Vitran (VTNC) 10-Q 2006 Q3 Quarterly report

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 SEPTEMBER 30, 2006

OR

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

FOR THE TRANSITION PERIOD FROM                     to

Commission file number:

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. Yesþ Noo

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 filero            Accelerated filerþ           Non-accelerated filero

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

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 October 18, 2006 was 12,744,936.

TABLE OF CONTENT

Item
	Page
PART I Financial Information
1. Financial Statements		3
2. Management’s Discussion and Analysis		16
3. Quantitative and Qualitative Disclosures About Market Risk		23
4. Controls and Procedures		23
PART II Other Information
1. Legal Proceedings		23
2. Changes in Securities and Use of Proceeds		24
3. Defaults Upon Senior Securities		24
4. Submission of Matters to a Vote of Security Holders		24
5. Other Information		24
6. Exhibits and Reports on Form 8-K		24

2

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			Nine months			Nine months
	Ended			Ended			Ended			Ended
	Sept 30, 2006			Sept 30, 2005			Sept 30, 2006			Sept 30, 2005
	(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)
Revenue	$	121,512		$	116,226		$	360,280		$	315,217
Operating expenses		101,189			96,061			299,617			262,947
Selling, general and administrative expenses		11,195			10,399			33,675			29,011
Other income		(248	)		(6	)		(404	)		(33	)
Depreciation and amortization expense		2,579			1,954			7,495			4,802
Total operating expenses		114,715			108,408			340,383			296,727
Income from operations before undernoted		6,797			7,818			19,897			18,490
Interest expense, net		274			171			621			209
Income from operations before income taxes		6,523			7,647			19,276			18,281
Income taxes		1,638			2,271			4,992			5,355
Net income before cumulative effect of change in accounting principle		4,885			5,376			14,284			12,926
Cumulative effect of a change in accounting principle (note 9)		—			—			141			—
Net income	$	4,885		$	5,376		$	14,425		$	12,926
Earnings per share:
Basic — net income before cumulative effect of a change in accounting principle	$	0.38		$	0.43		$	1.12		$	1.04
Basic — cumulative effect of a change in accounting principle		—			—			0.01			—
Basic — net income	$	0.38		$	0.43		$	1.13		$	1.04
Diluted — net income before cumulative effect of a change in accounting principle	$	0.38		$	0.42		$	1.10		$	1.01
Diluted — cumulative effect of a change in accounting principle		—			—			0.01			—
Diluted — net income	$	0.38		$	0.42		$	1.11		$	1.01
Weighted average number of shares:
Basic		12,744,936			12,584,358			12,710,225			12,481,840
Diluted		12,966,835			12,921,695			12,956,661			12,819,872

See accompanying notes to consolidated financial statements

3

VITRAN CORPORATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars)

	Sept 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	$	102,207	$	14,592	$	14,592
Accounts receivable		54,660		46,587		46,587
Inventory, deposits, prepaid expenses		9,277		8,396		8,396
Future income taxes		2,593		1,442		1,442
		168,737		71,017		71,017
Capital assets		82,133		66,807		66,807
Intangible assets (note 6)		2,749		2,456		2,456
Goodwill (note 7)		62,906		61,448		61,448
	$	316,525	$	201,728	$	201,728
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	52,413	$	41,362	$	41,362
Income and other taxes payable		1,717		1,124		1,124
Current portion of long-term debt (note 8)		8,053		5,845		5,845
		62,183		48,331		48,331
Long-term debt (note 8)		90,015		8,588		8,588
Future income taxes		7,749		5,007		5,007
Shareholders’ equity:
Common shares, no par value, unlimited authorized, 12,744,936 and 12,647,636 issued and outstanding at Sept. 30, 2006 and Dec. 31, 2005, respectively		64,130		63,604		63,604
Additional paid-in capital		1,395		956		956
Retained earnings		85,978		71,553		72,310
Cumulative translation adjustment		—		—		2,932
Accumulated other comprehensive income		5,075		3,689		—
		156,578		139,802		139,802
	$	316,525	$	201,728	$	201,728

Contingent liabilities (note 12)
Subsequent event (note 15)

See accompanying notes to consolidated financial statements.

