Vitran (VTNC) 10-Q 2007 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, 2007

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
(State of incorporation) (I.R.S. Employer
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 22, 2007 was 13,478,359.

TABLE OF CONTENT

 

Item		Page
PART I	Financial Information
1.	Financial Statements		3
2.	Management’s Discussion and Analysis		15
3.	Quantitative and Qualitative Disclosures About Market Risk		22
4.	Controls and Procedures		23
PART II	Other Information
1.	Legal Proceedings		23
1A.	Risk Factors		23
2.	Changes in Securities and Use of Proceeds		23
3.	Defaults Upon Senior Securities		23
4.	Submission of Matters to a Vote of Security Holders		23
5.	Other Information		23
6.	Exhibits and Reports on Form 8-K		24
EX-31
EX-32

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, 2007			Sept 30, 2006			Sept 30, 2007			Sept 30, 2006
Revenue	$	171,927		$	121,512		$	496,207		$	360,280
Operating expenses		145,457			101,189			414,693			299,617
Selling, general and administrative expenses		15,633			11,195			46,015			33,675
Other income		(53	)		(248	)		(125	)		(404	)
Depreciation and amortization expense		5,321			2,579			15,375			7,495
Total operating expenses		166,358			114,175			475,958			340,383
Income from operations before undernoted		5,569			6,797			20,249			19,897
Interest expense, net		2,325			274			6,504			621
Income from operations before income taxes		3,244			6,523			13,745			19,276
Income taxes		123			1,638			1,704			4,992
Net income before cumulative effect of change in accounting principle		3,121			4,885			12,041			14,284
Cumulative effect of a change in accounting principle		—			—			—			141
Net income	$	3,121		$	4,885		$	12,041		$	14,425
Earnings per share (note 10):
Basic — net income before cumulative effect of change in accounting principle	$	0.23		$	0.38		$	0.89		$	1.12
Basic — cumulative effect of change in accounting principle		—			—			—			0.01
Basic — net income	$	0.23		$	0.38		$	0.89		$	1.13
Diluted — net income before cumulative effect of change in accounting principle	$	0.23		$	0.38		$	0.88		$	1.10
Diluted — cumulative effect of change in accounting principle		—			—			—			0.01
Diluted — net income	$	0.23		$	0.38		$	0.88		$	1.11
Weighted average number of shares:
Basic		13,475,685			12,744,936			13,459,180			12,710,225
Diluted		13,668,819			12,966,835			13,660,723			12,956,661

See accompanying notes to consolidated financial statements

3

VITRAN CORPORATION INC.

CONSOLIDATED BALANCE SHEETS

(In thousands of United States dollars)

	Sept 30, 2007		Dec 31, 2006
	(Unaudited)		(Audited)
Assets		`
Current assets:
Cash and cash equivalents	$	3,819	$	1,454
Accounts receivable		81,419		66,051
Inventory, deposits and prepaid expenses		10,122		10,796
Income and other taxes receivable		1,481		—
Deferred income taxes		3,776		1,720
		100,617		80,021
Property and equipment		163,195		145,129
Intangible assets		14,205		15,888
Goodwill (note 5)		119,811		117,146
Other		—		150
	$	397,828	$	358,334
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	75,650	$	67,916
Income and other taxes payable		—		1,275
Current portion of long-term debt (note 6)		16,919		15,724
		92,569		84,915
Long-term debt (note 6)		103,263		93,139
Other		3,003		—
Deferred income taxes		9,547		6,983
Shareholders’ equity:
Common shares, no par value, unlimited authorized, 13,478,359 and 13,419,859 issued and outstanding at September 30, 2007 and December 31, 2006, respectively		77,484		76,913
Additional paid-in capital		2,159		1,607
Retained earnings		102,974		90,933
Accumulated other comprehensive income		6,829		3,844
		189,446		173,297
	$	397,828	$	358,334

Contingent liabilities (note 11)

See accompanying notes to consolidated financial statements.

4

VITRAN CORPORATION INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

										Accumulated
					Additional					other		Total
	Common shares				Paid-in			Retained		comprehensive		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		58,500		571		(168	)						403
Net income									12,041				12,041
Other comprehensive income											2,985		2,985
Share based compensation						720							720
September 30, 2007		13,478,359	$	77,484	$	2,159		$	102,974	$	6,829	$	189,446

										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 change in accounting principle						(141	)						(141	)
September 30, 2006		12,744,936	$	64,130	$	1,395		$	85,978	$	5,075	$	156,578

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, 2007			Sept 30, 2006			Sept 30, 2007			Sept 30, 2006
Cash provided by (used in):
Net income	$	3,121		$	4,885		$	12,041		$	14,425
Items not involving cash from operations
Depreciation and amortization expense		5,321			2,579			15,375			7,495
Deferred income taxes		(2,608	)		1,019			(13	)		1,591
Share-based compensation expense		261			218			720			627
Gain on sale of property and equipment		(53	)		(248	)		(125	)		(404	)
Cumulative effect of change in accounting principle		—			—			—			(141	)
Change in non-cash working capital components		4,461			551			(1,302	)		997
		10,503			9,004			26,696			24,590
Investments:
Purchase of property and equipment		(5,458	)		(9,216	)		(16,878	)		(20,745	)
Proceeds on sale of property and equipment		74			509			312			2,063
Additional payments due to acquisition of subsidiary		—			—			(6,921	)		—
Acquisition of business assets		—			—			—			(2,251	)
		(5,384	)		(8,707	)		(23,487	)		(20,933	)
Financing:
Change in revolving credit facility		3,468			18,015			13,590			15,030
Proceeds from long-term debt		—			70,500			—			70,500
Repayment of long-term debt		(2,255	)		(9	)		(6,765	)		(1,961	)
Financing costs		(642	)		—			(642	)		—
Repayment of capital leases		(1,858	)		—			(5,172	)		—
Issue of common shares upon exercise of stock options		196			—			403			479
		(1,091	)		88,506			1,414			84,048
Effect of translation adjustment on cash		(1,256	)		87			(2,258	)		(90	)
Increase in cash position		2,772			88,890			2,365			87,615
Cash position, beginning of period		1,047			13,317			1,454			14,592
Cash position, end of period	$	3,819		$	102,207		$	3,819		$	102,207
Change in non-cash working capital components:
Accounts receivable	$	(2,004	)	$	(240	)	$	(15,368	)	$	(6,669	)
Inventory, deposits and prepaid expenses		233			(2,219	)		1,316			(503	)
Income and other taxes receivable/payable		2,866			495			(3,121	)		593
Accounts payable and accrued liabilities		3,066			2,425			13,482			7,576
Other liabilities		300			—			2,389			—
	$	4,461		$	551		$	(1,302	)	$	997
Non-cash supplemental cash flow information:
Capital lease additions	$	4,561			—		$	8,301			—

