##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTER ENDED SEPTEMBER 30, 2004ORo
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD
FROM          to
 Commission file number: 000-26256 VITRAN CORPORATION INC. Ontario, Canada
    
    (I.R.S. Employer(State of incorporation)
    
    Identification No.)
 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5
(Address of principal executive offices)(Zip Code) 416-596-7664
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No o Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No x 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 21, 2004 was
12,412,578.




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TABLE OF CONTENTS PageItemPART I.  Financial Information1.  Financial Statements
    
    
    32.  Managements
Discussion and Analysis of Results of Operation
    
    
    133.  Quantitative and Qualitative Disclosures About Market Risk
    
    
    194.  Controls and Procedures
    
    
    19PART II.  Other Information1.  Legal Proceedings
    
    
    202.  Changes in Securities and Use of Proceeds
    
    
    203.  Defaults Upon Senior Securities
    
    
    204.  Submission of Matters to a Vote of Security Holders
    
    
    205.  Other Information
    
    
    206.  Exhibits and Reports on Form 8-K
    
    
    20
 2




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Part I. Financial Information 
 Item 1: Financial Statements VITRAN CORPORATION INC. CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited) (In thousands of United States dollars except for per share amounts) Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Revenue
    
    $
    96,995
    
    
    $
    84,889
    
    
    $
    278,072
    
    
    $
    246,493Operating expenses
    
    
    82,269
    
    
    
    71,453
    
    
    
    236,508
    
    
    
    209,193Selling, general and administrative expenses
    
    
    7,267
    
    
    
    7,577
    
    
    
    23,631
    
    
    
    22,55289,536
    
    
    
    79,030
    
    
    
    260,139
    
    
    
    231,745Income from operations before depreciation
    
    
    7,459
    
    
    
    5,859
    
    
    
    17,933
    
    
    
    14,748Depreciation expense
    
    
    1,295
    
    
    
    1,360
    
    
    
    3,835
    
    
    
    4,093Income from operations before undernoted
    
    
    6,164
    
    
    
    4,499
    
    
    
    14,098
    
    
    
    10,655Interest expense, net
    
    
    (7
    )
    
    
    (310
    )
    
    
    (87
    )
    
    
    (1,117
    )Gain (loss) on sale of capital assets
    
    
    29
    
    
    
    (37
    )
    
    
    142
    
    
    
    (137
    )22
    
    
    
    (347
    )
    
    
    55
    
    
    
    (1,254
    )Income from operations before income taxes
    
    
    6,186
    
    
    
    4,152
    
    
    
    14,153
    
    
    
    9,401Income taxes
    
    
    1,644
    
    
    
    1,107
    
    
    
    3,575
    
    
    
    2,215Net income
    
    
    4,542
    
    
    
    3,045
    
    
    
    10,578
    
    
    
    7,186Retained earnings, beginning of period
    
    
    46,065
    
    
    
    33,834
    
    
    
    40,029
    
    
    
    30,044Cost of repurchase of Common shares in
excess of book value
    
    nil
    
    nil
    
    nil
    
    
    (351
    )Retained earnings, end of period
    
    $
    50,607
    
    
    $
    36,879
    
    
    $
    50,607
    
    
    $
    36,879Earnings per share:Basic
    
    $
    0.37
    

    
    $
    0.32
    
    
    $
    0.86
    
    
    $
    0.75Diluted
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.83
    
    
    $
    0.72
 See accompanying notes to consolidated financial statements. 3




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VITRAN CORPORATION INC. CONSOLIDATED BALANCE SHEETS
(Unaudited) (In thousands of United States dollars) AS ATSep. 30, 2004
    
    Dec. 31, 2003AssetsCurrent assets:Cash
    
    $
    12,496
    
    
    $
    12,417Marketable securities (2004 - Cdn $35,600, 2003 - Cdn $35,000)
    
    
    28,196
    
    
    
    26,996Accounts receivable
    
    
    44,864
    
    
    
    35,685Inventory, deposits and prepaid expenses
    
    
    6,240
    
    
    
    5,847Future income tax assets
    
    
    3,763
    
    
    
    4,10195,559
    
    
    
    85,046Capital assets
    
    
    35,687
    
    
    
    35,102Goodwill (note 3)
    
    
    45,019
    
    
    
    44,865$
    176,265
    
    
    $
    165,013Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    
    37,521
    
    
    $
    34,092Income and other taxes payable
    
    
    2,929
    
    
    
    4,007Current portion of long-term debt
    
    
    8,675
    
    
    
    8,31349,125
    
    
    
    46,412Long-term debt
    
    
    11,427
    
    
    
    17,931Future income tax liabilities
    
    
    3,882
    
    
    
    2,715Shareholders equity:Common stock, no par value, unlimited authorized,
12,412,578 and 12,094,278 issued and outstanding at
September 30, 2004 and December 31, 2003, respectively
(note 4)
    
    
    60,760
    
    
    
    59,358Contributed surplus
    
    
    177
    
    
    
    Retained earnings
    
    
    50,607
    
    
    
    40,029Cumulative translation adjustment (note 2)
    
    
    287
    
    
    
    (1,432
    )111,831
    
    
    
    97,955$
    176,265
    
    
    $
    165,013
 See accompanying notes to consolidated financial statements. 4




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VITRAN CORPORATION INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (In thousands of United States dollars) Three months
    
    Three months
    
    Nine months
    
    Nine monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Cash provided by (used in):Operations:Net income
    
    $
    4,542
    
    
    $
    3,045
    
    
    $
    10,578
    
    
    $
    7,186Items not involving cash from operationsDepreciation expense
    
    
    1,295
    
    
    
    1,360
    
    
    
    3,835
    
    
    
    4,093Future income taxes
    
    
    1,726
    
    
    
    516
    
    
    
    1,557
    
    
    
    236Stock based compensation expense
    
    
    119
    
    
    
    
    
    
    
    177
    
    
    
    Loss (gain) on sale of capital assets
    
    
    (29
    )
    
    
    37
    
    
    
    (142
    )
    
    
    1377,653
    
    
    
    4,958
    
    
    
    16,005
    
    
    
    11,652Change in non-cash working capital
components
    
    
    (480
    )
    
    
    (1,719
    )
    
    
    (7,221
    )
    
    
    (5,726
    )7,173
    
    
    
    3,239
    
    
    
    8,784
    
    
    
    5,926Investments:Purchase of capital assets
    
    
    (915
    )
    
    
    (792
    )
    