4

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands of United States dollars)

(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									14,425			$	14,425
Other comprehensive income											1,386	$	1,386
Share based compensation						627						$	627
Cumulative effect of a change in accounting principle						(141	)					$	(141	)
September 30, 2006		12,744,936	$	64,130	$	1,395		$	85,978	$	5,075	$	156,578

												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		21,500			60									$	60
Shares repurchased for cancellation		(59,800	)		(297	)				(600	)			$	(897	)
Net income										12,926				$	12,926
Other comprehensive income													13	$	13
Share based compensation								474						$	474
Shares issued upon acquisition of subsidiary		202,458			2,800									$	2,800
September 30, 2005		12,583,836		$	63,361		$	797	$	66,541		$	3,862	$	134,561

5

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands of United States dollars)

	Three months			Three months			Nine months			Nine months
	Ended			Ended			Ended			Ended
	Sept 30, 2006			Sept 30, 2005			Sept 30, 2006			Sept 30, 2005
	(US GAAP)			(US GAAP)			(US GAAP)			(US GAAP)
Cash provided by (used in):
Net income	$	4,885		$	5,376		$	14,425		$	12,926
Items not involving cash from operations
Depreciation and amortization expense		2,579			1,954			7,495			4,802
Future income taxes		1,019			2,030			1,591			2,677
Stock based compensation expense		218			181			627			474
Gain on sale of capital assets		(248	)		(6	)		(404	)		(33	)
Cumulative effect of a change in accounting principle		—			—			(141	)		—
Change in non-cash working capital components		551			(3,961	)		997			(6,658	)
		9,004			5,574			24,590			14,188
Investments:
Purchase of capital assets		(9,216	)		(10,806	)		(20,745	)		(17,651	)
Proceeds on sale of capital assets		509			50			2,063			88
Marketable securities		—			3,193			—			31,974
Acquisition of subsidiary		—			(1,693	)		—			(28,192	)
Acquisition of business assets		—			—			(2,251	)		—
		(8,707	)		(9,256	)		(20,933	)		(13,781	)
Financing:
Revolving credit facility		18,015			5,074			15,030			5,074
Proceeds from long-term debt		70,500			—			70,500			—
Repayment of long-term debt		(9	)		(570	)		(1,961	)		(1,710	)
Issue of common shares upon exercise of stock options		—			18			479			60
Repurchase of common shares		—			(65	)		—			(921	)
		88,506			4,457			84,048			2,503
Effect of translation adjustment on cash		87			498			(90	)		524
Increase in cash position		88,890			1,273			87,615			3,434
Cash position, beginning of period		13,317			9,536			14,592			7,375
Cash position, end of period	$	102,207		$	10,809		$	102,207		$	10,809
Change in non-cash working capital components:
Accounts receivable	$	(240	)	$	(5,886	)	$	(6,669	)	$	(9,717	)
Inventory, deposits and prepaid expenses		(2,219	)		534			(503	)		(921	)
Income and other taxes payable		495			(1,565	)		593			(1,649	)
Accounts payable and accrued liabilities		2,425			2,956			7,576			5,629
	$	551		$	(3,961	)	$	997		$	(6,658	)

See accompanying notes to consolidated financial statements.

6

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 14. 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 September 30, 2006 other than as denoted in note 14.

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 September 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 Statement 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 156 will be adopted January 1, 2007 as required by the statement. The requirements of SFAS 156 are not expected to have an effect on the Company’s consolidated financial statements.

SFAS Statement 155 amends SFAS Statement 133, Accounting for Derivatives and Hedging Activities, and SFAS Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, and allows an entity to remeasure at fair value a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation from the host, if the holder irrevocably elects to account for the whole instrument on a fair value basis. Subsequent changes in the fair value of the instrument would be recognized in earnings. SFAS Statement 155 will be adopted January 1, 2007 as required by the statement. The requirements of SFAS Statement 155 are not expected to have an effect on the Company’s consolidated financial statements.

7

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 $98.0 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 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

8

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		Nine months
	Ended		Ended
	Sept 30, 2005		Sept 30, 2005
Pro forma revenue	$	120,297	$	339,581
Pro forma net income	$	5,467	$	14,481
Pro forma diluted earnings per share	$	0.42	$	1.13

6. Intangible Assets

	Sept 30, 2006			December 31, 2005
Customer relationship	$	2,840		$	2,300
Covenants not-to compete		285			240
		3,125			2,540
Accumulated amortization		(376	)		(84	)
	$	2,749		$	2,456

7. Goodwill

	Goodwill
Balance at December 31, 2005	$	61,448
Foreign exchange on CDN$ denominated goodwill		294
Acquisition of business assets		1,164
Balance at September 30, 2006	$	62,906

The Company annually compares the implied fair value of its reporting units to the carrying value to determine if an impairment loss has occurred. The fair value based test involves assumptions regarding long-term future performance of the reporting units, fair value of the assets and liabilities, cost of capital rates, capital reinvestment and other assumptions. Actual recovery of goodwill could differ from these assumptions based on the market conditions and other factors. In the event goodwill is determined to be impaired a charge to earnings would be required. As at September 30, 2006 the Company completed its annual goodwill impairment test and concluded that there was no impairment.

