarter. For the six months ended June 30, 2008 income from operations was $10.0 million compared to $14.7 million for the same period in 2007. Detailed explanations for the fluctuations in income from operations are discussed below in “Segmented Results”.

Selling, general and administrative expenses (“SG&A”) increased 16.3% to $17.8 million in the second quarter compared to $15.3 million in the second quarter of 2007. For the six-month period ended June 30, 2008 SG&A increased 14.2% to $34.7 million compared $30.4 million for the same period a year ago. The increase in SG&A expenses for the quarter and six-month period can primarily be attributed to the addition of LVLA, not included in the 2007 comparative figures. The remainder of the increase is due to increased share-based compensation and healthcare expenses. Furthermore, with the addition of LVLA and increases in healthcare and on-going compensation-related expenses, SG&A should continue to be higher than the prior year periods.

The Company incurred interest expense of $2.1 million in the second quarter of 2008 and in the second quarter of 2007. The Company’s total long-term debt increased to $126.6 million at June 30, 2008 compared to the $115.4 million at June 30, 2007. The increase in debt is primarily attributable to facility additions of $7.6 million and $8.5 million for the acquisition of LVLA in the fourth quarter of 2007. Total debt at June 30, 2008 consisted of $53.1 million drawn on the Company’s revolving credit facilities, $54.4 million of term debt, $0.5 million note payable and $18.6 million of capital leases.

Income tax expense for the second quarter of 2008 was $1.3 million compared to $1.4 million for the same quarter a year ago. The effective tax rate was 22.8% for the second quarter of 2008 compared to 20.5% for the second quarter in 2007. The increase in the effective tax rate for the quarter is attributable to a higher portion of Vitran’s income before tax being earned in higher tax jurisdictions compared to the same quarter in 2007. For the six months ended June 30, 2008, income tax expense was negligible compared to $1.6 million for the same period a year ago. For the six-month period, on a consolidated basis, the Company generated taxable losses in the United States, which have been recognized as future tax assets. These taxable losses are the result of tax depreciation and amortization on capital assets and goodwill in excess of GAAP depreciation and amortization attributable to the Company’s acquired businesses over the last three years. Management believes the Company will generate sufficient taxable income to use these losses in the future. Should the Company’s earnings before income tax increase in subsequent quarters, the quarterly effective tax rate should also increase.

Net income decreased by 17.3% to $4.6 million for the 2008 second quarter compared to $5.5 million for the same quarter in 2007. This resulted in basic and diluted income per share of $0.34 for the second quarter of 2008 compared to basic and diluted income per share from operations of $0.41 for the second quarter of 2007. The weighted average number of shares for the current quarter was 13.5 million basic and 13.6 million diluted compared to 13.5 million basic and 13.7 million diluted shares in the second quarter of 2007. For the six months ended June 30, 2008, net income decreased 36.0% to $5.7 million compared to $8.9 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 $0.42 for the 2008 six-month period, compared to basic and diluted earnings per share of $0.66 and $0.65 in the same period in 2007. The weighted average number of shares for the six month period of 2007 was 13.5 million basic and 13.6 million diluted shares compared to 13.5 million basic and 13.7 million diluted shares in the six-month period of 2007.

SEGMENTED RESULTS

Less-Than-Truckload (LTL)

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

	For the three months ended June 30									For the six months ended June 30
(in thousands)	2008			2007			2008 vs 2007			2008			2007			2008 vs 2007

Revenue	$	168,161		$	150,615			11.6	%	$	317,576		$	286,772			10.7	%
Income from operations		8,541			9,002			(5.1	%)		10,678			15,232			(29.9	%)
Operating ratio		94.9	%		94.0	%					96.6	%		94.7	%