    
    (3,993
    )
    
    
    (2,384
    )Proceeds on sale of capital assets
    
    
    28
    
    
    
    39
    
    
    
    242
    
    
    
    330Purchase of marketable securities
    
    
    (148
    )
    
    
    
    
    
    
    (439
    )
    
    
    (1,035
    )
    
    
    (753
    )
    
    
    (4,190
    )
    
    
    (2,054
    )Financing:Repayment of long-term debt
    
    
    (2,169
    )
    
    
    (1,815
    )
    
    
    (6,146
    )
    
    
    (5,364
    )Issue of Common shares
upon exercise of stock options
    
    
    503
    
    
    
    660
    
    
    
    1,402
    
    
    
    830Repurchase of Common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (644
    )(1,666
    )
    
    
    (1,155
    )
    
    
    (4,744
    )
    
    
    (5,178
    )Effect of translation adjustment on cash
    
    
    63
    
    
    
    168
    
    
    
    229
    
    
    
    (535
    )Increase (decrease) in cash position
    
    
    4,535
    
    
    
    1,499
    
    
    
    79
    
    
    
    (1,841
    )Cash position, beginning of period
    
    
    7,961
    
    
    
    4,662
    
    
    
    12,417
    
    
    
    8,002Cash position, end of period
    
    $
    12,496
    
    
    $
    6,161
    
    
    $
    12,496
    
    
    $
    6,161Change in non-cash working capital
components:Accounts receivable
    
    $
    (2,343
    )
    
    $
    (1,985
    )
    
    $
    (9,179
    )
    
    $
    (9,079
    )Inventory, deposits and prepaid expenses
    
    
    (1,077
    )
    
    
    (946
    )
    
    
    (393
    )
    
    
    108Income and other taxes recoverable/payable
    
    
    (1,019
    )
    
    
    139
    
    
    
    (1,078
    )
    
    
    669Accounts payable and accrued liabilities
    
    
    3,959
    
    
    
    1,073
    
    
    
    3,429
    
    
    
    2,576$
    (480
    )
    
    $
    (1,719
    )
    
    $
    (7,221
    )
    
    $
    (5,726
    )
 See accompanying notes to consolidated financial statements. 5




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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 Canadian generally accepted accounting principles with
reconciliation to United States generally accepted accounting principles in
note 8 and follow the same accounting principles and methods of application
as the most recent annual consolidated financial statements. The interim
consolidated financial statements do not contain all the disclosures required
by Canadian and United States generally accepted accounting principles. The
interim consolidated financial statements have been prepared in accordance
with instruction to Quarterly Report on Form 10-Q. The interim consolidated
financial statements should be read in conjunction with the Companys Annual
Report and the Annual Report on Form 10-K.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, 2004 are not necessarily
indicative of the results of operations that may be expected for the year
ended December 31, 2004.All amounts in these consolidated interim financial statements are
expressed in United States dollars, unless otherwise stated.Accounting EstimatesOn January 01, 2004 the Company changed the estimated useful life of its
equipment to accurately reflect its actual useful life. The useful life of
the Companys tractors and trailers was changed to 8 years from 7 years and
to 12 years from 10 years, respectively. The following table outlines the
effect of the change in estimate on net income and earnings per share: Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Net income, as reported
    
    $
    4,542
    
    
    $
    3,045
    
    
    $
    10,578
    
    
    $
    7,186Effect of change in estimate, net of tax
    
    
    (127
    )
    
    
    
    
    
    
    (374
    )
    
    
    Pro forma net income
    
    $
    4,415
    
    
    $
    3,045
    
    
    $
    10,204
    
    
    $
    7,186Pro forma earnings per share:Basic
    
    $
    0.36
    
    
    $
    0.32
    
    
    $
    0.83
    
    
    $
    0.75Diluted
    
    $
    0.35
    
    
    $
    0.30
    
    
    $
    0.80
    
    
    $
    0.72
  2.
    
    Foreign Currency TranslationOn December 31, 2003 the Company elected to change its reporting currency to
U.S. dollars and restated prior year comparative balances to reflect the
change in accounting policy.The United States dollar is the functional currency of the Companys
operations in the U.S. 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 $20.0 million
is designated as a hedge of the investment in the United States
self-sustaining operations. 6




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3.
    
    GoodwillThe 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, 2004 the Company completed its annual goodwill impairment
test and concluded that there was no impairment. The change in goodwill is
attributable to translating the Canadian dollar denominated goodwill to the
United States dollar reporting currency.4.
    
    Common Stock  (a)
    
    AuthorizedThe Companys common stock consists of an unlimited number of
Common Shares. On April 21, 2004 the shareholders of the Company
voted to redesignate the Companys Class A Voting shares as Common
Shares and cancelled the previously unissued Class B non-voting
shares and first preference shares.(b)
    
    Issued Sep. 30, 2004
    
    Sep. 30, 2003Common Shares
    
    Number
    
    Amount
    
    Number
    
    AmountBalance, beginning of year
    
    
    12,094,278
    
    
    $
    59,358
    
    
    
    9,559,818
    
    
    $
    27,857Shares repurchased for cancellation
    
    
    
    
    
    
    
    
    
    
    (106,500
    )
    
    
    (312
    )Shares issued upon exercise of
employees stock options
    
    
    318,300
    
    
    
    1,402
    
    
    
    170,860
    
    
    
    830Balance, end of period
    
    
    12,412,578
    
    
    $
    60,760
    
    
    
    9,624,178
    
    
    $
    28,375
  (c)
    
    Weighted average number of sharesThe Company uses the treasury-stock method to calculate diluted
earnings per share. Under the treasury-stock method, the weighted
average number of shares outstanding for basic earnings per share is
adjusted to reflect the assumed exercise of the Companys outstanding
stock options less the shares that could otherwise be acquired from
the assumed proceeds on exercise. Three months
    
    Three months
    
    Nine months
    
    Nine monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Weighted average number of shares:Basic
    
    
    12,339,956
    
    
    
    9,557,681
    
    
    
    12,241,013
    
    
    
    9,541,452Potential exercise of stock options
    
    
    434,788
    
    
    
    599,479
    
    
    
    489,052
    
    
    
    496,883Diluted *
    
    
    12,774,744
    
    
    
    10,157,160
    
    
    
    12,730,065
    
    
    
    10,038,335
  *
    
    Diluted weighted average number of shares excludes out of the money
options5.
    