9

8. Long-term debt:

	Sept 30, 2006		Sept 30, 2005
Term bank credit facility (a)	$	80,000	$	12,747
Revolving credit facility (b)		18,015		5,074
Capital lease (c)		53		84
		98,068		17,905
Less current portion		8,053		5,283
	$	90,015	$	12,622

(a)	The term bank credit facility is secured by accounts receivable and general security agreements of the Company and of all its subsidiaries.
	During September 2006 the Company amended its credit agreement to provide an $80 million term credit facility maturing September 30, 2009. The Company had $9.5 million bearing interest at 7.27%, outstanding under the term facility and drew an additional $70.5 million bearing interest at 9.62%. The provisions of the term facility impose certain financial maintenance tests.
(b)	During September 2006 the Company also amended its revolving credit facility to provide up to $60 million, maturing September 30, 2009. The Company made an initial drawdown of $18.0 million bearing interest at 9.62%. The provisions of the revolving facility impose certain financial maintenance tests.
(c)	The Company has financed certain equipment by entering into a capital leasing arrangement expiring in 2007. The capital lease bears interest at approximately 6.79%.

          At September 30, 2006, the required future principal repayments on all long-term debt and capital lease are as follows:

Year ending December 31:
2006	$	2,008
2007		8,045
2008		8,000
2009		80,015
	$	98,068

9. 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.

10

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 nine months ended September 30, 2006 was $0.6 million (September 30, 2005 — $0.5 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.

10.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		Nine months		Nine months
	Ended			Ended		Ended		Ended
	Sept 30, 2006			Sept 30, 2005		Sept 30, 2006		Sept 30, 2005
Net income	$	4,885		$	5,376	$	14,425	$	12,926
Translation adjustment (1)		(32	)		1,669		1,386		13
Other comprehensive income	$	(32	)	$	1,669	$	1,386	$	13
Comprehensive net income	$	4,853		$	7,045	$	15,811	$	12,939

(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.

11

11. Computation of Earnings per Share

	Three months		Three months		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2006		Sept 30, 2005		Sept 30, 2006		Sept 30, 2005
Numerator:
Net income	$	4,885	$	5,376	$	14,425	$	12,926
Denominator:
Basic weighted-average shares outstanding		12,744,936		12,584,358		12,710,225		12,481,840
Dilutive stock options		221,899		337,337		246,436		338,032
Dilutive weighted-average shares outstanding		12,966,835		12,921,695		12,956,661		12,819,872
Basic earnings per share before cumulative effect of a change in accounting principle	$	0.38	$	0.43	$	1.12	$	1.04
Effect of a change in accounting principle	$	—	$	—	$	0.01	$	—
Basic earnings per share	$	0.38	$	0.43	$	1.13	$	1.04
Diluted earnings per share before cumulative effect of a change in accounting principle	$	0.38	$	0.42	$	1.10	$	1.01
Effect of a change in accounting principle	$	—	$	—	$	0.01	$	—
Diluted earnings per share	$	0.38	$	0.42	$	1.11	$	1.01

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

12. 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.

13. Segmented Information

Three months ended	Less-than-											Corporate Office			Consolidated
Sept 30, 2006	truckload			Logistics		Truckload			Total			and Other			Totals
Revenue	$	102,858		$	10,419	$	8,235		$	121,512		$	—		$	121,512
Operating, selling, general and administrative expenses		94,293			9,379		7,651			111,323			1,061			112,384
Other income		(247	)		—		(1	)		(248	)		—			(248	)
Depreciation and amortization		2,227			111		231			2,569			10			2,579
Income (loss) from operations	$	6,585		$	929	$	354		$	7,868		$	(1,071	)		6,797
Interest expense, net																274
Income taxes																1,638
Net income															$	4,885

Three months ended	Less-than-											Corporate Office			Consolidated
Sept 30, 2005	truckload			Logistics		Truckload			Total			and Other			Totals
Revenue	$	96,658		$	10,652	$	8,916		$	116,226		$	—		$	116,226
Operating, selling, general and administrative expenses		87,215			10,007		8,343			105,565			895			106,460
Other income		(3	)		—		(3	)		(6	)		—			(6	)
Depreciation		1,712			94		135			1,941			13			1,954
Income (loss) from operations	$	7,734		$	551	$	441		$	8,726		$	(908	)		7,818
Interest income, net																171
Income taxes																2,271
Net income															$	5,376

