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EX-31.1 - CEO CERTIFICATION - VITRAN CORP INCex311.htm
EX-31.2 - CFO CERTIFICATION - VITRAN CORP INCex312.htm
EX-32.1 - CEO AND CFO SARBANES-OXLEY CERTIFICATIONS - VITRAN CORP INCex321.htm
 
 




UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549 

FORM 10-K

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

 
For the fiscal year ended December 31, 2009

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

For the transition period from ____________ to _____________________

Commission File Number: 001-32449

VITRAN CORPORATION INC. 

(Exact name of registrant as specified in its charter)

Ontario, Canada
 
98-0358363
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5
(Address of principal executive offices and zip code)

416-596-7664
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class

Common Shares
 
 
 
Name of each exchange on which registered

Toronto Stock Exchange - TSX®
NASDAQ - Global National Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  o   No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes  o   No  x

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  o   No  x

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. 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
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  16,266,441 common shares outstanding at February 5, 2010.  The aggregate market value of the voting stock of the registrant, excluding directors, officers and registered holders of 10% as of February 5, 2010 was approximately $141,522,000.

DOCUMENTS INCORPORATED BY REFERENCE

1)  Portions of the Proxy Statement for the 2010 Annual Meeting of Stockholders (the “Proxy Statement”), to be filed within 120 days of the end of the fiscal year ended December 31, 2009, are incorporated by reference in Part III hereof. Except with respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part hereof.
 
 
 


 

 
 

 

TABLE OF CONTENTS
 
Item
 
Page
     
PART I
   
     
1.
Business
3
     
1. A
Risk Factors
7
     
1. B
Unresolved Staff Comments
14
     
2.
Properties
15
     
3.
Legal Proceedings
15
     
4.
Submission of Matters to a Vote of Security Holders
15
     
     
PART II
 
     
5.
Market for Registrant’s Common Equity and Related Stockholder Matters
16
     
6.
Selected Financial Data
18
     
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
20
     
7. a
Quantitative and Qualitative Disclosures about Market Risk
35
     
8.
Financial Statements and Supplementary Data
35
     
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
64
     
9. a
Controls and Procedures
64
     
9. b
Other Information
66
     
PART III
 
     
10.
Directors and Executive Officers of the Registrant
66
     
11.
Executive Compensation
66
     
12.
Security Ownership of Certain Beneficial Owners and Management
67
     
13.
Certain Relationships and Related Transactions
67
     
14.
Principal Accounting Fees and Services
67
     
PART IV
 
     
15.
Exhibits, Financial Statements Schedules and Reports on Form 8-K
67

 
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Unless otherwise indicated all dollar references herein are in United States dollars.

Forward-Looking Statements

Forward-looking statements appear in the Annual Report on Form 10-K, including but not limited to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other written and oral statement made by or on behalf of us.  Our forward-looking statements are based on our beliefs and assumptions using information available at the time the statements are made.  We direct the reader to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a more thorough description of forward-looking statements.


ITEM 1 - BUSINESS

OVERVIEW

Vitran Corporation Inc. (“Vitran” or the “Company”) is a leading, predominantly non-union, provider of freight surface transportation and related supply chain services throughout Canada and in 29 states in the eastern, central, southwestern, and western United States. The Company’s business consists of Less-than-truckload services (“LTL”), Supply Chain Operation (“SCO”), and Truckload (“TL”) services. These services are provided by stand-alone business units within their respective regions. The business units operate independently or in a complementary manner to provide solutions depending on a customer’s needs.  For the years ended December 31, 2009 and 2008, the Company had revenues of $629.3 million and $726.3 million, respectively.

CORPORATE STRUCTURE

Vitran’s principal executive and registered office is located at 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5. Vitran Corporation Inc. was incorporated in Ontario under the Business Corporation Act (Ontario) on April 29, 1981.

Vitran’s business is carried on through its subsidiaries which hold the relevant licenses and permits required to carry on business.  The following are Vitran’s principal operating subsidiaries (including their jurisdiction of incorporation), all wholly owned as at December 31, 2009:  Vitran Express Canada Inc. (Ontario); Can-Am Logistics Inc. (Ontario); Vitran Logistics Ltd. (Ontario); Expéditeur T.W. Ltée (Canada); Vitran Corporation (Nevada); Vitran Express Inc. (Pennsylvania); Frontier Transport Corporation (Indiana); Vitran Logistics Corp. (Delaware); Vitran Logistics Inc. (Indiana); and Las Vegas/L.A. Express, Inc. (California).

OPERATING SEGMENTS

Segment financial information is included in Note 12 to the Consolidated Financial Statements.

LTL Services

Vitran has grown organically and made strategic acquisitions to build a comprehensive LTL network throughout Canada and in the central, southwestern, and western United States.  Vitran’s LTL business represented approximately 82.5% of its revenue for the year ended December 31, 2009.

On May 31, 2005, Vitran expanded into the southwestern United States by acquiring Chris Truck Line (“CTL”), a Kansas-based regional less-than-truckload carrier serving 11 states.  With the acquisition of CTL, Vitran obtained an additional 19 service centers covering 11 states, including new territory in Colorado, Kansas, Oklahoma, and Texas.  On January 3, 2006, Vitran, through its subsidiary Vitran Express West Inc., expanded into the western United States by acquiring the assets of Sierra West Express (“SWE”), a Nevada-based regional less-than-truckload carrier serving three states.  With the acquisition of SWE, Vitran expanded its footprint to California, Nevada, and Arizona.   On October 2, 2006, Vitran expanded into the eastern United States by acquiring PJAX Freight System (“PJAX”), a Pennsylvania-based regional less-than-truckload carrier serving 11 states.  With the acquisition of PJAX, Vitran obtained 22 service centers including expanded and new state coverage in New Jersey, Pennsylvania, Delaware, Maryland, West Virginia and Virginia.  During 2008 the U.S. LTL business unit launched a new integrated operating system and completed the physical and operational integrations of all its LTL companies.  Therefore in 2009 the U.S. LTL business unit increased its competitiveness in the U.S. inter-regional market segment as evidenced by the 22.5% increase in the business unit’s length of haul in 2009.   Lastly, on December 31, 2009 these acquired companies were re-organized for tax purposes with Vitran’s existing LTL operation Vitran Express Inc. (Indiana) to form Vitran Express Inc. (Pennsylvania).

 
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  Within the United States, the Company operates primarily within the eastern, central, southwestern and western United States and delivers approximately 83.0% of its freight shipments within one or two days. In addition, the Company offers its services to the other regions in the United States (other than Alaska and Hawaii) through its strategic inter-regional relationships. The service is provided over-the-road, mostly by Company drivers, which allows more control in servicing these time-sensitive shipments.  Vitran’s U.S. LTL business represented approximately 71.4% of total LTL revenues for the year ended December 31, 2009.

Within Canada, the Company provides next-day service within Ontario, Quebec and parts of western Canada, and generates most of its revenue from the movement of LTL freight within the three- to five-day east-west service lanes.  The majority of its trans-Canada freight is shipped intermodally, whereby the Company’s containers are loaded onto rail cars and trans-loaded to Vitran facilities where Vitran’s network of owner operators pick up and deliver the freight to various destinations. An expedited service solution is also offered nationally using over-the-road driver teams to complete these deliveries in a shorter time frame.  Vitran’s Canadian LTL business represented approximately 28.6% of total LTL revenues for the year ended December 31, 2009.

Vitran’s Transborder Service Solution (inter-regional) provides over-the-road service between its Canadian LTL and U.S. LTL business units. This is the Company’s highest margin and fastest growing service, achieving a four year compounded average growth rate of approximately 10% per annum at December 31, 2009.

Supply Chain Operation

Vitran’s Supply Chain Operation segment, (“SCO”) represented approximately 12.1% of its revenues for the year ended December 31, 2009.  The SCO involves the management and transportation of goods and the provision of information about such goods as they pass through the supply chain from manufacturer to end user. The SCO’s role is to design a supply chain network for a customer, contract with the necessary suppliers (including Vitran’s LTL services), implement the design and management of the logistical system.  Vitran’s SCO offers a range of services in Canada and the United States including cross-docks, inventory management, flow-through distribution facilities, and dedicated distribution facilities that focus primarily on long-term customized supply chain solutions.  In addition, SCO provides over-the-road or intermodal freight brokerage services with sales offices in Toronto, Montreal and Los Angeles so as to capitalize on international traffic flows in North America.

Over the past decade, Vitran has grown its SCO segment organically and on November 30, 2007 announced the strategic acquisition of Las Vegas/L.A. Express Inc. (“LVLA”), a retail supply-chain management specialist based in Ontario, California.  LVLA operated six facilities, adding 470,000 square feet of logistics space. As at December 31, 2009 SCO had approximately 2.0 million square feet of warehouse and distribution space under management.

Truckload

Vitran’s Truckload business, operating as Frontier Transport Corporation (“Frontier”), provides truckload service within the United States.  Frontier utilizes its company-controlled trailing equipment and tractor owner operators.  The business is primarily dry van but also offers temperature-controlled service in select markets. Frontier operates from two terminals, one in Atlanta and the other in Indianapolis where the main administration office is located.  Frontier principally delivers within a 400-mile radius utilizing approximately 255 owner operators with company-owned or leased trailing fleet.  Vitran’s Truckload business represented approximately 5.4% of its revenues for the year ended December 31, 2009.



 
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THE TRUCKING INDUSTRY

The trucking industry consists of two segments, specifically private fleets and “for-hire” carriers.  The private carrier segment consists of fleets owned and operated by shippers who move their own goods.  The “for-hire” segment is further divided into TL and LTL sub-segments, based on the typical shipment size handled by the carrier.  TL refers to carriers transporting shipments greater than 10,000 pounds and LTL refers to carriers generally transporting shipments less than 10,000 pounds.  Vitran is predominantly an LTL carrier.

LTL carriers transport freight for multiple customers to multiple destinations on each trailer. This service requires a network of local pick-up and delivery terminals, hub facilities, and driver fleets. The LTL business is capital intensive and achieving significant density of operations in a given region can afford a competitive advantage since greater freight volumes are better able to support fixed costs. Vitran believes the regional LTL industry offers a favorable operating model and provides substantial growth opportunities for the following reasons:

 
the trend among shippers toward minimal inventories, deferred air freight, and regional distribution has increased the demand for next-day and second-day delivery service;

 
regional carriers with sufficient scale and freight density to support local terminal networks can offer greater service reliability and minimize the costs associated with intermediate handling;

 
regional carriers are predominantly non-union, which offers cost savings, greater flexibility, and a lower likelihood of service disruptions, compared with unionized carriers; and

 
there has been a reduction of capacity as weaker competitors exit the business.

 
MARKETING AND CUSTOMERS

Vitran derives its revenue from thousands of customers from a variety of geographic regions and industries in Canada and the United States. The Company has no customer that represents more than 5.0% of Vitran’s revenues.  At December 31, 2009, the Company employed 157 sales associates.  Sales associates dialogue with new and retained customers within the geographic market.  New customers are obtained through referrals, cold calls and trade publications.  The sales associates receive a base salary and, depending on the business unit, a variable compensation package that can be linked to revenue generation, business unit profitability and days sales outstanding.

The LTL segment analyzes the price level that is appropriate for each particular shipment of freight. When necessary, Vitran competes to secure revenue by participating in bid solicitations, provided its customer recognizes the Company as a core carrier over a contracted period of time.

 
In SCO, Vitran customizes each solution to fit the needs of the customer. The SCO pursues opportunities that will not only increase the profitability of that segment but will supplement activity in Vitran’s LTL segment as well.

EMPLOYEES

At December 31, 2009, Vitran employed approximately 4,832 full- and part-time employees and contracted with approximately 502 owner operators.  The vast majority of our employees are not represented by unionized collective bargaining agreements.  The advantage of employing predominantly non-union labour is more work rules flexibility with respect to work schedules, routes and other similar items.  Work rule flexibility is important in our business segments to meet the service level requirements of our customers.

A total of 104 Vitran employees are represented by two labor unions, representing 1.9% of the Company’s labour force. The International Brotherhood of Teamsters and the Canadian Auto Workers Association represent dock workers in two of Vitran’s Canadian terminals. The Company has never had a work stoppage. The collective bargaining agreements between the Company and its unionized employees expire on February 28, 2011 and on March 31, 2015, respectively.


 
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INFORMATION TECHNOLOGY

Vitran uses technology to reduce costs, improve productivity, and enhance its customer service. Vitran allows its customers to access or exchange information with the Company via Vitran’s website, published web services, electronic data interchange, or over the telephone.  The Company uses sophisticated freight handling software to maximize its load average, reduce freight handling, reduce transit times, and improve tracking of shipments through its system.  In the second quarter of 2008, Vitran’s U.S. LTL business unit completed the process of migrating all of its U.S. LTL operations to a common transportation operating system that further enhanced the Company’s technology platform and helped deliver superior service to its customers.  Vitran’s SCO segment customizes the technology platform to its client requirements spanning the simplest of connections to highly integrated solutions.

SEASONALITY

In the trucking industry for a typical year, the months of September and October usually have the highest business levels, while the months of December, January and February generally have the lowest business levels.  Adverse weather conditions generally experienced in the first quarter of the year, such as heavy snow and ice storms, have a negative impact on operating results.  Accordingly, revenue and profitability are normally lowest in the first quarter.

REGULATION

Regulatory agencies exercise broad powers over the trucking industry, generally governing such activities as authorization to engage in motor carrier operations, safety and financial reporting. The industry also may become subject to new or more restrictive regulations relating to fuel emissions, ergonomics, or limits on vehicle weight and size. Additional changes in the laws and regulations governing the trucking industry could affect the economics of the industry by requiring changes in operating practices or by influencing the demand for and the costs of providing services to customers.  In addition to the U.S. Department of Transportation (“DOT”), Vitran is subject to regulations from, but not limited to, the Department for Homeland Security, Environmental Protection Agency, and the Food and Drug Administration.

From time to time, various legislative proposals that might affect the trucking industry are introduced, including proposals to increase federal, state, provincial or local taxes, including taxes on motor fuels. Vitran cannot predict whether, or in what form, any increase in such taxes applicable to the Company will be enacted. Increased taxes could adversely affect Vitran’s profitability.

Vitran’s employees and owner operators also must comply with the safety and fitness regulations promulgated by the DOT and various regulatory authorities in Canada, including those relating to drug and alcohol testing and hours of service.

COMPETITION

Vitran competes with many other transportation service providers of varying sizes within Canada and the United States.  In the United States, Vitran competes mainly in the eastern, central, southwestern and western states.  The transportation industry is highly competitive on the basis of both price and service.  The Company competes with regional, inter-regional and national LTL carriers, truckload carriers, third-party logistics companies and, to a lesser extent, small-package carriers, air freight carriers and railroads.  The Company competes effectively in its markets by providing high quality and timely service at competitive prices.

AVAILABLE INFORMATION

Vitran makes available free of charge on or through its website at www.vitran.com its Annual Report on Form 10-K (including the Company management’s discussion and analysis (“MD&A”) at December 31, 2009), Quarterly Reports on Form 10-Q, current reports on Form 8-K and other information releases, including all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”) and System for Electronic Document Analysis and Retrieval (“SEDAR”).  The information can also be accessed through EDGAR at www.sec.gov or SEDAR at www.sedar.com.


 
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ITEM 1. A - RISK FACTORS

RISKS AND UNCERTAINTIES

An investment in our Company involves a high degree of risk.  Before making an investment in the common shares of the Company, you should carefully consider the risks described below and the other information contained in this Annual Report on Form 10-K.  The risks described below are not the only ones facing our company or otherwise associated with an investment in the Company.  If we do not successfully address any of the risks described herein or therein, there could be a material adverse effect on our financial condition, operating results and business, and the trading price of our common shares may decline.  We can provide no assurance that we will successfully address these risks.

Risks Relating to Our Company
 
Our industry is highly competitive, and our business will suffer if we are unable to adequately address potential downward pricing pressures and other factors that may adversely affect operations and profitability.
 
The transportation industry is highly competitive on the basis of both price and service.  We compete with regional, inter-regional and national LTL carriers, truckload carriers, third party logistics companies and, to a lesser extent, small-package carriers, air freight carriers and railroads.  Numerous competitive factors could impair our ability to maintain our current profitability. These factors include the following:
 
 
we compete with many other transportation service providers of varying sizes, many of which have more equipment, a broader coverage network, a wider range of services and greater capital resources than we do or have other competitive advantages;
 
 
some of our competitors periodically reduce their prices to gain business, especially during times of reduced growth rates in the economy, which may limit our ability to maintain or increase our prices or maintain significant growth in our business;
 
 
many customers reduce the number of carriers they use by selecting so-called “core carriers” as approved transportation service providers, and in some instances we may not be selected;
 
 
our customers may negotiate rates or contracts that minimize or eliminate our ability to offset fuel price increases through a fuel surcharge on our customers;
 
 
many customers periodically accept bids from multiple carriers for their shipping needs, and this process may depress prices or result in the loss of some business to competitors;
 
 
the trend towards consolidation in the surface transportation industry may create other large carriers with greater financial resources than us and other competitive advantages relating to their size;
 
 
advances in technology require increased investments to remain competitive, and our customers may not be willing to accept higher prices to cover the cost of these investments; and
 
 
competition from non-asset-based logistics and freight brokerage companies may adversely affect our customer relationships and prices.
 
We are subject to financial covenants under our term and revolving credit facilities.
 
Under our current term and revolving credit facilities, we are subject to certain financial covenants that, among other things, require maintenance of certain maximum leverage, minimum EBITDA and minimum interest and rent coverage ratios. These financial covenants could limit the availability of capital to fund future growth.  In addition, our inability to continue to successfully operate our business and achieve our level of financial performance could cause us not to be able to be in continued compliance with these covenants.  Our inability to maintain compliance with our financial covenants could result in a default under our credit facilities which could require us to attempt to re-negotiate these financial covenants, attempt to obtain new financing or scale back our business operations to achieve compliance.  There is no assurance that we would be able to re-negotiate our financial covenants in this event which could reduce the amount of credit available under our credit facilities.