Number of shipments (2)		1,037,700			1,045,730			(0.8	%)		2,015,511			2,039,106			(1.2	%)
Weight (000s of lbs) (3)		1,587,453			1,555,693			2.0	%		3,077,927			3,023,539			1.8	%
Revenue per shipment (4)	$	162.05		$	144.03			12.5	%	$	157.57		$	140.64			12.0	%
Revenue per hundredweight (5)	$	10.59		$	9.68			9.4	%	$	10.32		$	9.48			8.9	%

Revenue in the LTL segment increased 11.6% to $168.2 million, in the second quarter of 2008 compared to $150.6 million in the same quarter a year ago. The increase in revenue was influenced by the fuel surcharge which represented 19.4% of revenue in the second quarter of 2008 compared to 12.5% of revenue in the second quarter of 2007. U.S. LTL business successfully launched its new I.T. operating system which lead to increased inter-regional sales activity and the development of some new significant clients late in the second quarter. In addition, revenue from the LTL segment’s cross border service offering was up 31.9% compared to the 2007 second quarter. However, these improvements were partially offset by the lacklustre North American economy and competitive pricing pressure compared to the second quarter of 2007. The LTL segment’s shipments were flat and tonnage increased 2.0% in the 2008 second quarter compared to the 2007 second quarter. Revenue per hundredweight increased 9.4% taking into account that the Canadian LTL domestic revenue was translated into US dollars at a more favorable foreign exchange rate compared to the second quarter of 2007. Removing this foreign exchange component revenue per hundredweight increased 7.1% compared to the second quarter of 2007. The increase in revenue per hundredweight is due to the increase in fuel surcharge compared to the 2007 second quarter. Consequently, the 2008 second quarter operating ratio was 94.9% compared to 94.0% in the 2007 second quarter.

For the six-month period ended June 30, 2008, revenue in the LTL segment increased 10.7% to $317.6 million, compared to $286.8 million in the same period a year ago. The increase in revenue was influenced by fuel surcharge which represented 17.7% of revenue in 2008 compared to 11.8% of revenue in the 2007 six-month period. Cross border revenue increased 40.2% for the first six months of 2008 compared to the 2007 period. However, these improvements were mitigated by the persistent slow down in the North American economy, competitive pricing pressure and reduced the fuel surcharge recovery margin compared to 2007 six month period. Furthermore, abnormally severe weather conditions and rail service issues in Canada in February and March in the first quarter of 2008 impacted the six-month results. The LTL segment’s shipments decreased 1.2% and tonnage increased 1.8% in the 2008 six month period compared to the 2007 six month period. Revenue per hundredweight increased 8.9% taking into account that the Canadian LTL domestic revenue was translated into US dollars at a more favorable foreign exchange rate compared to the same 2007 six month period. Removing this foreign exchange component revenue per hundredweight increased 5.3% compared to the same period a year ago. The increase in revenue per hundredweight is due to the increase in fuel surcharge compared to the 2007 first quarter. Consequently, the 2008 six-month period operating ratio was 96.6% compared to 94.7% in the 2007 six-month period.

Logistics

The table below provides summary information for the Logistics segment for the three- and six-month periods ended June 30:

	For the three months ended June 30									For the six months ended June 30
(in thousands)	2008			2007			2008 vs 2007			2008			2007			2008 vs 2007

Revenue	$	19,314		$	11,225			72.1	%	$	39,074		$	20,888			87.1	%
Income from operations		831			735			13.1	%		1,551			1,175			32.0	%
Operating ratio		95.7	%		93.4	%					96.0	%		94.4	%

Revenue and income from operations for the Logistics segment increased 72.1% and 13.1%, respectively for the second quarter of 2008 compared to the same quarter in 2007. For the six-month period ended June 30, 2008, revenue and income from operations for the Logistics segment increased 87.1% and 32.0% respectively compared to the same period in 2007. The increase in revenue and income from operations is primarily attributable to the acquisition of LVLA on November 30, 2007. The Logistics segment, excluding LVLA, continued to generate positive revenue growth but operating margins showed the impact of a slowdown in retail sales activity in North America. The 2008 second quarter operating ratio was 95.7% compared to 93.4% in the 2007 second quarter. Revenue and income from operations should increase when the supply chain unit fully utilizes the new 500,000 square foot dedicated retail distribution facility that commenced operations late in the second quarter.