12

13. Segmented Information (continued)

Nine months ended	Less-than-										Corporate Office			Consolidated
Sept 30, 2006	truckload			Logistics		Truckload		Total			and Other			Totals
Revenue	$	305,494		$	30,082	$	24,704	$	360,280		$	—		$	360,280
Operating, selling, general and administrative expenses		279,663			27,702		22,791		330,156			3,136			333,292
Other income		(406	)		—		2		(404	)		—			(404	)
Depreciation and amortization		6,545			299		617		7,461			34			7,495
Income (loss) from operations	$	19,692		$	2,081	$	1,294	$	23,067		$	(3,170	)		19,897
Interest expense, net															621
Income taxes															4,992
Net income before cumulative effect of a change in accounting principle															14,284
Effect of change in accounting principle															141
Net income														$	14,425

Nine months ended	Less-than-											Corporate Office			Consolidated
Sept 30, 2005	truckload			Logistics		Truckload			Total			and Other			Totals
Revenue	$	259,191		$	29,144	$	26,882		$	315,217		$	—		$	315,217
Operating, selling, general and administrative expenses		237,513			27,336		24,588			289,437			2,521			291,958
Other income		(14	)		—		(19	)		(33	)		—			(33	)
Depreciation		4,072			277		412			4,761			41			4,802
Income (loss) from operations	$	17,620		$	1,531	$	1,901		$	21,052		$	(2,562	)		18,490
Interest income, net																209
Income taxes																5,355
Net income															$	12,926

14. 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.

13

(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				Nine months ended					Shareholders’ equity
	2006		2005		2006			2005		2006			2005
Balance as at Sept 30 based on United States GAAP	$	4,885	$	5,376	$	14,425		$	12,926	$	156,578		$	134,561
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 Sept 30 based on Canadian GAAP	$	4,885	$	5,376	$	14,284		$	12,926	$	156,437		$	134,561

(1)	The adoption of SFAS 123(R) – Share Based Payments as described in note 9 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 by $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		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2006		Sept 30, 2005		Sept 30, 2006		Sept 30, 2005
Earnings per share under Canadian GAAP
Basic	$	0.38	$	0.43	$	1.12	$	1.04
Diluted	$	0.38	$	0.42	$	1.10	$	1.01

	Three months		Three months		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2006		Sept 30, 2005		Sept 30, 2006		Sept 30, 2005
Weighted average number of shares:
Basic		12,744,936		12,584,358		12,710,225		12,481,840
Potential exercise of stock options		221,899		337,337		246,436		338,032
Diluted		12,966,835		12,921,695		12,956,661		12,819,872

14

(b) Stock-based compensation

Pro forma stock option disclosure:

Effective January 1, 2006 the Company adopted SFAS 123(R) as described in Note 9. 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		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2006		Sept 30, 2005		Sept 30, 2006		Sept 30, 2005
Net income, as reported under Canadian GAAP	$	4,885	$	5,376	$	14,284	$	12,926
Pro forma net income	$	4,873	$	5,365	$	14,250	$	12,893
Pro forma basic earnings per share	$	0.38	$	0.43	$	1.12	$	1.03
Pro forma diluted earnings per share	$	0.38	$	0.42	$	1.10	$	1.01

15. Subsequent event

On October 2, 2006, the Company acquired all the outstanding shares of PJAX, Inc. and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LC, collectively known as PJAX Freight System (“PJAX”). PJAX is a private less-than-truckload carrier headquartered in Pittsburgh, Pennsylvania. PJAX provides Vitran additional coverage to the Mid-Atlantic United States, more specifically Pennsylvania, Maryland, New Jersey, Delaware, West Virginia and Virginia. The aggregate purchase price was approximately $131.6 million, comprised of $80.3 million in cash, Vitran common shares valued at $12.8 million, assumed debt of approximately $26.5 million and hold-backs of $12.0 million payable over the next year.

16. Comparative figures

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

15

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 in the LTL segment;

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

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

• the Company’s expectation that results will stabilize for 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;

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

• the Company’s intention to complete the Vitran Express West information technology integration in 2006.

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, geographic expansion, capital requirements, availability of financing, claims and insurance costs, environmental hazards 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 atwww.vitran.com or fromwww.sedar.com or fromwww.sec.gov.