 
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We are subject to general economic factors that are largely out of our control, any of which could have a material adverse effect on the results of our operations.
 
Our business is subject to a number of general economic factors that may have a material adverse effect on the results of our operations, many of which are largely out of our control. These include recessionary economic cycles and downturns in customer business cycles, particularly in market segments and industries, such as retail, manufacturing and chemical, where we have a significant concentration of customers. Economic conditions may adversely affect the business levels of our customers, the amount of transportation services they need and their ability to pay for our services. It is not possible to predict the long-term effects of above-mentioned factors on the economy or on customer confidence in Canada or the United States, or the impact, if any, on our future results of operations.   Adverse changes in economic conditions could result in declines to our revenues and a reduction in our current level of profitability.
 
If the world-wide financial crisis continues or intensifies, it could adversely impact demand for our services.
 
The global capital markets have been experiencing significant disruption and volatility over the past year as evidenced by a lack of liquidity in the debt markets, significant write-offs in the financial services sector, the re-pricing of credit risk in the broadly syndicated credit market and failure of certain major financial institutions.  Continued market disruptions could cause broader economic downturns which may lead to lower demand for our services, increased incidence of customers’ inability to pay their accounts, or insolvency of our customers, any of which could adversely affect our results of operations, liquidity, cash flows and financial condition.
 
Moreover, such market disruptions may increase our cost of borrowing or affect our ability to access debt and equity capital markets. Market conditions may affect our ability to refinance indebtedness as and when it becomes due. We are unable to predict the effect the uncertainty in the capital markets may have on our financial condition, results of operations or cash flows. Our ability to repay or refinance our indebtedness will depend upon our future operating performance which will be affected by general economic, financial, competitive, legislative, regulatory and other factors beyond our control.
 
Our supply chain operation business is dependent upon long-term relationships with our customers.
 
We have entered into long-term relationships with our customers whereby we have agreed to provide supply chain solutions to our customers which involve the establishment and operation of warehousing, inventory management and flow-through distribution facilities.  The success of these relationships is dependent upon our continued ability to meet the requirements under our customers’ contracts, as well as the continued financial success and business operations of our customers.  If we are unable to continue to deliver our supply chain solutions to our customers, either as a result of a determination by our customers not to continue to use our services or our customer ceasing to operate its business for any reason, our revenues from our supply chain solutions business may decline and we may not be able to recover our investment in the distribution facilities that we have established to deliver these services to our customers.
 
Increases in our operating expenses could cause our profitability to decline.
 
Our significant cash operating expenses include: salaries, wages and employee benefits, purchased transportation, maintenance expenses, rents and leases, purchased labor and owner operators, fuel and fuel-related expenses.  Increases in our operating expenses will adversely impact on our profitability to the extent that we are not able to pass these increased expenses on to our customers through increased rates for our transportation services.  Many of these operating expenses are beyond our control and, in addition, are subject to competitive forces.  Further, we operate in a price sensitive industry where customers have many alternatives for their transportation services and, as a result, we may have limited ability to pass on increased operating expenses to our customers.

 
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Unsuccessful execution of our acquisition strategy could cause our business and future growth prospects to suffer.

We may not be able to implement our strategy to acquire other transportation companies, which depends in part on the availability of suitable candidates. In addition, we may face competition for the acquisition of attractive carriers from other consolidators in the freight transportation industry who may be larger or better financed than we are. Furthermore, there can be no assurance that if we acquire what we consider to be a suitable candidate in accordance with our growth strategy, we will be able to successfully integrate the operations of the acquired company into our operations on an accretive basis. If we are unable to successfully integrate the operations of the acquired company, we may not be able to achieve the anticipated benefits of such acquisition and the performance of our operations after completion of such acquisition could be adversely affected.
 
Significant ongoing capital requirements could limit growth and affect profitability.

Our business is capital intensive. If we are unable to generate sufficient cash from operations to fund our capital requirements, we may have to limit our growth, utilize our existing, or enter into additional, financing arrangements.  While we intend to finance expansion and renovation projects with existing cash, cash flow from operations and available borrowings under our existing credit agreement, we may require additional financing to support our continued growth. However, due to the existing uncertainty in the capital and credit markets, capital may not be available on terms acceptable to us. If we are unable in the future to generate sufficient cash flow from operations or borrow the necessary capital to fund our planned capital expenditures, we will be forced to limit our growth and/or operate our equipment for longer periods of time, resulting in increased maintenance costs, any of which could have a material adverse effect on our operating results.

If any of the financial institutions that have extended credit commitments to us are or continue to be adversely affected by current economic conditions and disruption to the capital and credit markets, they may become unable to fund borrowings under their credit commitments or otherwise fulfill their obligations to us, which could have a material adverse impact on our financial condition and our ability to borrow additional funds, if needed, for working capital, capital expenditures, acquisitions and other corporate purposes.

The engines in our newer tractors are subject to new emissions-control regulations which could substantially increase operating expenses.

Tractor engines that comply with the Environmental Protection Agency (EPA) emission-control design requirements that took effect on January 1, 2007 are generally less fuel-efficient and have increased maintenance costs compared to engines in tractors manufactured before these requirements became effective.  In addition, compliance with the more stringent EPA requirements that are scheduled to be effective in 2010 could results in further declines in fuel efficiency and increases in maintenance costs.  If we are unable to offset resulting increases in fuel expenses or maintenance costs with higher freight rates, our results of operations could be adversely affected.

We are a corporation based outside the United States.

We are a Canadian based corporation with substantial operations in the United States. Changes in United States laws or the application thereof, including regulatory, homeland security or taxation, that primarily impact foreign corporations could have a material adverse effect on our prospects, business, financial condition and results of operations.  Increased regulation could increase both the time and cost of transportation across the United States/ Canada border with the result that demand for cross-border transportation services may decline and our costs of providing these services may increase.

Fluctuations in the price and availability of fuel may adversely impact profitability.

Fuel is a significant operating expense. We do not hedge against the risk of fuel price increases.  Any increase in fuel taxes or fuel prices or any change in federal, state or provincial regulations that results in such an increase, to the extent that the increase is not offset by freight rate increases or fuel surcharges to customers, or any interruption in the supply of fuel, could have a material adverse effect on our business, operations or financial condition.

 
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While we have historically been able to adjust our pricing to offset changes to the cost of fuel, through changes to base rates and/or fuel surcharges, we cannot be certain that we will be able to do so in the future.  In addition, we are subject to risks associated with the availability of fuel, which are subject to political, economic and market factors that are outside of our control.  We would be adversely affected by an inability to obtain fuel in the future. Although historically we have been able to obtain fuel from various sources and in the desired quantities, there can no assurance that this will continue to be the case in the future.
 
Our industry is subject to numerous laws and regulations in Canada and the United States, exposing us to potential claims and compliance costs that could have a material adverse effect on our business.

We are subject to numerous laws and regulations by the U.S. Department of Transportation (“DOT”), Environmental Protection Agency, Internal Revenue Service, Canada Revenue Agency and various other federal, state, provincial and municipal authorities. Such regulatory agencies exercise broad powers over our business, generally governing such activities as authorization to engage in motor carrier operations and safety, and financial reporting.  Our employees and owner operators must also comply with the safety and fitness regulations promulgated by the DOT, including those relating to drug and alcohol testing and hours of service, driver hours-of-service limitations, labour-organizing activities, stricter cargo-security requirements, tax laws and environmental matters, including potential limits on carbon emissions under climate-change legislation. We may become subject to new or more restrictive regulations relating to fuel emissions, ergonomics, or limits on vehicle weight and size.
 
We are not able to accurately predict how new governmental laws and regulations, or changes to existing laws and regulations, will affect the transportation industry generally, or us in particular. Although government regulation that affects us and our competitors may simply result in higher costs that can be passed to customers, there can be no assurance that this will be the case. Any additional measures that may be required by future laws and regulations or changes to existing laws and regulations may require us to make changes to our operating practices or services provided to our customers and may result in additional costs, all of which could have an adverse effect on us.
 
Changes in governmental regulation may impact future cash flows and profitability.

In Canada, carriers must obtain licenses issued by each provincial transport board in order to carry goods extra-provincially or to transport goods within any province. Licensing from U.S. regulatory authorities is also required for the transportation of goods between Canada and the United States and within the United States.  Any change in these regulations could have an impact on the scope of our activities. There is no assurance that we will be in full compliance at all times with such policies and guidelines. As a result, we could be required, at some future date, to incur significant costs in order to maintain or improve our compliance record.
 
Results of operations may be affected by seasonal factors and harsh weather conditions.

Our business is subject to seasonal fluctuations. In the trucking industry for a typical year, the second and third quarters usually have the highest business levels, while the first and fourth quarters generally have the lowest business levels.  The fourth quarter holiday season and adverse weather conditions generally experienced in the first quarter of the year, such as heavy snow and ice storms, have a negative impact on operating results.
 
If additional employees unionize, our operating costs would increase.

We have a history of positive labour relations that will continue to be important to future success.  Two of our terminals in Canada, representing 1.9% of our labour force, are represented by the International Brotherhood of Teamsters and the Canadian Auto Workers Association. The collective bargaining agreements between us and our unionized employees expire on February 28, 2011, and on March 31, 2015, respectively.  There can be no assurance that the collective bargaining agreements will be renegotiated on terms acceptable or favourable to us. There can be no assurance that other employees will not unionize in the future. From time to time there could be efforts to organize our employees at various other terminals, which could increase our operating costs and force us to alter our operating methods. This could, in turn, have a material adverse effect on our business, operations or financial condition.

 
10

 

Changes to our compensation and benefits could adversely affect our ability to attract and retain employees.
 
Like other companies, we have implemented certain salary and wage cost initiatives.  Such initiatives include the suspension of our 401(k) matching program and a compensation reduction equal to 5 percent across all employees of the Company.  Due to these changes, we may find it difficult to attract, retain and motivate employees, and any such difficulty could materially adversely affect our business.
 
Various environmental laws and regulations, and costs of compliance with, liabilities under, or violations of, existing or future environmental laws or regulations could adversely affect our results.
 
Our operations are subject to environmental laws and regulations dealing with the handling of hazardous materials, underground fuel storage tanks and discharge and retention of storm water. We operate in industrial areas where truck terminals and other industrial activities are located and where groundwater or other forms of environmental contamination may have occurred. Our operations involve the risks of fuel spillage or seepage, environmental damage and hazardous waste disposal, among others. If we are involved in a spill or other accident involving hazardous substances or if we are found to be in violation of applicable laws or regulations, it could have a material adverse effect on our business and operating results. If we fail to comply with applicable environmental regulations, we could be subject to substantial fines or penalties and to civil and criminal liability.
 
In addition, as global warming issues become more prevalent, federal and local governments and our customers are beginning to respond to these issues. This increased focus on sustainability may result in new regulations and customer requirements that could negatively affect us. This could cause us to incur additional direct costs or to make changes to our operations in order to comply with any new regulations and customer requirements, as well as increased indirect costs or loss of revenue resulting from, among other things, our customers incurring additional compliance costs that affect our costs and revenues. We could also lose revenue if our customers divert business from us because we have not complied with their sustainability requirements. These costs, changes and loss of revenue could have a material adverse effect on our business, financial condition and results of operations.
 
Loss of key personnel could harm our business, operations or financial condition.
 
The success of our business is dependent upon the active participation of certain management personnel who have extensive experience in the industry. The loss of the services of one or more of such personnel for any reason may have an adverse effect on our business if we are unable to secure replacement personnel that have sufficient experience in our industry and in the management of a transportation business such as ours.  Our inability to successfully replace management personnel could result in a disruption to our business that could adversely impact our profitability and financial condition.
 
We face litigation risks that could have a material adverse effect on the operation of our business.
 
We face litigation regarding various alleged violations of state labor laws. These proceedings may be time-consuming, expensive and disruptive to normal business operations.  The defense of such lawsuits could result in significant expense and the diversion of our management’s time and attention from operation of our business.  Some or all of the amount we may be required to pay to defend or to satisfy a judgment or settlement of any or all these proceedings may not be covered by insurance and could have a material adverse effect on us.
 
Exchange rate and currency risks may impact our financial results.
 
As we operate both in the United States and in Canada, our financial results are affected by changes in the U.S. dollar exchange rate relative to the currencies of other countries including the Canadian dollar.  To reduce the exposure to currency fluctuations, we may enter into limited foreign exchange contracts from time to time, but these hedges do not eliminate the potential that such fluctuations may have an adverse effect on us.  In addition, foreign exchange contracts expose us to the risk of default by the counterparties to such contracts, which could have a material adverse effect on our business.  Our inability to successfully mitigate our exposure to currency fluctuations could result in increased expenses attributable to foreign exchange loss.

 
11

 

Insurance and claims expenses could significantly reduce our profitability.

Our operations are subject to risks normally inherent in the freight transportation industry, including potential liability which could result from, among other circumstances, personal injury or property damage arising from accidents or incidents involving trucks operated by us or our agents. The availability of, and ability to collect on, insurance coverage is subject to factors beyond our control. In addition, we may become subject to liability for hazards which we cannot or may not elect to insure because of high premium costs or other reasons, or for occurrences which exceed maximum coverage under our policies. Our future insurance and claims expenses might exceed historical levels, which could reduce our earnings. Increases to our premiums could further increase our insurance and claims expenses as current coverages expire or cause us to raise our self-insured retention. If the number or severity of claims for which we are self-insured increases, or we suffer adverse development in claims compared with our reserves, or any claim exceeded the limits of our insurance coverage, this could have a material adverse effect on our business, operations or financial condition.

Moreover, any accident or incident involving us, even if we are fully insured or held not to be liable, could negatively affect our reputation among customers and the public, thereby making it more difficult for us to compete effectively, and could significantly affect the cost and availability of insurance in the future.
 
We rely on purchased transportation, making us vulnerable to increases in costs of these services.

In Canada, we use purchased transportation, primarily intermodal rail from CN Rail, to provide cost effective service on our east-west national LTL service offering. Any reduction in service by the railroad or increase in the cost of such rail services is likely to increase costs for us and reduce the reliability, timeliness and overall attractiveness of rail-based services.  This would negatively impact our ability to provide our services, with the result that we may be forced to use more expensive or less efficient alternative modes of transportation to provide our services to our customers.

In the United States, we use purchased transportation primarily to handle lane imbalances and to accommodate surges in business. We will also, on occasion, augment our linehaul capacity during certain peak periods through the use of purchased transportation. A reduction in the availability of purchased transportation may require us to incur increased costs to satisfy customer shipping orders and we may be unable to pass along increases in third party shipping prices to our customers.

Our business may be adversely affected by anti-terrorism measures.

Federal, state, provincial and municipal authorities have implemented and are continuing to implement various anti-terrorism measures, including checkpoints and travel restrictions on large trucks. If additional security measures disrupt or impede the timing of our deliveries, we may fail to meet the needs of our customers or may incur increased expenses to do so.  This could result in a reduction in demand for our cross-border transportation services and increase the cost of providing these services, each of which could negatively impact our profitability.  There can be no assurance that new anti-terrorism measures will not be implemented and that such new measures will not have a material adverse effect on our business, operations or financial condition.
 
Interest rate fluctuations will impact our financial results.

In order to mitigate the exposure to interest rate risk in 2009 and for future periods, we entered into floating-to-fixed interest rate swap contracts with various expiry dates extending to December 31, 2011.  Management continues to evaluate our need to fix interest rate exposure or unwind current interest rate swap contracts on an ongoing basis.  Our inability to successfully mitigate our exposure to interest rate risk could result in us being exposed to increases to interest rates, which interest rate increases would increase our operating costs.
 
Difficulty in attracting qualified drivers could adversely affect our profitability and ability to grow.

We are dependent on our ability to hire and retain qualified drivers including owner operators.  There is significant competition for qualified drivers within the trucking industry and attracting and retaining drivers has become more challenging. If we are unable to attract drivers and contract with owner operators, we may experience shortages of qualified drivers that could result in us not meeting customer demands, pressure to upwardly adjust our driver compensation package, underutilization of our truck fleet and/or use of higher cost purchased transportation, all of which could have a material adverse effect on our operating results, our growth and profitability.


 
12

 

Our information technology systems are subject to certain risks that we cannot control.

We depend on our information technology systems in order to deliver reliable transportation services to our customers in an efficient and timely manner.  We have integrated the information technology and operations of our acquired companies and will integrate future acquisitions within our U.S. LTL business unit.  Any disruption to our technology infrastructure could result in delays in delivery of transportation services to our clients and increased operating costs as a result of decreased operating efficiencies, each of which could adversely impact our customer service, revenues and profitability. While we have invested and continue to invest in technology security initiatives and disaster recovery plans, these measures cannot fully protect us from technology disruptions that could have a material adverse effect on us. Our information technology remains susceptible to outages, computer viruses, break-ins and similar disruptions that may inhibit our ability to provide services to our customers and the ability of our customers to access our systems. This may result in the loss of customers or a reduction in demand for our services. Integration initiatives may not realize the anticipated benefits due to operational issues, disruptions and distractions for employees and management, and potential failures in due diligence.

An increase in the cost of healthcare benefits in the United States could have a negative impact on our profitability.

We maintain and sponsor health insurance for our employees, retirees and their dependents in the United States through preferred provider organizations, and offer a competitive healthcare program to attract and retain our employees. These benefits comprise a significant portion of our operating expenses.  Lower interest rates and/or lower returns on plan assets may cause increases in the expense of, and funding requirements for, our healthcare plans. We remain subject to volatility associated with interest rates, returns on plan assets, and funding requirements. It is possible that healthcare costs could become increasingly cost prohibitive, either forcing us to make changes to our benefits program or negatively impacting our future profitability.