    Stock Option PlanUnder 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 1,367,900 options authorized 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.The Company has applied the fair value method for stock options granted on or
after January 1, 2003. The Company has applied the pro forma disclosure
provisions of the standard to awards granted during 2002, and consistent with
the standard, the pro forma effect of stock options granted prior to January
1, 2002 have not been included. The following table outlines the impact: 7




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Three months
    
    Three months
    
    Nine months
    
    Nine monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Net income, as reported
    
    $
    4,542
    
    
    $
    3,045
    
    
    $
    10,578
    
    
    $
    7,186Pro forma net income
    
    $
    4,532
    
    
    $
    3,035
    
    
    $
    10,548
    
    
    $
    7,157Pro forma basic income per share
    
    $
    0.37
    
    
    $
    0.32
    
    
    $
    0.86
    
    
    $
    0.75Pro forma diluted income per share
    
    $
    0.35
    
    
    $
    0.30
    
    
    $
    0.83
    
    
    $
    0.71
  On March 9, 2004 the Board of Directors of the Company approved an amendment
to the Company stock option plan to increase the aggregate number of Common
Shares issuable under the Plan by an additional 750,000 Common Shares and
granted 205,000 stock options to executive officers and certain non-executive
employees of the Company. The stock options granted on March 9, 2004 were
not expensed in the first quarter financial statements as the shareholders of
the Company had yet to approve the increase to the aggregate number of Common
Shares reserved under the stock plan. On April 21, 2004 the shareholders of
the Company approved the amendment to the stock option plan. In addition,
the Board of Directors granted an additional 105,000 options on July 20, 2004
to non-executive employees of the Company. Accordingly, for the stock
options granted in 2004 the associated stock option expense of $0.2 million
pursuant to the fair value method has been recognized in the financial
statements for the nine months ended September 30, 2004.The fair value of each stock option granted was estimated using the
Black-Scholes fair value option-pricing model with the following assumptions: Risk-free interest rate
    
    
    4.98
    %Dividend Yield
    
    
    0.0
    %Volatility factor of the future expected market price of
the Companys common shares
    
    
    34.80% - 35.98
    %Expected life of the options
    
    10 years
  6.
    
    Contingent LiabilitiesThe 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. 8




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7.
    
    Segmented Information Three months ended
    
    Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Office
    
    ConsolidatedSep. 30, 2004
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    and Other
    
    TotalsRevenue
    
    $
    78,727
    
    
    $
    8,936
    
    
    $
    9,332
    
    
    $
    96,995
    
    
    $
    
    
    
    $
    96,995Operating, selling, general and
administrative expenses
    
    
    71,748
    
    
    
    8,491
    
    
    
    8,675
    
    
    
    88,914
    
    
    
    622
    
    
    
    89,536Depreciation
    
    
    1,107
    
    
    
    78
    
    
    
    95
    
    
    
    1,280
    
    
    
    15
    
    
    
    1,295Income (loss) from operations
    
    $
    5,872
    
    
    $
    367
    
    
    $
    562
    
    
    $
    6,801
    
    
    $
    (637
    )
    
    
    6,164Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Gain on sale of capital assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,644Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,542
 Three months ended
    
    Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Office
    
    ConsolidatedSep. 30, 2003
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    and Other
    
    TotalsRevenue
    
    $
    69,228
    
    
    $
    7,347
    
    
    $
    8,314
    
    
    $
    84,889
    
    
    $
    
    
    
    $
    84,889Operating, selling, general and
administrative expenses
    
    
    63,505
    
    
    
    6,938
    
    
    
    7,984
    
    
    
    78,427
    
    
    
    603
    
    
    
    79,030Depreciation
    
    
    1,158
    
    
    
    64
    
    
    
    125
    
    
    
    1,347
    
    
    
    13
    
    
    
    1,360Income (loss) from operations
    
    $
    4,565
    
    
    $
    345
    
    
    $
    205
    
    
    $
    5,115
    
    
    $
    (616
    )
    
    
    4,499Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    310Gain (loss) on sale of capital assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,107Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,045
 Nine months ended
    
    Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Office
    
    ConsolidatedSep. 30, 2004
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    And Other
    
    TotalsRevenue
    
    $
    224,943
    
    
    $
    25,872
    
    
    $
    27,257
    
    
    $
    278,072
    
    
    $
    
    
    
    $
    278,072Operating, selling, general and
administrative expenses
    
    
    208,342
    
    
    
    24,490
    
    
    
    25,490
    
    
    
    258,322
    
    
    
    1,817
    
    
    
    260,139Depreciation
    
    
    3,290
    
    
    
    232
    
    
    
    269
    
    
    
    3,791
    
    
    
    44
    
    
    
    3,835Income (loss) from operations
    
    $
    13,311
    
    
    $
    1,150
    
    
    $
    1,498
    
    
    $
    15,959
    
    
    $
    (1,861
    )
    
    
    14,098Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87Gain on sale of capital assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,575Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    10,578
 Nine months ended
    
    Less-than-
    
    
    
    
    
    
    
    
    
    
    
    
    
    Corporate Office
    
    ConsolidatedSep. 30, 2003
    
    truckload
    
    Logistics
    
    Truckload
    
    Total
    
    and Other
    
    TotalsRevenue
    
    $
    200,955
    
    
    $
    20,793
    
    
    $
    24,745
    
    
    $
    246,493
    
    
    $
    
    
    
    $
    246,493Operating, selling, general and
administrative expenses
    
    
    186,050
    
    
    
    20,013
    
    
    
    23,849
    
    
    
    229,912
    
    
    
    1,833
    
    
    
    231,745Depreciation
    
    
    3,505
    
    
    
    172
    
    
    
    377
    
    
    
    4,054
    
    
    
    39
    
    
    
    4,093Income (loss) from operations
    
    $
    11,400
    
    
    $
    608
    
    
    $
    519
    
    
    $
    12,527
    
    
    $
    (1,872
    )
    
    
    10,655Interest expense, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,117Gain (loss) on sale of capital assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (137
    )Income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,215Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    7,186
 9




---



##### 



8.
    
