UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549
  FORM
10-Q





x    
      QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934FOR
      THE QUARTER ENDED June 30, 2008ORo      
      TRANSITION
      REPORT PURSUANT TO SECTION 13 OR15
      (d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR
      THE TRANSITION PERIOD
      FROM                 toCommission
      file number:


VITRAN
CORPORATION INC.











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





185
The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5


(Address
of principal executive offices)(Zip Code)





416-596-7664


(Registrant’s
telephone number, including area code)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes      x       No    o








Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
accelerated filer      o   Accelerated
filer    x                                                          Non-accelerated
filer   o                                           Smaller
reporting company   o





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


Yeso  Nox





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 shares outstanding at July 22, 2008 was
13,483,159.

















TABLE
OF CONTENT




Item
            
            
            PagePART
      I
            
            Financial
      Information1.
            
            Financial
      Statements
            32.
            
            Management’s
      Discussion and Analysis
            133.
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            194.
            
            Controls
      and Procedures
            20PART
      II
            
            Other
      Information1.
            
            Legal
      Proceedings
            211.
      A
            
            Risk
      Factors
            212.
            
            Unregistered
      Sale of Equity and Use of Proceeds
            213.
            
            Defaults
      Upon Senior Securities
            214.
            
            Submission
      of Matters to a Vote of Security Holders
            215.
            
            Other
      Information
            216.
            
            Exhibits
      and Reports on Form 8-K
            21















Part
I. Financial Information
  Item
1: Financial Statements
  VITRAN
CORPORATION INC.
  CONSOLIDATED
STATEMENTS OF INCOME
 (Unaudited)
  (In
thousands of United States dollars except for per share amounts)
 
 Three
      months
                Ended
                June
      30, 2008
              
              
              Three
      months
                Ended
                June
      30, 2007
              
              
              Six
      months
                Ended
                June
      30, 2008
              
              
              Six
      months
                Ended
                June
      30, 2007Revenue
              
              $
              195,990
              
              
              $
              170,144
              
              
              $
              373,497
              
              
              $
              324,280Operating
      expenses
              
              
              165,102
              
              
              
              140,780
              
              
              
              318,201
              
              
              
              269,236Selling,
      general and administrative expenses
              
              
              17,769
              
              
              
              15,283
              
              
              
              34,690
              
              
              
              30,382Other
      income
              
              
              (134
              )
              
              
              (101
              )
              
              
              (133
              )
              
              
              (72
              )Depreciation
      and amortization expense
              
              
              5,205
              
              
              
              5,109
              
              
              
              10,765
              
              
              
              10,054Total
      operating expenses
              
              
              187,942
              
              
              
              161,071
              
              
              
              363,523
              
              
              
              309,600Income
      from operations before undernoted
              
              
              8,048
              
              
              
              9,073
              
              
              
              9,974
              
              
              
              14,680Interest
      expense, net
              
              
              2,122
              
              
              
              2,115
              
              
              
              4,252
              
              
              
              4,179Income
      from operations before income taxes
              
              
              5,926
              
              
              
              6,958
              
              
              
              5,722
              
              
              
              10,501Income
      taxes
              
              
              1,349
              
              
              
              1,425
              
              
              
              11
              
              
              
              1,581Net
      income
              
              $
              4,577
              
              
              $
              5,533
              
              
              $
              5,711
              
              
              $
              8,920Income
      per share:Basic
              
              $
              0.34
              
              
              $
              0.41
              
              
              $
              0.42
              
              
              $
              0.66Diluted
              
              $
              0.34
              
              
              $
              0.41
              
              
              $
              0.42
              
              
              $
              0.65Weighted
      average number of shares:Basic
              
              
              13,483,159
              
              
              
              13,463,374
              
              
              
              13,474,258
              
              
              
              13,450,790Diluted
              
              
              13,630,974
              
              
              
              13,661,467
              
              
              
              13,621,759
              
              
              
              13,656,765
 See
accompanying notes to consolidated financial statements
  3
  VITRAN
CORPORATION INC.
  CONSOLIDATED
BALANCE SHEETS
  (In
thousands of United States dollars)
 
 June 30,
      2008
              
              
              Dec.
      31, 2007(Unaudited)
              
              
              (Audited)AssetsCurrent
      assets:Accounts
      receivable
              
              $
              93,837
              
              
              $
              74,261Inventory,
      deposits and prepaid expenses
              
              
              12,238
              
              
              
              11,325Income
      and other taxes recoverable
              
              
              1,237
              
              
              
              2,232Deferred income
      taxes
              
              
              3,205
              
              
              
              2,599110,517
              
              
              
              90,417Property
      and equipment
              
              
              166,881
              
              
              
              169,062Intangible
      assets
              
              
              14,542
              
              
              
              13,645Goodwill
              
              
              121,967
              
              
              
              124,375$
              413,907
              
              
              $
              397,499Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Bank
      overdraft
              
              $
              3,677
              
              
              $
              390Accounts
      payable and accrued liabilities
              
              
              76,457
              
              
              
              67,468Current
      portion of long-term debt
              
              
              16,755
              
              
              
              18,14496,889
              
              
              
              86,002Long-term
      debt
              
              
              109,858
              
              
              
              109,831Other
              
              
              3,560
              
              
              
              3,512Deferred
      income taxes
              
              
              8,058
              
              
              
              7,810Shareholders’
      equity:Common
      shares, no par value, unlimited authorized, 13,483,159 and 13,448,159
      issued and outstanding at June 30, 2008 and December 31, 2007
      respectively
              
              
              77,424
              
              
              
              77,246Additional
      paid-in capital
              
              
              3,005
              
              
              
              2,436Retained
      earnings
              
              
              110,189
              
              
              
              104,478Accumulated
      other comprehensive income
              
              
              4,924
              
              
              
              6,184195,542
              
              
              
              190,344$
              413,907
              
              
              $
              397,499
 Contingent
liabilities (note 10)
 
 See
accompanying notes to consolidated financial statements.
  4
  VITRAN
CORPORATION INC.
  CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
 (Unaudited)
  (In
thousands of United States dollars, except share amounts)
 
 Common
      shares
              
              
              AdditionalPaid-in
              
              
              Retained
              
              
              Accumulatedothercomprehensive
              
              
              TotalShareholders’Shares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              income
              
              
              EquityDecember
      31, 2007
              
              
              13,448,159
              
              
              $
              77,246
              
              
              $
              2,436
              
              
              $
              104,478
              
              
              $
              6,184
              
              
              $
              190,344Shares
      issued upon exercise of employee stock options
              
              
              35,000
              
              
              
              178
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              178Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              5,711
              
              
              
              -
              
              
              
              5,711Other
      comprehensive income (loss)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (1,260
              )
              
              
              (1,260
              )Share-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              569
              
              
              
              -
              
              
              
              -
              
              
              
              569June
      30, 2008
              
              
              13,483,159
              
              
              $
              77,424
              
              
              $
              3,005
              
              
              $
              110,189
              
              
              $
              4,924
              
              
              $
              195,542Common
      shares
              
              
              AdditionalPaid-in
              
              
              Retained
              
              
              Accumulatedothercomprehensive
              
              
              TotalShareholders’Shares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              income
              
              
              EquityDecember
      31, 2006
              
              
              13,419,859
              
              
              $
              76,913
              
              
              $
              1,607
              
              
              $
              90,933
              
              
              $
              3,844
              
              
              $
              173,297Shares
      issued upon exercise of employee stock options
              
              
              46,500
              
              
              
              255
              
              
              
              (48
              )
              
              
              -
              
              
              
              -
              
              
              
              207Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,920
              
              
              
              -
              
              
              
              8,920Other
      comprehensive income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,722
              
              
              
              1,722Share-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              459
              
              
              
              -
              
              
              
              -
              
              
              
              459June
      30, 2007
              
              
              13,466,359
              
              
              $
              77,168
              
              
              $
              2,018
              
              
              $
              99,853
              
              
              $
              5,566
              
              
              $
              184,605
  5
  VITRAN
CORPORATION INC.
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (Unaudited)
 (In
thousands of United States dollars)
 