As a holding company, Vitran is dependent on various factors to meet its financial obligations.

Vitran is a holding company.  Vitran’s ability to meet its financial obligations is dependant primarily upon the receipt of interest and principal payments on intercompany advances, management fee payments, cash dividends and other payments from Vitran’s subsidiaries together with the proceeds raised through the issuance of securities.

Risks Related to the Common Shares

The board of directors of Vitran does not intend to declare or pay any cash dividends in the foreseeable future.

The board of directors of Vitran has not declared dividends on the Common Shares since December 2001.  We currently anticipate that we will retain future earnings and other cash resources to repay debt and to support future capital expenditure programs and for acquisitions.  Vitran does not intend to declare or pay any cash dividends in the foreseeable future.  Payment of any future dividends will be at the discretion of the board of directors of Vitran after taking into account many factors, including our operating results, financial condition and current and anticipated cash needs.
 
If additional equity financing is required, you may suffer dilution of your investment.
 
We may require additional financing in order to make further investments, respond to competitive pressures or take advantage of unanticipated opportunities including acquisitions.  Our ability to arrange such financing in the future will depend in part upon prevailing capital market conditions, as well as our business success.  If additional financing is raised by the issuance of shares from Vitran’s treasury, control of Vitran may change and/or shareholders of Vitran may suffer additional dilution.

 
13

 

Investors who purchase the Common Shares may pay more for the Common Shares than the amounts paid by existing shareholders of Vitran for their Common Shares.  As a result, investors in the offering may incur immediate and substantial dilution. In the past, Vitran has issued options and other convertible securities to acquire the Common Shares at prices below the prevailing market prices or prices that may be negotiated with selling shareholders. To the extent these outstanding options and other convertible securities are ultimately exercised, investors in the offering will incur further dilution.
 
The price of the Common Shares may fluctuate significantly.
 
Volatility in the market price of the Common Shares may prevent an investor from being able to sell the Common Shares at, or above, the price paid for the Common Shares. The market price of the Common Shares could fluctuate significantly for various reasons which include:
 
our quarterly or annual earnings or those of other companies in our industry;
 
 
the public's reaction to our press releases, our other public announcements and our regulatory filings;
 
 
changes in earnings estimates or recommendations by research analysts who follow our stock or the stock of other trucking companies;
 
 
changes in general conditions in the Canadian, US and global economy, financial markets or trucking industry, including those resulting from war, incidents of terrorism or responses to such events;
 
 
sales of Common Shares by our directors and executive officers; and
 
 
other factors described in these “Risk Factors”.
 
In addition, in recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of these companies. The price of the Common Shares could fluctuate based upon factors that have little or nothing to do with our business, and these fluctuations could materially reduce the price of the Common Shares.
 
An investment in Common Shares is highly speculative.
 
An investment in the Common Shares is highly speculative and may result in the loss of an investor’s entire investment.  Only potential investors who are experienced in high risk investments and who can afford to lose their entire investment should consider an investment in the Common Shares.  Additional risks not currently known to us or that we currently deem immaterial may also impair our operations.
 
It may be difficult to maintain and enforce judgments against us because of our Canadian residency.

Vitran is a Canadian corporation, and some of its assets and operations are located, and some of its revenues are derived, outside the United States. In addition, a majority of Vitran’s directors and officers are residents of Canada and all or a substantial portion of the assets of those directors and officers are or may be located outside the United States.  As a result, it may not be possible for investors to effect service of process within the United States upon those persons, or to enforce against them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of United States federal and state securities laws.

ITEM 1. B - UNRESOLVED STAFF COMMENTS

None


 
14

 

ITEM 2 - PROPERTIES

Vitran’s corporate office is located at 185 The West Mall, Suite 701, Toronto, Ontario, Canada, M9C 5L5. The 3,900 square foot office is occupied under a lease terminating in September 2010.

Each of Vitran’s operating subsidiaries also maintains a head office as well as numerous operating facilities. Vitran has not experienced and does not anticipate difficulties in renewing existing leases on favorable terms or obtaining new facilities as and when required.

Vitran operates 120 facilities, 25 of which are located in Canada and 95 of which are located in the United States.  The Company’s LTL segment operates 101 terminals with a total of 3,084 loading doors in the United States and with a total of 536 loading doors in Canada.  The 10 largest operating terminals in Vitran’s LTL segment, in terms of the number of loading doors, are listed below.

Terminals
Doors
Owned/Leased
Toronto
134
Owned
Indianapolis
116
Leased
Toledo
101
Owned
Montreal
85
Owned
Vancouver
85
Owned
Chicago
81
Leased
Pittsburgh
80
Owned
Clinton
80
Owned
Detroit
74
Owned
Philadelphia
72
Leased

SCO operates 16 facilities, seven in Canada, and nine in the United States, for major retailers in their respective markets. SCO has approximately 2.0 million square feet of warehouse and distribution space under management at December 31, 2009.  Vitran’s Truckload business operates two terminals, one in Indianapolis and the other in Atlanta.

As at December 31, 2009, the Company operated 9,773 pieces of owned or leased rolling stock.  The Company primarily purchases or utilizes operating lease facilities for the acquisition of new rolling stock for its operations; however, the Company occasionally purchases pre-owned equipment that meets its specifications.  As at December 31, 2009, the Company owned or leased the following equipment.

 
Owned
Leased
Tractors
1,511
325
Trailers
5,492
1,475
Containers
519
-
Chassis
451
-
                  Total
7,973
1,800




None



 
15

 

PART II


Description of Share Capital

At December 31, 2009, there was an unlimited number of shares authorized and 16,266,441 common shares issued and outstanding.  The holders of the common shares are entitled to one vote for each common share on all matters voted on at any meetings of Vitran’s shareholders to any dividends that may be declared by the Company’s Board of Directors thereon, and in the event of the liquidation, dissolution or winding up of the Company, will be entitled to receive the remaining property.

Vitran’s common shares trade on the Toronto Stock Exchange (“TSX”) and the NASDAQ Global National Market under the symbols VTN and VTNC, respectively.  On February 5, 2010, there were approximately 47 registered holders of record of the Company’s common shares.  Because many of such shares are held by brokers and other institutions on behalf of shareholders, we are unable to estimate the total number of shareholders represented by these record holders.

Vitran did not pay any dividends on common shares in fiscal 2009 and 2008.  The Board of Directors is responsible for determining the Company’s dividend policy and does not intend to declare dividends in the foreseeable future.

The following table sets forth the high and low bid prices of our common stock for the periods indicated, as reported by the TSX and the NASDAQ:

 
   
TSX
   
NASDAQ
 
Quarter
 
High
   
Low
   
Volume
   
High
   
Low
   
Volume
 
   
(in Canadian dollars)
   
(in United States dollars)
 
2009
                                   
  Fourth Quarter
  $ 12.33     $ 8.30       63,400     $ 12.16     $ 7.82       3,109,800  
  Third Quarter
  $ 13.10     $ 9.72       126,500     $ 12.03     $ 8.85       2,416,900  
  Second Quarter
  $ 11.82     $ 6.50       487,200     $ 10.41     $ 4.95       4,744,300  
  First Quarter
  $ 8.29     $ 2.91       262,600     $ 7.30     $ 2.26       2,374,900  
2008
                                               
   Fourth Quarter
  $ 14.21     $ 5.26       553,300     $ 13.60     $ 4.62       3,668,100  
  Third Quarter
  $ 20.65     $ 13.75       1,237,900     $ 18.97     $ 13.26       5,332,900  
  Second Quarter
  $ 16.11     $ 13.95       159,600     $ 16.00     $ 13.50       2,023,000  
  First Quarter
  $ 14.74     $ 11.60       256,700     $ 14.94     $ 11.21       2,479,100  


   
TSX
   
NASDAQ
 
2009 Monthly
 
High
   
Low
   
Volume
   
High
   
Low
   
Volume
 
   
(in Canadian dollars)
   
(in United States dollars)
 
  December
  $ 12.33     $ 9.50       23,900     $ 12.16     $ 8.83       1,521,700  
  November
  $ 10.25     $ 8.53       8,000     $ 9.79     $ 7.82       785,500  
  October
  $ 9.72     $ 8.30       31,500     $ 9.19     $ 7.95       802,600  
  September
  $ 13.10     $ 9.72       47,800     $ 12.03     $ 8.85       1,173,200  
  August
  $ 12.79     $ 11.48       36,800     $ 11.74     $ 10.29       286,900  
  July
  $ 12.11     $ 10.20       41,900     $ 10.80     $ 9.56       956,800  
  June
  $ 11.82     $ 8.97       127,000     $ 10.41     $ 7.96       993,800  
  May
  $ 9.40     $ 8.00       90,300     $ 8.60     $ 6.73       1,151,100  
  April
  $ 8.59     $ 6.50       269,900     $ 7.07     $ 4.95       2,599,400  
  March
  $ 6.75     $ 2.91       150,500     $ 5.43     $ 2.26       957,400  
  February
  $ 6.00     $ 4.55       35,200     $ 4.94     $ 3.41       613,700  
  January
  $ 8.29     $ 5.02       76,900     $ 7.30     $ 4.14       803,800  






 


 
16

 

 Stock Option Plan
 
 
 
 
Plan Category
 
Number of securities
 to be issued upon
 exercise of outstanding
 options
 
 
Weighted average
 exercise price of
 outstanding options
Number of securities
 remaining available for
 future issuance
 (excluding securities
 reflected in column (a))
 
(a)
(b)
(c)
Equity compensation plans approved by security holders
906,700
$13.17
-
Equity compensation plans not approved by security holders
-
-
-
Total (1)
906,700
$13.17
-
(1)  As at December 31, 2009.

Vitran maintains a stock option plan to assist in attracting, retaining and motivating its directors, officers and employees.  The details of the Company’s authorized stock option plan are described in Note 9 of the Consolidated Financial Statements.

Purchases of Equity Securities

None

Transfer Agents

Computershare Investor Services Inc.
Montreal, Toronto
Canada
Computershare Trust Company Inc.
Denver
United States

 
17

 


The following selected financial data is derived from and should be read in conjunction with the Consolidated Financial Statements and Notes under Item 8 of this Annual Report on Form 10-K.  For a summary of quarterly financial data for fiscal 2009 and 2008, please see the Supplemental Schedule of Quarterly Financial Information included in the Consolidated Financial Statements.  The selected financial data should also be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations".

Selected Financial Data (Thousands of dollars, except per share amounts)

Year
 
2009
   
2008
   
2007
   
2006
   
2005
 
                               
Statements of Income
                             
Revenue
  $ 629,260     $ 726,337     $ 670,517     $ 514,059     $ 428,192  
                                         
Impairment of goodwill(1)
    -       107,351       -       -       -  
                                         
Income (loss) from continuing operations
    (409 )     (97,332 )     22,999       28,040       25,427  
                                         
Net income (loss) from continuing operations
    (3,972 )     (71,225 )     13,710       19,258       17,938  
                                         
Cumulative effect of change in accounting principle
    -       -       -       141       -  
                                         
Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710     $ 19,399     $ 17,938  
                                         
Earnings (loss) per share basic:
                                       
Net income (loss) from continuing operations
  $ (0.28 )   $ (5.28 )   $ 1.02     $ 1.49     $ 1.43  
Net income (loss)
  $ (0.28 )   $ (5.28 )   $ 1.02     $ 1.50     $ 1.43  
Weighted average number of shares
    14,293,747       13,485,132       13,458,786       12,887,401       12,516,265  
                                         
Earnings (loss) per share diluted:
                                       
Net income (loss) from continuing operations
  $ (0.28 )   $ (5.28 )   $ 1.00     $ 1.47     $ 1.40  
Net income (loss)
  $ (0.28 )   $ (5.28 )   $ 1.00     $ 1.48     $ 1.40  
Weighted average number of shares
    14,293,747       13,485,132       13,651,799       13,124,865       12,848,360  
                                         
Balance Sheets
                                       
Assets:
                                       
Current assets
  $ 85,308     $ 80,473     $ 90,417     $ 83,775     $ 71,017  
Property and equipment, net
    145,792       152,602       169,062       145,129       66,807  
Intangible assets
    10,766       13,279       13,645       15,888       2,456  
Goodwill
    18,878       17,057       124,375       117,146       61,448  
Other non-current assets
    33,594       30,181       -       150       -  
Total assets
  $ 294,338     $ 293,592     $ 397,499     $ 362,088     $ 201,728  
                                         
Liabilities and Stockholders’ Equity:
                                       
Current liabilities
  $ 82,676     $ 84,332     $ 86,002     $ 88,669     $ 48,331  
Long-term debt
    72,956       93,477       109,831       93,139       8,588  
Other non-current liabilities
    2,919       4,540       11,322       6,983       5,007  
Total stockholders’ equity
  $ 135,787     $ 111,243     $ 190,344     $ 173,297     $ 139,802  
                                         
Total commitments under operating leases
                                       
    $ 82,405     $ 56,673     $ 58,639     $ 38,827     $ 40,239  

 

 
18

 


Selected Financial Data (continued) (Thousands of dollars, except per share amounts)
 

Year
 
2009
   
2008
   
2007
   
2006
   
2005
 
                               
Operating Ratios (2)
                             
Total company
    100.1 %     98.6 %     96.6 %     94.5 %     94.1 %
Less-than-truckload
    100.5 %     98.5 %     96.0 %     93.7 %     93.1 %
SCO
    92.8 %     94.6 %     93.8 %     93.3 %     94.7 %
Truckload
    97.7 %     96.2 %     94.9 %     94.7 %     93.5 %

Notes:
(1)
Vitran recorded a pre-tax non-cash goodwill impairment charge of $107.4 million at December 31, 2008.  The assessment of the Company’s goodwill for impairment is discussed further in Item 7 under “Critical Accounting Policies and Estimates” and in note 1(k) of the consolidated financial statements.
(2)
Operating ratio (“OR”) is a non-GAAP financial measure which does not have any standardized meaning prescribed by GAAP. OR is the sum of total operating expenses minus goodwill impairment charge, divided by revenue. OR excludes the impact of the goodwill impairment charge.  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:

   
Year ended December 31,
 
 
 
2009
   
2008
   
2007
   
2006
   
2005
 
                                         
Total operating expenses
  $ 629,669     $ 823,669     $ 647,518     $ 486,019     $ 402,765  
Goodwill impairment charge
    -       (107,351 )     -       -       -  
Adjusted operating expense
    629,669       716,318     $ 647,518     $ 486,019     $ 402,765  
Revenue
  $ 629,260     $ 726,337     $ 670,517     $ 514,059     $ 428,192  
Operating ratio (“OR”)
    100.1 %     98.6 %     96.6 %     94.5 %     94.1 %


 
19

 

ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS

Forward-Looking Statements

In addition to historical information, this Annual Report on Form 10-K and MD&A 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.

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.

These forward-looking statements contain forward-looking statements regarding, but not limited to, the following:

 
the Company’s ability to realize revenue growth and market share gains while improving service and density at reasonable prices in its less-than-truckload segment;

 
the Company’s ability to realize cost savings from the reduction of maintenance expense and productivity improvements in its less-than-truckload segment;

 
the Company’s ability to predict the timing and magnitude of the economic recovery, if any;

 
the Company’s ability to maintain compliance with its debt covenants;

 
the Company’s expectation to increase square footage under management in its supply chain operation segment;

 
the Company’s expectation to maximize existing infrastructure in its supply chain operation segment;

 
the Company’s expectation to introduce supply chain operation clients to the services of the less-than-truckload segment;

 
the Company’s expectation to return its days sale outstanding measure to historical levels;

 
the Company’s ability to achieve margin and asset utilization gains in its Truckload segment;

 
the Company’s ability to expand and diversify its customer base in the Truckload segment;

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

 
the Company’s ability to generate sufficient taxable income to utilize loss carryforwards; and

 
the Company’s ability to implement capital structure alternatives should there be a change in the financial condition of the Company or broader market.

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, 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 and in Item 1A - Risk Factors.  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.

 
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           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 .

OVERVIEW

Vitran Corporation Inc. (“Vitran” or the “Company”) is a leading, predominantly non-union, provider of freight surface transportation and related supply chain services throughout Canada and in 29 states in the eastern, central, southwestern and western United States.  Its business consists of three operating segments: (1) Less-than-truckload services (“LTL”), (2) Supply Chain Operation (“SCO”), and (3) Truckload services. These services are provided by stand-alone business units within their respective regions.  Depending on a customer’s needs, the units can operate independently or in a complementary manner.  As is more fully described in Item 1 “Business”, the LTL segment transports shipments in less-than-full trailer load quantities through freight service center networks; the SCO segment provides supply chain solutions and freight brokerage services and the Truckload segment delivers full trailer loads point to point on a predominantly short-haul basis.

Vitran’s operating results are generally expected to depend on the number and weight of shipments transported, the prices received for the services provided, and the mix of services supplied to clients.  Vitran must manage its fixed and variable operating cost infrastructure in the face of fluctuating volumes to realize appropriate margins while maintaining the quality service expected by its customers.

The long-term mission of the Company is to build a North American transportation infrastructure with national and regional coverage in both Canada and the United States offering regional, inter-regional, national, and transborder LTL services.  In conjunction with the LTL services, Vitran will also focus on SCO offerings that are only profitable as stand-alone business opportunities, but also increase the utilization of LTL freight service assets where appropriate.