Truckload

The table below provides summary information for the Truckload segment for the three- and six-month periods ended June 30:

	For the three months ended June 30									For the six months ended June 30
(in thousands)	2008			2007			2008 vs 2007			2008			2007			2008 vs 2007

Revenue	$	8,515		$	8,304			2.5	%	$	16,847		$	16,620			1.4	%
Income from operations		321			405			(20.7	%)		700			700			0.0	%
Operating ratio		96.2	%		95.1	%					95.8	%		95.8	%

Revenue in the Truckload segment improved 2.5% to $8.5 million for the second quarter of 2008 compared to $8.3 million for the second quarter of 2007. In the 2008 second quarter shipments increased by 7.1% but was offset by a decline in revenue per mile(6) of 2.4% and an increase in empty miles of 9.0% compared to the 2007 second quarter. As a result income from operations decreased $0.1 million and the operating ratio was 96.2% for the second quarter of 2008 compared to 95.1% for the second quarter of 2007. Revenue for the six-month period of 2008 was up 1.4% while income from operations was flat compared to the same period in 2007, resulting in and operating ratio of 95.8% for the current and prior year six-month periods.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations including working capital changes decreased to $6.5 million for the 2008 six-month period compared to $16.2 million in the 2007 six-month period. The decline is primarily attributable to a decrease in non-cash deferred income tax expense and the increase in working capital compared to the six-month period of 2007. Accounts receivable increased compared to December 31, 2007 due to higher revenue; average days sales outstanding was 40.5 days compared to 38.9 days for the Company. Accounts payable and accrued liabilities increased compared to December 31, 2007 due to the timing of payments.

Interest-bearing debt, excluding bank overdraft, was $126.6 million at June 30, 2008 consisting of $54.4 million of term debt, capital leases of $18.6 million, $0.5 million note payable and $53.1 million drawn under the revolving credit facility. At December 31, 2007 interest-bearing debt was $128.0 million consisting of $58.9 million of term debt, capital leases of $22.9 million, $1.2 million note payable and $45.0 million drawn under the revolving credit facility. For the six-month period ended June 30, 2008, the Company repaid $5.1 million of term debt and $4.2 million of capital leases. At June 30, 2008, the Company had $22.6 million of unused credit facilities.

Capital expenditures amounted to $2.0 million for the second quarter of 2008 and were funded from operating cash flows and the revolving credit facilities of the Company. The majority of capital expenditures were for the final construction outlays for the new LTL service centre in Toronto (Ontario). The table below sets forth the Company’s capital expenditures for the three- and six-month periods ended June 30, 2008.

	For the three months ended June 30,				For the six months ended June 30,
(in thousands of dollars)	2008		2007		2008		2007
Real estate and buildings	$	1,261	$	2,429	$	7,636	$	5,675
Tractors		-		5,343		47		5,343
Trailing fleet		450		1,717		658		2,686
Information technology		56		403		284		572
Leasehold improvements		20		14		92		32
Other equipment		253		704		431		852
Total	$	2,040	$	10,610	$	9,148	$	15,160

Management estimates that cash capital expenditures for the remainder of 2008, will be between $5.0 million and $10.0 million, the majority of which will be fleet replacement and information technology expenditures. The Company also anticipates entering into operating leases to fund the acquisition of equipment with a capital cost of between $5.0 million and $9.0 million. The Company expects to finance its cash capital requirements with cash flow from operations, and if required, its revolving credit facilities.