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 Corporation Inc. (“Vitran” or “the Company”) 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 2006 Annual Report and the 2006 Annual Report on Form 10-K with emphasis on Note 17 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, 2007 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 three and nine month period ended September 30, 2007 are not necessarily indicative of the results of operations that may be expected for the year ended December 31, 2007.

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

2. New Accounting Pronouncements

FSP FIN 48-1 “Definition of Settlement in FASB Interpretation No. 48” amends FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” to provide guidance on how an enterprise should determine where a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The FSP is to be adopted upon initial adoption of FIN 48 with retroactive treatment if required. The Company adopted FIN 48 January 1, 2007, consistent with the provisions of the FSP.

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 will be adopted January 1, 2008, as required by the statement. The requirements of SFAS Statement 159 are not expected to have an effect on the Company’s consolidated financial statements.

SFAS Statement 157, Fair Value Measurements, defines fair values, establishes a framework for measuring fair value in GAAP, and requires enhanced disclosures about fair value measurements. This statement applies when other accounting pronouncements require or permit fair value measurements. SFAS Statement 157 will be adopted January 1, 2008 as required by the statement.

EITF 06-11 “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards”, requires that the tax benefit received on dividends associated with share-based awards that are charged to retained earnings should be recorded in additional paid-in capital and included in the pool of excess tax benefits available to absorb potential future tax deficiencies on share-based payment awards. EITF 06-11 will be adopted January 1, 2008 as required by the guidance. The requirement of EITF 06-11 will not 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 results of 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 $75.9 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 October 2, 2006, the Company acquired 100 percent of the outstanding shares of PJAX, Inc. and all the real estate held by Woodhurst Realty LLC and Northridge Enterprises LP, collectively known as PJAX Freight System (“PJAX”). During the 2006 fourth quarter, Vitran executed a joint election with the seller to structure the transaction as an asset sale for income tax purposes and at December 31, 2006 the Company had estimated an additional $5.5 million of cash would be payable in April 2007. Based on final calculations completed in the 2007 first quarter the additional amount of cash paid in April 2007 was $6.7 million. Therefore, aggregate purchase consideration was increased to $139.9 million. The additional $1.2 million was recorded as an adjustment to goodwill.

The following pro forma financial information reflects the results of operations of Vitran as if the acquisition of PJAX had taken place on January 1, 2005. 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, 2006		Sept 30, 2006
Pro forma revenue	$	165,536	$	491,643
Pro forma net income		204		11,071
Pro forma diluted earnings per share	$	0.00	$	0.81

5. Goodwill

	Goodwill
Balance at December 31, 2006	$	117,146
Foreign exchange on CDN$denominated goodwill		1,492
Adjustment to goodwill (note 4)		1,173
Balance at September 30, 2007	$	119,811

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 re-investment 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, 2007, the Company completed its annual goodwill impairment test and concluded that there was no impairment.

8

6. Long-term debt:

	Sept 30, 2007		Sept 30, 2006
Term bank credit facilities (a)	$	61,165	$	80,000
Revolving credit facility (b)		36,166		18,015
Capital leases (c)		22,851		53
		120,182		98,068
Less current portion		16,919		8,053
	$	103,263	$	90,015

(a)	The term bank credit facility is secured by accounts receivable and general security agreements of the Company and of all its subsidiaries.
	As at July 31, 2007 the Company refinanced its term debt under a new credit agreement to provide a $60 million term credit facility maturing July 31, 2012. The Company had $58.0 million bearing interest at 6.31%, outstanding under the term facility at September 30, 2007. The provisions of the term facility impose certain financial maintenance tests. At September 30, 2007 the Company was in compliance with these financial maintenance tests.
	The Company had an additional $3.2 million, bearing interest at 4.74%, outstanding under a separate term credit facility maturing on September 30, 2010. This term credit facility was assumed as part of the acquisition of PJAX on October 2, 2006.
(b)	At July 31, 2007 the Company refinanced its revolving debt to provide up to $100 million, maturing July 31, 2012. The Company had $36.2 million, bearing interest at 5.94% to 6.45%, outstanding at September 30, 2007. The provisions of the revolving facility impose certain financial maintenance tests. At September 30, 2007 the Company was in compliance with these financial maintenance tests.
(c)	As part of the PJAX acquisition the Company assumed capital leases $21.3 million of which $14.8 million were outstanding at September 30, 2007. During 2007 the Company financed certain equipment by entering into additional capital leases of $8.3 million.