    Canadian and United States accounting policy differences:  (a)
    
    Consolidated reconciliation of shareholders equityUnited States GAAP requires the inclusion of a reconciliation of
shareholders equity between Canadian and United States GAAP.
Shareholders equity reconciled to United States GAAP is as follows: OtherCapital
    
    Contributed
    
    Retained
    
    ComprehensiveStock
    
    Surplus
    
    Earnings
    
    Income
    
    TotalBalance, December 31, 2003, based on
Canadian GAAP
    
    $
    59,358
    
    
    $
    
    
    
    $
    40,029
    
    
    $
    
    
    
    $
    99,387Cumulative reporting differences
between Canadian and United States
GAAP
    
    
    
    
    
    
    
    
    
    
    (858
    )
    
    
    5,237
    
    
    
    4,379Balance, December 31, 2003 based on
United States GAAP
    
    $
    59,358
    
    
    $
    
    
    
    $
    39,171
    
    
    $
    5,237
    
    
    $
    103,766Balance September 30, 2004 based
in Canadian GAAP
    
    $
    60,760
    
    
    $
    177
    
    
    $
    50,607
    
    
    $
    
    
    
    $
    111,544Cumulative reporting differences
between Canadian and United States
GAAP
    
    
    
    
    
    
    
    
    
    
    (858
    )
    
    
    5,237
    
    
    
    4,379Unrealized foreign currency gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,719
    
    
    
    1,719Balance, September 30, 2004 based on
United States GAAP
    
    $
    60,760
    
    
    $
    177
    
    
    $
    49,749
    
    
    $
    6,956
    
    
    $
    117,642
  (b)
    
    Consolidated statements of cash flows:Canadian GAAP permits the disclosure of a subtotal of the amount of
cash provided by operations before changes in non-cash working capital
items in the consolidated statements of cash flows. United States GAAP
does not permit this subtotal to be included.(c)
    
    Statement of net income (loss) and comprehensive income (loss)The following table reconciles net income for the three-month and
nine-month periods as reported in the consolidated statement of operations
to what would have been reported had the statements been prepared in
accordance with United States GAAP.United States GAAP requires the disclosure of a Statement of Comprehensive
Income. Comprehensive income generally encompasses all changes in
shareholders equity, except those arising from transactions with
shareholders. 10




---



##### 



Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Net income based on Canadian and
United States GAAP
    
    $
    4,542
    
    
    $
    3,045
    
    
    $
    10,578
    
    
    $
    7,186Other comprehensive income:Change in cumulative translation
adjustment
    
    
    3,061
    
    
    
    72
    
    
    
    1,719
    
    
    
    3,002Obligation for derivative instruments (i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Comprehensive income based
on United States GAAP
    
    $
    7,603
    
    
    $
    3,117
    
    
    $
    12,297
    
    
    $
    10,304
  (i)
    
    The change in the fair value of the Companys obligation for its
interest rate swap, which was designated as a cash flow hedge, has been
included net of the income tax effect of nil (2003  $78,000).  (d)
    
    Earnings per share Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Earnings per share underUnited States GAAPBasic
    
    $
    0.37
    
    
    $
    0.32
    
    
    $
    0.86
    
    
    $
    0.75Diluted
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.83
    
    
    $
    0.72
 Three months
    
    Three months
    
    Nine months
    
    Nine monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Weighted average number of shares:Basic
    
    
    12,339,956
    
    
    
    9,557,681
    
    
    
    12,241,013
    
    
    
    9,541,452Potential exercise of stock options
    
    
    434,788
    
    
    
    599,479
    
    
    
    489,052
    
    
    
    496,883Diluted
    
    
    12,774,744
    
    
    
    10,157,160
    
    
    
    12,730,065
    
    
    
    10,038,335
 (e) Income from operations before depreciation United States GAAP requires that depreciation be included in the
determination of income from operations. Further, United States GAAP does
not permit the disclosure of a subtotal of the amount of income from
operations before this item. Canadian GAAP permits the disclosure of a
subtotal of the amount of income from operations before this item. Income
from operations based on United States GAAP is as follows: Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Income from operations before
depreciation, as reported
    
    $
    7,459
    
    
    $
    5,859
    
    
    $
    17,933
    
    
    $
    14,748Depreciation expense
    
    
    1,295
    
    
    
    1,360
    
    
    
    3,835
    
    
    
    4,093Gain (Loss) on sale of Capital assets
    
    
    29
    
    
    
    (37
    )
    
    
    142
    
    
    
    (137
    )Income from operations based on United
States GAAP
    
    $
    6,193
    
    
    $
    4,462
    
    
    $
    14,240
    
    
    $
    10,518
 11




---



##### 



(f)
    
    Stock-based compensation:Pro forma stock option disclosure:For all stock option grants prior to January 01, 2003, stock-based
compensation to employees was accounted for based on the intrinsic value
method under APB No. 25 and related interpretations.Canadian GAAP requires pro forma net income and earnings per share disclosure
for stock option grants during 2002. United States GAAP requires pro forma
net income and earnings per share disclosure for stock options granted on or
after January 01, 1995. For stock option grants on or after January 01, 2003
there is no policy difference between Canadian and United States GAAP.The following table outlines the pro forma impact if the compensation cost
for the Companys stock options is determined under the fair value method for
awards granted on or after January 1, 1995. Three
    
    Three
    
    Nine
    
    Ninemonths
    
    months
    
    months
    
    monthsEnded
    
    Ended
    
    Ended
    
    EndedSep. 30, 2004
    
    Sep. 30, 2003
    
    Sep. 30, 2004
    
    Sep. 30, 2003Net income, as reported based on
United States GAAP
    
    $
    4,542
    
    
    $
    3,045
    
    
    $
    10,578
    
    
    $
    7,186Add: Stock-based compensation expense
included in reported net income
    
    
    119
    
    
    
    
    
    
    
    177
    
    
    
    Deduct: Total stock-based compensation
expense determined using fair value
method for all grants
    
    
    (132
    )
    
    
    (53
    )
    
    
    (258
    )
    
    
    (159
    )Pro forma net income
    
    $
    4,529
    
    
    $
    2,992
    
    
    $
    10,497
    
    
    $
    7,027Earnings per share:Basic  as reported
    
    $
    0.37
    
    
    $
    0.32
    
    
    $
    0.86
    
    
    $
    0.75Basic  pro forma
    
    $
    0.37
    
    
    $
    0.31
    
    
    $
    0.86
    
    
    $
    0.74Diluted  as reported
    
    $
    0.36
    
    
    $
    0.30
    
    
    $
    0.83
    
    
    $
    0.72Diluted  pro forma
    
    $
    0.35
    
    
    $
    0.29
    
    
    $
    0.82
    
    
    $
    0.70
  (g)
    
    Marketable SecuritiesThe Marketable securities are classified as available for sale under United
States GAAP. The cost approximates the fair value and all maturities are
within one year.9.
    