 Three
      months
                  Ended
                  June
      30, 2008
                
                
                Three
      months
                  Ended
                  June
      30, 2007
                
                
                Six
      months
                  Ended
                  June
      30, 2008
                
                
                Six
      months
                  Ended
                  June
      30, 2007Cash
      provided by (used in):Operations:Net
      income
                
                $
                4,577
                
                
                $
                5,533
                
                
                $
                5,711
                
                
                $
                8,920Items
      not involving cash from operationsDepreciation
      and amortization expense
                
                
                5,205
                
                
                
                5,109
                
                
                
                10,765
                
                
                
                10,054Deferred income
      taxes
                
                
                1,302
                
                
                
                1,628
                
                
                
                104
                
                
                
                2,595Share-based
      compensation expense
                
                
                292
                
                
                
                251
                
                
                
                569
                
                
                
                459Gain on
      sale of property and equipment
                
                
                (134
                )
                
                
                (101
                )
                
                
                (133
                )
                
                
                (72
                )Change
      in non-cash working capital components
                
                
                (9,419
                )
                
                
                (2,066
                )
                
                
                (10,532
                )
                
                
                (5,763
                )1,823
                
                
                
                10,354
                
                
                
                6,484
                
                
                
                16,193Investments:Purchase
      of property and equipment
                
                
                (2,040
                )
                
                
                (6,870
                )
                
                
                (9,148
                )
                
                
                (11,420
                )Proceeds
      on sale of property and equipment
                
                
                261
                
                
                
                167
                
                
                
                452
                
                
                
                238Additional
      payment due to acquisition of subsidiary
                
                
                -
                
                
                
                (6,383
                )
                
                
                -
                
                
                
                (6,921
                )(1,779
                )
                
                
                (13,086
                )
                
                
                (8,696
                )
                
                
                (18,103
                )Financing:Change
      in revolving credit facility and bank overdraft
                
                
                4,703
                
                
                
                6,838
                
                
                
                11,328
                
                
                
                10,122Repayment
      of long-term debt
                
                
                (2,575
                )
                
                
                (2,255
                )
                
                
                (5,146
                )
                
                
                (4,510
                )Repayment
      of capital leases
                
                
                (2,001
                )
                
                
                (1,674
                )
                
                
                (4,242
                )
                
                
                (3,314
                )Issue
      of common sharesupon
      exercise of stock options
                
                
                -
                
                
                
                80
                
                
                
                178
                
                
                
                207127
                
                
                
                2,989
                
                
                
                2,118
                
                
                
                2,505Effect
      of translation adjustment on cash
                
                
                (171
                )
                
                
                (753
                )
                
                
                94
                
                
                
                (1,002
                )Increase
      in cash and cash equivalents
                
                
                -
                
                
                
                (496
                )
                
                
                -
                
                
                
                (407
                )Cash
      and cash equivalents, beginning of period
                
                
                -
                
                
                
                1,543
                
                
                
                -
                
                
                
                1,454Cash
      and cash equivalents, end of period
                
                $
                -
                
                
                $
                1,047
                
                
                $
                -
                
                
                $
                1,047Change
      in non-cash working capital components:Accounts
      receivable
                
                $
                (11,905
                )
                
                $
                (6,354
                )
                
                $
                (19,576
                )
                
                $
                (13,364
                )Inventory,
      deposits and prepaid expenses
                
                
                (512
                )
                
                
                696
                
                
                
                (913
                )
                
                
                1,083Income
      and other taxes recoverable
                
                
                (163
                )
                
                
                (1,301
                )
                
                
                968
                
                
                
                (3,898
                )Accounts
      payable and accrued liabilities
                
                
                3,161
                
                
                
                4,893
                
                
                
                8,989
                
                
                
                10,416$
                (9,419
                )
                
                $
                (2,066
                )
                
                $
                (10,532
                )
                
                $
                (5,763
                )
 Supplemental
      disclosure of non-cash transactions cash flow information:Capital
      lease additions
              
              $
              -
              
              
              $
              3,740
              
              
              $
              -
              
              
              $
              3,740
 
 
 See
accompanying notes to consolidated financial statements.
  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.  The Ontario
Business Corporations Act (“OBCA”) regulations allow issuers that are required
to file reports with the Securities and Exchange Commission in the United States
to file financial statements under United States GAAP to meet their continuous
disclosure obligations in Canada.  The interim consolidated
financial statements do not contain all the disclosures required by United
States generally accepted accounting principles.  The interim
consolidated financial statements have been prepared in accordance with
instructions to Quarterly Report on Form 10-Q.  The interim
consolidated financial statements should be read in conjunction with 2007 Annual
Report on Form 10-K.  The interim consolidated financial statements
follow the same accounting principles and methods of application as the most
recent annual consolidated financial statements.
 
 These
unaudited consolidated interim financial statements reflect all adjustments
which are, in the opinion of management, necessary to a fair presentation of the
results of the interim period presented.  Operating results for the
quarter and six-months ended June 30, 2008 are not necessarily indicative of the
results of operations that may be expected for the year ending December 31,
2008.
 2. 
New Accounting Pronouncements
  
 SFAS
Statement 157, “Fair Value Measurements”, defines fair values, establishes a
framework for measuring fair value in GAAP, and requires enhanced disclosures
about fair value measurements.  This statement applies when other
accounting pronouncements require or permit fair value
measurements.  SFAS Statement 157 was adopted January 1, 2008 as
described in note 11.
 
 SFAS
Statement 159, “The Fair Value Option for Financial Assets and Financial
Liabilities - Including an amendment of SFAS Statement 115” permits entities to
choose to measure many financial instruments and certain warranty and insurance
contracts at fair value on a contract-by-contract basis.   SFAS
Statement 159 was adopted January 1, 2008 as required by the
statement.  The requirements of SFAS Statement 159 did not have an
effect on the Company’s consolidated financial statements.
 
 SFAS
Statement 161, “Disclosures about Derivative Instruments and Hedging Activities
- an amendment of FASB Statement No. 133”, required enhanced disclosures about
the Company’s derivative and hedging activities.  The Company will be
required to provided enhanced disclosure about a) how and why an entity uses
derivative instruments, b) how derivative instruments and related hedged items
are accounted for under Statement 133 and c) how derivative instruments and
related hedged items affect and entity’s financial position and cash
flows.  SFAS Statement 161 will be adopted January 1, 2009 as required
by the statement.
 
 3.  Foreign
Currency Translation
 
 The
United States dollar is the functional currency of the Company’s operations in
the United States.  The Canadian dollar is the functional currency of
the Company’s Canadian operations.  Each operation translates foreign
currency denominated transactions into its functional currency using the rate of
exchange in effect at the date of the transaction.  Monetary assets
and liabilities denominated in foreign currency are translated into the
functional currency of the operation using the period-end rate of exchange
giving rise to a gain or loss that is recognized in income during the current
period.
 
 For
reporting purposes, the Canadian operations are translated into United States
dollars using the current rate method.  Under this method, all assets
and liabilities are translated at the period-end rate of exchange and all
revenue and expense items are translated at the average rate of exchange for the
period.  The resulting translation adjustment is recorded as a
separate component of shareholders’ equity.  United States dollar debt
of $80.2 million is designated as a hedge of the investment in the United States
dollar functional operations, such that related transaction gains and losses are
recorded in the separate component of shareholders’ equity.
 