At September 30, 2007, the required future principal repayments on all long-term debt and capital leases are as follows:

Year ending December 31:
2007	$	4,329
2008		16,567
2009		15,984
2010		16,305
2011		18,934
Thereafter,		48,063
	$	120,182

9

7. Income Taxes

The Company adopted the provisions of FASB interpretation No. 48, Accounting for Uncertainty in Income Taxes, on January 1, 2007. The implementation of Interpretation 48 did not result in a change in the estimated liability for unrecognized tax benefits at January 1, 2007. At September 30, 2007, the Company had unrecognized tax benefits of approximately $2.7 million, of which an estimated $2.2 million if recognized would have an impact on the effective tax rate. For the nine months ended September 30, 2007, the amount of unrecognized tax benefit decreased $0.2 million due to the lapse of the statute of limitations for a particular tax position and increased $0.4 million as a result of tax positions taken in the current and prior periods. The remaining increase is due to foreign exchange on the Canadian dollar denominated unrecognized tax benefits.

The Company recognizes interest and penalties related to unrecognized tax benefits in the tax provision. For the three and nine month periods ended September 30, 2007 and September 30, 2006, the Company did not recognize a material amount of interest and penalties. As at September 30, 2007, the Company had approximately $0.6 million accrued for interest and penalties.

The Company and its subsidiaries file income tax returns in U.S. and Canadian federal jurisdictions, and various states, provinces and foreign jurisdictions. The Internal Revenue Service (“IRS”) and Canada Revenue Agency (“CRA”) have in 2007 commenced examinations of the 2003, 2004 and 2005 income tax returns. The examinations are expected to be completed by 2008. These audits may impact the Company’s unrecognized tax benefits in the next 12 months; however, the estimated financial outcome is indeterminable at this time. Overall, the years 1999 to 2006 remain open to examination by tax authorities.

8. Stock Option Plan

Under the Company’s stock option plan, options to purchase Common Shares of the Company may be granted to key employees, officers and directors of the Company and its affiliates by the Board of Directors or by the Company’s Compensation Committee. There are 820,200 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 fair value option-pricing model with the following assumptions:

	Nine months			Nine months
	Ended			Ended
	Sept 30, 2007			Sept 30, 2006
Options granted		115,000			102,500
Risk-free interest rate		4.20	%		4.19	%
Dividend yield		—			—
Volatility factor of the future expected market price of the Company’s common shares		31.76	%		33.22	%
Expected life of the options	6 years			6 years

The weighted average estimated fair value at the date of grant for the options granted during the nine months ended September 30, 2007 was $7.12 (2006 — $7.69) per share.

9.Comprehensive income (loss)

The components of other comprehensive income (loss) such as changes in foreign currency adjustments are required to be added to the Company’s reported net income to arrive at comprehensive net income (loss). Other comprehensive income (loss) items have no impact on the reported net income as presented on the Consolidated Statements of Income.

10

9.Comprehensive income (loss) (continued)

The following are the components of other comprehensive income, net of income taxes for the three and nine months ended September 30, 2007 and 2006:

	Three months			Three months			Nine months			Nine months
	Ended			Ended			Ended			Ended
	Sept 30, 2007			Sept 30, 2006			Sept 30 2007			Sept 30, 2006
Net Income	$	3,121		$	4,885		$	12,041		$	14,425
Translation adjustment		1,752			(32	)		3,499			1,386
Interest rate swaps		(489	)		—			(514	)		—
Other comprehensive income	$	1,263		$	(32	)	$	2,985		$	1,386
Comprehensive net income	$	4,384		$	4,853		$	15,026		$	15,811

10. Computation of Earnings per Share

	Three months		Three months		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2007		Sept 30, 2006		Sept 30 2007		Sept 30, 2006
Numerator:
Net Income	$	3,121	$	4,885	$	12,041	$	14,425
Denominator:
Basic weighted-average shares outstanding		13,475,685		12,744,936		13,459,180		12,710,225
Dilutive Stock options		193,134		221,899		201,543		246,436
Dilutive weighted-average shares outstanding		13,668,819		12,966,835		13,660,723		12,956,661
Basic earnings per share before cumulative effect of change in accounting principle	$	0.23	$	0.38	$	0.89	$	1.12
Effect of a change in accounting principle		—		—		—		0.01
Basic earnings per share	$	0.23	$	0.38	$	0.89	$	1.13
Diluted earnings per share before cumulative effect of change in accounting principle	$	0.23	$	0.38	$	0.88	$	1.10
Effect of a change in accounting principle		—		—		—		0.01
Diluted earnings per share	$	0.23	$	0.38	$	0.88	$	1.11

Diluted earnings per share exclude the effect of 559,900 anti-dilutive options.

11. Contingent Liabilities

The Company is subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, the aggregate liability, if any, with respect to these actions will not have a material adverse effect on the consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred.

12. Risk Management Activities

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 when the interest rate swaps affect earnings. Ineffective portions of changes in fair value are recognized into earnings as they occur. At September 30, 2007, the notional amount of the swaps was $71.2 million, with the average pay rate being 4.93% and the average receive rate being 5.19%. The swaps mature at various dates up to December 31, 2011.

11

13. Segmented Information

Three months ended	Less-than-								Corporate Office			Consolidated
September 30, 2007	truckload		Logistics		Truckload		Total		and Other			Totals
Revenue	$	150,283	$	13,690	$	7,954	$	171,927	$	—		$	171,927
Operating, selling, general and administrative expenses		139,809		12,713		7,256		159,778		1,312			161,090
Other income		53		—		—		53		—			53
Depreciation and amortization		4,840		177		278		5,295		26			5,321
Income (loss) from operations	$	5,687	$	800	$	420	$	6,907	$	(1,338	)		5,569
Interest expense, net													2,325
Income taxes													123
Net income												$	3,121

Three months ended	Less-than-								Corporate Office			Consolidated
September 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

Nine months ended	Less-than-									Corporate Office			Consolidated
September 30, 2007	truckload		Logistics		Truckload			Total		and Other			Totals
Revenue	$	437,055	$	34,579	$	24,573		$	496,207	$	—		$	496,207
Operating, selling, general and administrative expenses		402,156		32,165		22,675			456,996		3,712			460,708
Other income (loss)		130		—		(5	)		125		—			125
Depreciation and amortization		14,109		438		774			15,321		54			15,375
Income (loss) from operations	$	20,920	$	1,976	$	1,119		$	24,015	$	(3,766	)		20,249
Interest expense, net														6,504
Income taxes														1,704
Net income													$	12,041

Nine months ended	Less-than-									Corporate Office			Consolidated
September 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 (loss)		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 change in accounting principle														14,284
Effect of change in accounting principle														141
Net income													$	14,425

12

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.