    Comparative figuresCertain comparative figures have been reclassified to conform with the
financial statement presentation adopted in the current year. 12




---



##### 



Item 2. Managements Discussion and Analysis of Results of Operation Forward-Looking Statements:This Quarterly Report contains forward-looking
statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 concerning Vitran Corporation Inc.s business,
operations, and financial performance and condition. When used in this
Quarterly Report, the words believe, anticipate, intend, estimate,
expect, project and similar expressions are intended to identify
forward-looking statements, although not all forward-looking statements contain
such words. These forward-looking statements are based on current expectations
and are naturally subject to uncertainty and changes in circumstances that may
cause actual results to differ materially from those expressed or implied by
such forward-looking statements. Factors that may cause such differences
include but are not limited to technological change, regulatory change, the
general health of the economy and competitive factors. More detailed
information about these and other factors are included in the 2003 Annual
Report and the Companys Form 10-K in respect of 2003. Many of these factors
are beyond the Companys control; therefore, future events may vary
substantially from what the Company currently foresees. You should not place
undue reliance on such forward-looking statements. Vitran Corporation Inc. is
under no obligation to update or alter such forward-looking statements whether
as a result of new information, future events or otherwise. Unless otherwise
indicated all dollar references herein are in U.S. dollars. Definitions of
non-GAAP measures are listed subsequent to the management discussion and
analysis of results of operations. Overview The third quarter of 2004 marked the second successive record quarter for
Vitran. Net income increased 49.2% over the prior year third quarter and
marked the twelfth consecutive quarter of improved earnings. All segments
within the Company once again improved, posting both revenue and profitability
increases. The LTL segment in general and most notably the US LTL business
unit benefited from economic expansion that led to improved results in the
quarter. For the nine-month period ended September 30, 2004 results exceeded
the prior year nine-month period despite the adverse impact of the five-week
strike at CN Railway Co. (CN). Strike related issues disrupted linehaul
operations at the Canadian LTL business unit, reducing revenue and considerably
increasing operating costs during February and March 2004. However, the
Company efficiently diverted many shipments over-the-road during the strike,
and quickly resumed normal operations once the strike ended. Strong results at
both the Truckload and the Logistics segments also contributed to the
improvement. Consolidated Results The following table summarizes the Consolidated Statements of Income for the
periods ended: For the three months ended Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004 vs 2003
    
    2004
    
    2003
    
    2004 vs 2003Revenue
    
    $
    96,995
    
    
    $
    84,889
    
    
    
    14.3
    %
    
    $
    278,072
    
    
    $
    246,493
    
    
    
    12.8
    %Income from operations
    
    
    6,164
    
    
    
    4,499
    
    
    
    37.0
    %
    
    
    14,098
    
    
    
    10,655
    
    
    
    32.3
    %Interest expense, net
    
    
    7
    
    
    
    310
    
    
    
    (97.7
    %)
    
    
    87
    
    
    
    1,117
    
    
    
    (92.2
    %)Net income
    
    
    4,542
    
    
    
    3,045
    
    
    
    49.2
    %
    
    
    10,578
    
    
    
    7,186
    
    
    
    47.2
    %Operating
Ratio(1)
    
    
    93.6
    %
    
    
    94.7
    %
    
    
    
    
    
    
    94.9
    %
    
    
    95.7
    %
 Revenue increased 14.3% to $97.0 million for the third quarter of 2004 compared
to $84.9 million in the third quarter of 2003. Revenue in the LTL segment
increased 13.7% while revenue at the Logistics and Truckload segments grew
21.6% and 12.2% respectively. For the nine months ended September 30, 2004
revenue increased 12.8% to $278.1 million compared to $246.5 million for the
same period in 2003. Explanations for the quarterly improvements in revenue
are discussed within the Segmented Results. 13




---



##### 



Income from operations for the third quarter of 2004 improved 37.0% to $6.2
million compared to $4.5 million in the third quarter of 2003. All three
segments, LTL, Logistics, and Truckload posted quarter over prior-year quarter
improvements of 28.6%, 6.4%, and 174.1%, respectively. Economic growth and a
strong operating environment primarily in the Midwestern United States buoyed
the results of the LTL and Truckload segments. For the nine months ended
September 30, 2004 income from operations increased 32.3% to $14.1 million
compared to $10.7 million for the same period in 2003. Improvements at the
Logistics and Truckload segments as well as improving fundamentals in the LTL
segment contributed to the increase. In addition, the Company changed the
estimated useful life for its tractors from 7 years to 8 years and its trailers
from 10 years to 12 years to more accurately reflect the actual useful life of
its equipment and to bring the Companys policy in line with its peer group.
This change in estimate was recorded prospectively and resulted in a reduction
in depreciation expense of $0.2 million for the 2004 third quarter and $0.5
million for the nine month ended September 30, 2004. The net impact of the
items discussed above was that the consolidated operating ratio for the third
quarter of 2004 improved to 93.6% compared to 94.7% in the third quarter of
2003. The operating ratio for the nine months ended September 30, 2004
improved to 94.9% compared to 95.7% for the same period in 2003. Interest expense net of interest income was $0.1 million for the nine months
ended September 30, 2004 compared to $1.1 million in the nine months ended
September 30, 2003. This reduction was primarily due to the Companys $28.2
million in short-term investments generating interest income of $0.4 million.
As well, the Company repaid $6.1 million of its outstanding debt obligations
and had a 50 basis point reduction in interest rate spreads starting in
February 2004. Income tax expense for the third quarter of 2004 was $1.6 million compared to
$1.1 million in the third quarter of 2003. The effective tax rate was 26.6%
for the third quarter of 2004 in line with the third quarter of 2003. For the
nine months ended September 30, 2004 the effective tax rate was 25.3% compared
to 23.6% for the same period a year ago. The increase in the effective tax
rate can be attributed to an increase in statutory rates as well as a higher
proportion of income being earned in higher tax jurisdictions. Net income improved by 49.2% to $4.5 million for the third quarter of 2004,
another successive quarter posting an all time record for the Company, compared
to $3.0 million in the third quarter of 2003. This resulted in $0.37 per share
basic and $0.36 diluted for the quarter, compared to $0.32 per share basic and
$0.30 per share diluted in 2003. The weighted average number of shares for the
third quarter of 2004 was 12.3 million basic and 12.8 million diluted compared
to 9.6 million basic and 10.2 million diluted shares in the third quarter of
2003. For the nine months ended September 30, 2004 net income improved by
47.2% to $10.6 million compared to $7.2 million in the same period a year ago.
This resulted in $0.86 per share basic and $0.83 diluted for the 2004 nine
month period, compared to $0.75 per share basic and $0.72 per share diluted in
2003. The weighted average number of shares for the nine-month period of 2004
was 12.2 million basic and 12.7 million diluted compared to 9.5 million basic
and 10.0 million diluted shares in the nine month period of 2003. The weighted
average number of shares for 2004 reflects the Companys 2.3 million share
equity offering in the fourth quarter of 2003, and more dilution due to the
fact that the majority of outstanding stock options were in the money in the
three month and nine month period ended September 30, 2004. 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 Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004 vs 2003
    