 7
  4.   Acquisition
 
 On
November 30, 2007, the Company acquired 100 percent of the outstanding shares of
Las Vegas/L.A. Express, Inc. ("LVLA").  The aggregate purchase
consideration was approximately $8.45 million (including transaction
costs).  Approximately $4.35 million of additional cash consideration
is contingent on LVLA meeting certain future financial metrics.  All
additional contingent consideration paid to the vendors will be allocated to
goodwill.    The total amount of goodwill will not be
deductible for tax purposes.
 The
following table summarizes the final estimated fair value of the assets acquired
and liabilities assumed at the date of acquisition.
  Current
      assets
                
                $
                4,146Property
      and equipment
                
                
                2,485Identifiable
      intangible assets:Covenants
      not-to-compete (5-year useful life)
                
                
                160Customer
      relationships (8-year useful life)
                
                
                2,000Goodwill
                
                
                2,41511,206Current
      liabilities
                
                
                2,611Deferred
      income tax liability
                
                
                92Capital
      leases
                
                
                624Term
      loan
                
                
                1,285Net
      assets acquired
                
                
                6,594
 5.  Goodwill
 
 Balance
      at December 31, 2007
                  
                  $
                  124,375Transfer
      of goodwill to identifiable intangible assets (note
    4)
                  
                  
                  (2,160
                  )Foreign
      exchange
                  
                  
                  (248
                  )Balance
      at June 30, 2008
                  
                  $
                  121,967
  6.  
Long-term debt
 
 On
April 10, 2008, the Company amended its credit agreement in respect of certain
financial maintenance tests.  The amendment is effective March 31,
2008 to December 31, 2008.  As at June 30, 2008, the Company is in
compliance with these amended maintenance tests and management expects to be for
the balance of 2008.
 
 7.  
Stock Option Plan
 
 Under
the Company’s stock option plan, options to purchase Common Shares of the
Company may be granted to key employees, officers and directors of the Company
and its affiliates by the Board of Directors or by the Company’s Compensation
Committee.  There are 884,200 options outstanding under the
plan.  The term of each option is ten years and the vesting period is
five years.  The exercise price for options is the trading price of
the Common Shares of the Company on the Toronto Stock Exchange on the day of the
grant.
 
 8
  The
fair value of each stock option granted was estimated using the Black-Scholes
Morton fair value option-pricing model with the following
assumptions:
  2008Options
      granted
                
                
                99,000Risk-free
      interest rate
                
                
                3.93
                %Dividend
      yield
                
                
                -Volatility
      factor of the future expected market price of the Company’s common
      shares
                
                
                34.12
                %Expected
      life of the options
                
                6
      years
 The
weighted average estimated fair value at the date of grant for the options
granted in 2008 was $5.27 per share.
 
 8.   Comprehensive income
(loss)
 
 The
components of other comprehensive income (loss) such as changes in foreign
currency adjustments are required to be added to the Company’s reported net
income to arrive at comprehensive net income (loss).  Other
comprehensive income (loss) items have no impact on the reported net income as
presented on the Consolidated Statements of Income.
 
 The
following are the components of other comprehensive income, net of income taxes
for the three and six months ended June 30, 2008 and 2007:
 
 Three
      months
                Ended
                June
      30, 2008
              
              
              Three
      months
                Ended
                June
      30, 2007
              
              
              Six
      months
                Ended
                June
      30, 2008
              
              
              Six
      months
                Ended
                June
      30, 2007Net
      income
              
              $
              4,577
              
              
              $
              5,533
              
              
              $
              5,711
              
              
              $
              8,920Translation
      adjustment
              
              
              (264
              )
              
              
              1,652
              
              
              
              (1,289
              )
              
              
              1,747Interest
      rate swaps
              
              
              1,452
              
              
              
              2
              
              
              
              55
              
              
              
              (62
              )Tax
      effect
              
              
              (481
              )
              
              
              (1
              )
              
              
              (26
              )
              
              
              37Other
      comprehensive income (loss)
              
              $
              707
              
              
              $
              1,653
              
              
              $
              (1,260
              )
              
              $
              1,722Comprehensive
      net income (loss)
              
              $
              5,284
              
              
              $
              7,186
              
              
              $
              4,451
              
              
              $
              10,642
 
 9
  9.  
Computation of Income per Share
 
 Three
      months
                Ended
                June
      30, 2008
              
              
              Three
      months
                Ended
                June
      30, 2007
              
              
              Six
      months
                Ended
                June
      30, 2008
              
              
              Six
      months
                Ended
                June
      30, 2007Numerator:Net
      income
              
              $
              4,577
              
              
              $
              5,533
              
              
              $
              5,711
              
              
              $
              8,920Denominator:Basic
      weighted-average shares outstanding
              
              
              13,483,159
              
              
              
              13,463,374
              
              
              
              13,474,258
              
              
              
              13,450,790Dilutive
      stock options
              
              
              147,815
              
              
              
              198,093
              
              
              
              147,501
              
              
              
              205,575Dilutive
      weighted-average shares outstanding
              
              
              13,630,974
              
              
              
              13,661,467
              
              
              
              13,621,759
              
              
              
              13,656,765Basic
      income per share
              
              $
              0.34
              
              
              $
              0.41
              
              
              $
              0.42
              
              
              $
              0.66Diluted
      income per share
              
              $
              0.34
              
              
              $
              0.41
              
              
              $
              0.42
              
              
              $
              0.65
 
 Diluted
income per share excludes the effect of 658,900 (2007 - 575,900) anti-dilutive
options.
 
 10.  Contingent
Liabilities
 
 The
Company is subject to legal proceedings that arise in the ordinary course of
business.  In the opinion of management, the aggregate liability, if
any, with respect to these actions will not have a material adverse effect on
the consolidated financial position, results of operations or cash
flows.  Legal costs are expensed as incurred.
 11.  
Risk Management Activities and Fair Value Measurements
  
 The
Company is exposed to interest rate volatility with regard to existing variable
rate debt.  The Company has entered into variable-to-fixed interest
rate swaps on variable rate term debt and revolving debt.  The swaps
are accounted for as cash flow hedges.  The effective portions of
changes in fair value of the interest rate swaps are recorded in Accumulated
Other Comprehensive Income and are recognized into earnings in the same period
in which the hedged forecasted transaction affects
earnings.  Ineffective portions of changes in fair value are
recognized into earnings as they occur.  At June 30, 2008, the
notional amount of the swaps was $64.4 million, with the average pay rate being
4.94% and the average receive rate being 2.8%.  The swaps mature at
various dates up to December 31, 2011.
 
 Effective
January 1, 2008, the Company adopted SFAS No. 157, which provides a framework
for measuring fair value under GAAP.  As defined in SFAS No. 157, fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date (exit price).  The Company utilizes market data or
assumptions that the Company believes market participants would use in pricing
the asset or liability, including assumptions about risk and the risks inherent
in the inputs to the valuation technique.  These inputs can be readily
observable, market corroborated or generally unobservable.
 
 The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information.  Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs.  The Company is able to classify fair value balances based on
the observability of those inputs.
 
 SFAS
No. 157 establishes a fair value hierarchy that prioritizes the inputs used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level 3
measurement).
 
 10
  Assets
and liabilities measured at fair value on a recurring basis include the
following as of June 30, 2008:
 
 Fair
      Value Measurements Using
              
              Liabilities(in
      thousands)
              Level
      1
              
              Level
      2
              
              Level
      3
              
              At
      Fair ValueLiabilitiesInterest
      rate swaps
              
              $
              -
              
              
              $
              1,500
              
              
              $
              -
              
              
              $
              1,500Total
      liabilities
              
              $
              -
              
              
              $
              1,500
              
              
              $
              -
              
              
              $
              1,500
 
 11
  12.  Segmented
Information
 
 Three
      months ended
                June
      30, 2008
              
              Less-than-
                truckload
              
              
              Logistics
              
              
              Truckload
              
              
              Total
              
              
              Corporate
      Office
                and
      Other
              
              
              Consolidated
                TotalsRevenue
              
              $
              168,161
              
              
              $
              19,314
              
              
              $
              8,515
              
              
              $
              195,990
              
              
              $
              -
              
              
              $
              195,990Operating,
      selling, general andadministrative
      expenses
              
              
              155,244
              
              
              
              18,053
              
              
              
              7,951
              
              
              
              181,248
              
              
              
              1,623
              
              
              
              182,871Other
      expense (income)
              
              
              (124
              )
              
              
              (4
              )
              
              
              (6
              )
              
              
              (134
              )
              
              
              -
              
              
              
              (134
              )Depreciation
      and amortization
              
              
              4,500
              
              
              
              434
              
              
              
              249
              
              
              
              5,183
              
              
              
              22
              
              
              
              5,205Income
      (loss) from operations
              
              $
              8,541
              
              
              $
              831
              
              
              $
              321
              
              
              $
              9,693
              
              
              $
              (1,645
              )
              