EXECUTIVE SUMMARY

The 2009 fiscal year proved to be possibly the most challenging in the history of the transportation industry since the great depression.  The economic uncertainty throughout the world created an enormous downturn in the North American freight demand, particularly in the United States.  In the face of this significant challenge Vitran had a number of important accomplishments:

 
re-aligned its capital structure by raising $22.9 million in equity and modifying its syndicated debt arrangement;
 
set record quarterly and annual income from operations in the SCO segment;
 
the U.S. LTL business unit initiated a new integrated regional and inter-regional sales program that resulted in:
 
1.
sequential quarter-over-quarter growth in daily shipments for the first three quarters of 2009,
 
2.
quarter-over-prior-year-quarter growth in daily shipments for the fourth quarter 2009,
 
3.
increased the length of haul 22.5% in 2009 compared to 2008,
 
the CDN LTL business unit retained its market share and maintained positive income from operations;
 
introduced a new logo and marketing campaign supporting an integrated sales campaign across the entire Company.

These achievements were the result of tireless effort and support from the management, office staff and most importantly, the front line drivers and dock workers at Vitran.

 

 
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RESULTS OF OPERATIONS
2009 COMPARED TO 2008

CONSOLIDATED RESULTS

The following table summarizes the Consolidated Statements of Income (Loss) for the three years ended December 31:

(in thousands of dollars)
 
2009
   
2008
   
2007
   
2009 vs 2008
   
2008 vs 2007
 
                                         
Revenue
  $ 629,260     $ 726,337     $ 670,517       (13.4 %)     8.3 %
Salaries, wages and employee benefits
    259,782       283,653       266,731       (8.4 %)     6.3 %
Purchased transportation
    89,042       98,529       99,971       (9.6 %)     (1.4 %)
Depreciation and amortization
    19,902       21,024       20,770       (5.3 %)     1.2 %
Maintenance
    28,330       32,067       28,563       (11.7 %)     12.3 %
Rents and leases
    27,532       28,042       23,939       (1.8 %)     17.1 %
Purchased labor and owner operators
    79,474       84,843       78,145       (6.3 %)     8.6 %
Fuel and fuel related taxes
    67,761       113,108       82,100       (40.1 %)     37.8 %
Other expenses
    58,131       55,378       47,731       5.0 %     16.0 %
Impairment of goodwill
    -       107,351       -       (100.0 %)     -  
Operating gains
    (285 )     (326 )     (432 )     (12.6 %)     (24.5 %)
  Income (loss) from operations
    (409 )     (97,332 )     22,999       (99.6 %)     (523.2 %)
Interest expense, net
    9,496       9,223       8,426       3.0 %     9.5 %
                                         
Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710       (94.4 %)     (619.5 %)
                                         
      2009       2008       2007    
2009 vs 2008
   
2008 vs 2007
 
                                         
Earnings (loss)  per share:
                                       
Basic
  $ (0.28 )   $ (5.28 )   $ 1.02       94.7 %     (617.6 %)
Diluted
  $ (0.28 )   $ (5.28 )   $ 1.00       94.7 %     (628.0 %)
  Operating ratio(1)
    100.1 %     98.6 %     96.6 %                

Revenue decreased by 13.4% to $629.3 million in 2009 from $726.3 million in 2008.  Revenue in the LTL, SCO and Truckload segments decreased 15.0%, 6.1% and 1.3% respectively.  Revenue for the 2009 year was impacted by a weaker Canadian dollar and a decline in fuel surcharge revenue accounted for approximately $65.1 million of the consolidated revenue decline.  Excluding the impact of fuel surcharge revenue and a weaker Canadian dollar, 2009 revenue compared to 2008 only declined 4.4%.   Detailed explanations for the fluctuations in revenue and income from operations are discussed below in and in “Segmented Results”.

Salaries, wages and employee benefits declined 8.4% to $259.8 million for 2009 compared $283.7 million in 2008.  This decline can be attributed to a decline in average employee headcount of 4,839 employees in 2009 compared to 5,081 employees for 2008.  The majority of the headcount reductions took place in the fourth quarter of 2008 and there was a company-wide 5% wage and salary reduction in the second quarter of 2009.

Purchased transportation declined 9.6% in 2009 compared to 2008 due to an emphasis on purchased transportation cost reductions in the U.S. LTL business resulting from the new integrated operating region.  Furthermore, the general decline in economic activity, as indicated by the decline in total LTL shipments of 5.7% for the year, contributed to less purchased transportation expense throughout the entire Company.

Depreciation and amortization expense declined 5.3% for 2009 compared to 2008, and is primarily attributable to the sale of rolling stock during the year and a reduction of purchased rolling stock compared to historical average annual purchases.  The Company sold 565 units in 2009 and 108 units in the fourth quarter of 2008.  Furthermore, the Company sold facilities in Louisville and Bowling Green, Kentucky and St. Cloud, Minnesota.  These rolling stock and facility sales resulted in gains on dispositions of approximately $0.3 million in the 2009.

 
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Maintenance expense declined 11.7% to $28.3 million for 2009 compared to $32.1 million for 2008.  The decline in maintenance expense can be attributed to the aforementioned reductions in rolling stock as well as the closure of 13 operating facilities due to the completion of the U.S. LTL operations integration in the fourth quarter of 2008.  In April of 2009, the U.S. LTL business unit re-engineered its linehaul model and closed another 11 in-market facilities contributing to further maintenance cost reductions.  Lastly, during the third quarter of 2009, the U.S. LTL business unit amalgamated maintenance departments and initiated a consolidated purchasing program that resulted in a decrease in maintenance expense in the fourth quarter and should contribute to additional savings in future periods.

Rents and leases expense declined 1.8% for the 2009 compared to 2008, but increased 14.3% in the fourth quarter of the year.  During the fourth quarter of 2009, the Company placed 650 pieces of new rolling stock on operating lease partially offsetting rents and leases cost reductions attributable to the decline in leased facilities in the U.S. LTL business unit.  Also operating leases associated with approximately 750 units of rolling stock expired at the end of the 2009 second quarter.

Purchased labor and owner operator expenses declined 6.3% for 2009 compared to 2008, primarily driven by a reduction in owner operator expenses in the Canadian LTL business unit.  Shipments and tonnage declined 5.7% and 8.1%, respectively compared to 2008, thereby resulting in less owner operator expense.

Fuel and fuel-related expenses declined 40.1% for 2009 compared to 2008.  The average price of diesel declined approximately 35.4% in 2009 compared 2008.

At December 31, 2008 the Company assessed its goodwill for impairment.  At that moment in time, the Company’s market capitalization was significantly lower than the carrying value of its net assets thereby indicating impairment of goodwill.  Consequently, Vitran recorded a pre-tax non-cash impairment charge of $107.4 million at December 31, 2008.  There were no goodwill impairment charges recorded in 2009.

The Company incurred interest expense of $9.5 million in 2009 compared to interest expense of $9.2 million in 2008.  The Company’s interest rate spread on its syndicated revolving and term debt was on average 300 bps greater than 2008; however, the underlying decline in average LIBOR on the syndicated debt partially offset the increase in the interest rate spread resulting in a $0.3 million increase in interest expense for 2009 compared to 2008.  More importantly, the Company reduced its aggregate debt and improved its earnings in the fourth quarter of 2009 compared to the fourth quarter of 2008 resulting in a 50bps reduction on its syndicated interest rate spreads commencing in the first quarter of 2010.

Income tax recovery for 2009 was $5.9 million compared to $35.3 million in 2008.   The 2008 tax recovery includes the tax impact of the aforementioned goodwill impairment charge.  The 2009 tax recovery can be attributed to a loss before tax.  On a consolidated basis, the Company generated taxable losses in the United States, which have been recognized as deferred tax assets.  These taxable losses are the result of tax depreciation and amortization on property and equipment and goodwill in excess of GAAP depreciation and amortization attributable to the Company’s acquired businesses over the last four 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 effective tax rate should also increase.

Net loss was $4.0 million for 2009 compared to a net loss of $71.2 million in 2008.  This resulted in basic and diluted loss per share of $0.28 for the current year compared to loss per basic and diluted share of $5.28 in 2008.  Excluding the goodwill impairment charge and one-time write-off of previously deferred financing costs, adjusted net income would have been $5.3 million or basic and diluted income per share of $0.39 for the 2008 year (7).

Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“FASB ASC”) 815-10-50, “Disclosures about Derivative Instruments and Hedging Activities”, requires enhanced disclosures about the Company’s derivative and hedging activities.  The Company is required to provide 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 an entity’s financial position and cash flows.  The new disclosure requirements were adopted January 1, 2009 and the required disclosure is included in Note 11 to the audited financial statements.

FASB ASC 855-10, “Subsequent Events”, establishes general standards for and disclosure of events that occur after the balance sheet date but before financial statements are issued or available to be issued.  In particular, this Statement sets forth:  a)  the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements,  b)  the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and c)  the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  The disclosure requirements were adopted June 30, 2009 and the required disclosure is included in Note 17 to the audited financial statements.   In January 2010, the FASB issued an exposure draft amending the guidance that SEC registrants would no longer be required to disclose the date through which subsequent events have been evaluated.  This guidance is expected to be finalized in 2010 and will be adopted by the Company when required.


 
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SEGMENTED RESULTS
LTL (Less-than-truckload)

The table below provides summary information for the LTL segment for the three years ended December 31:

(in thousands of dollars)
 
2009
   
2008
   
2007
   
2009 vs 2008
   
2008 vs 2007
 
                               
Revenue
  $ 519,215     $ 610,933     $ 584,786       (15.0 %)     4.5 %
Income (loss) from operations (8)
  $ (2,648 )   $ 8,980     $ 23,153       (129.5 %)     (61.2 %)
Impairment of goodwill
  $ -     $ 107,351     $ -       (100.0 %)     100.0 %
Operating ratio
    100.5 %     98.5 %     96.0 %                
                                         
Number of shipments(2)
    3,705,152       3,930,049       4,040,306       (5.7 %)     (2.7 %)
Weight (000s of lbs)(3)
    5,492,869       5,979,270       5,989,123       (8.1 %)     (0.2 %)
Revenue per shipment(4)
  $ 140.13     $ 155.45     $ 144.74       (9.9 %)     7.4 %
Revenue per hundredweight(5)
  $ 9.45     $ 10.22     $ 9.76       (7.5 %)     4.7 %

Revenue in the LTL segment decreased by 15.0% to $519.2 million in 2009 compared to $610.9 million in 2008.  The decrease in revenue was significantly influenced by fuel surcharge which represented 10.2% of revenue  in 2009 compared to 17.6% in 2008.  Therefore, revenue net of fuel surcharge for 2009 declined 7.4% compared to 2008.  Revenue was impacted by the weak economic environment in North America in 2009 as indicated by the decline in shipments and tonnage of 5.7% and 8.1% respectively compared to 2008.

Shipments per day in the U.S. LTL business unit decreased 7.5% for 2009 compared to 2008 due to the severe economic conditions in the United States.  However the U.S. LTL business unit increased its market share, achieving sequential quarter-over-quarter growth in daily shipments for the first three quarters of 2009 and finally quarter-over-prior-year-quarter growth in daily shipments for the fourth quarter 2009.  These market share gains are the result of an integrated operating platform that was launched in the fourth quarter of 2008 allowing the U.S. LTL business unit to offer seamless service to its customer across all LTL segment operating regions.  As a result of this integration, the length of haul increased 22.5% at December 31, 2009 compared to December 31, 2008. The increase in length of haul therefore resulted in an increase in revenue per hundredweight exclusive of fuel surcharge in the comparable years.  However, the continued slowdown in the economic environment further destabilized the North American LTL pricing environment offsetting the improvement in revenue per hundredweight.

In addition to the aforementioned improvement in daily activity levels, the LTL segment made additional enhancements early in the second quarter re-engineering its linehaul and pick-up and delivery operations to reduce claims expenses, dock handling costs and linehaul expenses.  On April 13, 2009, the Company announced a 5% reduction in wages and salaries for all employees.  These initiatives resulted in an improvement in the fourth quarter results as the LTL segment posted an operating ratio of 101.9% compared to an operating ratio of 103.7% in the fourth quarter of 2008.   Management believes that with the new integrated U.S. LTL operating model, the current sales momentum and additional operating initiatives, the segment is well positioned to contribute income from operations over the long term.

Supply Chain Operation

The table below provides summary information for the SCO segment for the three years ended December 31:

(in thousands of dollars)
 
2009
   
2008
   
2007
   
2009 vs 2008
   
2008 vs 2007
 
                               
Revenue
  $ 76,106     $ 81,030     $ 52,845       (6.1 %)     53.3 %
Income from operations
  $ 5,480     $ 4,373     $ 3,271       25.3 %     33.7 %
Operating ratio
    92.8 %     94.6 %     93.8 %                


 
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Revenue for the SCO segment decreased by 6.1% to $76.1 million compared to $81.0 million in 2008.  However, the SCO segment posted record income from operations of $5.5 million, a 25.3% increase over 2008.  The increase in income from operations for 2009 can be attributed to a full year of activity from the 530,000 square foot dedicated distribution facility added in June 2008 in Toronto, Canada, plus two new dedicated facilities added in 2009.  SCO added a 240,000 square foot dedicated distribution facility in southern California and a 35,000 square foot dedicated distribution facility in San Antonio, Texas.  These three significant additions within the SCO segment offset retail industry weakness in 2009 and contributed to the record income from operations.  As at December 31, 2009, the SCO segment had approximately 2.0 million square feet under management compared to 1.8 million square feet under management at December 31, 2008.  It is the Company’s expectation to increase the square footage under management in 2010 and maximize existing capacity to increase revenue and income from operations.

Truckload

The table below provides summary information for the Truckload segment for the three years ended December 31:

(in thousands of dollars)
 
2009
   
2008
   
2007
   
2009 vs 2008
   
2008 vs 2007
 
                               
Revenue
  $ 33,939     $ 34,374     $ 32,886       (1.3 %)     4.5 %
Income from operations
  $ 790     $ 1,307     $ 1,678       (39.6 %)     (22.1 %)
Operating ratio
    97.7 %     96.2 %     94.9 %                

Revenue for the Truckload segment decreased by 1.3% to $33.9 million in 2009 from $34.4 million in 2008.  Total shipments and revenue per mile(6) decreased 1.0% and 3.8%, respectively compared to 2008.  This was partially offset by a decrease in empty miles of 2.4% over the same period.  As a result, income from operations declined by 39.6% and the Truckload segment posted an operating ratio of 97.7% in 2009 compared to 96.2% in 2008.

RESULTS OF OPERATIONS
2008 COMPARED TO 2007

CONSOLIDATED RESULTS

Revenue increased 8.3% to $726.3 million in 2008 from $670.5 million in 2007.  Revenue in the LTL, Truckload and most significantly in the SCO segments increased 4.5%, 4.5% and 53.3% respectively.  Revenue in the LTL segment was impacted by a 45.9% increase in fuel surcharge revenue compared to 2007, while the acquisition of LVLA on November 30, 2007 contributed to the increase in revenue in the SCO segment.  Loss from operations was $97.3 million in 2008 compared to income from operations of $23.0 million in 2007.  Excluding the goodwill impairment charge, adjusted income from operations declined 56.4% to $10.0 million in 2008 compared to $23.0 million in 2007.  An increase in income from operations of 33.7% in the SCO segment was offset by declines in income from operations at the LTL segment (excluding goodwill impairment charge) and Truckload segment of 61.2% and 22.1%, respectively.  The Company’s consolidated operating ratio increased to 98.6% in 2008 compared to 96.6% in 2007.  Detailed explanations for the fluctuations in revenue and income from operations are discussed below in “Segmented Results”.

 The increase in salaries, wages and employee benefits expense, maintenance expense and rents and leases expense for fiscal 2008 compared to 2007 increased 6.3%, 12.3% and 17.1% respectively primarily due to the operating of duplicative U.S. LTL networks in the overlap states between the legacy Vitran operating region and the PJAX acquisition.  These expenses were reduced in the fourth quarter of 2008 when the Company completed the operating integration and eliminated duplicative workforces, equipment and facilities.

Depreciation and amortization expense for 2008 increased slightly compared to 2007 primarily as a result of the completion of the acquisition of LVLA on November 30, 2007.  LVLA, an asset-light business, contributed only an additional $0.9 million in depreciation and amortization expense for the year.  This was partially offset by depreciation expense attributable to rolling stock purchases that declined by $16.0 million compared to 2007.


 
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Purchased labour and owner operator expenses increased as the SCO segment launched a significant contract in the second quarter of 2008 requiring additional purchased labour.

Fuel and fuel-related expenses increased 37.8% for 2008 compared to 2007.  The average price of diesel increased approximately 30.5% in 2008 compared 2007.  Furthermore, the aforementioned duplicative operating regions with the U.S. LTL business unit required more miles to be driven.

Interest expense, net of interest income, was $9.2 million for 2008 compared to $8.4 million for 2007.  The increase can be attributed to $0.9 million of financing costs that were written off in the fourth quarter of 2008 for a substantial bank amendment completed December 30, 2008.  The amendment was completed with the Company’s syndicated lenders and introduced a new pricing grid that started December 30, 2008, increasing the Company’s spreads 250 bps on the $44.5 million of revolving debt and $48.0 million of term debt.

Income tax recovery for 2008 was $35.3 million compared to an expense of $0.9 million for 2007.  The tax recovery in 2008 compares to an effective tax rate of 5.9% for 2007.  The tax recovery can be attributed to a decline in earnings before tax, recognition of a deferred tax asset related to the impairment of goodwill and a decline in the effective tax rate.  The decrease in the effective rate can be attributed to an increase in a higher proportion of income being earned in lower foreign tax jurisdictions, as well as a decline in future tax rates in Canada. On a consolidated basis, the Company generated taxable losses in the United States, which have been recognized as deferred 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 effective tax rate should also increase.