     (a) Consolidated reconciliation of net income and shareholders’ equity

     Net Income and Shareholders’ equity reconciled to Canadian GAAP are as follows:

	Net income					Net Income
	Three months ended					Nine months ended						Shareholders’ equity
	2007			2006		2007			2006			2007			2006
Balance as at Sept. 30, based on United States GAAP	$	3,121		$	4,885	$	12,041		$	14,425		$	189,197		$	156,578
Effect of change in accounting principle (i)		—			—		—			(141	)		(141	)		(141	)
Foreign exchange adjustment (ii)		(600	)		—		(1,314	)		—			(456	)		858
Unrealized foreign exchange loss on derivative instrument		—			—		—			—			(101	)		(101	)
Accumulated other comprehensive income adjustment (ii)		—			—		—			—			557			(757	)
Balance as at Sept. 30, based on Canadian GAAP	$	2,521		$	4,885	$	10,727		$	14,284		$	189,056		$	156,437

(i)

The adoption of SFAS 123(R) – Share-Based Payments only applies to United States GAAP. Therefore, the effect of a change in accounting principle does not impact Canadian GAAP net income or shareholders’ equity.

(ii)

The Company had a foreign exchange loss of $0.6 million and $1.3 million for the three months and nine months ended September 30, 2007, respectively, that did not represent a substantially complete liquidation of a foreign operation in the current period. In previous years, 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 and losses 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 on a cumulative basis is decreased $0.5 million (2006 — increased $0.9 million) with a corresponding increase (2006 – decrease) to the cumulative translation adjustment included in accumulated other comprehensive income.

     Earnings per share

	Three months		Three months		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2007		Sept 30, 2006		Sept 30 2007		Sept 30, 2006
Earnings per share
Canadian GAAP
Basic	$	0.19	$	0.38	$	0.80	$	1.12
Diluted	$	0.18	$	0.38	$	0.79	$	1.10

	Three months		Three months		Nine months		Nine months
	Ended		Ended		Ended		Ended
	Sept 30, 2007		Sept 30, 2006		Sept 30 2007		Sept 30, 2006
Weighted average number of shares:
Basic		13,475,685		12,744,936		13,459,180		12,710,225
Potential exercise of stock options		193,134		221,899		201,543		246,436
Diluted		13,668,819		12,966,835		13,660,723		12,956,661

13

14. United States and Canadian accounting policy differences (continued)

(b)	Derivative accounting
	Previously under Canadian GAAP, gains and losses on derivatives that are designated as hedges and that manage the underlying risks of anticipated transactions are not recorded until the underlying hedged item is recorded in net income and hedge ineffectiveness is not recorded until settlement. On January 1, 2007, the Company adopted CICA 3865, Hedges, in accordance with the transitional provisions. Under the transitional provision any hedging relationships that existed and satisfy all the conditions of CICA 3865 are adjusted to the carrying amounts that would have resulted had CICA 3865 always been applied. Based on the transitional provision there is no longer a difference in accounting for derivatives for the Company between United States and Canadian GAAP.
	On January 1, 2007, the Company adopted CICA 3855, Financial Instruments – Recognition and Measurement. Management evaluated the effect of the standard on the consolidated financial statements and concluded that the Company does not have a difference between United States and Canadian GAAP upon adoption of the standard.
(c)	Comprehensive income
	On January 1, 2007, the Company adopted CICA 1530, Comprehensive Income, in accordance with the appropriate provisions of the standard. The Company reports comprehensive income as part of its United States GAAP reporting, therefore, the adoption of this standard eliminates this presentation difference between United States and Canadian GAAP. However, there may be measurement differences between comprehensive income under United States and Canadian GAAP.

15. Comparative figures

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

14

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 operation, in a new regional market;

• the Company’s objective to achieve revenue growth in the less-than-truckload segment;

• the Company’s objective to complete information technology initiatives;

• the Company’s intention to achieve above-average transborder and inter-regional growth rates;

• the Company’s intention to add clients that will improve revenue and income from operations within the Logistics segment;

• the Company’s intention to achieve operating benefits from linehual optimization and dock efficiencies after completion of terminal level integration initiatives;

• the Company’s objective to complete service centre construction and achieve operating efficiencies;

• the Company’s intention to purchase a specified level of capital assets and to finance such acquisitions with cash flow from operations and, if necessary, from the Company’s unused credit facilities.

          Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Vitran’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that may cause such differences include but are not limited to technological change, increase in fuel costs, regulatory change, 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 atwww.vitran.com or fromwww.sedar.com or fromwww.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.

15

OVERVIEW

The North American freight economy did not evidence any signs of improvement in the third quarter of 2007 representing fourteen consecutive months in a demanding operating environment. Despite steady improvements in the Supply Chain business unit, competitive pricing pressures due to the prolonged economic downturn became apparent in the LTL segment and the Brokerage business unit. The Company posted third quarter revenue of $171.9 million, a 41.5% increase over the prior year third quarter. Income from operations was $5.6 million compared to $6.8 million in the 2006 third quarter. The increase in revenue is primarily due to the October 2, 2006 acquisition of PJAX Freight System (“PJAX”) while the decline in income from operations is attributable to the aforementioned economic environment. Vitran’s LTL segment posted the most significant increases in revenue of 46.1%. For the 2007 nine-month period revenue and income from operations exceeded the 2006 nine-month period by 37.7% and 1.8% respectively.