              
              8,048Interest
      expense, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,122Income
      taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,349Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              4,577Three
      months ended
                June
      30, 2007
              
              Less-than-
                truckload
              
              
              Logistics
              
              
              Truckload
              
              
              Total
              
              
              Corporate
      Office
                and
      Other
              
              
              Consolidated
                TotalsRevenue
              
              $
              150,615
              
              
              $
              11,225
              
              
              $
              8,304
              
              
              $
              170,144
              
              
              $
              -
              
              
              $
              170,144Operating,
      selling, general andadministrative
      expenses
              
              
              137,022
              
              
              
              10,348
              
              
              
              7,643
              
              
              
              155,013
              
              
              
              1,050
              
              
              
              156,063Other
      expense (income)
              
              
              (101
              )
              
              
              -
              
              
              
              -
              
              
              
              (101
              )
              
              
              -
              
              
              
              (101
              )Depreciation
      and amortization
              
              
              4,692
              
              
              
              142
              
              
              
              256
              
              
              
              5,090
              
              
              
              19
              
              
              
              5,109Income
      (loss) from operations
              
              $
              9,002
              
              
              $
              735
              
              
              $
              405
              
              
              $
              10,142
              
              
              $
              (1,069
              )
              
              
              9,073Interest
      expense, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              2,115Income
      taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,425Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              5,533
 
 Six
      months ended
                June
      30, 2008
              
              Less-than-
                truckload
              
              
              Logistics
              
              
              Truckload
              
              
              Total
              
              
              Corporate
      Office
                and
      Other
              
              
              Consolidated
                TotalsRevenue
              
              $
              317,576
              
              
              $
              39,074
              
              
              $
              16,847
              
              
              $
              373,497
              
              
              $
              -
              
              
              $
              373,497Operating,
      selling, general andadministrative
      expenses
              
              
              297,641
              
              
              
              36,690
              
              
              
              15,648
              
              
              
              349,979
              
              
              
              2,912
              
              
              
              352,891Other
      expense (income)
              
              
              (102
              )
              
              
              (20
              )
              
              
              (11
              )
              
              
              (133
              )
              
              
              -
              
              
              
              (133
              )Depreciation
      and amortization
              
              
              9,359
              
              
              
              853
              
              
              
              510
              
              
              
              10,722
              
              
              
              43
              
              
              
              10,765Income
      (loss) from operations
              
              $
              10,678
              
              
              $
              1,551
              
              
              $
              700
              
              
              $
              12,929
              
              
              $
              (2,955
              )
              
              
              9,974Interest
      expense, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,252Income
      taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              5,711Six
      months ended
                June
      30, 2007
              
              Less-than-
                truckload
              
              
              Logistics
              
              
              Truckload
              
              
              Total
              
              
              Corporate
      Office
                and
      Other
              
              
              Consolidated
                TotalsRevenue
              
              $
              286,772
              
              
              $
              20,888
              
              
              $
              16,620
              
              
              $
              324,280
              
              
              $
              -
              
              
              $
              324,280Operating,
      selling, general andadministrative
      expenses
              
              
              262,348
              
              
              
              19,452
              
              
              
              15,419
              
              
              
              297,219
              
              
              
              2,399
              
              
              
              299,618Other
      expense (income)
              
              
              (77
              )
              
              
              -
              
              
              
              (5
              )
              
              
              (72
              )
              
              
              -
              
              
              
              (72
              )Depreciation
      and amortization
              
              
              9,269
              
              
              
              261
              
              
              
              496
              
              
              
              10,026
              
              
              
              28
              
              
              
              10,054Income
      (loss) from operations
              
              $
              15,232
              
              
              $
              1,175
              
              
              $
              700
              
              
              $
              17,107
              
              
              $
              (2,427
              )
              
              
              14,680Interest
      expense, net
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              4,179Income
      taxes
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,581Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              8,920
 
 13.  Comparative
figures
 
 Certain
comparative figures have been reclassified to conform to the financial statement
presentation adopted in the current year.
  12
  Item
2. Management’s Discussion and Analysis of Results of Operation
 
 This
MD&A and the documents incorporated by reference contains forward-looking
statements within the meaning of the United States Private Securities Litigation
Reform Act of 1995 and applicable Canadian securities laws concerning Vitran’s
business, operations, and financial performance and condition.
 
 Forward-looking
statements may be generally identifiable by use of the words “believe”,
“anticipate”, “intend”, “estimate”, “expect”, “project”, “may”, “plans”,
“continue”, “will”, “focus”, “should”, “endeavor” or the negative of these words
or other variation on these words or comparable terminology.  These
forward-looking statements are based on current expectations and are subject to
uncertainty and changes in circumstances that may cause actual results to differ
materially from those expressed or implied by such forward-looking
statements.
 
 The MD&A and the documents
incorporated by reference herein contain forward-looking statements regarding,
but not limited to, the following:
 
 •
              the Company’s objective to
      expand or acquire a less-than-truckload (“LTL”) or logistics
      operations;
 
 •
              the Company’s objective to
      complete the consolidation of employee groups and eliminate redundant
      facilities within the U.S. LTL business
  unit;
 
 •
              the Company’s objective to
      realize revenue growth and operating efficiencies and inter-regional
      revenue growth within its U.S. LTL business
  unit;
 
 •
              the Company’s objective to
      realize operating efficiencies at the new Toronto service centre and
      develop revenue growth initiatives in its Canadian LTL business
      unit;
 
 •
              the Company’s objective to
      fully utilize the new dedicated facility in its Logistics segment and
      improve revenue and income from
  operations;
 
 •
              the Company’s intention to
      continue to grow its cross-border and inter-regional LTL revenue at above
      average rates;
 
 •
              the Company’s intention to
      purchase a specified level of capital assets and to finance such
      acquisitions with cash flow from operations and, if necessary, from the
      Company’s revolving credit
facilities.
 
 Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause Vitran’s actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements.  Factors that may cause such differences include but are
not limited to technological change, increase in fuel costs, regulatory change,
changes in tax legislation, the general health of the economy, changes in labor
relations, geographic expansion, capital requirements, availability of
financing, claims and insurance costs, environmental hazards, availability of
qualified drivers and competitive factors.  More detailed information
about these and other factors is included in the MD&A.  Many of
these factors are beyond the Company’s control; therefore, future events may
vary substantially from what the Company currently foresees. You should not
place undue reliance on such forward-looking statements.  Vitran
Corporation Inc. does not assume the obligation to revise or update these
forward-looking statements after the date of this document or to revise them to
reflect the occurrence of future unanticipated events, except as may be required
under applicable securities laws.
 
 Unless
otherwise indicated all dollar references herein are in U.S.
dollars.  The Company’s Annual Report on Form 10-K, as well as all the
Company’s other required filings, may be obtained from the Company at www.vitran.com or from www.sedar.com or from www.sec.gov/edgar.shtml.ThisMD&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.
  13
  Overview
 
 The
second quarter of 2008 was a rewarding quarter for Vitran, operating results
improved compared to the first quarter of the year despite continued pressures
for high fuel prices and a lethargic economic activity in North
America.  Most importantly on May 19th, Vitran’s LTL segment completed
the 18 month development and migration of its four U.S. regional LTL business
units to the new common I.T. operating system. Furthermore, late in the second
quarter the Canadian LTL business moved into its new Toronto cross-dock and
national office and the Logistics segment commenced operations of the new
500,000 dedicated distribution centre.
 
 Revenue
for the quarter increased 15.2% to $196.0 million compared to the second quarter
of 2007.  Notable improvements were shown by the LTL segment which
increased 11.6% and the Logistics segment which increased 72.1% compared to the
2007 second quarter.  Income from operations for the 2008 second
quarter declined 11.3% compared to the 2007 second quarter but increased 317.9%
compared to the first quarter of 2008.  For the 2008 six-month period
the company posted revenue $373.5 million and income from operations of $10.0
million compared to revenue of $324.3 million and income from operations of
$14.7 million the same period a year ago.  The 2008 results for the
Logistics segment included Las Vegas/L.A. Express, Inc. (“LVLA”) acquired
November 30, 2007.
 