Net loss on a GAAP basis was $71.2 million for 2008 compared to net income of $13.7 million in 2007.  This resulted in GAAP basic and diluted loss per share of $5.28 for the current year compared to earnings per share of $1.02 and $1.00, respectively in 2007.  Excluding the goodwill impairment charge and write-off of previously deferred financing costs, adjusted net income would have been $5.3 million or basic and diluted income per share of $0.39 for 2008(6) compared to $1.04 and $1.03 in 2007(6).


SEGMENTED RESULTS

LTL (Less-than-truckload)

Revenue in the LTL segment increased by 4.5% to $610.9 million in 2008 compared to $584.8 million in 2007.  The growth in revenue was driven by an increase in fuel surcharge revenue of $33.8 million, as the average price of fuel for 2008 exceeded 2007.  Offsetting the increase in fuel surcharge revenue was the decline in shipments, tonnage and revenue per hundredweight excluding fuel surcharge of 2.7%, 0.2%, and 1.3%, respectively.  Although tonnage and revenue per hundredweight excluding fuel surcharge expanded through the first nine months of 2008, in the fourth quarter as the global recession, credit crisis and reduction in operating days impacted shippers, competitive pressures had a negative impact on the annual operating statistics.  The cross-border service offering for the year grew 26.5% but could not abate the overall impact of the economy.  LTL segment activity level measurement, shipments per day, declined monthly from July to October for the first time in the Company’s history depicting the deteriorating economic environment in North America.

More importantly, for the 2008 year, the LTL segment completed a number of important operating initiatives.  In the second quarter, the U.S. LTL business unit completed its new IT operating system, the first step in its integration plan, which had led to a slight increase in U.S. inter-regional sales activity.  In the third quarter, the second step, the integrated wage and benefit structure, was successfully completed in August 2008, which would result in an annual increase in compensation cost of $1.2 million.  The third step in the integration plan, the physical integration of service centers, commenced in late August 2008 and was completed in October 2008.  The elimination of the redundant service centers will lead to a reduction of linehaul, pick-up and delivery and service centers expenses of approximately $11.0 million annually and allow the U.S. LTL business unit to start an inter-regional sales initiative.

 
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These milestones, although achieved successfully, delayed management’s ability to reduce costs while revenue and the economic environment worsened.  In addition to the aforementioned expense savings completed at the end of October, the Company further reduced its labour force late in the fourth quarter resulting in additional annual savings of approximately $14.0 million.  As a result, the LTL segment operating ratio was 98.5% for 2008 compared to 96.0% in 2007.

Supply Chain Operation

Revenue for the SCO segment increased by 53.3% to $81.0 million compared to $52.8 million in 2007.   Shipments within the Brokerage business unit declined by 15.7% in 2008 compared to 2007.  However, within the Supply Chain business unit, the addition of LVLA acquired November 30, 2007 contributed a full year of revenue in 2008, accounting for $24.8 million of the segment’s increase compared to 2007.  Furthermore, in June of 2008 the Supply Chain business unit commenced a new 530,000 square foot dedicated distribution facility that further increased revenue and income from operations for the year.  These two significant additions within the Supply Chain business unit offset retail industry weakness in 2008 and contributed to the record revenue and income from operations of $81.0 million and $4.4 million.  As at December 31, 2008, the SCO segment had 1.8 million square feet under management compared to 1.2 million square feet under management at December 31, 2007.

 
Truckload

Revenue for the Truckload segment increased by 4.5% to $34.4 million in 2008 from $32.9 million in 2007.  The revenue increase was attributable to shipments increasing 7.8%, partially offset by a decline in revenue per shipment of 3.0%.  Income from operations declined by 22.1% due to a reduction in fuel cost recovery of 19.8% and an increase in empty miles of 14.3% as the Segment travelled further to acquire additional freight.  Therefore, the operating ratio was 96.2% in 2008 compared to 94.9% in 2007.

Notes:

(1)
Refer to note 2 in Item 6 - Selected Financial Data

(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 by each LTL business unit.

(4)
Revenue per shipment represents revenue divided by the number of shipments.

(5)
Revenue per hundredweight is the price obtained for transporting 100 pounds of LTL freight from point to point, calculated by dividing the revenue for an LTL shipment by the hundredweight (weight in pounds divided by 100) for a shipment.

(6)
Revenue per total mile represents revenue divided by the total miles driven.

(7)
Adjusted net income is a non-GAAP measure that allows the Company to evaluate its performance by removing non-recurring charges to net income.  The reconciliation to net income and earnings per share excluding the goodwill impairment charge and write-off of previously deferred financing costs is as follows:

   
Year ended December 31,
 
   
2008
   
2007
 
                 
Net income (loss)
  $ ( 71,225 )   $ 13,710  
Goodwill impairment, net of tax
    75,844       -  
                 
Adjusted net income (loss)  before goodwill impairment
    4,619       13,710  
                 
Financing costs written off, net of tax
    630       304  
                 
Adjusted net income
  $ 5,249     $ 14,014  
                 
Weighted average shares outstanding:
               
Basic
    13,485,532       13,458,786  
Diluted
    13,632,628       13,651,799  
                 
Adjusted earnings(loss) per share before goodwill impairment:
               
Basic
  $ 0.34     $ 1.04  
Diluted
  $ 0.34     $ 1.03  
                 
Adjusted earnings per share:
               
Basic
  $ 0.39     $ 1.04  
Diluted
  $ 0.39     $ 1.03  


 
27

 


(8)
Adjusted income from operations for the LTL segment is a non-GAAP measure that allows the Company to evaluate its performance be removing non-recurring charges that would affect income from operations.  The reconciliation to LTL segment income from operations excluding the goodwill impairment charge is as follows:

   
Year ended
December 31,
2008
 
       
Income from operations
  $ (98,371 )
Goodwill impairment
    107,351  
         
Adjusted income from operations
  $ 8,980  



 
28

 

 LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operations decreased to $8.6 million in 2009 compared to $28.2 million in 2008.  The decline is attributable to a decrease in profitability, as described in the Consolidated and Segmented Results section of the MD&A, partially offset by the increase in non-cash working capital compared to 2008.    The increase in working capital was the result of an increase in accounts receivable partially offset by an increase in accounts payable.  The change in accounts receivable, the critical influencer for working capital changes at a transportation company, increased December 31, 2009 compared to December 31, 2008 due to an approximate 7.0% increase in the fourth quarter revenue compared to the same period in 2008.  Although revenue increased, the Company’s average days sales outstanding (“DSO”) remained consistent at 43.2 days compared to 43.0 days at December 31, 2008.  However the DSO remains above our historical average of approximately 40 days.  Customers in 2009 slowed their payment cycle due to the tough economic environment.   To match, the Company slowed its payments cycles over the last two weeks of the fourth quarter thereby increasing its accounts payable and accrued liabilities.

Management believes the current DSO of approximately 43 days to be a temporary anomaly associated with the lackluster economy.  It is management’s objective to return DSO to its historical levels of approximately 40 days over the next twelve months if the economic environment returns to normal.  We do not believe there will be a material impact to the financial position or liquidity of the Company.

On September 21, 2009 the Company issued 2.7 million common shares at $8.50 per common share under a delayed registration private placement.  Net proceeds from the equity offering were $21.3 million after fees, expenses and commission.  The Company filed an S-3 registration statement on September 29, 2009 in accordance with its obligation to file a registration statement with the Securities and Exchange Commission (the “SEC”) in order to register the resale of the private placement securities and to have the registration statement declared effective within 90 days of September 21, 2009.   On November 12, 2009 the registration statement was declared effective by the SEC.

In conjunction with the common share offering, the Company amended the terms and conditions of its existing seven bank syndicated credit facility and used the net proceeds of the offering to repay syndicated debt.  Pursuant to the amendment, the Company repaid $7.5 million of syndicated term debt and the residual net proceeds were used to repay syndicated revolving debt.  The amendment expanded the Company’s leverage ratio covenants through to December 31, 2010 and increased the interest rate spreads on currently drawn debt by 50 bps.  The Company paid $0.4 million of fees to the agent and syndicate members for the amendment.

Within the syndicated credit facilities at December 31, 2009, interest-bearing debt was $79.2 million consisting of $29.7 million of term debt and $49.5 million drawn under the revolving credit facility.  In addition, the Company had $0.8 million of additional term debt and $10.2 million of capital leases for a total of $90.2 million of interest-bearing debt outstanding at December 31, 2009.  At December 31, 2008, interest-bearing debt was $114.3 million consisting of $49.9 million of term debt, capital leases of $16.0 million and $48.4 million drawn under the revolving credit facility.

During the year, the Company repaid $19.4 million of term debt and $5.8 million of capital leases and borrowed $1.0 million on the revolving credit facility.  Due to the reduction in debt and improvement in earnings in the fourth quarter of 2009, the Company has reduced its leverage ratio and has earned a 50bps reduction on its syndicated interest rate spreads commencing in the first quarter of 2010.  At December 31, 2009, the Company had $26.2 million of availability in its revolving credit facilities, net of outstanding letters of credit.  The Company was in compliance with its debt covenants at December 31, 2009.

The Company generated $1.7 million in proceeds and a gain on sale of $0.3 million on the divestiture of surplus facilities in Louisville and Bowling Green, Kentucky; St. Cloud, Minnesota and miscellaneous equipment throughout the year. Capital expenditures amounted to $5.0 million for 2009 and were primarily funded out of proceeds from the sale of rolling stock and facilities and the revolving credit facility. The capital expenditures in 2009 were for land in Winnipeg, Manitoba; rolling stock and information technology expenditures.  The majority of capital expenditures in 2008 were for the purchase of facilities in Kansas City, Kansas; Las Vegas, Nevada; and construction costs of the new LTL service center in Toronto, Ontario.


 
29

 

The table below sets forth the Company’s capital expenditures for the years ended December 31, 2009, 2008 and 2007.

(in thousands of dollars)
 
Year ended December 31,
 
   
2009
   
2008
   
2007
 
                   
Real estate and buildings
  $ 735     $ 8,857     $ 10,728  
Tractors
    604       1,545       13,362  
Trailing fleet
    2,611       1,374       5,580  
Information technology
    351       583       1,471  
Leasehold improvements
    229       185       245  
Other equipment
    477       809       1,840  
Total
  $ 5,007     $ 13,353     $ 33,226  

Management estimates that cash capital expenditures for the 2010 fiscal year will be between $6.0 million and $12.0 million.  The Company may potentially enter into operating leases to fund the acquisition of specific equipment should the business levels exceed the current equipment capacity of the Company.  The Company expects to finance its capital requirements with cash flow from operations, new capital or operating leases and, if required, its $26.2 million of unused credit facilities.

The Company has contractual obligations that include long-term debt consisting of term debt facilities, revolving credit facilities, capital leases for operating equipment and off-balance sheet operating leases primarily consisting of tractor, trailing fleet and real estate leases.  Operating leases form an integral part of the Company’s financial structure and operating methodology as they provide an alternative cost effective and flexible form of financing.  The following table summarizes our significant contractual obligations and commercial commitments as of December 31, 2009:

(in thousands of dollars)
       
Payments due by period
 
Contractual Obligations
 
Total
   
2010
   
2011 & 2012
   
2013 & 2014
   
Thereafter
 
                               
Term credit facilities
  $ 30,480     $ 12,804     $ 17,676     $ Nil     $ Nil  
Revolving credit facilities
    49,536       Nil       49,536       Nil       Nil  
Capital lease obligations
    10,170       4,320       5,627       223       Nil  
Estimated interest payments (1)
    10,751       5,222       5,526       3       Nil  
                                         
     Sub-total
  $ 100,937     $ 22,346     $ 78,365     $ 226     $ Nil  
Off-balance sheet commitments
                                       
Operating leases
    82,405       23,534       34,760       18,628       5,483  
     Total contractual obligations
  $ 183,342     $ 45,880     $ 113,125     $ 18,854     $ 5,483  

(1)
The Company has estimated its interest obligation on its fixed and variable rate obligations.  For fixed rate debt where variable-to-fixed interest rate swaps are in place, the fixed interest rate was used to determine the interest obligation until the interest rate swaps mature.  For other fixed rate debt, the fixed rate was used to determine the interest rate obligation.  For variable rate debt, the variable rate in place at December 31, 2009 was used to determine the total interest obligation.

In addition to the above-noted contractual obligations, as at December 31, 2009, the Company utilized the revolving credit facility for standby letters of credit of $20.9 million.  The letters of credit are used as collateral for self-insured retention of insurance claims. During the second quarter of 2009, Export Development Canada (“EDC”), a Crown corporation wholly owned by the government of Canada, provided guarantees up to $12.2 million on LOC’s to the Company’s syndicated lenders.  In so doing the Company’s definition of funded debt in the associated credit agreement was amended to exclude LOC’s guaranteed by the EDC.

A significant decrease in demand for our services could limit the Company’s ability to generate cash flow and affect its profitability.  The Company’s credit agreement contains 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.  Should the current macro-economic environment further destabilize, the Company may fail to comply with the aforementioned debt covenants within the next twelve months.  In this event, the Company may seek to amend the debt covenants in its existing syndicated credit agreement.  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 2010 as well as service the contractual obligations.


 
30

 


OUTLOOK

The success of Vitran is highly dependent upon specific operating improvement initiatives and as evidenced in 2009 a variety of external factors including the general economy.  Although the Company’s LTL segment acquired additional market share through 2009, competitive pricing pressure during the year offset the gains.  Excess capacity in the LTL sector and the uncertainty as to the magnitude and timing of an economic recovery will make 2010 another challenging year.  Management is closely monitoring the financial condition of the Company and broader market in order to evaluate potential capital alternatives.

The LTL segment plans to continue to pursue revenue and cost strategies that improve service, build density at reasonable prices, reduce maintenance costs and improve productivity while not forsaking the safety culture of the Company.

The SCO segment will continue to pursue new business opportunities that will maximize its existing infrastructure or expand the square footage under management.  Furthermore the SCO segment will continue to introduce its existing and potential client base to the services of the LTL segment to further align customer with product offering of the Company.

For the Truckload segment, management will focus on expanding and diversifying its customer base, margin expansion and asset utilization.

More so than ever, the Company, on a consolidated basis, is positioned to benefit from an improvement in the economic environment should it materialize; however, should the environment worsen, management will continually adjust its strategy and tactics to minimize the impact on the Company, the employees and the shareholders.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Revenue Recognition

The Company’s LTL and Truckload business units and Freight Brokerage operations recognize revenue upon the delivery of the related freight and direct shipment costs as incurred.  For the LTL segment, transportation services not completed at the end of a reporting period, revenue is recognized based on relative transit time in each period with expenses recognized as incurred.  Revenue for the SCO segment is recognized as the management services are provided.  Critical revenue-related policies and estimates for the Company’s LTL business unit relate to revenue adjustments and allowance for doubtful accounts.  Critical revenue-related policies and estimates for the Company’s SCO and Truckload segment include allowance for doubtful accounts.  At December 31, 2009, the allowance for doubtful accounts was $3.5 million or approximately 4.7% of total trade receivables.  The Company believes that its revenue recognition policies are appropriate and that its revenue-related estimates and judgments provide a reasonable approximation of actual revenue earned.

Estimated Revenue Adjustments

Generally, the pricing assessed by companies in the LTL business is subject to subsequent adjustments due to several factors, including weight and freight classification verifications, shipper bill of lading errors, pricing discounts and other miscellaneous revenue adjustments.  Revenue adjustments are evaluated and updated based on revenue levels, current trends and historical experience.   These revenue adjustments are recorded as a reduction in revenue from operations and accrued for in the allowance for doubtful accounts.


 
31

 

Allowance for Doubtful Accounts

The Company records an allowance for doubtful accounts related to accounts receivable that may potentially be impaired.  The Company’s allowance is estimated by (1) a percentage of its aged receivables reflecting the current business environment, customer and industry concentrations, and historical experience and (2) an additional allowance for specifically identified accounts that are significantly impaired.  A change to these factors could impact the estimated allowance.  The provision for bad debts is recorded in selling, general and administrative expenses.

Claims and Insurance Accruals

Claims and insurance accruals reflect the estimated ultimate total cost of claims, including amounts for claims incurred but not reported and future claims development, for cargo loss and damage, bodily injury and property damage, workers’ compensation, long-term disability and group health.  In establishing these accrued expenses, management evaluates and monitors each claim individually and claim frequency.  Factors such as historical experience, known trends and third party estimates help determine the appropriate reserves for the estimated liability.  Changes in severity of previously reported claims, significant changes in the medical costs and legislative changes affecting the administration of the plans could significantly impact the determination of appropriate reserves in future periods.  In Canada, the Company has a $50,000 deductible and in the United States $350,000 self-insurance retention (“SIR”) per incident for auto liability, casualty and cargo claims.  In the United States, the Company has a $350,000 SIR per incident for workers’ compensation and $250,000 SIR per incident for employee medical.

In addition to estimates within the self-insured retention, management makes judgments concerning the coverage limits.  If any claim was to exceed the coverage limits, the Company would have to accrue for the excess amount.  The estimate would include evaluation whether a claim may exceed such limits and, if so, by how much.  A claim or group of claims of this nature could have a material adverse effect on the Company’s results from operations.  Currently management is not aware of any claims exceeding the coverage limit.

Goodwill and Intangible Assets

The Company performs its goodwill impairment test annually and more frequently if events or changes in circumstances indicate that an impairment loss may have occurred.  Impairment is tested at the reporting unit level by comparing the reporting unit's carrying amount to its implied fair value.  The methodology used to measure fair value is a discounted cash flow method which is an income approach, and a market approach which estimates fair value using market multiples of appropriate financial measures compared to a set of comparable public companies in the transportation and logistics industry.  The fair value methods require certain assumptions for growth in earnings before interest, taxes and depreciation, future tax rates, capital re-investment, fair value of the assets and liabilities, and discount rate.  Actual impairment of goodwill could differ from these assumptions based on market conditions and other factors.  In the event goodwill is determined to be impaired, a charge to earnings would be required.  As at September 30, 2009, Vitran completed its annual goodwill impairment test and concluded that there was no impairment.