16

OVERVIEW

For the third quarter of 2006 Vitran recorded revenue of $121.5 million and earnings of $0.38 per diluted share compared to $0.42 per diluted share in the third quarter of 2005. Despite the improved revenue, earnings were impacted by increased workers’ compensation related expenses and the recent softening of the U.S. economy on Vitran’s LTL and truckload segments. For the 2006 nine-month period, revenue, income from operations and net income exceeded the 2005 nine-month period by 14.3%, 7.6% and 11.6%, respectively.

On October 2, 2006, just subsequent to the 2006 third quarter, the Company completed the acquisition of PJAX Freight System (“PJAX”). PJAX is a regional LTL carrier operating in the Mid-Atlantic United States and extends Vitran’s geographic coverage to the Atlantic Coast with additional full state coverage in Pennsylvania, New Jersey, Virginia, West Virginia, Maryland and Delaware. The total purchase price consideration of approximately $132.0 million consisted of $80.3 million in cash, $26.5 million of assumed debt, $13.2 million in Vitran stock and holdbacks of $12.0 million payable over the next year. In conjunction with the transaction and just prior to the quarter end, Vitran expanded its syndicated credit facility to $160.0 million, consisting of an $80.0 million term facility, a $60.0 million revolving facility and an additional $20.0 million acquisition revolver.

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 Sept 30									For the nine months ended Sept 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005
Revenue	$	121,512		$	116,226			4.5	%	$	360,280		$	315,217			14.3	%
Operating expenses		101,189			96,061			5.3	%		299,617			262,947			13.9	%
SG&A expenses		11,195			10,399			7.7	%		33,675			29,011			16.1	%
Other expenses (income)		(248	)		(6	)		4033.2	%		(404	)		(33	)		1124.2	%
Depreciation and amortization		2,579			1,954			32.0	%		7,495			4,802			56.1	%
Income from operations		6,797			7,818			(13.1	%)		19,897			18,490			7.6	%
Interest expense, net		274			171			60.2	%		621			209			197.1	%
Net income		4,885			5,376			(9.1	%)		14,425			12,926			11.6	%
Earnings per share:
Basic –net income	$	0.38		$	0.43					$	1.13		$	1.04
Diluted –net income	$	0.38		$	0.42					$	1.11		$	1.01
Operating Ratio(1)		94.4	%		93.3	%					94.5	%		94.1	%

Revenue increased 4.5% to $121.5 million for the third quarter of 2006 compared to $116.2 million in the third quarter of 2005. For the 2006 third quarter, revenue in the LTL segment increased 6.4% and declined in the Logistics and Truckload segments 2.2% and 7.6% respectively, compared to 2005 third quarter. For the nine months ended September 30, 2006 revenue increased 14.3% to $360.3 million compared to $315.2 million for the same period in 2005. Revenue in the LTL and Logistics segments increased 17.9% and 3.2% respectively, offsetting an 8.1% decrease in the Truckload segment in the nine month period. The revenue increases in the LTL segment for the quarter and nine month period ended September 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”.

17

Income from operations for the 2006 third quarter decreased 13.1% to $6.8 million compared to $7.8 million in the third quarter of 2005. The LTL and Truckload segments recorded quarter over prior-year quarter declines in income from operations of 14.9% and 19.7% respectively. The Logistics segment posted a significant increase in income from operations of 68.6% to $0.9 million compared to $0.6 million in the third quarter of 2005. As a result, the Company posted a consolidated operating ratio of 94.4% for the third quarter of 2006 compared to 93.3% in the third quarter of 2005. For the nine months ended September 30, 2006 income from operations increased 7.6% to $19.9 million compared to $18.5 million for the same period in 2005, resulting in a consolidated operating ratio of 94.5% in 2006 compared to 94.1% 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 7.7% to $11.2 million in the third quarter compared to $10.4 million in the third quarter of 2005. For the nine-month period ended September 30, 2006 SG&A increased 16.1% to $33.7 million compared to $29.0 million for the same period a year ago. The increase for both the quarter and nine-month period can primarily be attributed to the additional SG&A expenses related to the acquisitions of SWE and CTL, 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 $0.3 million of net interest expense for the quarter ended September 30, 2006 compared to $0.2 million in the prior year quarter. In addition to the interest expense incurred on the Company’s $9.5 million of term debt outstanding from June 30, 2006, the Company also incurred interest expense on $88.5 million of debt that was drawn on its new credit facility just prior to the quarter end to finance the acquisition of PJAX.