As a result of an increased number of U.S. shareholders and the continued expansion within the United States, the Company, commencing the first quarter of 2006, elected U.S. GAAP as its primary reporting standard. Therefore a reconciliation from U.S. GAAP to Canadian GAAP has been provided in note 14 of the interim financial statements. This disclosure is required for a finite period of time after the change to US GAAP is made under the Ontario Securities Commission regulations.

CONSOLIDATED RESULTS

The following table summarizes the Consolidated Statements of Income for the periods ended September 30:

	For the three months ended Sept 30									For the nine months ended Sept 30
(in thousands)	2007			2006			2007 vs 2006			2007			2006			2007 vs 2006
Revenue	$	171,927		$	121,512			41.5	%	$	496,207		$	360,280			37.7	%
Operating expenses		145,457			101,189			43.7	%		414,693			299,617			38.4	%
SG&A expenses		15,633			11,195			39.6	%		46,015			33,675			36.6	%
Other expenses (income)		(53	)		(248	)		(78.6	%)		(125	)		(404	)		(69.1	%)
Depreciation and amortization		5,321			2,579			106.3	%		15,375			7,495			105.1	%
Income from operations		5,569			6,797			(18.1	)%		20,249			19,897			1.8	%
Interest expense, net		2,325			274			748.5	%		6,504			621			947.3	%
Net income		3,121			4,885			(36.1	%)		12,041			14,425			(16.5	%)
Earnings per share:
Basic –net income	$	0.23		$	0.38					$	0.89		$	1.13
Diluted –net income	$	0.23		$	0.38					$	0.88		$	1.11
Operating Ratio(1)		96.8	%		94.4	%					95.9	%		94.5	%

Revenue increased 41.5% to $171.9 million for the third quarter of 2007 compared to $121.5 million in the third quarter of 2006. Revenue in the LTL and Logistics segments increased 46.1%, and 31.4%, respectively and were slightly offset by a decline of 3.4% in the Truckload segment. For the nine months ended September 30, 2007 revenue increased 37.7% to $496.2 million compared to $360.3 million for the same period in 2006. The consolidated results for the nine-months were achieved by revenue increases in the LTL and Logistics segment of 43.1% and 14.9% respectively while the Truckload segment was down 0.5%. Revenue increases in the LTL segment for the quarter and nine-month period ended September 30, 2007 benefited from the acquisition of PJAX on October 2, 2006. Detailed explanations for the improvement in revenue are discussed below in the “Segmented Results”.

Income from operations for the 2007 third quarter declined 18.1% to $5.6 million compared to $6.8 million in the third quarter of 2006. The LTL and Logistics segments recorded quarter over prior-year quarter declines in income from operations of 13.6% and 13.9% respectively offset by an increase of 18.6% at the Truckload segment. Consequently, the Company posted a consolidated operating ratio of 96.8% for the third quarter of 2007 compared to 94.4% for the third quarter of 2006. For the nine months ended September 30, 2007 income from operations increased 1.8% to $20.2 million compared to $19.9 million for the same period in 2006, resulting in a consolidated operating ratio of 95.9% in 2007 compared to 94.5% in 2006. Detailed explanations for the fluctuation in income from operations are discussed below in “Segmented Results”.

16

Selling, general and administrative expenses (“SG&A”) increased 39.6% to $15.6 million in the third quarter compared to $11.2 million in the third quarter of 2006. For the nine-month period ended September 30, 2007 SG&A increased 36.6% to $46.0 million compared to $33.7 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 acquisition of PJAX, not included in the 2006 comparative figures. For the third quarter of 2007 share-based compensation expenses declined compared to the prior year quarter due to the decline in Vitran’s stock price and the corresponding reduction in deferred stock unit compensation payable. For the nine-month period compared to the same period in 2006, increases in SG&A can be attributed to a cumulative increase in share-based compensation expense and healthcare costs. With the addition of PJAX and the increase in on-going compensation-related expenses, SG&A is likely to be higher than the prior year periods.

The Company incurred interest expense of $2.3 million in the third quarter of 2007 compared to $0.3 million in the third quarter of 2006. Effective July 31, 2007, Vitran substantially changed its syndicated credit facilities resulting in a one-time write off of $0.5 million of deferred financing costs attributable to its former syndication agreement. If not for this write-off, interest expense for the current quarter would have been approximately $1.8 million. Due to the October 2, 2006 acquisition of PJAX, the Company’s total debt was $120.2 million at September 30, 2007 compared to the $98.1 million of debt at the end of the 2006 third quarter. Compared to December 31, 2006 total debt increased $11.3 million representing $11.9 million of principle payments and $21.9 million in new debt to finance additional payments related to the PJAX acquisition and capital asset purchases. The additional increase is due to foreign exchange on the Company’s Canadian dollar denominated debt. Total debt at September 30, 2007 consisted of $36.2 million drawn on the Company’s $100.0 million revolving credit facilities, $61.2 million of term debt and $22.8 million of capital leases.

Income tax expense for the third quarter of 2007 was $0.1 million compared to $1.6 million for the same quarter a year ago. The effective tax rate was 3.8% for the third quarter of 2007 compared to 25.1% for the third quarter of 2006. For the nine months ended September 30, 2007 the effective tax rate was 12.6% compared to 25.9% for the same period a year ago. The decline in the income tax expense is primarily due to a decline in earnings before tax and a decline in the effective tax rate. The decline in the effective rate can be attributed to an increase in a higher proportion of income being earned in lower tax foreign jurisdictions. Should the Company’s earnings before income tax increase in subsequent quarters, the quarterly effective tax rate should also increase.