The Company has contractual obligations for principal payments that include long-term debt consisting of term debt facilities, revolving credit facilities and capital leases for operating equipment. The Company utilizes 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, 2008:

(in thousands of dollars)			Payments due by period
Contractual Obligations	Total		2008		2009 & 2010		2011 & 2012		Thereafter

Term credit facilities	$	54,400	$	4,510	$	23,890	$	26,000	$ Nil
Revolving credit facilities		53,050	Nil		Nil			53,050	Nil
Capital lease obligations		18,618		3,767		9,239		5,612	Nil
Note payable		545		545	Nil		Nil		Nil
Sub-total		126,613		8,822		33,129		84,662	Nil
Operating leases		55,962		11,543		24,659		14,429		5,331
Total Contractual Obligations	$	182,575	$	20,365	$	57,788	$	99,091	$	5,331

In addition to the above-noted contractual obligations, the Company, as at June 30, 2008, utilized the revolving credit facilities for standby letters of credit of $18.7 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. On April 10, 2008, the Company amended its credit agreement in respect of certain financial maintenance tests. The amendment is effective March 31, 2008 to December 31, 2008. As at June 30, 2008, the Company is in compliance with these amended maintenance tests and management expects the Company to be in compliance for the balance of 2008. Management does not anticipate a significant decline in business levels or financial performance and expects that existing working capital, together with available revolving facilities, will be sufficient to fund operating and capital requirements in 2008 as well as to service the contractual obligations.

OUTLOOK

The second quarter of 2008 was a rewarding quarter for Vitran, the U.S. LTL business unit launched its new I.T. operating system, the Canadian LTL business unit moved into is new cross dock and national head office and the Logistics segment commenced operations of its new 500,000 square foot dedicated distribution centre. All these milestone achievements were completed while improving financial results compared to the first quarter of 2008 and the additional challenges of soaring fuel prices, and the lackluster economic environment in North America.

With the launch of the new I.T. operating system, the U.S. LTL business unit is positioned to initiate the all important consolidation of employee groups and elimination of redundant facilities within its U.S. regional overlapping footprints. Upon completion, this should lead to further opportunities to increase revenue and improve operating efficiencies.

The Canadian LTL business unit will focus on service centre efficiencies at its new Toronto location and revenue growth initiatives. The Logistics segment will endeavour to fully utilize its new dedicated logistics facility in Toronto.

Lastly the Company remains committed to its objectives to expand or acquire into new regional LTL markets and opportunistically add complementary Logistics operations.

QUARTERLY RESULTS


(thousands of dollars except per share amounts)		2008 Q2		2008 Q1		2007 Q4		2007 Q3		2007 Q2		2007 Q1		2006 Q4		2006 Q3
Revenue	$	195,990	$	177,507	$	174,310	$	171,927	$	170,144	$	154,136	$	153,779	$	121,512
Income from operations		8,048		1,926		2,750		5,569		9,073		5,607		8,143		6,797
Net Income		4,577		1,134		1,669		3,121		5,533		3,387		4,974		4,885
Income per share:
Basic	$	0.34	$	0.08	$	0.12	$	0.23	$	0.41	$	0.25	$	0.37	$	0.38
Diluted		0.34		0.08		0.12		0.23		0.41		0.25		0.37		0.38
Weighted average number of shares:
Basic		13,483,159		13,465,357		13,457,619		13,475,685		13,463,374		13,438,065		13,413,153		12,744,936
Diluted		13,630,974		13,611,446		13,621,272		13,668,819		13,661,467		13,651,872		13,624,031		12,966,835

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:

	Three months ended June 30,						Six months ended June 30,
(in thousands)	2008			2007			2008			2007

Operating expenses	$	165,102		$	140,780		$	318,201		$	269,236
Selling, general and administrative expenses		17,769			15,283			34,690			30,382
Other expenses (income)		(134	)		(101	)		(133	)		(72	)
Depreciation and amortization expense		5,205			5,109			10,765			10,054
	$	187,942		$	161,071		$	363,523		$	309,600
Revenue	$	195,990		$	170,144		$	373,497		$	324,280
Operating ratio (“OR”)		95.9	%		94.7	%		97.3	%		95.5	%

(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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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 term bank facilities and revolving credit facilities that have variable interest rates tied to the LIBOR rate. As a majority of the Company’s debt is tied to variable interest rates, the Company estimates that the fair value of the long-term debt approximates the carrying value.