Income tax expense for the third quarter of 2006 was $1.6 million compared to $2.3 million for the same quarter a year ago. The effective tax rate was 25.1% for the third quarter of 2006 compared to 29.7% for the third quarter in 2005. For the nine months ended September 30, 2006 the effective tax rate was 25.9% compared to 29.3% 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 declined by 9.1% to $4.9 million for the 2006 third quarter compared to $5.4 million for the same quarter in 2005. This resulted in basic and diluted earnings per share of $0.38 for the third quarter of 2006 compared to basic and diluted earnings per share of $0.43 and $0.42 respectively for the third 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 12.6 million basic and 12.9 million diluted shares in the third quarter of 2005. For the nine months ended September 30, 2006 net income before cumulative effect of a change in accounting principle improved 10.5% to $14.3 million compared to $12.9 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 $1.12 and $1.10 respectively for the 2006 nine-month period, compared to basic and diluted earnings per share $1.04 and $1.01 in the same period in 2005. The weighted average number of shares for the nine month period of 2006 was 12.7 million basic and 13.0 million diluted shares compared to 12.5 million basic and 12.8 million diluted shares in the nine-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 nine month period was $14.4 million resulting in basic and diluted earnings per share of $1.13 and $1.11 respectively.

18

SEGMENTED RESULTS

Less-Than-Truckload (LTL)

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

	For the three months ended Sept 30									For the nine months ended Sept 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005
Revenue	$	102,858		$	96,658			6.4	%	$	305,494		$	259,191			17.9	%
Income from operations		6,585			7,734			(14.9	%)		19,692			17,620			11.8	%
Operating ratio		93.6	%		92.0	%					93.6	%		93.2	%
Number of shipments(2)		659,602			666,063			(0.1	%)		2,011,252			1,859,940			8.1	%
Weight (000s of lbs)(3)		1,054,058			1,052,753			0.1	%		3,198,160			2,937,149			8.9	%
Revenue per shipment(4)	$	155.94		$	145.14			7.4	%	$	151.89		$	139.35			9.0	%
Revenue per hundredweight(5)	$	9.76		$	9.18			6.3	%	$	9.55		$	8.82			8.3	%

Revenue in the 2006 third quarter for the LTL segment increased 6.4% to $102.9 million compared to $96.7 million in the 2005 third quarter. For the 2006 third quarter, shipments and tonnage were flat compared to the 2005 third quarter; however, revenue per hundredweight increased 6.3%. Revenue growth in the cross-border line of business was 20.2% for the comparative quarters. On a regional basis the Vitran Express Canada business unit achieved another strong operating quarter; however, the Vitran Express Central region was impacted by a $0.6 million increase in worker’s compensation expense attributable to an abnormally severe number of accidents in the 2006 third quarter. Furthermore results for all the U.S. LTL business units were impacted by the slight slowdown in the U.S. economy. Consequently, the 2006 third quarter operating ratio was 93.6% compared to 92.0% for the 2005 third quarter.

The results for the 2006 nine-month period ended September 30, 2006 were most significantly impacted by the additions of CTL and SWE compared to the nine-month period in 2005. Consequently, revenue and income from operations increased 17.9% and 11.8% respectively for the nine-month period ended September 30, 2006 compared to the same period a year ago. The nine-month results were impacted by increases in workers compensation expenses and healthcare costs at the Vitran Express Central business unit of $0.6 million and $1.2 million, respectively compared to the same period a year ago. The operating ratio was 93.6% in the current nine month period compared to 93.2% in the 2005 nine-month period.

Logistics

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

	For the three months ended Sept 30									For the nine months ended Sept 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005
Revenue	$	10,419		$	10,652			(2.2	%)	$	30,082		$	29,144			3.2	%
Income from operations		929			551			68.6	%		2,081			1,531			35.9	%
Operating Ratio		91.1	%		94.8	%					93.1	%		94.7	%

Revenue for the Logistics segment declined slightly by 2.2% to $10.4 million for the third quarter of 2006 compared to $10.7 million in the 2005 third quarter. The slight decline in revenue can be attributed to a reduction in shipments within the Brokerage business unit, albeit, the Brokerage and Supply Chain business units realized expected results for the quarter and posted a 68.6% improvement in income from operations compared to the third quarter of 2005. Management within the Logistics segment continues to develop new accounts that should contribute to revenue and income growth in future quarters. For the nine-month period of 2006, revenue and income from operations increased 3.2% and 35.9% compared to the same period a year ago.