Net income before cumulative effect of change in accounting principle decreased by 36.1% to $3.1 million for the 2007 third quarter compared to $4.9 million for the same quarter in 2006. This resulted in basic and diluted earnings per share before cumulative effect of change in accounting principle of $0.23 for the third quarter of 2007 compared to basic and diluted earnings per share of $0.38 for the third quarter of 2006. Excluding the non-recurring write off of previously deferred financing costs basic and diluted earnings per share before cumulative effect of change in accounting principle would have been $0.25 for the third quarter of 2007⁽²⁾. The weighted average number of shares for the current quarter was 13.5 million basic and 13.7 million diluted compared to 12.7 million basic and 13.0 million diluted shares in the third quarter of 2006. For the nine months ended September 30, 2007 net income before cumulative effect of a change in accounting principle decreased 15.7% to $12.0 million compared to $14.3 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 $0.89 and $0.88, respectively for the 2007 nine-month period, compared to basic and diluted earnings per share of $1.12 and $1.10 in the same period in 2006. The weighted average number of shares for the nine month period of 2007 was 13.5 million basic and 13.7 million diluted shares compared to 12.7 million basic and 13.0 million diluted shares in the nine-month period of 2006.

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 change in accounting principle in the first quarter of 2006.

On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.” The adoption of this standard requires management to make estimates and assumptions that effect reported amounts of tax related assets and liabilities that will impact the effective tax rate of the Company. In addition the effective tax rate in all periods is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rates. The income tax expense differs from the tax computed at the federal statutory income tax rate due primarily to state and provincial income taxes and earnings in foreign jurisdictions. Future effective tax rates could be adversely affected if earnings are lower than anticipated in jurisdictions with lower statutory rates, unfavourable changes in tax laws and regulations, or by adverse tax rulings.

17

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)	2007			2006			2007 vs 2006			2007			2006			2007 vs 2006
Revenue	$	150,283		$	102,858			46.1	%	$	437,055		$	305,494			43.1	%
Income from operations		5,687			6,585			(13.6	%)		20,920			19,692			6.2	%
Operating ratio		96.2	%		93.6	%					95.2	%		93.6	%
Number of shipments(3)		1,032,178			659,602			56.5	%		3,071,284			2,011,252			52.7	%
Weight (000s of lbs)(4)		1,529,573			1,054,058			45.1	%		4,553,748			3,198,160			42.4	%
Revenue per shipment(5)	$	145.60		$	155.94			(6.6	%)	$	142.30		$	151.89			(6.3	%)
Revenue per hundredweight(6)	$	9.83		$	9.76			0.7	%	$	9.60		$	9.55			0.5	%

Revenue in the LTL segment increased 46.1% to $150.3 million in the third quarter of 2007 compared to $102.9 million in the same period a year ago. Revenues for the LTL segment were positively impacted by the acquistion of PJAX on October 2, 2006 and the launch of the new inter-regional service between the Central States and the West Coast which represented 2.7% of the LTL segment’s 2007 third quarter revenue. In addition, revenue in the cross-border service offering improved 29.7% for the 2007 third quarter compared to the same period a year ago. Despite revenue growth in the new East-West and cross-border service offerings, competitive pricing pressures negatively impacted the core regional services causing a decline in income from operations. The LTL segment’s shipments, tonnage and revenue per hundredweight increased 56.5%, 45.1% and 0.7%, respectively in the 2007 third quarter compared to the 2006 third quarter. Excluding PJAX, revenue per hundredweight increased 5.6% in the third quarter of 2007 compared to the same period a year ago, resulting from an increase in length of haul in the new East-West service offering and a decline in weight per shipment. Therefore the operating ratio for the 2007 third quarter was 96.2% compared to 93.6% in 2006 third quarter.

The results for the 2007 nine-month period ended September 30, 3007 were primarily impacted by the addition of PJAX, which was not included in the 2006 nine-month comparative figures. Revenue increased 43.1% for the 2007 nine-month period compared to the same period in 2006. Although the addition of PJAX was the primary contributor, cross-border revenue increased 14.2% and the new East-West service accounted for 2.5% of revenue. However, fourteen consecutive months in a tough economic environment, most evident in the 2007 third quarter, only resulted in a 3.0% increase in income from operations for the comparative nine-month periods. For the 2007 nine-month period ended September 30, 2007 the operating ratio was 95.2% compared to 93.6% for the 2006 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)	2007			2006			2007 vs 2006			2007			2006			2007 vs 2006
Revenue	$	13,690		$	10,419			31.4	%	$	34,579		$	30,082			14.9	%
Income from operations		800			929			(13.9	%)		1,976			2,081			(5.0	%)
Operating Ratio		94.2	%		91.1	%					94.3	%		93.1	%

Revenue for the Logistics segment improved 31.4% and income from operations declined 13.9% for the third quarter of 2007 compared to the same period in 2006. The increase in revenue was primarily attributable to the Supply Chain unit completing the facility preparation it started in the first quarter for two new clients. The Supply Chain Unit is currently operating near capacity within its 750,000 square feet under management. Preparations for the new major supply chain client, announced at the end of the 2007 second quarter, are underway and will expand revenue and income from operations in up-coming quarters. However, growth within the Supply Chain unit was offset by the Brokerage unit that saw revenue and income from operations decline compared to the

18

2006 third quarter due to the continued slowdown in the economy. For the nine-month period of 2007, revenue increased 14.9% and income from operations declined 5.0% compared to the same period a year ago.