    2004
    
    2003
    
    2004 vs 2003Revenue
    
    $
    78,727
    
    
    $
    69,228
    
    
    
    13.7
    %
    
    $
    224,943
    
    
    $
    200,955
    
    
    
    11.9
    %Income from operations
    
    
    5,872
    
    
    
    4,565
    
    
    
    28.6
    %
    
    
    13,311
    
    
    
    11,400
    
    
    
    16.8
    %Operating Ratio(1)
    
    
    92.5
    %
    
    
    93.4
    %
    
    
    
    
    
    
    94.1
    %
    
    
    94.3
    %
 14




---



##### 



The LTL segment posted another quarterly improvement in revenue, increasing
13.7%. Income from operations for the third quarter of 2004 improved 28.6% to
$5.9 million, compared $4.6 million in 2003. Increased density throughout
Canadian and U.S. infrastructure including a 24.7% increase in transborder
revenue contributed to the improvement. The LTL segments operating ratio for
the third quarter improved to 92.5% compared to 93.4% in the third quarter of
2003. Income from operations for the nine-month period ended September 30,
2004 increased 16.8% to $13.3 million compared to $11.4 million in the same
period a year ago. Income from operations for the nine-month period includes
the adverse impact of approximately $1.0 million related to the CN strike.
However, the operating ratio for the 2004 nine-month period improved to 94.1%
compared to 94.3% in the 2003 nine-month period. The Canadian LTL business unit for the third quarter of 2004 increased revenue
in all of its lines of business: national, regional, expedited, and
transborder. A firm pricing environment in the Canadian LTL unit helped grow
revenue 15.4% (Cdn 8.8%) in the third quarter of 2004 compared to the same
period in 2003. Slightly offsetting the revenue improvement were railway
capacity challenges and linehaul cost increases in the national line of
business. This resulted in an increase in linehaul expenses and dock wages as
a percentage of revenue compared to same period last year. Notwithstanding,
for the 2004 third quarter compared to the third quarter of 2003, shipments,
tonnage and revenue per hundredweight increased 3.0%, 2.3% and 11.4% (Cdn 6.3%)
respectively contributing to an increase in the LTL segments
period-over-period income from operations. The U.S. LTL business unit increased revenue by 12.5% to $44.9 million, as a
result of a firm pricing environment and market share gains in the third
quarter of 2004 compared to 2003. The improvement in revenue was validated by
increases in shipments, tonnage and revenue per hundredweight of 7.2%, 9.1% and
3.1% in the 2004 third quarter as compared to the same period a year ago.
Efficiency gains in the pick-up and delivery system were realized as driver
wages as a percentage of revenue decreased, although offset by a slight
deterioration of linehaul expenses as a percentage of revenue. Logistics The table below provides summary information for the Logistics segment for the
periods ended September 30: For the three months ended Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004 vs 2003
    
    2004
    
    2003
    
    2004 vs 2003Revenue
    
    $
    8,936
    
    
    $
    7,347
    
    
    
    21.6
    %
    
    $
    25,872
    
    
    $
    20,793
    
    
    
    24.4
    %Income from operations
    
    
    367
    
    
    
    345
    
    
    
    6.4
    %
    
    
    1,150
    
    
    
    608
    
    
    
    89.1
    %Operating Ratio(1)
    
    
    95.9
    %
    
    
    95.3
    %
    
    
    
    
    
    
    95.6
    %
    
    
    97.1
    %
 Revenue and income from operations for the Logistics segment were up 21.6% and
6.4% for the third quarter of 2004. Revenue increases were attributable to
improvements across all the logistics business units with strong growth coming
from the Supply Chain unit. Revenue growth outpaced income from operations
increases, as the Supply Chain unit worked to fill the capacity of its new
distribution facility that was opened at the end of the 2004 second quarter. Truckload (TL) The table below provides summary information for the TL segment for the periods
ended September 30: For the three months ended Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004 vs 2003
    
    2004
    
    2003
    
    2004 vs 2003Revenue
    
    $
    9,332
    
    
    $
    8,314
    
    
    
    12.2
    %
    
    $
    27,257
    
    
    $
    24,745
    
    
    
    10.2
    %Income from operations
    
    
    562
    
    
    
    205
    
    
    
    174.1
    %
    
    
    1,498
    
    
    
    519
    
    
    
    188.6
    %Operating Ratio(1)
    
    
    94.0
    %
    
    
    97.5
    %
    
    
    
    
    
    
    94.5
    %
    
    
    97.9
    %
 15




---



##### 



Revenue for the Truckload segment increased from 12.2% to $9.3 million in the
third quarter of 2004 compared to $8.3 million in the third quarter of 2003.
With a strong pricing environment in the Midwestern U.S. attributable to a
shortage of qualified drivers in the truckload market place, the Companys
Truckload segment has focused on better yielding freight in 2004.
Consequently, revenue per total mile has increased by 16.5% while empty miles
has decreased by 22.1%, augmented by an increase shipments of 1.7% for the
third quarter of 2004 compared to the same period in 2003. The revenue
increase and yield progress improved the 2004 third quarter operating ratio to
94.0% from 97.5% in the third quarter of 2003. LIQUIDITY AND CAPITAL RESOURCES Cash flow from operations for the 2004 nine-month period, before working
capital changes, generated $16.0 million compared to $11.7 million in 2003.
Non-cash working capital changes consumed $7.2 million in the 2004 nine-month
period compared to $5.7 million in 2003. The increase in accounts receivable
at September 30, 2004 compared to December 31, 2003 was due to higher revenue.
The increase was however mitigated by improved collections that resulted in
39.4 days sales outstanding at the end of September 2004 compared to 40.5 days
at the end of December 2003. Interest-bearing debt decreased to $20.1 million at September 30, 2004 from
$26.2 million at the end of 2003. The interest-bearing debt is comprised of
$20.0 million drawn under the term bank credit facility and a capital lease of
$0.1 million. During the first nine months the Company repaid $6.1 million of
interest-bearing debt. At September 30, 2004, the Company had $17.2 million of
unused credit facilities. In December 2003, the Company issued and sold, in an underwritten public
offering, 2,300,000 shares of Common stock in consideration for net proceeds of
$29.4 million. The proceeds of the offering are to be used to fund possible
future acquisitions and capital expenditures and may be used to repay amounts
outstanding under the Companys credit facilities. At September 30, 2004, the
Company had $12.5 million of cash on hand as well as $28.2 million (Cdn $35.6
million) in investment grade short-term securities. Capital expenditures amounted to $0.9 million for the third quarter and $4.0
million for nine-month period of 2004 and were funded out of operating cash
flows of the Company. The majority of the Companys capital expenditures in
the 2004 nine-month period was for the acquisition of tractors and trailing
fleet. The table below sets forth the Companys capital expenditures for the
periods ended September 30. For the three months ended Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Real estate and buildings
    