19

Truckload (TL)

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

	For the three months ended Sept 30									For the nine months ended Sept 30
(in thousands)	2006			2005			2006 vs 2005			2006			2005			2006 vs 2005
Revenue	$	8,235		$	8,916			(7.6	%)	$	24,704		$	26,882			(8.1	%)
Income from operations		354			441			(19.7	%)		1,294			1,901			(31.9	%)
Operating Ratio		95.7	%		95.1	%					94.8	%		92.9	%

Revenue for the Truckload segment in the third quarter of 2006 decreased 7.6% to $8.2 million compared to $8.9 million in the third quarter of 2005. Although the pricing environment remained stable with revenue per mile for the current quarter increasing 4.3% compared to the 2005 third quarter, a 9.7% decline in shipments resulted in a reduction in revenue and operating income. A tight qualified driver market and slight slowdown in the U.S. economy has impacted the segment’s performance. However, the revenue for the third quarter 2006 increased 1.0% compared to the second quarter of 2006. The operating ratio for the third quarter was 95.7% compared to 95.1% in the same quarter a year ago. Should the pricing environment remain stable and the economy not deteriorate significantly, management expects results for the Truckload segment to stabilize.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations for the 2006 nine-month period, before working capital changes, generated $24.6 million compared to $14.2 million in the 2005 period. Non-cash working capital changes contributed $1.0 million for the 2006 nine-month period compared to $6.7 million consumed for the same period a year ago. While accounts receivable increased at September 30, 2006 compared to December 31, 2005 due to higher revenue, average days sales outstanding for the quarter was 38.6 days for the Company compared to 37.0 days for the second quarter of 2006.

During the quarter the Company amended its credit agreement increasing its borrowing capacity under its revolving credit facility to $60.0 million from $45.0 million, increased the term facility to $80.0 million from $9.5 million and maintained the $20.0 million revolving acquisition facility. At September 30, 2006 $80.0 million was drawn on the term facility, $18.0 million was drawn on the revolving credit facility in anticipation of closing the acquisition of PJAX. The repayment period on both the revolving facilities and the term facility was extended to September 30, 2009. The Company’s interest rate spreads at higher leverage ratio’s were reduced by 37.5 bps. At September 30, 2006 the Company had $55.2 million, net of $6.8 million in letters of credit, available to be drawn under the unused revolving credit facilities.

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 $9.2 million for the third quarter of 2006 and $20.7 million for the nine-month period of 2006 and were funded out of operating cash flows of the Company. The increase in capital expenditures for the nine-month period 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 nine months ended September 30, 2006:

	For the three months ended Sept 30				For the nine months ended Sept 30
(in thousands, unaudited)	2006		2005		2006		2005
Real Estate and buildings	$	3,543	$	7,588	$	10,300	$	7,588
Tractors		883		1,819		1,715		2,397
Trailing fleet		4,548		1,189		6,995		6,618
Information technology		36		158		566		810
Leasehold improvements		130		7		186		106
Other equipment		76		45		983		132
Total	$	9,216	$	10,806	$	20,745	$	17,651

20

Management estimates that cash capital expenditures, excluding real estate additions for the remainder of 2006 will be between $3.0 million and $6.0 million the majority of which will be for tractors and trailing fleet. Real estate additions in Toronto, Ontario; Chicago, Illinois and Sioux Falls, South Dakota will be 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, revolving credit facility, capital leases for operating equipment in the Logistics segment andoff-balance sheetoperating leases primarily consisting of tractor, trailing fleet and real estate leases. Operating leases form an integral part of the Company’s financial structure and operating methodology as they provide an alternative cost effective and flexible form of financing. The following table summarizes our significant contractual obligations and commercial commitments as of September 30, 2006:

(in thousands of dollars)					Payments due by period
Contractual Obligations	Total		2006		2007& 2008		2009& 2010		Thereafter
Long-term debt (9.34% interest)	$	80,000	$	2,000	$	16,000	$	62,000	$Nil
Revolving credit facility (9.62% interest)		18,015	Nil		Nil			18,015	Nil
Capital lease obligations		53		8		45	Nil		Nil
Sub-total		98,068		2,008		16,045		80,015	Nil
Operating leases		28,987		3,525		18,022		5,923		1,517
Total Contractual Obligations	$	127,055	$	5,533	$	34,067	$	85,938	$	1,517

In addition to the above noted contractual obligations, the Company, as at September 30, utilized the revolving credit facility for standby letters of credit of $6.8 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 third quarter of 2006 was another profitable quarter for Vitran, albeit it did not meet management’s expectations. CTL and Vitran Express Central Region have completed their integration plans and will now focus on cross-selling initiatives between the regions, yield improvement and operating efficiencies throughout the LTL segment.

Information technology integration implementation and cross-selling proposals are in progress for the newly acquired SWE and are on track to be completed in November of 2006. The Vitran Express Canada business unit will continue to focus on achieving profitable revenue and the construction of its new Toronto cross-dock facility.