One of the indicators of impairment is a sustained decline in the Company’s share price whereby the market capitalization of the Company is less than its book value for an extended period of time.  At December 31, 2008, before recording goodwill impairment charges, the carrying value of Vitran’s net assets was $187.1 million compared to the market capitalization of all of the Company’s outstanding shares which was $84.5 million.  The market valuation of the Company declined during the fourth quarter as Vitran’s share price on the Nasdaq stock market decreased from $13.47 at September 30, 2008 to $6.26 at December 31, 2008. These factors and the depressed macroeconomic environment indicated a triggering event had occurred requiring the Company, at a reporting unit level, to test for the impairment of goodwill at December 31, 2008.  Using the income and market approach for estimating the fair value of each reporting unit, management concluded that the goodwill in its LTL segment was impaired and there was no impairment of goodwill in its other reporting units. Therefore, Vitran recorded a pre-tax non-cash goodwill impairment charge of $107.4 million at December 31, 2008.


 
32

 

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives.  Management establishes appropriate useful lives for all property and equipment based upon, among other considerations, historical experience, change in equipment manufacturing specifications, the used equipment market and prevailing industry practice.  Management continually monitors events and changes in circumstances that could indicate that the carrying amounts of property and equipment may not be recoverable.  When indicators of potential impairment are present, the recoverability of the assets would be assessed from the estimated undiscounted future operating cash flows expected from the use of the assets.  Actual recoverability of assets could differ based on different assumptions, estimates or other factors.  In the event that recoverability was impaired, the fair value of the asset would be recorded and an impairment loss would be recognized.  Management believes its estimates of useful lives and salvage values have been reasonable as demonstrated by the insignificant amounts of gains and losses on revenue equipment dispositions.

Share-Based Compensation

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.  The Company accounts for stock options in accordance with FASB ASC 718 with compensation expense amortized over the vesting period based on the Black-Scholes-Merton fair value on the grant date.  The assumptions used to value stock options are dividend yield, expected volatility, risk-free interest rate, expected life and anticipated forfeiture.  The Company does not pay any dividends on its common shares, therefore the dividend yield is zero.  We use the historical method to calculate volatility with the historical period being equal to the expected life of each option.  This calculation is then used to approximate the potential for the share price to increase over the expected life of the option.  The risk-free interest rate is based on the government of Canada issued bond rate in effect at the time of the grant. Expected life represents the length of time the option is estimated to be outstanding before being exercised or forfeited.  Historical information is used to determine the forfeiture rate.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  Significant judgment is required in determining whether deferred tax assets will be realized in full or in part.  If it were ever estimated that it is more likely than not that all or some portion of specific deferred tax assets will not be realized, a valuation allowance must be established for the amount of deferred tax assets that is estimated not to be realized.  A valuation allowance for deferred tax assets has not been deemed necessary at December 31, 2009.  Accordingly, if the facts or financial results were to change, thereby impacting the likelihood of realizing the deferred tax assets, judgment would have to be applied to estimate the amount of valuation allowance required in any given period.

The Company adopted FASB ASC 740-10, Accounting for Uncertainty in Income Taxes, on January 1, 2007 with no cumulative effect adjustment recorded at adoption.  FASB ASC 740-10  requires that uncertain tax positions are evaluated in a two-step process, whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the related tax authority.

Management judgment is also required regarding a variety of other factors, including the appropriateness of tax strategies, expected future tax consequences, and to the extent tax strategies are challenged by taxing authorities.  We utilize certain income tax planning strategies to reduce our overall cost of income taxes.  It is possible that certain strategies might be disallowed, resulting in an increased liability for income taxes.  Significant management judgments are involved in assessing the likelihood of sustaining the strategies and an ultimate result worse than our expectations could adversely affect our results of operations.  In 2008, the Company completed audits with the Internal Revenue Service and Canada Customs and Revenue Agency without material consequences.

 
33

 


CHANGES IN ACCOUNTING POLICY

See Note 1 to the accompanying consolidated financial statements for discussion of United States GAAP recent accounting pronouncements.

RELATED PARTIES
None.

 
34

 



INTEREST RATE SENSITIVITY

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, we estimate that the fair value of the long-term debt approximates the carrying value.

 
(in thousands of dollars)
       
Payments due by period
 
             
Long-term debt
 
Total
   
2010
   
2011 & 2012
   
2013 & 2014
   
Thereafter
 
                               
  Variable Rate
                             
    Term bank facility
  $ 29,676     $ 12,000     $ 17,676     $ Nil     $ Nil  
        Average interest rate (LIBOR)
    4.76 %     4.76 %     4.76 %                
    Term bank facility
    804       804       Nil       Nil       Nil  
        Average interest rate (LIBOR)
    2.01 %     2.01 %                        
    Revolving bank facility
    49,536       Nil       49,536       Nil       Nil  
        Average interest rate (LIBOR)
    4.76 %             4.76 %                
                                         
  Fixed Rate
                                       
    Capital lease obligations
    10,170       4,320       5,627       223       Nil  
        Average interest rate
    6.15 %     6.15 %     6.15 %     6.15 %        
     Total
  $ 90,186     $ 17,124     $ 72,839     $ 223     $ Nil  

The Company uses variable-to-fixed interest rate swaps on its term and revolving credit facilities with a notional amount of $28.8 million at December 31, 2009.  The average pay rate on the swaps is 5.01% and the average receive rate is the three-month LIBOR rate, which is currently 0.26%.  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 $71.0 million is designated as a hedge of the investment in the United States’ self-sustaining foreign operations.

In addition to the information disclosed above, further information required by Item 7A of Form 10-K appears in Item 1.A and Item 7 of this Annual Report on Form 10-K under the headings “Risks and Uncertainties” and  “Liquidity and Capital Resources”, respectively.


Consolidated Balance Sheets as at December 31, 2009 and 2008 and the Consolidated Statements of Income (Loss), Shareholders’ Equity and Cash Flows for the years ended December 31, 2009, 2008 and 2007, are reported on by KPMG LLP, Chartered Accountants.  These statements are prepared in accordance with United States GAAP.


 
35

 

MANAGEMENT RESPONSIBILITY OVER FINANCIAL REPORTING

The Consolidated Financial Statements of the Company are the responsibility of management and have been prepared in accordance with United States GAAP and, where appropriate, reflect estimates based on management’s judgement.  In addition, all other information contained in the Annual Report on Form 10-K is also the responsibility of management.

The Company maintains systems of internal accounting and administrative controls designed to provide reasonable assurance that the financial information provided is accurate and complete and that all assets are properly safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsibility for financial reporting and is ultimately responsible for reviewing and approving the Consolidated Financial Statements.  The Board appoints the Audit Committee, comprised of non-management directors, which meets with management and KPMG LLP, the external auditors, at least once a year to review, among other things, accounting policies, annual financial statements, the result of the external audit examination, and the management discussion and analysis included in the Annual Report on Form 10-K.  The Audit Committee reports its findings to the Board of Directors so that the Board may properly approve the financial statements.  Additional commentary on corporate governance appears in the Company’s proxy statement for the 2010 Annual Meeting of its Shareholders and the information therein is incorporated herein by reference.

 
36

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Vitran Corporation Inc.

We have audited the accompanying consolidated balance sheets of Vitran Corporation Inc. (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of income (loss), shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 2009.  Our audit also included the financial statement schedule listed in the Index under Part IV, Item 15(a)2.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Vitran Corporation Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with U.S. generally accepted accounting principles.

As discussed in note 1 to the consolidated financial statements, on January 1, 2009, Vitran Corporation Inc. adopted FASB ASC 815-10-50, Disclosures about Derivative Instruments and Hedging Activities, and on June 30, 2009 adopted FASB ASC 855-10, Subsequent Events.  On January 1, 2008, Vitran Corporation Inc. changed its method of accounting for fair value measurements in accordance with FASB ASC 820-10-05, Fair Value Measurements, and adopted FASB ASC 825-10, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB ASC 815-10, permitting entities to choose to measure many financial instruments and certain warranty and insurance contracts at fair value on a contract-by-contract basis.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Vitran Corporation Inc.'s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and our report dated February 8, 2010 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

Chartered Accountants, Licensed Public Accountants

Toronto, Canada
February 8, 2010

 
37

 

VITRAN CORPORATION INC.
Consolidated Balance Sheets
(Amounts in thousands of United States dollars)

December 31, 2009 and 2008

             
   
2009
   
2008
 
             
Assets
           
             
Current assets:
           
    Accounts receivable
  $ 69,591     $ 65,741  
    Inventory, deposits and prepaid expenses
    11,539       12,063  
    Income and other taxes recoverable
    683       792  
    Deferred income taxes (note 8)
    3,495       1,877  
    Total current assets
    85,308       80,473  
                 
Property and equipment (note 4)
    145,792       152,602  
Intangible assets (note 5)
    10,766       13,279  
Goodwill (note 6)
    18,878       17,057  
Deferred income taxes (note 8)
    33,594       30,181  
                 
Total assets
  $ 294,338     $ 293,592  
                 
Liabilities and Shareholders' Equity
               
                 
Current liabilities:
               
    Bank overdraft
  $ 105     $ 3,912  
    Accounts payable and accrued liabilities (note 1(r))
    65,446       63,495  
    Current portion of long-term debt (note 7)
    17,125       16,925  
    Total current liabilities
    82,676       84,332  
                 
Long-term debt (note 7)
    72,956       93,477  
Other
    2,919       4,540  
                 
Shareholders' equity:
               
    Common shares, no par value, unlimited authorized, 16,266,441 and 13,498,159 issued and outstanding in 2009 and 2008, respectively (note 9)
    99,584       77,500  
    Additional paid-in capital
    4,264       3,525  
    Retained earnings
    29,281       33,253  
    Accumulated other comprehensive income (loss) (note 3)
    2,658       (3,035 )
    Total shareholders' equity
    135,787       111,243  
                 
Lease commitments (note 14)
               
Contingent liabilities (note 16)
               
                 
Total liabilities and shareholders' equity
  $ 294,338     $ 293,592  


See accompanying notes to consolidated financial statements.

 
38

 

VITRAN CORPORATION INC.
Consolidated Statements of Income (Loss)
(Amounts in thousands of United States dollars, except per share amounts)

Years ended December 31, 2009, 2008 and 2007
                   
   
2009
   
2008
   
2007
 
                   
Revenue
  $ 629,260     $ 726,337     $ 670,517  
                         
Salaries, wages and other employee benefits
    259,782       283,653       266,731  
Purchased transportation
    89,042       98,529       99,971  
Depreciation and amortization
    19,902       21,024       20,770  
Maintenance
    28,330       32,067       28,563  
Rents and leases
    27,532       28,042       23,939  
Purchased labor and owner operators
    79,474       84,843       78,145  
Fuel and fuel related expenses
    67,761       113,108       82,100  
Other operating expenses
    58,131       55,378       47,731  
Other income
    (285 )     (326 )     (432 )
Impairment of goodwill
          107,351        
      629,669       823,669       647,518  
                         
Income (loss) from operations before the undernoted
    (409 )     (97,332 )     22,999  
                         
Interest on long-term debt
    (9,510 )     (9,259 )     (8,554 )
Interest income
    14       36       128  
      (9,496 )     (9,223 )     (8,426 )
                         
Income (loss) from operations before income taxes
    (9,905 )     (106,555 )     14,573  
                         
Income taxes (recovery) (note 8):
                       
    Current
    883       109       1,638  
    Deferred
    (6,816 )     (35,439 )     (775 )
      (5,933 )     (35,330 )     863  
                         
Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710  
                         
Income (loss) per share:
                       
                         
Basic:
                       
    Net income (loss)
  $ (0.28 )   $ (5.28 )   $ 1.02  
Diluted:
                       
    Net income (loss)
  $ (0.28 )   $ (5.28 )   $ 1.00  
Weighted average number of shares:
                       
    Basic
    14,293,747       13,485,132       13,458,786  
    Diluted
    14,293,747       13,485,132       13,651,799  


See accompanying notes to consolidated financial statements.

 
39

 

VITRAN CORPORATION INC.
Consolidated Statements of Shareholders' Equity
(Amounts in thousands of United States dollars)

Years ended December 31, 2009, 2008 and 2007

                                     
                           
Accumulated
       
               
Additional
         
other
   
Total
 
   
Common shares
   
paid-in
   
Retained
   
comprehensive
   
shareholders'
 
   
Number
   
Amount
   
capital
   
earnings
   
income (loss)
   
equity
 
                                     
December 31, 2008
    13,498,159     $ 77,500     $ 3,525     $ 33,253     $ (3,035 )   $ 111,243  
Shares issued upon exercise of employee stock options
    70,000       333                         333  
Shares issued in private placement
    2,698,282       21,751                         21,751  
Net income (loss)
                      (3,972 )           (3,972 )
Other comprehensive income (note 3)
                            5,693       5,693  
Share-based compensation (note 9)
                739                   739  
December 31, 2009
    16,266,441     $ 99,584     $ 4,264     $ 29,281     $ 2,658     $ 135,787  

                                     
                           
Accumulated
       
               
Additional
         
other
   
Total
 
   
Common shares
   
paid-in
   
Retained
   
comprehensive
   
shareholders'
 
   
Number
   
Amount
   
capital
   
earnings
   
income (loss)
   
equity
 
                                     
December 31, 2007
    13,448,159     $ 77,246     $ 2,436     $ 104,478     $ 6,184     $ 190,344  
Shares issued upon exercise of employee stock options
    50,000       254                         254  
Net income (loss)
                      (71,225 )           (71,225 )
Other comprehensive loss (note 3)
                            (9,219 )     (9,219 )
Share-based compensation (note 9)
                1,089                   1,089  
December 31, 2008
    13,498,159     $ 77,500     $ 3,525     $ 33,253     $ (3,035 )   $ 111,243  

                                     
                           
Accumulated
       
               
Additional
         
other
   
Total
 
   
Common shares
   
paid-in
   
Retained
   
comprehensive
   
shareholders'
 
   
Number
   
Amount
   
capital
   
earnings
   
income
   
equity
 
                                     
December 31, 2006
    13,419,859     $ 76,913     $ 1,607     $ 90,933     $ 3,844     $ 173,297  
Shares issued upon exercise of employee stock options
    58,500       571       (168 )                 403  
Shares repurchased for cancellation (note 9)
    (30,200 )     (238 )           (165 )           (403 )
Net income
                      13,710             13,710  
Other comprehensive income (note 3)
                            2,340       2,340  
Share-based compensation (note 9)
                997                   997  
December 31, 2007
    13,448,159     $ 77,246     $ 2,436     $ 104,478     $ 6,184     $ 190,344  

See accompanying notes to consolidated financial statements.

 
40

 

VITRAN CORPORATION INC.
Consolidated Statements of Cash Flows
(Amounts in thousands of United States dollars)

Years ended December 31, 2009, 2008 and 2007

                   
   
2009
   
2008
   
2007
 
                   
Cash provided by (used in):
                 
                   
Operations:
                 
    Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710  
    Items not involving cash from operations:
                       
       Depreciation and amortization
    19,902       21,024       20,770  
       Impairment of goodwill
          107,351        
       Deferred income taxes
    (6,816 )     (35,439 )     (775 )
       Gain on sale of property and equipment
    (285 )     (326 )     (432 )
       Share-based compensation expense
    739       1,089       997  
       Change in non-cash working capital components
    (933 )     5,772       (1,274 )
      8,635       28,246       32,996  
                         
Investments:
                       
    Purchases of property and equipment
    (5,007 )     (12,337 )     (22,870 )
    Proceeds on sale of property and equipment
    1,657       1,572       931  
    Acquisition of subsidiary, net
                (5,990 )
    Additional payments due to acquisition of subsidiary
    (1,000 )     (3,250 )     (8,901 )
      (4,350 )     (14,015 )     (36,830 )
                         
Financing:
                       
    Change in revolving credit facility and bank overdraft
    948       3,063       22,793  
    Repayment of long-term debt
    (19,396 )     (10,214 )     (9,124 )
    Repayment of capital leases
    (5,804 )     (7,902 )     (7,842 )
    Financing costs
    (414 )     (1,007 )     (917 )
    Issue of common shares upon exercise of stock options
    333       254       403  
    Issue of common shares in private placement, net
    21,318              
    Repurchase of common shares
                (403 )
      (3,015 )     (15,806 )     4,910  
                         
Effect of translation adjustment on cash
    (1,270 )     1,575       (2,530 )
                         
Decrease in cash and cash equivalents
                (1,454 )
                         
Cash and cash equivalents, beginning of year
                1,454  
                         
Cash and cash equivalents, end of year
  $     $     $  
                         
Change in non-cash working capital components:
                       
    Accounts receivable
  $ (3,850 )   $ 8,520     $ (5,254 )
    Inventory, deposits and prepaid expenses
    938       269       975  
    Income and other taxes recoverable/payable
    28       956       (2,157 )
    Accounts payable and accrued liabilities
    1,951       (3,973 )     5,162  
                         
    $ (933 )   $ 5,772     $ (1,274 )
                         
Supplemental cash flow information:
                       
    Interest paid
  $ 8,957     $ 8,479     $ 8,827  
    Income taxes paid
    1,758       2,433       6,997  
                         
Supplemental disclosure of non-cash transactions:
                       
    Capital lease additions
          1,016       10,356  



See accompanying notes to consolidated financial statements.