 CONSOLIDATED
RESULTS
 
 The
following table summarizes the Consolidated Statements of Income for the three-
and six-month periods ended June 30:
 
 For
      the three months ended June 30
              
              
              For
      the six months ended June 30(in
      thousands)
              
              2008
              
              
              2007
              
              
              2008
      vs 2007
              
              
              2008
              
              
              2007
              
              
              2008
      vs 2007Revenue
              
              $
              195,990
              
              
              $
              170,144
              
              
              
              15.2
              %
              
              $
              373,497
              
              
              $
              324,280
              
              
              
              15.2
              %Operating
      expenses
              
              
              165,102
              
              
              
              140,780
              
              
              
              17.3
              %
              
              
              318,201
              
              
              
              269,236
              
              
              
              18.2
              %SG&A
      expenses
              
              
              17,769
              
              
              
              15,283
              
              
              
              16.3
              %
              
              
              34,690
              
              
              
              30,382
              
              
              
              14.2
              %Other
      expense (income)
              
              
              (134
              )
              
              
              (101
              )
              
              
              32.7
              %
              
              
              (133
              )
              
              
              (72
              )
              
              
              84.7
              %Depreciation
      and amortization
              
              
              5,205
              
              
              
              5,109
              
              
              
              1.9
              %
              
              
              10,765.765,765
              
              
              
              10,054
              
              
              
              7.1
              %Income
      from operations
              
              
              8,048
              
              
              
              9,073
              
              
              
              (11.3
              %)
              
              
              9,974
              
              
              
              14,680
              
              
              
              (32.1
              %)Interest
      expense, net
              
              
              2,122
              
              
              
              2,115
              
              
              
              0.3
              %
              
              
              4,252
              
              
              
              4,179
              
              
              
              1.7
              %Income
      (recovery) tax
              
              
              1,349
              
              
              
              1,425
              
              
              
              (5.3
              %)
              
              
              11
              
              
              
              1,581
              
              
              
              (99.3
              %)Net
      income
              
              $
              4,577
              
              
              $
              5,533
              
              
              
              (17.3
              %)
              
              $
              5,711
              
              
              $
              8,920
              
              
              
              (36.0
              %)Income
      per share:Basic - net
    income
              
              $
              0.34
              
              
              $
              0.41
              
              
              
              
              
              
              $
              0.42
              
              
              $
              0.66Diluted - net
      income
              
              $
              0.34
              
              
              $
              0.41
              
              
              
              
              
              
              $
              0.42
              
              
              $
              0.65Operating Ratio(1)
              
              
              95.9
              %
              
              
              94.7
              %
              
              
              
              
              
              
              97.3
              %
              
              
              95.5
              %
 
 Revenue
increased 15.2% to $196.0 million for the second quarter of 2008 compared to
$170.1 million in the second quarter of 2007.  Revenue in the LTL,
Logistics and Truckload segments increased 11.6%, 72.1% and 2.5%,
respectively.  Domestic U.S. revenue accounts for 70.3% of total
revenue in the second quarter of 2008 compared to 70.0% in the second quarter of
2007.  For the six months ended June 30, 2008 revenue increased 15.2%
to $373.5 million compared to $324.3 million for the same period in
2007.  Revenue for the second quarter and six-month period of 2008
compared to same periods in 2007 were augmented by the contribution of LVLA,
acquired on November 30, 2007.  Detailed explanations for the
fluctuations in revenue are discussed below in “Segmented Results”.
 
 Income
from operations for the second quarter declined to $8.0 million compared to $9.1
million in the same quarter a year ago.  The Company’s consolidated
operating ratio was 95.9% for the second quarter of 2008 compared to 94.7% in
the second quarter of 2007.  Income from operations for the second
quarter of 2008 improved by 317.9% compared to the first quarter of 2008
resulting in a significant improvement in the operating ratio to 95.9% compared
to 98.9% in the first quarter.  For the six months ended June 30, 2008
income from operations was $10.0 million compared to $14.7 million for the same
period in 2007.  Detailed explanations for the fluctuations in income
from operations are discussed below in “Segmented Results”.
 
 14
  Selling,
general and administrative expenses (“SG&A”) increased 16.3% to $17.8
million in the second quarter compared to $15.3 million in the second quarter of
2007.  For the six-month period ended June 30, 2008 SG&A increased
14.2% to $34.7 million compared $30.4 million for the same period a year
ago.  The increase in SG&A expenses for the quarter and six-month
period can primarily be attributed to the addition of LVLA, not included in the
2007 comparative figures.  The remainder of the increase is due to
increased share-based compensation and healthcare
expenses.  Furthermore, with the addition of LVLA and increases in
healthcare and on-going compensation-related expenses, SG&A should continue
to be higher than the prior year periods.
 
 The
Company incurred interest expense of $2.1 million in the second quarter of 2008
and in the second quarter of 2007.  The Company’s total long-term debt
increased to $126.6 million at June 30, 2008 compared to the $115.4 million at
June 30, 2007.  The increase in debt is primarily attributable to
facility additions of $7.6 million and $8.5 million for the acquisition of LVLA
in the fourth quarter of 2007.  Total debt at June 30, 2008 consisted
of $53.1 million drawn on the Company’s revolving credit facilities, $54.4
million of term debt, $0.5 million note payable and $18.6 million of capital
leases.
 
 Income
tax expense for the second quarter of 2008 was $1.3 million compared to $1.4
million for the same quarter a year ago.  The effective tax rate was
22.8% for the second quarter of 2008 compared to 20.5% for the second quarter in
2007.  The increase in the effective tax rate for the quarter is
attributable to a higher portion of Vitran’s income before tax being earned in
higher tax jurisdictions compared to the same quarter in 2007.  For
the six months ended June 30, 2008, income tax expense was negligible compared
to $1.6 million for the same period a year ago.  For the six-month
period, on a consolidated basis, the Company generated taxable losses in the
United States, which have been recognized as future tax assets.  These
taxable losses are the result of tax depreciation and amortization on capital
assets and goodwill in excess of GAAP depreciation and amortization attributable
to the Company’s acquired businesses over the last three
years.  Management believes the Company will generate sufficient
taxable income to use these losses in the future.  Should the Company’s
earnings before income tax increase in subsequent quarters, the quarterly
effective tax rate should also increase.
 
 Net
income decreased by 17.3% to $4.6 million for the 2008 second quarter compared
to $5.5 million for the same quarter in 2007.  This resulted in basic
and diluted income per share of $0.34 for the second quarter of 2008 compared to
basic and diluted income per share from operations of $0.41 for the second
quarter of 2007.  The weighted average number of shares for the
current quarter was 13.5 million basic and 13.6 million diluted compared to 13.5
million basic and 13.7 million diluted shares in the second quarter of
2007.  For the six months ended June 30, 2008, net income decreased
36.0% to $5.7 million compared to $8.9 million in the same period a year
ago.  This resulted in basic and diluted earnings per share before
change in cumulative effect of change in accounting principle of $0.42 for the
2008 six-month period, compared to basic and diluted earnings per share of $0.66
and $0.65 in the same period in 2007.  The weighted average number of
shares for the six month period of 2007 was 13.5 million basic and 13.6 million
diluted shares compared to 13.5 million basic and 13.7 million diluted shares in
the six-month period of 2007.
 