    $
    
    
    
    $
    101
    
    
    $
    32
    
    
    $
    110Tractors
    
    
    300
    
    
    
    411
    
    
    
    1,080
    
    
    
    531Trailing fleet
    
    
    211
    
    
    
    
    
    
    
    1,925
    
    
    
    789Information technology
    
    
    107
    
    
    
    88
    
    
    
    428
    
    
    
    619Leasehold improvements
    
    
    75
    
    
    
    334
    
    
    
    90
    
    
    
    39Other equipment
    
    
    222
    
    
    
    159
    
    
    
    438
    
    
    
    296Total
    
    $
    915
    
    
    $
    792
    
    
    $
    3,993
    
    
    $
    2,384
 Management estimates that cash capital expenditures for the remainder of 2004
will be between $5.0 million and $7.0 million, the majority of which will be
for tractors and trailers. The Company also anticipates entering into
operating leases to fund the acquisition of equipment with a capital cost of
between $3.0 and $4.0 million. The Company has contractual obligations that include long-term debt consisting
of a term debt facility, capital leases for operating equipment in the
Logistics segment and off-balance 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
it provides an alternative cost effective and flexible form of financing. The
following table summarizes our significant contractual obligations and
commercial commitments as of September 30, 2004: 16




---



##### 



(in thousands of dollars)
    
    Payments due by periodContractual Obligations
    
    Total
    
    Q4-2004
    
    2005&2006
    
    2007&2008
    
    ThereafterLong-term debt
    
    $
    19,997
    
    
    $
    2,162
    
    
    $
    17,835
    
    
    $
    Nil
    
    
    $
    NilCapital lease obligations
    
    
    105
    
    
    
    7
    
    
    
    59
    
    
    
    39Sub-total
    
    
    20,102
    
    
    
    2,169
    
    
    
    17,894
    
    
    
    39
    
    
    
    NilOff-balance sheet commitmentsOperating leases
    
    
    44,980
    
    
    
    4,443
    
    
    
    24,048
    
    
    
    11,597
    
    
    
    4,892Total Contractual Obligations
    
    $
    65,082
    
    
    $
    6,612
    
    
    $
    41,942
    
    
    $
    11,636
    
    
    $
    4,892
 In addition to the above noted contractual obligations, the Company, as at
September 30, 2004, utilized the revolving credit facility for a standby letter
of credit of $2.6 million expiring in November 2004. The letter of credit is
used as collateral for self-insured retention of insurance claims. A significant decrease in demand for our services could limit the Companys
ability to generate cash flow and affect its profitability. The Companys
credit agreement contains covenants 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 2004 as well as
service the contractual obligations. OUTLOOK The third quarter of 2004 was another record quarter for Vitran, marking the
second successive quarter of posting all time best results. All operating
segments performed very well and are ahead of the prior year nine-month
results. Positive economic indicators and a stable pricing environment,
particularly in the Midwestern U.S., should continue into the fourth quarter
and permit the LTL and Truckload segments to sustain their momentum. Continued
railway capacity issues within the Canadian LTL business unit could partially
offset the realization of expanded operating margins. The Logistics segment,
as it fills the capacity of its new distribution facility, should realize
operating ratio improvements. Lastly, it is still the Companys objective to
use the proceeds from the December 2003 public offering to acquire an LTL
operation in a new regional market contiguous to the existing network. QUARTERLY RESULTS Canadian GAAP (thousands of dollars
    
    2004
    
    2004
    
    2004
    
    2003
    
    2003
    
    2003
    
    2003
    2002except per share amounts)
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q1
    Q4Revenue
    
    $
    96,995
    
    
    $
    93,931
    
    
    $
    87,146
    
    
    $
    85,333
    
    
    $
    84,889
    
    
    $
    84,135
    
    
    $
    77,469
    
    
    $
    74,840Income from operations
    
    
    6,164
    
    
    
    5,833
    
    
    
    2,101
    
    
    
    4,295
    
    
    
    4,499
    
    
    
    4,073
    
    
    
    2,083
    
    
    
    3,693Net Income
    
    
    4,542
    
    
    
    4,387
    
    
    
    1,649
    
    
    
    3,150
    
    
    
    3,045
    
    
    
    2,724
    
    
    
    1,417
    
    
    
    2,177Earnings per share:Basic
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.29
    
    
    $
    0.15
    
    
    $
    0.23Diluted
    
    
    0.36
    
    
    
    0.34
    
    
    
    0.13
    
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.27
    
    
    
    0.14
    
    
    
    0.22Weighted average number
of shares:Basic
    
    
    12,339,956
    
    
    
    12,266,703
    
    
    
    12,115,292
    
    
    
    10,110,571
    
    
    
    9,557,681
    
    
    
    9,511,133
    
    
    
    9,555,516
    
    
    
    9,582,252Diluted
    
    
    12,774,744
    
    
    
    12,771,784
    
    
    
    12,697,994
    
    
    
    10,768,940
    
    
    
    10,157,160
    
    
    
    9,910,894
    
    
    
    9,950,607
    
    
    
    9,913,889
 United States GAAP (thousands of dollars
    
    2004
    
    2004
    
    2004
    
    2003
    
    2003
    
    2003
    
    2003
    
    2002except per share amounts)
    