 
41

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies:

 
(a)
Description of the business:

Vitran Corporation Inc. ("Vitran" or the "Company") is a North American provider of freight services and distribution solutions to a wide variety of companies and industries.  Vitran offers less-than-truckload ("LTL") services throughout Canada and the United States.  Vitran's supply chain operation ("SCO") offers logistics solutions in Canada and the United States, including warehousing, inventory management and flow-through distribution facilities, as well as freight brokerage services.  Vitran also provides same-day and next-day truckload services in the United States.

 
(b)
Basis of presentation:

These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries.  All material intercompany transactions and balances have been eliminated on consolidation.

These consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP").  The Ontario Business Corporations Act 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.

 
(c)
New accounting pronouncements:

Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("FASB ASC") 815-10-50, Disclosures about Derivative Instruments and Hedging Activities ("FASB ASC 815-10-50"), requires enhanced disclosures about the Company's derivative and hedging activities.  The Company is required to provide enhanced disclosure about (i) how and why an entity uses derivative instruments, (ii) how derivative instruments and related hedged items are accounted for under Statement 133 and (iii) how derivative instruments and related hedged items affect an entity's financial position and cash flows.  The new disclosure was adopted January 1, 2009 as described in note 11.

FASB ASC 855-10, Subsequent Events ("FASB ASC 855-10"), establishes general standards for and disclosure of events that occur after the balance sheet dates but before financial statements are issued or available to be issued.  In particular, this statement sets forth:  (i)  the period after the balance sheet dates during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements,  (ii)  the circumstances under which an entity should recognize events or transactions occurring after the balance sheet dates in its financial statements, and  (iii) the disclosures that an entity should make about events or transactions that occurred after the balance sheet dates.  The new disclosure was adopted June 30, 2009 as described in note 17. In January 2010 the FASB issued an exposure draft amending the guidance that SEC registrants would no longer be required to disclose the date through which subsequent events have been evaluated.  This guidance is expected to be finalized in 2010 and will be adopted by the Company when required.
 
 
42

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies (continued):

 
 (d)
Foreign currency translation:

A majority of the Company's shareholders, customers and industry analysts are located in the United States.  Accordingly, the Company has adopted the United States dollar as its reporting currency.

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 a foreign currency are translated into the functional currency of the operation using the year-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 year-end rate of exchange and all revenue and expense items are translated at the average rate of exchange for the year.  The resulting translation adjustment is recorded as a separate component of shareholders' equity.  United States dollar debt of $71.0 million (2008 - $81.1 million) is designated as a hedge of the investment in the United States dollar functional operation, such that related transaction gains and losses are recorded in the separate component of shareholders' equity.

In respect of other transactions denominated in currencies other than the Canadian dollar, the monetary assets and liabilities of the Company are translated at the year-end rates.  Revenue and expenses are translated at rates of exchange prevailing on the transaction dates.  All of the exchange gains or losses resulting from these other transactions are recognized in income.

 
(e)
Revenue recognition:

The Company's LTL and truckload business units and freight brokerage operations recognize revenue upon the delivery of the related freight and direct shipment costs as incurred.  For the LTL segment, revenue for transportation services not completed at the end of a reporting period is recognized based on relative transit time in each period with expenses recognized as incurred.  Revenue for the SCO operation is recognized as the management services are provided.

Within the LTL business unit, revenue adjustments are estimated at the end of each quarterly reporting period.  These adjustments result from several factors, including weight and freight classification verifications, shipper bill of lading errors, pricing discounts and other miscellaneous revenue adjustments.  The revenue adjustments are recorded as a reduction in revenue from operations and accrued for as part of the allowance for doubtful accounts.  Allowance for doubtful accounts is recorded as a contra-account to accounts receivable.

Historical experience, trends and current information are used to update and evaluate the estimate.  As at December 31, 2009, revenue adjustments as a percentage of revenue was not material.

 
(f)
Accounts receivable:
Accounts receivable are presented net of allowance for doubtful accounts of $3.5 million at December 31, 2009 (2008 - $3.8 million).
 
 
43

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies (continued):

 
 (g)
Cash and cash equivalents:

Cash and cash equivalents include cash on account and short-term investments with maturities of three months or less at the date of purchase and are stated at cost, which approximates market value.

 
 (h)
Inventory:

Inventory consists of tires and spare parts and is valued at the lower of average cost and replacement cost.

 
(i)
Property and equipment:

Property and equipment are recorded at cost.  Depreciation of property and equipment is provided on a straight-line basis from the date assets are put in service over their estimated useful lives as follows:

   
Buildings
30 - 31.5 years
Leasehold interests and improvements
Over term of lease
Vehicles:
 
    Trailers and containers
12 years
    Trucks
8 years
Machinery and equipment
5 - 10 years
   
 
Tires purchased as part of a vehicle are capitalized as a cost to the vehicle.  Replacement tires are expensed when placed in service.

 
(j)
Assets held for sale:

The Company has certain assets that are classified as assets held for sale.  These assets are carried on the balance sheet at the lower of the carrying amount or estimated fair value, less cost to sell.  Once an asset is classified held for sale, there is no further depreciation taken on the asset.  At December 31, 2009, the net book value of assets held for sale was approximately $5.4 million.  This amount is included in property and equipment on the balance sheet.

 
 (k)
Goodwill and intangible assets:

FASB ASC 350 requires that goodwill and certain intangible assets be assessed for impairment on an annual basis and more frequently if indicators of impairment exist, using fair value measurement techniques.  The goodwill impairment test compares the implied fair value of the reporting unit's goodwill with the carrying amount of that goodwill to measure the amount of impairment loss, if any.  The implied fair value of goodwill is determined in the same manner as in a business combination.  Determining the fair value of the implied goodwill is judgemental in nature and often involves the use of significant estimates and assumptions.  As at September 30, 2009, the Company completed its annual goodwill impairment test and concluded there was no impairment.
 
 
44

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies (continued):

One of the indicators of impairment is a sustained decline in the Company's share price whereby the market capitalization of the Company is less than its book value for an extended period of time.  At December 31, 2008, before recording goodwill impairment charges, the carrying value of Vitran's net assets were $187.1 million compared to the market capitalization of all of the Company's outstanding shares which was $84.5 million.  The market valuation of the Company declined during the fourth quarter as Vitran's share price on the Nasdaq stock market decreased from $13.47 at September 30, 2008 to $6.26 at December 31, 2008. These factors and the depressed macroeconomic environment indicated a triggering event had occurred requiring the Company, at a reporting unit level, to test for the impairment of goodwill at December 31, 2008.  Using the income and market approach for estimating the fair value of each reporting unit, management concluded that the goodwill in its LTL segment was impaired and there was no impairment of goodwill in its other reporting units.

At December 31, 2009, the Company has not identified any indicators that would require re-testing for impairment.

FASB ASC 820-10-05 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).   The fair value used to value the Company's goodwill is a Level 3.
Under FASB ASC 350 the determination of the amount of goodwill impairment requires comparing the implied fair value of the affected reporting unit's goodwill with the carrying value of that goodwill. The impairment analysis concluded that the LTL segment's goodwill was impaired requiring a pre-tax non-cash charge of $107.4 million at December 31, 2008.

Intangible assets consist of not-to-compete covenants and customer relationships and are amortized on a straight-line basis over their expected lives ranging from three to eight years. During 2009 and 2008, the Company has not identified any indicators that would require testing for an impairment.


 
(l)
Income taxes:

The Company uses the asset and liability method of accounting for income taxes.  Under the asset and liability method, deferred tax assets and liabilities are recognized for the deferred tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.  Significant judgment is required in determining whether deferred tax assets will be realized in full or in part.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the date of enactment.  FASB ASC 740-10, Accounting for Uncertainty in Income Taxes ("FASB ASC 740-10") requires that uncertain tax positions are evaluated in a two-step process, whereby (i) the Company determines whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the Company would recognize the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement with the related tax authority.

 
 
45

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies (continued):
 
 
 
(m)
Share-based compensation:

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 by the Board of Directors or by the Company's Compensation Committee.  There are 906,700 options outstanding under the plan.  The term of each option is 10 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.

Note 9(b) provides supplemental disclosure for the Company's stock options.

 
 (n)
Advertising costs:

Advertising costs are expensed as incurred.  Advertising costs amounted to $376 in 2009 (2008 - $462; 2007 - $784).

 
(o)
Impairment of long-lived assets:

An impairment is recognized when the carrying amount of a long-lived asset to be held and used exceeds the sum of undiscounted cash flows expected from its use and disposal, and is measured as the amount by which the carrying amount of an asset exceeds its fair value.  A long-lived asset should be tested when events or circumstances indicate that its carrying amount may not be recoverable.  During 2009 and 2008, the Company has not identified any indicators that would require testing for an impairment.

 
(p)
Derivative instruments:

Derivative instruments are used to hedge the Company's exposure to changes in interest rates.  All derivatives are recognized on the Consolidated Balance Sheets at fair value based on quoted market prices and are recorded in either current or non-current assets or liabilities based on their maturity.  Changes in the fair values of derivatives are recorded in income or other comprehensive income, based on whether the instrument is designated as a hedge transaction and, if so, the type of hedge transaction.  Gains or losses on derivative instruments reported in other comprehensive income are reclassified to income in the period the hedged item affects income.  If the underlying hedged transaction ceases to exist, any associated amounts reported in other comprehensive income are reclassified into income at that time.  Any ineffectiveness is recognized in income in the current period.

 
(q)
Claims and insurance accruals:

Claims and insurance accruals reflect the estimated total cost of claims, including amounts for claims incurred but not reported, for cargo loss and damage, bodily injury and property damage, workers' compensation, long-term disability and group health.  In Canada and the United States, the Company has self-insurance retention amounts per incident for auto liability, casualty and cargo claims.  In the United States, the Company has self-insurance retention amounts per incident for workers' compensation and employee medical.  In establishing these accruals, management evaluates and monitors each claim individually, and uses factors such as historical experience, known trends and third party estimates to determine the appropriate reserves for potential liability.
 
 
46

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
1.
Significant accounting policies (continued):

 
(r)
Accounts payable and accrued liabilities:
             
   
2009
   
2008
 
             
Accounts payable
  $ 35,134     $ 28,667  
Accrued wages and benefits
    7,991       9,159  
Accrued claims, self insurance and workers' compensation
    10,711       11,765  
Amounts payable to vendors of acquisition
    1,000       3,250  
Other
    10,610       10,654  
                 
    $ 65,446     $ 63,495  
 
 
(s)
Deferred share units:

The Company maintains a deferred share unit ("DSU") plan for all directors.  Under this plan, all directors receive units at the end of each quarter based on the market price of common shares equivalent to Cdn. $2,500.00.  The Company records compensation expense and the corresponding liability each period initially for Cdn. $2,500.00 and subsequently based on changes in the market price of common shares.

In addition to the directors' DSU plan, the Company adopted a DSU plan for senior executives.  Under this plan, eligible senior executives receive units at the end of each quarter based on the market price of common shares equivalent to the senior executive's entitlement.  The entitlement amount varies based on the senior executive's position in the Company and the years of eligible service.  The maximum entitlement amount varies between $2,500.00 and $20,000.00 per annum. The Company records compensation expense and the corresponding liability each period based on the market price of common shares.

 
(t)
Use of estimates:

The preparation of financial statements in accordance with United States GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year.  Significant estimates are used in determining, but not limited to, the allowance for doubtful accounts, deferred tax assets, claims and insurance accruals, share-based compensation, fair value measurements, intangible asset values and the fair value of reporting units for purposes of goodwill impairment tests.  Actual results could differ from those estimates.
 
 
47

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
2.
Acquisition:

Las Vegas/L.A. Express, Inc.
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).  This is comprised of $6.25 million in cash, $1.9 million in assumed debt and transaction costs of approximately $0.3 million.  Further, approximately $4.35 million of additional cash consideration is contingent on the vendors meeting certain future financial metrics.  All additional contingent consideration paid to the vendors will be allocated to goodwill.  The results of operations of LVLA are included in the consolidated results of the Company commencing December 1, 2007.  The cash portion of the transaction was financed from proceeds from the Company's revolving credit facility.  The total amount of goodwill, once determined, is not deductible for tax purposes.  At December 31, 2008 and 2009, the operating results for LVLA exceeded the financial metrics required for the first and second contingent payments to the vendors.  The Company recorded a $4.25 million adjustment to goodwill, of which $3.25 million was required in 2008 and subsequently paid in 2009 and $1.0 million was recorded as a liability in 2009.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition, as based on independent appraisals and management estimates:

       
       
Current assets
  $ 4,146  
Property and equipment
    2,485  
Identifiable intangible assets:
       
    Covenants not-to-compete (3- to 6-year useful life)
    160  
    Customer relationships (8-year useful life)
    2,000  
Goodwill
    7,529  
      16,320  
         
Current liabilities
    2,611  
Deferred income tax liability
    956  
Capital leases
    624  
Term loans
    1,285  
         
Net assets acquired
  $ 10,844  

 
 
 
48

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
3.
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 (loss), net of tax to arrive at comprehensive income (loss).  Other comprehensive income (loss) items have no impact on the reported net income (loss) as presented on the Consolidated Statements of Income (Loss).
 
                   
   
Foreign
   
Interest
       
   
currency
   
rate
       
   
translation
   
swap
   
Total
 
                   
Balance at December 31, 2006
  $ 3,859     $ (15 )   $ 3,844  
                         
Other comprehensive income (loss):
                       
    Translation adjustment
    4,442       -       4,442  
    Unrealized loss
    -       (1,541 )     (1,541 )
    Tax effect
    (1,060 )     499       (561 )
      3,382       (1,042 )     2,340  
                         
Balance at December 31, 2007
    7,241       (1,057 )     6,184  
                         
Other comprehensive income (loss):
                       
    Translation adjustment
    (10,350 )     -       (10,350 )
    Unrealized loss
    -       (1,442 )     (1,442 )
    Tax effect
    2,214       359       2,573  
      (8,136 )     (1,083 )     (9,219 )
                         
Balance at December 31, 2008
    (895 )     (2,140 )     (3,035 )
                         
Other comprehensive income (loss):
                       
    Unrealized gain
    6,328       1,582       7,910  
    Tax effect
    (1,750 )     (467 )     (2,217 )
      4,578       1,115       5,693  
                         
Balance at December 31, 2009
  $ 3,683     $ (1,025 )   $ 2,658  
                         
                         
      2009       2008       2007  
                         
Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710  
Other comprehensive income (loss)
    5,693       (9,219 )     2,340  
                         
Comprehensive income (loss)
  $ 1,721     $ (80,444 )   $ 16,050  

 
 
49

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
4.
Property and equipment:
 
             
   
2009
   
2008
 
             
Land
  $ 36,957     $ 34,573  
Buildings
    72,738       68,665  
Leasehold interests and improvements
    307       749  
Vehicles
    106,848       107,033  
Machinery and equipment
    26,659       24,585  
      243,509       235,605  
                 
Less accumulated depreciation
    97,717       83,003  
                 
    $ 145,792     $ 152,602  
 
No interest costs attributable to the construction of a new facility in Toronto have been capitalized for the year ended December 31, 2009 (2008 - $290).

5.
Intangible assets:
 
             
   
2009
   
2008
 
             
Customer relationships
  $ 15,840     $ 13,840  
Acquired customer relationships
    -       2,000  
      15,840       15,840  
                 
Covenants not-to-compete
    3,145       2,985  
Acquired covenants not-to-compete
    -       160  
                 
      3,145       3,145  
                 
Less accumulated amortization
    8,219       5,706  
                 
    $ 10,766     $ 13,279  
 
 
 
50

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
5.
Intangible assets (continued):

Amortization expense was $2.5 million in 2009 (2008 - $2.5 million).  Amortization expense for the following five years and thereafter is estimated to be as follows:
       
       
Year ending December 31:
     
       
2010
  $ 2,498  
2011
    2,462  
2012
    2,349  
2013
    1,908  
2014
    1,298  
Thereafter
    251  
         
    $ 10,766  

 
6.
Goodwill:
 
             
   
2009
   
2008
 
             
Balance January 1
           
Goodwill
  $ 127,431     $ 127,398  
Accumulated impairment losses
    (110,374 )     (3,023 )
      17,057       124,375  
                 
Foreign exchange
    821       (1,921 )
Transfer of goodwill to identifiable intangible assets, net of $864 of tax
    -       (1,296 )
Adjustment to goodwill (note 2)
    1,000       3,250  
Impairment of goodwill (note 1(k))
    -       (107,351 )
                 
Balance at December 31
               
Goodwill
    129,252       127,431  
Accumulated impairment losses
    (110,374 )     (110,374 )
                 
    $ 18,878     $ 17,057  
 
7.
Long-term debt:
             
   
2009
   
2008
 
             
Term bank credit facilities (a)
  $ 30,480     $ 49,877  
Revolving credit facility (b)
    49,431       44,550  
Capital leases ©
    10,170       15,975  
      90,081       110,402  
                 
Less current portion
    17,125       16,925  
                 
    $ 72,956     $ 93,477  
 
 
 
51

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
7.
Long-term debt (continued):

On September 21, 2009, the Company amended its credit agreement in respect of certain financial maintenance tests with substantially the same terms.  Pursuant to the amendment, the Company repaid $7.5 million of syndicated term debt and the residual net proceeds from the Company's private placement, described in note 9, were used to repay syndicated revolving debt.  The amendment is effective September 30, 2009 to December 31, 2010.

 
(a)
The term bank credit facility is secured by accounts receivable, property and equipment and general security agreements of the Company and of all its subsidiaries.

The credit agreement provides a $60 million term credit facility maturing July 31, 2012.  The Company had $29.7 million, bearing interest at 5.25%, outstanding under the term facility at December 31, 2009.  The provisions of the term facility impose certain financial maintenance tests.  At December 31, 2009, the Company was in compliance with these financial maintenance tests.  The Company had an additional $0.8 million, bearing interest at 4.74%, outstanding under a separate term credit facility maturing on September 30, 2010.