 SEGMENTED
RESULTS
 
 Less-Than-Truckload
(LTL)
 
 The
table below provides summary information for the LTL segment for the three-month
periods ended June 30:
 
 For
      the three months ended June 30
              
              
              For
      the six months ended June 30(in
      thousands)
              
              2008
              
              
              2007
              
              
              2008
      vs 2007
              
              
              2008
              
              
              2007
              
              
              2008
      vs 2007Revenue
              
              $
              168,161
              
              
              $
              150,615
              
              
              
              11.6
              %
              
              $
              317,576
              
              
              $
              286,772
              
              
              
              10.7
              %Income
      from operations
              
              
              8,541
              
              
              
              9,002
              
              
              
              (5.1
              %)
              
              
              10,678
              
              
              
              15,232
              
              
              
              (29.9
              %)Operating
      ratio
              
              
              94.9
              %
              
              
              94.0
              %
              
              
              
              
              
              
              96.6
              %
              
              
              94.7
              %Number
      of shipments (2)
              
              
              1,037,700
              
              
              
              1,045,730
              
              
              
              (0.8
              %)
              
              
              2,015,511
              
              
              
              2,039,106
              
              
              
              (1.2
              %)Weight
      (000s of lbs) (3)
              
              
              1,587,453
              
              
              
              1,555,693
              
              
              
              2.0
              %
              
              
              3,077,927
              
              
              
              3,023,539
              
              
              
              1.8
              %Revenue
      per shipment (4)
              
              $
              162.05
              
              
              $
              144.03
              
              
              
              12.5
              %
              
              $
              157.57
              
              
              $
              140.64
              
              
              
              12.0
              %Revenue
      per hundredweight (5)
              
              $
              10.59
              
              
              $
              9.68
              
              
              
              9.4
              %
              
              $
              10.32
              
              
              $
              9.48
              
              
              
              8.9
              %
 
 15
  Revenue
in the LTL segment increased 11.6% to $168.2 million, in the second quarter of
2008 compared to $150.6 million in the same quarter a year ago.  The
increase in revenue was influenced by the fuel surcharge which represented 19.4%
of revenue in the second quarter of 2008 compared to 12.5% of revenue in the
second quarter of 2007.  U.S. LTL business successfully launched its
new I.T. operating system which lead to increased inter-regional sales activity
and the development of some new significant clients late in the second
quarter.  In addition, revenue from the LTL segment’s cross border
service offering was up 31.9% compared to the 2007 second
quarter.  However, these improvements were partially offset by the
lacklustre North American economy and competitive pricing pressure compared to
the second quarter of 2007.  The LTL segment’s shipments were flat and
tonnage increased 2.0% in the 2008 second quarter compared to the 2007 second
quarter. Revenue per hundredweight increased 9.4% taking into account that the
Canadian LTL domestic revenue was translated into US dollars at a more favorable
foreign exchange rate compared to the second quarter of
2007.  Removing this foreign exchange component revenue per
hundredweight increased 7.1% compared to the second quarter of
2007.  The increase in revenue per hundredweight is due to the
increase in fuel surcharge compared to the 2007 second
quarter.  Consequently, the 2008 second quarter operating ratio was
94.9% compared to 94.0% in the 2007 second quarter.
 
 For
the six-month period ended June 30, 2008, revenue in the LTL segment increased
10.7% to $317.6 million, compared to $286.8 million in the same period a year
ago.  The increase in revenue was influenced by fuel surcharge which
represented 17.7% of revenue in 2008 compared to 11.8% of revenue in the 2007
six-month period.  Cross border revenue increased 40.2% for the first
six months of 2008 compared to the 2007 period.   However, these
improvements were mitigated by the persistent slow down in the North American
economy, competitive pricing pressure and reduced the fuel surcharge recovery
margin compared to 2007 six month period.  Furthermore, abnormally
severe weather conditions and rail service issues in Canada in February and
March in the first quarter of 2008 impacted the six-month
results.  The LTL segment’s shipments decreased 1.2% and tonnage
increased 1.8% in the 2008 six month period compared to the 2007 six month
period. Revenue per hundredweight increased 8.9% taking into account that the
Canadian LTL domestic revenue was translated into US dollars at a more favorable
foreign exchange rate compared to the same 2007 six month
period.  Removing this foreign exchange component revenue per
hundredweight increased 5.3% compared to the same period a year
ago.  The increase in revenue per hundredweight is due to the increase
in fuel surcharge compared to the 2007 first quarter.  Consequently,
the 2008 six-month period operating ratio was 96.6% compared to 94.7% in the
2007 six-month period.
 
 Logistics
 
 The
table below provides summary information for the Logistics segment for the
three- and six-month periods ended June 30:
 
 For
      the three months ended June 30
              
              
              For
      the six months ended June 30(in
      thousands)
              
              2008
              
              
              2007
              
              
              2008
      vs 2007
              
              
              2008
              
              
              2007
              
              
              2008
      vs 2007Revenue
              
              $
              19,314
              
              
              $
              11,225
              
              
              
              72.1
              %
              
              $
              39,074
              
              
              $
              20,888
              
              
              
              87.1
              %Income
      from operations
              
              
              831
              
              
              
              735
              
              
              
              13.1
              %
              
              
              1,551
              
              
              
              1,175
              
              
              
              32.0
              %Operating
      ratio
              
              
              95.7
              %
              
              
              93.4
              %
              
              
              
              
              
              
              96.0
              %
              
              
              94.4
              %
 
 
 Revenue
and income from operations for the Logistics segment increased 72.1% and 13.1%,
respectively for the second quarter of 2008 compared to the same quarter in
2007.  For the six-month period ended June 30, 2008, revenue and
income from operations for the Logistics segment increased 87.1% and 32.0%
respectively compared to the same period in 2007.  The increase in
revenue and income from operations is primarily attributable to the acquisition
of LVLA on November 30, 2007.  The Logistics segment, excluding LVLA,
continued to generate positive revenue growth but operating margins showed the
impact of a slowdown in retail sales activity in North America.  The
2008 second quarter operating ratio was 95.7% compared to 93.4% in the 2007
second quarter.Revenue and income from
operations should increase when the supply chain unit fully utilizes the new
500,000 square foot dedicated retail distribution facility that commenced
operations late in the second quarter.
 
 16
  Truckload
  The table below provides
summary information for the Truckload segment for the three- and six-month
periods ended June 30:
 
 For
      the three months ended June 30
              
              
              For
      the six months ended June 30(in
      thousands)
              
              2008
              
              
              2007
              
              
              2008
      vs 2007
              
              
              2008
              
              
              2007
              
              
              2008
      vs 2007Revenue
              
              $
              8,515
              
              
              $
              8,304
              
              
              
              2.5
              %
              
              $
              16,847
              
              
              $
              16,620
              
              
              
              1.4
              %Income
      from operations
              
              
              321
              
              
              
              405
              
              
              
              (20.7
              %)
              
              
              700
              
              
              
              700
              
              
              
              0.0
              %Operating
      ratio
              
              
              96.2
              %
              
              
              95.1
              %
              
              
              
              
              
              
              95.8
              %
              
              
              95.8
              %
 
 Revenue
in the Truckload segment improved 2.5% to $8.5 million for the second quarter of
2008 compared to $8.3 million for the second quarter of 2007.  In the
2008 second quarter shipments increased by 7.1% but was offset by a decline in
revenue per mile(6)of
2.4% and an increase in empty miles of 9.0% compared to the 2007 second quarter.
As a result income from operations decreased $0.1 million and the operating
ratio was 96.2% for the second quarter of 2008 compared to 95.1% for the second
quarter of 2007.  Revenue for the six-month period of 2008 was up 1.4%
while income from operations was flat compared to the same period in 2007,
resulting in and operating ratio of 95.8% for the current and prior year
six-month periods.
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Cash
flow from operations including working capital changes decreased to $6.5 million
for the 2008 six-month period compared to $16.2 million in the 2007 six-month
period.  The decline is primarily attributable to a decrease in
non-cash deferred income tax expense and the increase in working capital
compared to the six-month period of 2007.  Accounts receivable
increased compared to December 31, 2007 due to higher revenue; average days
sales outstanding was 40.5 days compared to 38.9 days for the
Company.  Accounts payable and accrued liabilities increased compared
to December 31, 2007 due to the timing of payments.
 
 Interest-bearing
debt, excluding bank overdraft, was $126.6 million at June 30, 2008 consisting
of $54.4 million of term debt, capital leases of $18.6 million, $0.5 million
note payable and $53.1 million drawn under the revolving credit
facility.  At December 31, 2007 interest-bearing debt was $128.0
million consisting of $58.9 million of term debt, capital leases of $22.9
million, $1.2 million note payable and $45.0 million drawn under the revolving
credit facility.  For the six-month period ended June 30, 2008, the
Company repaid $5.1 million of term debt and $4.2 million of capital
leases.  At June 30, 2008, the Company had $22.6 million of unused
credit facilities.
 