    Q3
    
    Q2
    
    Q1
    
    Q4
    
    Q3
    
    Q2
    
    Q1
    
    Q4Revenue
    
    $
    96,995
    
    
    $
    93,931
    
    
    $
    87,146
    
    
    $
    85,333
    
    
    $
    84,889
    
    
    $
    84,135
    
    
    $
    77,469
    
    
    $
    74,840Income from operations
    
    
    6,193
    
    
    
    5,870
    
    
    
    2,177
    
    
    
    4,032
    
    
    
    4,462
    
    
    
    3,933
    
    
    
    2,123
    
    
    
    3,470Net Income
    
    
    4,542
    
    
    
    4,387
    
    
    
    1,649
    
    
    
    3,150
    
    
    
    3,045
    
    
    
    2,724
    
    
    
    1,417
    
    
    
    1,933Earnings per share:Basic
    
    $
    0.37
    
    
    $
    0.36
    
    
    $
    0.14
    
    
    $
    0.31
    
    
    $
    0.32
    
    
    $
    0.29
    
    
    $
    0.15
    
    
    $
    0.20Diluted
    
    
    0.36
    
    
    
    0.34
    
    
    
    0.13
    
    
    
    0.29
    
    
    
    0.30
    
    
    
    0.27
    
    
    
    0.14
    
    
    
    0.19Weighted average number
of shares:Basic
    
    
    12,339,956
    
    
    
    12,266,703
    
    
    
    12,115,292
    
    
    
    10,110,571
    
    
    
    9,557,681
    
    
    
    9,511,133
    
    
    
    9,555,516
    
    
    
    9,582,252Diluted
    
    
    12,774,744
    
    
    
    12,771,784
    
    
    
    12,697,994
    
    
    
    10,768,940
    
    
    
    10,157,160
    
    
    
    9,910,894
    
    
    
    9,950,607
    
    
    
    9,913,889
 17




---



##### 



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 and depreciation
expense, divided by revenue. OR allows management to measure the Company and
its various segments operating efficiency. OR is also 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 Sep. 30
    
    For the nine months ended Sep. 30(in thousands)
    
    2004
    
    2003
    
    2004
    
    2003Operating expenses
    
    $
    82,269
    
    
    $
    71,453
    
    
    $
    236,508
    
    
    $
    209,193Selling, general and
administrative expenses
    
    
    7,267
    
    
    
    7,577
    
    
    
    23,631
    
    
    
    22,552Depreciation expense
    
    
    1,295
    
    
    
    1,360
    
    
    
    3,835
    
    
    
    4,093$
    90,831
    
    
    $
    80,390
    
    
    $
    263,974
    
    
    $
    235,838Revenue
    
    $
    96,995
    
    
    $
    84,889
    
    
    $
    278,072
    
    
    $
    246,493Operating ratio (OR)
    
    
    93.6
    %
    
    
    94.7
    %
    
    
    94.9
    %
    
    
    95.7
    %
  (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 (tonnage) represents the total pounds shipped by each LTL business
unit.(4)
    
    Revenue per mile represents TL revenue divided by the total number of
miles for the period.(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)
    
    Empty miles represents the number of miles driven during the period
without a loaded shipment by a TL segment owner operator.(7)
    
    Total miles represents the sum of empty miles and loaded shipment miles
driven during the period by a TL segment owner operator. Sean WashchukVice President Finance &Chief Financial Officer
    
    October 20, 2004
 18




---



##### 



Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to the impact of interest rate changes. The Company is
exposed to changes in interest rates on its borrowings under the term bank
facility that has a variable interest rate tied to the LIBOR rate. The term
bank credit facility of $20.0 million had a weighted-average interest rate on
borrowings of 2.50% in the first nine months of 2004. We estimate that the
fair value of the term credit facility approximates the carrying value. (in thousands of dollars)
    
    Payments due by periodLong-term debt
    
    Total
    
    2004
    
    2005&2006
    
    2007&2008
    
    ThereafterVariable RateTerm bank facility
    
    $
    19,997
    
    
    $
    2,162
    
    
    $
    17,835
    
    
    $
    Nil
    
    
    $
    NilAverage interest rate
    
    
    3.24
    %
    
    
    3.24
    %
    
    
    3.24
    %Fixed Rate
Capital lease obligation
    
    
    105
    
    
    
    7
    
    
    
    59
    
    
    
    39
    
    
    NilAverage interest rate
    
    
    6.79
    %
    
    
    6.79
    %
    
    
    6.79
    %
    
    
    6.79
    %Total
    
    $
    20,102
    
    
    $
    2,169
    
    
    $
    17,894
    
    
    $
    39
    
    
    $
    Nil
 The Companys investment of $28.2 million (Cdn $35.6 million) in marketable
securities is invested in short-term, highly rated government securities,
treasury bills and investment grade commercial paper and realized average
returns of 2.19% for the first nine months of 2004. The Company has exposure 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. 
 Item 4. Controls and Procedures  a)
    
    As of October 20, 2004, 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, 2004 and nine-month period ended
September 30, 2004. 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. 19




---



##### 



Part II. Other Information 
 Item 1. Legal Proceedings 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. 
 Item 2. Changes in Securities and Use of Proceeds In December of 2003 Vitran, using Avondale Partners as the lead underwriting
firm, issued 2,300,000 Common shares for gross proceeds of $31.6 million in a
public offering. Commissions to the underwriters amounted to $1.6 million and
other expenses of the offering amounted to $0.6 million resulting in net
proceeds of $29.4 million. As of September 30, 2004, it is still the intention
of Vitrans management to use the net proceeds from the public offering to fund
possible future acquisitions, capital expenditures and repay amounts
outstanding under credit facilities. 
 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  (a)
    
    Exhibits ExhibitNumber
    
    Description of Exhibit31
    
    Certifications pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, dated October 20, 2004.32
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, dated October 20, 2004.
  (b)
    
    Reports on Form 8-K  i)
    
    Vitran Corporation Inc. filed a Current Report on Form 8-K dated July
30, 2004 related to an amendment to the Companys code of conduct for
employees and directors.ii)
    
    Vitran Corporation Inc. filed a Current Report on Form 8-K dated
August 23, 2004 related to item 5.02 Departure and Appointment of
Principal Officers.iii)
    
    Vitran Corporation Inc. filed a Current Report on Form 8-K dated
October 22, 2004 related to its financial results for the third
quarter of 2004. 
 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. WashchukDate: October 20, 2004
    
    
    
    Vice President of Finance andChief Financial Officer(Principle Financial Officer)
 20