Lastly, Management is pleased with the addition of PJAX which extends its LTL coverage to the Atlantic Coast. Cross-selling strategies and IT integration plans are being developed to maintain a high level of service for the combined customer base.

21

     QUARTERLY RESULTS

U.S. GAAP
(thousands of dollars	2006		2006		2006		2005		2005		2005		2005		2004
except per share amounts)	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Revenue	$	121,512	$	123,641	$	115,127	$	112,975	$	116,226	$	105,050	$	93,941	$	96,523
Income from operations		6,797		8,128		4,972		6,937		7,647		7,013		3,659		4,737
Net Income		4,885		5,776		3,764		5,012		5,376		4,796		2,754		4,365
Earnings per share:
Basic	$	0.38	$	0.45	$	0.30	$	0.40	$	0.43	$	0.39	$	0.22	$	0.35
Diluted		0.38		0.45		0.29		0.39		0.42		0.38		0.22		0.34
Weighted average number of shares:
Basic		12,744,936		12,732,644		12,652,075		12,618,416		12,584,358		12,447,300		12,411,968		12,417,594
Diluted		12,966,835		12,964,761		12,934,751		12,930,661		12,921,695		12,778,285		12,754,930		12,771,235

Canadian GAAP(7)
(thousands of dollars	2006		2006		2006		2005		2005		2005		2005		2004
except per share amounts)	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Revenue	$	121,512	$	123,641	$	115,127	$	112,975	$	116,226	$	105,050	$	93,941	$	96,523
Income from operations		6,797		8,128		4,972		6,937		7,647		7,013		3,659		4,737
Net Income		4,885		5,776		3,623		5,012		5,376		4,796		2,754		4,365
Earnings per share:
Basic	$	0.38	$	0.45	$	0.29	$	0.40	$	0.43	$	0.39	$	0.22	$	0.35
Diluted		0.38		0.45		0.28		0.39		0.42		0.38		0.22		0.34
Weighted average number of shares:
Basic		12,744,936		12,732,644		12,652,075		12,618,416		12,584,358		12,447,300		12,411,968		12,417,594
Diluted		12,966,835		12,964,761		12,934,751		12,930,661		12,921,695		12,778,285		12,754,930		12,771,235

     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 Sept 30						For the nine months ended Sept 30
(in thousands)	2006			2005			2006			2005
Operating expenses	$	101,189		$	96,061		$	299,617		$	262,947
Selling, general and administrative expenses		11,195			10,399			33,675			29,011
Other income		(248	)		(6	)		(404	)		(33	)
Depreciation and amortization expense		2,579			1,954			7,495			4,802
	$	114,715		$	108,408		$	340,383		$	296,727
Revenue	$	121,512		$	116,226		$	360,280		$	315,217
Operating ratio (“OR”)		94.4	%		93.3	%		94.5	%		94.1	%

(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 14 to the Interim Consolidated Financial Statements for differences between United States and Canadian GAAP.

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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 and revolving credit facilities that have a variable interest rates tied to the LIBOR rate. The term bank credit of $80.0 million had a weighted-average interest rate on borrowings of 5.76% in the first nine months of 2006. Management estimates that the fair value of the term credit and revolving credit approximates the carrying value.

(in thousands of dollars)							Payments due by period
Long-term debt	Total			2006			2007& 2008			2009& 2010			Thereafter
Variable Rate
Term bank credit	$	80,000		$	2,000		$	16,000		$	62,000		$Nil
Average interest rate		9.34	%		9.34	%		9.34	%
Revolving bank credit	$	18,015		$	Nil		$	Nil		$	18,015		$Nil
Average interest rate		9.62	%								9.62	%
Fixed Rate
Capital lease obligation		53			8			45		Nil			Nil
Average interest rate		6.79	%		6.79	%		6.79	%
Total	$	98,068		$	2,008		$	16,045		$	80,015		$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 $98.0 million is designated as a hedge of the investment in the United States’ self-sustaining foreign operations.

Item 4. Controls and Procedures

a)

As of October 18, 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 September 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.

b)

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.

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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 third 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
Jul. 1 to Jul. 31, 2006		—		—		—		632,381
Aug 1 to Aug 31, 2006		—		—		—		632,381
Sept 1 to Sept 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 October 18, 2006.
	32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated October 18, 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: October 18, 2006	Vice President of Finance and
	Chief Financial Officer
	(Principal Financial Officer)
	/s/ FAYAZ D. SULEMAN
	Fayaz D. Suleman
Date: October 18, 2006	Corporate Controller
	(Principal Accounting Officer)

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