Truckload

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)	2007			2006			2007 vs 2006			2007			2006			2007 vs 2006
Revenue	$	7,954		$	8,235			(3.4	%)	$	24,573		$	24,704			(0.5	%)
Income from operations		420			354			18.6	%		1,119			1,294			(13.5	%)
Operating Ratio		94.7	%		95.7	%					95.4	%		94.8	%

Revenue in the Truckload segment declined 3.4% to $7.9 million for the third quarter of 2007 compared to $8.2 million in the third quarter of 2006. Revenue per mile⁽⁷⁾declined 1.2% offset by the 2.8% increase in shipments compared to the 2006 third quarter. Income from operations increased $0.1 million due to a stabilization of empty miles and declines in insurance-related expenses and trailer lease costs. Consequently, the Truckload segment posted an operating ratio of 94.7% in the third quarter of 2007 compared to 95.7% for the third quarter of 2006. Revenue for the nine-month period of 2007 was flat compared to the same period of 2006, while income from operations declined 13.5% due to 6.0% increase in empty miles for the nine-month period.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations before working capital changes for the nine-month period increased to $28.0 million compared to $23.6 million in the 2006 nine-month period. The growth is predominantly attributable to an increase depreciation and amortization expense. Non-cash working capital changes consumed $1.3 million in the first nine months of 2007 compared to contributing $1.0 million for the same period a year ago. Accounts receivable increased at September 30, 2007 compared to December 31, 2006 due to higher revenue. As at September 30, 2007, average days sales outstanding for the Company was 39.2 days compared to 37.7 days on December 31, 2006. Accounts payable and accrued liabilities increased compared to December 31, 2006 due to the timing of payments.

During the third quarter the Company signed a new five year seven-bank syndication agreement, replacing the three-bank agreement expiring in 2009. Under this agreement, the Company increased liquidity, reduced its interest rate spreads and added a $50 million “Accordion” feature to facilitate additional borrowings if required. Under this new agreement at September 30, 2007 interest-bearing debt was $120.2 million consisting of $61.2 million of term debt, capital leases of $22.8 million and $36.2 million drawn under the revolving credit facility. At the end of 2006, interest-bearing debt was $108.9 million consisting of $81.9 million of term debt, capital leases of $19.7 million and $7.2 million drawn under the revolving credit facility.

For the nine months ended September 30, 2007, the Company repaid $6.8 million of term debt and $5.2 million of capital leases and borrowed $13.6 million on the revolving credit facility as well as $8.3 million of new capital leases. At September 30, 2007, the Company had $43.5 million of unused credit facilities, net of outstanding letters of credit, of which $18.0 million was available to be drawn.

Capital expenditures amounted to $10.0 million for the third quarter of 2007 and were funded out of operating cash flows, the revolving credit facilities and new capital leases. The majority of capital expenditures were for rolling stock and the construction of the new LTL service centre in Toronto, Ontario. Tractor and trailer additions for the nine months were primarily for replacement purposes. The table below sets forth the Company’s capital expenditures for the three and nine month periods ended September 30, 2007.

	For the three months ended Sept 30				For the nine months ended Sept 30
(in thousands, unaudited)	2007		2006		2007		2006
Real Estate and buildings	$	2,694	$	3,543	$	8,370	$	10,300
Tractors		5,245		883		10,587		1,715
Trailing fleet		1,236		4,548		3,921		6,995
Information technology		356		36		929		566
Leasehold improvements		89		130		122		186
Other equipment		399		76		1,250		983
Total	$	10,019	$	9,216	$	25,179	$	20,745

19

Management estimates that cash capital expenditures, excluding real estate additions for the remainder of 2007 will be between $3.0 million and $7.0 million the majority of which will be for tractors and trailing fleet. Real estate additions will be approximately $5.0 million. The Company also anticipates entering into operating leases to fund the use of equipment with a capital cost of between $0.5 million and $2.0 million. The Company expects to finance its capital requirements with cash flow from operations, and if required, its $43.5 million of unused credit facilities.

The Company has contractual obligations that include long-term debt consisting of term debt facilities, revolving credit facilities, capital leases for operating equipment 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, 2007:

(in thousands of dollars)			Payments due by period
Contractual Obligations	Total		2007		2008 & 2009		2010 & 2011		Thereafter
Long-term debt (LIBOR 4.74% to 6.31%)	$	61,165	$	2,255	$	20,106	$	28,804	$	10,000
Revolving credit facilities		36,166	Nil		Nil		Nil			36,166
Capital lease obligations		22,851		2,074		12,445		6,435		1,897
Amount due to vendors of acquisitions		1,980		1,980	Nil		Nil		Nil
Sub-total		122,162		6,309		32,551		35,239		48,063
Operating leases		29,297		3,322		16,939		6,805		2,231
Total Contractual Obligations	$	151,459	$	9,631	$	49,490	$	42,044	$	50,294

In addition to the above-noted contractual obligations, the Company, as at September 30, 2007, utilized the revolving credit facilities for standby letters of credit of $20.3 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, will be sufficient to fund operating and capital requirements in 2007 as well as service the contractual obligations.

OUTLOOK

The third quarter of 2007 proved to be a disappointing quarter as continued sluggishness of the general economy and pricing pressures within the Transportation sector impacted the operating results of all segments. Albeit the LTL segment expanded its revenue with the addition of PJAX on October 2, 2006, but its income from operations was most predominantly impacted by the operating environment.

For the remainder of 2007, from a sales perspective the LTL segment will concentrate on expanding regional, inter-regional and transborder service offerings. From an operations perspective, cost control measures were introduced at the beginning of the fourth quarter to mitigate the impact of the economic environment.

The U.S. LTL business unit completed the first phase of its IT systems integration successfully installing the new operating system with its eastern regional business, formerly PJAX. The second phase will focus on further IT development and data conversion of the remainder of the U.S. LTL regions that will augment the inter-regional marketing initiative. Upon completion of the IT system integration, operating management will focus on service centre level initiatives to achieve linehaul optimization and dock efficiencies. The Canadian LTL business unit will complete the construction of its new Toronto service centre in the upcoming months and then focus on service centre efficiencies. The Logistics segment will continue to make progress developing new accounts that will expand revenue and income from operations.

Lastly the Company remains committed to its objective to expand into or acquire new regional markets to complete its LTL footprint in North America.

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See “Forward-Looking Statements” for a more complete discussion of potential risks and uncertainties that could materially affect the Company’s future performance.