 Capital
expenditures amounted to $2.0 million for the second quarter of 2008 and were
funded from operating cash flows and the revolving credit facilities of the
Company.  The majority of capital expenditures were for the final
construction outlays for the new LTL service centre in Toronto
(Ontario).  The table below sets forth the Company’s capital
expenditures for the three- and six-month periods ended June 30,
2008.
 
 For
      the three months ended June 30,
              
              
              For
      the six months ended June 30,(in
      thousands of dollars)
              
              2008
              
              
              2007
              
              
              2008
              
              
              2007Real
      estate and buildings
              
              $
              1,261
              
              
              $
              2,429
              
              
              $
              7,636
              
              
              $
              5,675Tractors
              
              
              -
              
              
              
              5,343
              
              
              
              47
              
              
              
              5,343Trailing
      fleet
              
              
              450
              
              
              
              1,717
              
              
              
              658
              
              
              
              2,686Information
      technology
              
              
              56
              
              
              
              403
              
              
              
              284
              
              
              
              572Leasehold
      improvements
              
              
              20
              
              
              
              14
              
              
              
              92
              
              
              
              32Other
      equipment
              
              
              253
              
              
              
              704
              
              
              
              431
              
              
              
              852Total
              
              $
              2,040
              
              
              $
              10,610
              
              
              $
              9,148
              
              
              $
              15,160
 
 Management
estimates that cash capital expenditures for the remainder of 2008, will be
between $5.0 million and $10.0 million, the majority of which will be fleet
replacement and information technology expenditures.  The Company also
anticipates entering into operating leases to fund the acquisition of equipment
with a capital cost of between $5.0 million and $9.0 million.  The
Company expects to finance its cash capital requirements with cash flow from
operations, and if required, its revolving credit facilities.
 
 17
  The
Company has contractual obligations for principal payments that include
long-term debt consisting of term debt facilities, revolving credit facilities
and capital leases for operating equipment. The Company utilizes off-balance 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 June 30, 2008:
 
 (in
      thousands of dollars)
              
              
              
              
              Payments
      due by periodContractual
      Obligations
              
              Total
              
              
              2008
              
              
              2009
      & 2010
              
              
              2011
      & 2012
              
              
              ThereafterTerm
      credit facilities
              
              $
              54,400
              
              
              $
              4,510
              
              
              $
              23,890
              
              
              $
              26,000
              
              
              $ NilRevolving
      credit facilities
              
              
              53,050
              
              
              Nil
              
              
              Nil
              
              
              
              53,050
              
              
              NilCapital
      lease obligations
              
              
              18,618
              
              
              
              3,767
              
              
              
              9,239
              
              
              
              5,612
              
              
              NilNote
      payable
              
              
              545
              
              
              
              545
              
              
              Nil
              
              
              Nil
              
              
              NilSub-total
              
              
              126,613
              
              
              
              8,822
              
              
              
              33,129
              
              
              
              84,662
              
              
              NilOperating
      leases
              
              
              55,962
              
              
              
              11,543
              
              
              
              24,659
              
              
              
              14,429
              
              
              
              5,331Total
      Contractual Obligations
              
              $
              182,575
              
              
              $
              20,365
              
              
              $
              57,788
              
              
              $
              99,091
              
              
              $
              5,331
 
 In
addition to the above-noted contractual obligations, the Company, as at June 30,
2008, utilized the revolving credit facilities for standby letters of credit of
$18.7 million.  The letters of credit are used as collateral for
self-insured retention of insurance claims.
 
 A
significant decrease in demand for the Company’s services could limit the
Company’s ability to generate cash flow and affect its
profitability.  The Company’s credit agreement contains certain
financial maintenance tests that require the Company to achieve stated levels of
financial performance, which, if not achieved, could cause an acceleration of
the payment schedules.  On April 10, 2008, the Company amended its
credit agreement in respect of certain financial maintenance
tests.  The amendment is effective March 31, 2008 to December 31,
2008.  As at June 30, 2008, the Company is in compliance with these
amended maintenance tests and management expects the Company to be in compliance
for the balance of 2008.  Management does not anticipate a significant
decline in business levels or financial performance and expects that existing
working capital, together with available revolving facilities, will be
sufficient to fund operating and capital requirements in 2008 as well as to
service the contractual obligations.
 
 OUTLOOK
 
 The
second quarter of 2008 was a rewarding quarter for Vitran, the U.S. LTL business
unit launched its new I.T. operating system, the Canadian LTL business unit
moved into is new cross dock and national head office and the Logistics segment
commenced operations of its new 500,000 square foot dedicated distribution
centre.  All these milestone achievements were completed while
improving financial results compared to the first quarter of 2008 and the
additional challenges of soaring fuel prices, and the lackluster economic
environment in North America.
 
 With
the launch of the new I.T. operating system, the U.S. LTL business unit is
positioned to initiate the all important consolidation of employee groups and
elimination of redundant facilities within its U.S. regional overlapping
footprints.  Upon completion, this should lead to further
opportunities to increase revenue and improve operating
efficiencies.
 
 The
Canadian LTL business unit will focus on service centre efficiencies at its new
Toronto location and revenue growth initiatives.   The Logistics
segment will endeavour to fully utilize its new dedicated logistics facility in
Toronto.
 
 18
  Lastly
the Company remains committed to its objectives to expand or acquire into new
regional LTL markets and opportunistically add complementary Logistics
operations.
 
 
 QUARTERLY
RESULTS
 
 (thousands of
      dollars
                except
      per share
                amounts)
              
              
              2008
      Q2
              
              
              
              2008
      Q1
              
              
              
              2007
      Q4
              
              
              
              2007
      Q3
              
              
              
              2007
      Q2
              
              
              
              2007
      Q1
              
              
              
              2006
      Q4
              
              
              
              2006
      Q3Revenue
              
              $
              195,990
              
              
              $
              177,507
              
              
              $
              174,310
              
              
              $
              171,927
              
              
              $
              170,144
              
              
              $
              154,136
              
              
              $
              153,779
              
              
              $
              121,512Income
      from operations
              
              
              8,048
              
              
              
              1,926
              
              
              
              2,750
              
              
              
              5,569
              
              
              
              9,073
              
              
              
              5,607
              
              
              
              8,143
              
              
              
              6,797Net
      Income
              
              
              4,577
              
              
              
              1,134
              
              
              
              1,669
              
              
              
              3,121
              
              
              
              5,533
              
              
              
              3,387
              
              
              
              4,974
              
              
              
              4,885Income
      per share:Basic
              
              $
              0.34
              
              
              $
              0.08
              
              
              $
              0.12
              
              
              $
              0.23
              
              
              $
              0.41
              
              
              $
              0.25
              
              
              $
              0.37
              
              
              $
              0.38Diluted
              
              
              0.34
              
              
              
              0.08
              
              
              
              0.12
              
              
              
              0.23
              
              
              
              0.41
              
              
              
              0.25
              
              
              
              0.37
              
              
              
              0.38Weighted
      average number of shares:Basic
              
              
              13,483,159
              
              
              
              13,465,357
              
              
              
              13,457,619
              
              
              
              13,475,685
              
              
              
              13,463,374
              
              
              
              13,438,065
              
              
              
              13,413,153
              
              
              
              12,744,936Diluted
              
              
              13,630,974
              
              
              
              13,611,446
              
              
              
              13,621,272
              
              
              
              13,668,819
              
              
              
              13,661,467
              
              
              
              13,651,872
              
              
              
              13,624,031
              
              
              
              12,966,835
  
 Definitions
of non-GAAP measures:
 
 (1)
              Operating
      ratio (“OR”) is a non-GAAP financial measure which does not have any
      standardized meaning prescribed by GAAP. OR is the sum of operating
      expenses, selling, general and administrative expenses, other expenses
      (income), and depreciation and amortization expense, divided by revenue.
      OR allows management to measure the Company and its various segments’
      operating efficiency.  OR is a widely recognized measure in the
      transportation industry which provides a comparable benchmark for
      evaluating the Company’s performance compared to its competitors.
      Investors should also note that the Company’s presentation of OR may not
      be comparable to similarly titled measures by other companies. OR is
      calculated as follows:
  Three
      months ended June 30,
                