(in thousands of dollars)				Payments due by period
Long-term debt	Total			2008			2009 & 2010			2011 & 2012			Thereafter
Variable Rate
Term bank facility	$	52,000		$	4,000		$	22,000		$	26,000		$	Nil
Average interest rate (LIBOR)		4.30	%		4.30	%		4.30	%		4.30	%
Term bank facility	$	2,400		$	510		$	1,890		$	Nil		$	Nil
Average interest rate (LIBOR)		4.55	%		4.55	%		4.55	%
Revolving bank facility	$	53,050		$	Nil		$	Nil		$	53,050		$	Nil
Average interest rate (LIBOR)		4.30	%								4.30	%
Fixed Rate
Capital lease obligations	$	18,618		$	3,767		$	9,239		$	5,612		$	Nil
Average interest rate		6.15	%		6.15	%		6.15	%		6.15	%
Note payable	$	545		$	545		$	Nil		$	Nil		$	Nil
Average interest rate		6.00	%
Total	$	126,613		$	8,822		$	33,129		$	84,662		$	Nil

The Company uses variable-to-fixed interest rate swaps on its term and revolving credit facilities with a notional amount of $64.4 million at June 30, 2008. The average pay rate on the swaps is 4.94% and the average receive rate is the three-month LIBOR rate which is currently 2.8%. To value the interest rate swaps a discounted cash flow model is utilized. Primary inputs into the model that will cause the fair value to fluctuate period-to-period include the fixed interest rates, the future interest rates, credit risk and the remaining time to maturity of the interest rate swaps. Management’s intention is to hold the interest rate swaps to maturity.

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 $80.2 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 22, 2008, 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, 2008. 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.

During the 2008 second quarter Vitran implemented a new less-than-truckload operating system within its U.S. LTL business unit. In accordance with Vitran’s IT general controls appropriate internal controls were followed in the development and implementation of the system. As a result of the new system a limited number of IT application level controls changed in the quarter. Management ensured that an appropriate level of monitoring controls were in place to ensure that financial information was appropriately recorded, processed and disclosed. Management will test the application level controls in the normal course as part of its annual certification requirements. Management does not believe there is any material affect on 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 2007 Annual Report on Form 10-K.

Item 2. Unregistered Sale of Equity and Use of Proceeds - - - None

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

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

FOR THE QUARTER ENDED June 30, 2008

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:

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

Exhibit Number	Description of Exhibit

31	Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated July 22, 2008.

32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated July 22, 2008.

	VITRAN CORPORATION INC.

	/s/ SEAN P. WASHCHUK
	Sean P. Washchuk
Date: July 22, 2008	Vice President of Finance and
	Chief Financial Officer
	(Principle Financial Officer)


	/s/ FAYAZ D. SULEMAN
	Fayaz D. Suleman
Date: July 22, 2008	Corporate Controller
	(Principle Accounting Officer)

Date:	July 22, 2008			/s/ RICHARD E. GAETZ
				Richard E. Gaetz President and Chief Executive Officer

Item		Page

PART I	Financial Information

1.	Financial Statements	3

2.	Management’s Discussion and Analysis	13

3.	Quantitative and Qualitative Disclosures About Market Risk	19

4.	Controls and Procedures	20

PART II	Other Information

1.	Legal Proceedings	21

1. A	Risk Factors	21

2.	Unregistered Sale of Equity and Use of Proceeds	21

3.	Defaults Upon Senior Securities	21

4.	Submission of Matters to a Vote of Security Holders	21

5.	Other Information	21

6.	Exhibits and Reports on Form 8-K	21

			/s/ SEAN P. WASHCHUK
			Sean P. Washchuk Vice President, Finance and Chief Financial Officer