QUARTERLY RESULTS

U.S. GAAP
(thousands of dollars	2007		2007		2007		2006		2006		2006		2006		2005
except per share amounts)	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Revenue	$	171,927	$	170,144	$	154,136	$	153,779	$	121,512	$	123,641	$	115,127	$	112,975
Income from operations		5,569		9,073		5,607		8,143		6,797		8,128		4,972		6,937
Net Income		3,121		5,533		3,387		4,974		4,885		5,776		3,764		5,012
Earnings per share:
Basic	$	0.23	$	0.41	$	0.25	$	0.37	$	0.38	$	0.45	$	0.30	$	0.40
Diluted		0.23		0.41		0.25		0.37		0.38		0.45		0.29		0.39
Weighted average number of shares:
Basic		13,475,685		13,463,374		13,438,065		13,413,153		12,744,936		12,732,644		12,652,075		12,618,416
Diluted		13,668,819		13,661,467		13,651,872		13,624,031		12,966,835		12,964,761		12,934,751		12,930,661

Canadian GAAP(8)
(thousands of dollars	2007		2007		2007		2006		2006		2006		2006		2005
except per share amounts)	Q3		Q2		Q1		Q4		Q3		Q2		Q1		Q4
Revenue	$	171,927	$	170,144	$	154,136	$	153,779	$	121,512	$	123,641	$	115,127	$	112,975
Income from operations		4,969		8,442		5,524		8,143		6,797		8,128		4,972		6,937
Net Income		2,521		4,902		3,304		4,974		4,885		5,776		3,623		5,012
Earnings per share:
Basic	$	0.19	$	0.36	$	0.25	$	0.37	$	0.38	$	0.45	$	0.29	$	0.40
Diluted		0.18		0.36		0.24		0.37		0.38		0.45		0.28		0.39
Weighted average number of shares:
Basic		13,475,685		13,463,374		13,438,065		13,413,153		12,744,936		12,732,644		12,652,075		12,618,416
Diluted		13,668,819		13,661,467		13,651,872		13,624,031		12,966,835		12,964,761		12,934,751		12,930,661

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 Sept 30,						Nine months ended Sept 30,
(in thousands)	2007			2006			2007			2006
Operating expenses	$	145,457		$	101,189		$	414,693		$	299,617
Selling, general and administrative expenses		15,633			11,195			46,015			33,675
Other expenses (income)		(53	)		(248	)		(125	)		(404	)
Depreciation and amortization expense		5,321			2,579			15,375			7,495
	$	166,358		$	114,715		$	475,958		$	340,383
Revenue	$	171,927		$	121,512		$	496,207		$	360,280
Operating ratio (“OR”)		96.8	%		94.4	%		95.9	%		94.5	%

(2) Reconciliation to net income and earnings per share excluding the non-recurring write off of previously deferred financing costs:

	Three months ended Sept 30,		Nine months ended Sept 30,
(in thousands)	2007		2007
Net income	$	3,121	$	12,041
Financing costs written-off, net of tax		304		304
Adjusted Net Income	$	3,425	$	12,345

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	Three months ended Sept 30,		Nine months ended Sept 30,
(in thousands)	2007		2007
Weighted average shares outstanding:
Basic		13,475,695		13,459,180
Diluted		13,668,819		13,660,723
Adjusted earnings per share:
Basic	$	0.25	$	0.92
Diluted	$	0.25	$	0.90

(3)	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.
(4)	Weight represents the total pounds shipped.
(5)	Revenue per shipment represents revenue divided by the number of shipments.
(6)	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.
(7)	Revenue per total mile represents revenue divided by the total miles driven.
(8)	Please see Note 14 to the Interim Consolidated Financial Statements for differences between United States and Canadian GAAP.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to the impact of interest rate changes. The Company’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			2007			2008 & 2009			2010 & 2011			Thereafter
Variable Rate
Term bank facility		58,000			2,000			18,000			28,000			10,000
Average interest rate		6.45	%		6.45	%		6.45	%		6.45	%		6.45	%
Term bank facility		3,165			255			2,106			804		Nil
Average interest rate		6.94	%		6.94	%		6.94	%		6.94	%
Revolving bank facility		23,600		Nil			Nil			Nil				23,600
Average interest rate (LIBOR)		6.45	%											6.45	%
Revolving bank facility		12,566		Nil			Nil			Nil				12,566
Average interest rate (CDN BA)		5.94	%											5.94	%
Fixed Rate
Capital lease obligations		22,851			2,074			12,445			6,435			1,897
Average interest rate		6.15	%		6.15	%		6.15	%		6.15	%		6.15	%
Total	$	120,182		$	4,329		$	32,551		$	35,239		$	48,063

The Company uses variable-to-fixed interest rate swaps on its term and revolving debt facilities with a notional amount of $71.2 million at September 30, 2007. The average pay rate on the swaps is 4.93% and the average receive rate is the three-month LIBOR rate which is currently 5.19%.

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

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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 $75.9 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 22, 2007, 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, 2007. 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.

Item 1A. Risk Factors

See Part 1A of the Company’s 2006 Annual Report on Form 10-K.

Item 2. Changes in Securities and Use of Proceeds

On February 13, 2007 Vitran commenced a normal course issuer bid to repurchase up to 670,993 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, 2008. All shares repurchased are cancelled. The following table summarizes the purchases in the third quarter of 2007:

							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
July 01 to July 31, 2007		—		—		—		670,993
Aug 1 to Aug 31, 2007		—		—		—		670,993
Sept 1 to Sept 30, 2007		—		—		—		670,993
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

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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 22, 2007.
32	Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated October 22, 2007.

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. WASHCHUKSean P. Washchuk
Date: October 22, 2007	Vice President of Finance and Chief Financial Officer (Principle Financial Officer)
	/s/ FAYAZ D. SULEMAN
	Fayaz D. Suleman
Date: October 22, 2007	Corporate Controller (Principle Accounting Officer)

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