                
                Six
      months ended June 30,(in
      thousands)
                
                2008
                
                
                2007
                
                
                2008
                
                
                2007Operating
      expenses
                
                $
                165,102
                
                
                $
                140,780
                
                
                $
                318,201
                
                
                $
                269,236Selling,
      general and administrative expenses
                
                
                17,769
                
                
                
                15,283
                
                
                
                34,690
                
                
                
                30,382Other
      expenses (income)
                
                
                (134
                )
                
                
                (101
                )
                
                
                (133
                )
                
                
                (72
                )Depreciation
      and amortization expense
                
                
                5,205
                
                
                
                5,109
                
                
                
                10,765
                
                
                
                10,054$
                187,942
                
                
                $
                161,071
                
                
                $
                363,523
                
                
                $
                309,600Revenue
                
                $
                195,990
                
                
                $
                170,144
                
                
                $
                373,497
                
                
                $
                324,280Operating
      ratio (“OR”)
                
                
                95.9
                %
                
                
                94.7
                %
                
                
                97.3
                %
                
                
                95.5
                %
  (2)
              A
      shipment is a single movement of goods from a point of origin to its final
      destination as described on a bill of lading
  document.
  (3)
              Weight
      represents the total pounds
shipped.
  (4)
              Revenue
      per shipment represents revenue divided by the number of
      shipments.
  (5)
              Revenue
      per hundredweight is the price obtained for transporting 100 pounds of LTL
      freight from point to point, calculated by dividing the revenue for an LTL
      shipment by the hundredweight (weight in pounds divided by 100) for a
      shipment.
  (6)
              Revenue
      per total mile represents revenue divided by the total miles
      driven.
 
 Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 The
Company is exposed to the impact of interest rate changes.  The
Company’s exposure to changes in interest rates is limited to borrowings under
the term bank facilities and revolving credit facilities that have variable
interest rates tied to the LIBOR rate.  As a majority of the Company’s
debt is tied to variable interest rates, the Company estimates that the fair
value of the long-term debt approximates the carrying value.
 
 19
 
  (in
      thousands of dollars)
                  
                  
                  
                  
                  Payments
      dueby
      periodLong-term
      debt
                  
                  Total
                  
                  
                  2008
                  
                  
                  2009
      & 2010
                  
                  
                  2011
      & 2012
                  
                  
                  ThereafterVariable
      RateTerm
      bank facility
                  
                  $
                  52,000
                  
                  
                  $
                  4,000
                  
                  
                  $
                  22,000
                  
                  
                  $
                  26,000
                  
                  
                  $
                  NilAverage interest rate
      (LIBOR)
                  
                  
                  4.30
                  %
                  
                  
                  4.30
                  %
                  
                  
                  4.30
                  %
                  
                  
                  4.30
                  %Term
      bank facility
                  
                  $
                  2,400
                  
                  
                  $
                  510
                  
                  
                  $
                  1,890
                  
                  
                  $
                  Nil
                  
                  
                  $
                  NilAverage
      interest rate (LIBOR)
                  
                  
                  4.55
                  %
                  
                  
                  4.55
                  %
                  
                  
                  4.55
                  %Revolving bank
      facility
                  
                  $
                  53,050
                  
                  
                  $
                  Nil
                  
                  
                  $
                  Nil
                  
                  
                  $
                  53,050
                  
                  
                  $
                  NilAverage
      interest rate (LIBOR)
                  
                  
                  4.30
                  %
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  4.30
                  %Fixed
      RateCapital
      lease obligations
                  
                  $
                  18,618
                  
                  
                  $
                  3,767
                  
                  
                  $
                  9,239
                  
                  
                  $
                  5,612
                  
                  
                  $
                  NilAverage
      interest rate
                  
                  
                  6.15
                  %
                  
                  
                  6.15
                  %
                  
                  
                  6.15
                  %
                  
                  
                  6.15
                  %Note
      payable
                  
                  $
                  545
                  
                  
                  $
                  545
                  
                  
                  $
                  Nil
                  
                  
                  $
                  Nil
                  
                  
                  $
                  NilAverage
      interest rate
                  
                  
                  6.00
                  %Total
                  
                  $
                  126,613
                  
                  
                  $
                  8,822
                  
                  
                  $
                  33,129
                  
                  
                  $
                  84,662
                  
                  
                  $
                  Nil
 The
Company uses variable-to-fixed interest rate swaps on its term and revolving
credit facilities with a notional amount of $64.4 million at June 30,
2008.  The average pay rate on the swaps is 4.94% and the average
receive rate is the three-month LIBOR rate which is currently
2.8%.  To value the interest rate swaps a discounted cash flow model
is utilized. Primary inputs into the model that will cause the fair value to
fluctuate period-to-period include the fixed interest rates, the future interest
rates, credit risk and the remaining time to maturity of the interest rate
swaps.  Management’s intention is to hold the interest rate swaps to
maturity.
 
 The
Company is exposed to foreign currency risk as fluctuations in the United States
dollar against the Canadian dollar can impact the financial results of the
Company.  The Company’s Canadian operations realize foreign currency
exchange gains and losses on the United States dollar denominated revenue
generated against Canadian dollar denominated expenses.  Furthermore,
the Company reports its results in United States dollars thereby exposing the
results of the Company’s Canadian operations to foreign currency
fluctuations.  In addition, the Company’s United States dollar debt of
$80.2 million is designated as a hedge of the investment in the United States’
self-sustaining foreign operations.
 
 
 Item
4. Controls and Procedures
 
 a)
              As
      of July 22, 2008, the Chief Executive Officer and the Chief Financial
      Officer evaluated the effectiveness of the Company’s disclosure controls
      and procedures in accordance with Rule 13a-15 under the Exchange Act for
      the quarter ended June 30, 2008.  Based on their evaluation, the
      Company’s Chief Executive Officer and the Chief Financial Officer
      concluded that Vitran’s disclosure controls and procedures enable Vitran
      to record, process, summarize and report in a timely manner the
      information that we are required to disclose in our Exchange Act
      reports.
 
 b)
              During
      the 2008 second quarter Vitran implemented a new less-than-truckload
      operating system within its U.S. LTL business unit.  In
      accordance with Vitran’s IT general controls appropriate internal controls
      were followed in the development and implementation of the
      system.  As a result of the new system a limited number of IT
      application level controls changed in the quarter.  Management
      ensured that an appropriate level of monitoring controls were in place to
      ensure that financial information was appropriately recorded, processed
      and disclosed.  Management will test the application level
      controls in the normal course as part of its annual certification
      requirements.  Management does not believe there is any material
      affect on the company’s internal control over financial
      reporting.
 
 
 20
  Part
II. Other Information
 
 Item
1. Legal Proceedings
 
 The
Company is subject to various legal proceedings and claims that have arisen in
the ordinary course of its business that have not been fully
adjudicated.  Many of these are covered in whole or in part by
insurance.  The management of Vitran does not believe that these
actions, when finally concluded and determined, will have a significant adverse
effect upon Vitran’s financial condition, results of operations or cash
flows.
 
 Item
1A.  Risk Factors
 
 See
Part 1A of the Company’s 2007 Annual Report on Form 10-K.
 
 Item 2. Unregistered Sale of Equity
and Use of Proceeds     -
-     None
 
 Item 3. Defaults Upon Senior
Securities     -
-     None
 
 Item 4. Submission of Matters to a
Vote of Security Holders     -
-None
 
 Item 5. Other
Information     -
-     None
 
 Item
6. Exhibits and Reports on Form 8-K


Exhibits





Exhibit
              Number
            Description
      of Exhibit31
            Certifications
      pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated July
      22, 2008.32
            Certifications
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated July
      22, 2008.






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: 
      July 22, 2008
            Vice
      President of Finance andChief
      Financial Officer(Principle
      Financial Officer)/s/ FAYAZ D. SULEMANFayaz
      D. SulemanDate:  July
      22, 2008
            Corporate
      Controller(Principle
      Accounting Officer)


21