 
(b)
The Company's revolving credit facility provides up to $100 million, maturing July 31, 2012.  The Company had $49.4 million, bearing interest at 5.23% to 7.25%, outstanding at December 31, 2009.  The provisions of the revolving facility impose certain financial maintenance tests.  At December 31, 2009, the Company was in compliance with these financial maintenance tests.

 
(c)
The Company had $10.2 million of capital leases remaining at December 31, 2009.

At December 31, 2009, the required future principal repayments on all long-term debt and capital leases are as follows:
       
       
Year ending December 31:
     
       
2010
  $ 17,125  
2011
    19,565  
2012
    53,168  
2013
    223  
         
    $ 90,081  
 
 
 
52

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

8.
Income taxes:

Income tax expense (recovery) differs from the amount that would be obtained by applying statutory federal, state and provincial income tax rates to the respective year's income from operations before income taxes as follows:
                   
   
2009
   
2008
   
2007
 
                   
Effective statutory federal, state and provincial income tax rate
    33.00 %     33.50 %     36.12 %
                         
                         
Effective tax expense (recovery) on income beforeincome taxes
  $ (3,269 )   $ (35,696 )   $ 5,264  
Increase (decrease) results from:
                       
    Non-deductible share-based compensation expense
    243       322       354  
    Income taxed at different rates in foreign jurisdictions
    (3,392 )     (4,372 )     (4,930 )
    Impairment of goodwill
    -       4,456       -  
    Other
    485       (40 )     175  
                         
Actual income tax expense (recovery)
  $ (5,933 )   $ (35,330 )   $ 863  
 
Income tax expense (recovery):
                   
   
2009
   
2008
   
2007
 
                   
Current income tax expense (recovery):
                 
                   
Canada:
                 
    Federal
  $ (102 )   $ 422     $ 589  
    Provincial
    (94 )     271       304  
United States:
                       
    Federal
    325       (1,127 )     78  
    State
    612       288       364  
Other
    142       255       303  
      883       109       1,638  
Deferred income tax expense (recovery):
                       
                         
Canada:
                       
    Federal
    (28 )     333       483  
    Provincial
    (26 )     214       250  
United States:
                       
    Federal
    (5,573 )     (28,541 )     (1,240 )
    State
    (1,189 )     (7,445 )     (268 )
      (6,816 )     (35,439 )     (775 )
                         
    $ (5,933 )   $ (35,330 )   $ 863  
 
 
 
53

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
8.
Income taxes (continued):

A summary of the principal components of deferred income tax assets and liabilities is as follows:
             
   
2009
   
2008
 
             
Current deferred income tax assets:
           
    Allowance for doubtful accounts
  $ 965     $ 674  
    Insurance reserves
    2,420       1,161  
    Financing costs
    110       42  
                 
    $ 3,495     $ 1,877  
                 
Non-current deferred income tax assets:
               
    Financing costs
  $ 359     $ 104  
    Loss carryforwards
    25,197       18,295  
    Other
    -       2,707  
    Goodwill and intangible assets
    22,620       22,256  
      48,176       43,362  
                 
Non-current deferred income tax liabilities:
               
    Property and equipment
    (12,441 )     (13,181 )
    Other
    (2,141 )     -  
      (14,582 )     (13,181 )
                 
    $ 33,594     $ 30,181  
 
At December 31, 2009, the Company had approximately $49.0 million of net operating loss carryforwards available to reduce future years' taxable income for which a deferred tax asset has been recognized.  The net operating loss will expire between 2027 and 2029 if not utilized.

The Company adopted the provisions of FASB ASC 740-10 on January 1, 2007.  At December 31, 2009, the Company had unrecognized tax benefits of approximately $1.5 million, of which an estimated $1.3 million if recognized would have an impact on the effective tax rate.

The Company recognizes interest and penalties related to unrecognized tax benefits in the tax provision.  The Company had approximately $0.4 million accrued for interest and penalties.

The Company and its subsidiaries file income tax returns in U.S. and Canadian federal jurisdictions, and various states, provinces and foreign jurisdictions.  The Canada Revenue Agency had in 2008 commenced examination of the 2006 and 2007 tax years.  The examinations are expected to be completed by 2010.  These audits may impact the Company's unrecognized tax benefits in the next 12 months; however, the estimated financial outcome is indeterminable at this time.  Overall, the years 2005 to 2008 remain open to examination by tax authorities.
 
 
54

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
8.
Income taxes (continued):

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
       
       
Balance at January 1, 2009
  $ 1,567  
Additions related to tax positions taken in the current year
    -  
Additions related to tax positions taken in previous years
    36  
Decreases related to tax positions taken in previous years
    (286 )
Decreases related to settlement with taxing authorities
    -  
Reductions due to expiry of statute of limitations
    (53 )
Increase due to foreign exchange translation
    249  
         
Balance at December 31, 2009
  $ 1,513  
 
9.
Common shares:

 
(a)
Private placement:


 
(b)
Stock options:

The Company provides a stock option plan to key employees, officers and directors to encourage executives to acquire a meaningful equity ownership interest in the Company over a period of time and, as a result, reinforce executives' attention on the long-term interest of the Company and its shareholders.  Under the plan, options to purchase common shares of the Company may be granted to key employees, officers and directors of the Company by the Board of Directors or by the Company's Compensation Committee.  There are 906,700 options outstanding under the plan.  The term of each option is 10 years and the vesting period is five years.  The exercise price for options is the trading price of the common shares of the Company on the Toronto Stock Exchange on the day of the grant.  The weighted average estimated fair value at the date of the grant for the options granted during 2009 was $4.61 (2008 - $5.27) per share.

The fair value of each option granted was estimated on the date of grant using the Black-Scholes-Merton fair value option pricing model with the following assumptions:
                   
   
2009
   
2008
   
2007
 
                   
Risk-free interest rate
    2.87 %     3.93 %     4.20 %
Volatility factor of the future expected market price of the Company's common shares
    44.68 %     34.12 %     31.76 %
Expected life of the options
 
6 years
 
6 years
 
6 years
                         
 
 
55

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

9.
Common shares (continued):

Details of stock options are as follows:
                         
   
2009
   
2008
 
         
Weighted
         
Weighted
 
         
average
         
average
 
         
exercise
         
exercise
 
   
Number
   
price
   
Number
   
price
 
                         
Outstanding, beginning of year
    856,200     $ 13.03       820,200     $ 12.66  
Granted
    138,000       9.80       99,000       12.57  
Forfeited
    (17,500 )     13.18       (13,000 )     17.34  
Exercised
    (70,000 )     4.77       (50,000 )     5.07  
                                 
Outstanding, end of year
    906,700     $ 13.17       856,200     $ 13.03  
                                 
Exercisable, end of year
    570,900     $ 13.04       522,500     $ 11.10  
 
               At December 31, 2009, the range of exercise prices, the weighted average exercise price and the weighted average remaining contractual life are as follows:
 
                                       
             Options outstanding     Options exercisable  
                 
Weighted
                   
                 
average
   
Weighted
         
Weighted
 
                 
remaining
   
average
         
average
 
Range of exercise
   
 
   
Number
   
contractual
   
exercise
   
Number
   
exercise
 
prices
         
outstanding
   
life (years)
   
price
   
exercisable
   
price
 
                                       
$2.20 - $2.61               132,800       1.94     $ 2.29       132,800     $ 2.29  
$9.80 - $18.99               773,900       6.59       15.04       438,100       16.30  
                                                     
$2.20 - $18.99               906,700       5.91     $ 13.17       570,900     $ 13.04  
 
      Compensation expense related to stock options was $739 for the year ended December 31, 2009 (2008 - $1,089; 2007 - $997).
 
 
56

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

10.
Computation of income (loss) per share:
 
                   
   
2009
   
2008
   
2007
 
                   
Numerator:
                 
Net income (loss)
  $ (3,972 )   $ (71,225 )   $ 13,710  
                         
                         
Denominator:
                       
    Basic weighted average shares outstanding
    14,293,747       13,485,132       13,458,786  
    Dilutive stock options
    -       -       193,013  
    Dilutive weighted average shares outstanding
    14,293,747       13,485,132       13,651,799  
                         
                         
Basic income (loss) per share
    (0.28 )     (5.28 )     1.02  
                         
Diluted income (loss) per share
    (0.28 )     (5.28 )     1.00  
                         

Due to the net loss for the year ended December 31, 2009 and 2008, the 87,400 (2008 - 141,137) dilutive shares have no effect on the loss per share.  Diluted income per share excludes the effect of 559,900 anti-dilutive options for the year ended December 31, 2007.

11.
Risk management activities:

The Company is exposed to market risks, including the effect of changes in foreign currency exchange rates and interest rates, and uses derivatives to manage financial exposures that occur in the normal course of business.  The Company does not hold or issue derivatives for trading purposes.
Interest rate swaps:

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 to limit its exposure to changing interest rates and future cash flows for interest.  The interest rate swaps provide for the Company to pay an amount equal to a specified fixed rate of interest times a notional principal amount and to receive in return an amount equal to a variable rate of interest times the same notional amount.  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 income in the same period in which the hedged forecasted transaction affects income.  Ineffective portions of changes in fair value are recognized into income as they occur.  At December 31, 2009, the notional amount of the swaps was $28.8 million, with the average pay rate being 5.01% and the average receive rate being 0.26%.  The swaps mature at various dates up to December 31, 2011.

Effective January 1, 2008, the Company adopted FASB ASC 820-10, which provides a framework for measuring fair value under United States GAAP.  As defined in FASB ASC 820-10, 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.
 
 
57

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

11.
Risk management activities (continued):

The Company primarily applies the income approach for recurring fair value measurements and endeavours 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.

FASB ASC 820-10-05 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). 
Assets and liabilities measured at fair value on a recurring basis include the following as of December 31, 2009:
 
                         
                     
Liabilities
 
   
Level 1
   
Level 2
   
Level 3
   
at fair value
 
                         
Liabilities:
                       
Interest rate swaps
  $ -     $ 1,406     $ -     $ 1,406  
                                 
Total liabilities
  $ -     $ 1,406     $ -     $ 1,406  
 
The following table presents the fair value of derivative instruments for the year ended December 31, 2009:
                   
               
Gain in other
 
               
comprehensive
 
               
income
 
             
Balance
year ended
 
 
Notional
   
Fair
 
sheet
December 31,
 
   
amount
   
value
 
location
 
2009
 
                     
Interest rate swaps
  $ 28,805     $ 1,406  
Other liabilities
  $ 1,582  
                           

 
 
58

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

12.
Segmented information:

The Company's business operations are grouped into three operating segments: LTL, SCO and truckload, which provide transportation services in Canada and the United States.
                   
   
2009
   
2008
   
2007
 
                   
Revenue:
                 
    LTL
  $ 519,215     $ 610,933     $ 584,786  
    SCO
    76,106       81,030       52,845  
    Truckload
    33,939       34,374       32,886  
    Corporate office and other
    -       -       -  
                         
    $ 629,260     $ 726,337     $ 670,517  
                         
Operating income (loss):
                       
    LTL
  $ (2,648 )   $ (98,371 )   $ 23,153  
    SCO
    5,480       4,373       3,271  
    Truckload
    790       1,307       1,678  
    Corporate office and other
    (4,031 )     (4,641 )     (5,103 )
                         
    $ (409 )   $ (97,332 )   $ 22,999  
                         
Goodwill impairment charges:
                       
    LTL
  $ -     $ 107,351     $ -  
    SCO
    -       -       -  
    Truckload
    -       -       -  
    Corporate office and other
    -       -       -  
                         
    $ -     $ 107,351     $ -  
                         
Depreciation and amortization:
                       
    LTL
  $ 17,266     $ 18,273     $ 18,952  
    SCO
    1,598       1,662       688  
    Truckload
    936       1,006       1,052  
    Corporate office and other
    102       83       78  
                         
    $ 19,902     $ 21,024     $ 20,770  
                         
Capital expenditures:
                       
    LTL
  $ 4,371     $ 12,722     $ 31,103  
    SCO
    576       523       1,379  
    Truckload
    2       31       698  
    Corporate office and other
    58       77       46  
                         
    $ 5,007     $ 13,353     $ 33,226  
 
 
 
59

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
12.
Segmented information (continued):
         
   
2009
 
2008
         
Total assets:
       
LTL
$
263,638
$
261,319
SCO
 
21,340
 
18,226
Truckload
 
8,811
 
9,563
Corporate office and other
 
549
 
4,484
         
 
$
294,338
$
293,592
 
Geographic information for revenue from point of origin and total assets is as follows:
 
                   
   
2009
   
2008
   
2007
 
                   
Revenue:
                 
Canada
  $ 183,427     $ 223,125     $ 212,974  
United States
    445,833       503,212       457,543  
                         
    $ 629,260     $ 726,337     $ 670,517  
                         
                         
              2009       2008  
                         
Total assets:
                       
Canada
          $ 74,327     $ 67,209  
United States
            220,011       226,383  
                         
            $ 294,338     $ 293,592  
                         
                         
              2009       2008  
                         
Total long-lived assets:
                       
Canada
          $ 55,759     $ 49,295  
United States
            119,677       133,643  
                         
            $ 175,436     $ 182,938  
 
Long-lived assets include property and equipment, goodwill and intangible assets.
 
 
60

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 
13.
Financial instruments:

The fair values of cash and cash equivalents, bank overdraft, accounts receivable, and accounts payable and accrued liabilities approximate the carrying values because of the short-term nature of these financial instruments.  The fair value of the Company's long-term debt, determined based on the future cash flows associated with each debt instrument discounted using an estimate of the Company's current borrowing rate for similar debt instruments of comparable maturity, is approximately equal to the carrying value at December 31, 2009 and 2008.

14.
Lease commitments:

At December 31, 2009, future minimum rental payments relating to operating leases for premises and equipment are as follows:
       
       
Year ending December 31:
     
       
2010
  $ 23,534  
2011
    19,305  
2012
    15,455  
2013
    10,458  
2014
    8,170  
Thereafter
    5,483  
         
    $ 82,405  
 
Total rental expense under operating leases was $22.7 million for the year ended December 31, 2009 (2008 - $18.0 million; 2007 - $15.6 million).

The Company has guaranteed a portion of the residual values of certain assets under operating leases.  If the market value of the assets at the end of the lease terms is less than the guaranteed residual value, the Company must, under certain circumstances, compensate the lessor for a portion of the shortfall.  The maximum exposure under these guarantees is $9.1 million.

15.
Employee benefits:

The Company sponsors defined contribution plans in Canada and the United States.  In Canada, the Company matches the employee's contribution to their registered retirement savings plan up to a maximum contribution.  In the United States, the Company sponsors 401(k) savings plans.  The Company matches a percentage of the employee's contribution subject to a maximum contribution.  The expense related to the plans was $0.5 million for the year ended December 31, 2009 (2008 - $1.9 million).

16.
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.
 
 
61

 
VITRAN CORPORATION INC.
Notes to Consolidated Financial Statements (continued)
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2009, 2008 and 2007

 

17.
Subsequent events:

The Company has completed an evaluation of all subsequent events through February 8, 2010, which is the issuance date of these consolidated financial statements and concluded no subsequent events occurred that required recognition or disclosure.

18.
Comparative figures:
 
Certain 2008 and 2007 figures have been reclassified to conform with the financial statement presentation adopted in 2009.
 
 
62

 
VITRAN CORPORATION INC.

Consolidated Supplemental Schedule of Quarterly Financial Information
(In thousands of United States dollars, except per share amounts where noted)

Years ended December 31, 2008 and 2009

                         
   
First
   
Second
   
Third
   
Fourth
 
2009 (Unaudited)
 
quarter
   
quarter
   
quarter
   
quarter
 
                         
Revenue:
                       
    Less-than-truckload
  $ 115,364     $ 131,667     $ 137,479     $ 134,705  
    Logistics
    16,262       18,569       19,810       21,465  
    Truckload
    8,009       8,446       8,627       8,857  
                                 
Total revenue
  $ 139,635     $ 158,682     $ 165,916     $ 165,027  
                                 
Income (loss) from operations after depreciation and amortization
  $ (2,854 )   $ 2,037     $ 2,359     $ (1,951 )
                                 
Net income (loss)
    (2,356 )     440       281       (2,337 )
                                 
                                 
Earnings (loss) per share:
                               
    Basic
  $ (0.17 )   $ 0.03     $ 0.02     $ (0.14 )
    Diluted
    (0.17 )     0.03       0.02       (0.14 )
                                 
 
   
First
   
Second
   
Third
   
Fourth
 
2008 (Unaudited)
 
quarter
   
quarter
   
quarter
   
quarter
 
                         
Revenue:
                       
    Less-than-truckload
  $ 149,415     $ 168,161     $ 166,227     $ 127,130  
    Logistics
    19,760       19,314       23,375       18,581  
    Truckload
    8,332       8,515       9,003       8,524  
                                 
Total revenue
  $ 177,507     $ 195,990     $ 198,605     $ 154,235  
                                 
Impairment of goodwill
    -       -       -     $ 107,351  
                                 
Income (loss) from operations after depreciation and amortization
  $ 1,926     $ 8,048     $ 3,981     $ (111,287 )
                                 
Net income (loss)
    1,134       4,577       2,066       (79,002 )
                                 
                                 
Earnings (loss) per share:
                               
    Basic
  $ 0.08     $ 0.34     $ 0.15     $ (5.85 )
    Diluted
    0.08       0.34       0.15       (5.85 )
                                 
 

 
63

 
 


During the Company’s last two fiscal years, there were no disagreements with KPMG LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG LLP, would have caused them to make reference to the subject matter of the disagreement in connection with their reports.

ITEM 9. a - CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual Report on Form 10-K, the Company carried out an evaluation, under the supervision and with the participation of Company management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design, implementation and operation of its “disclosure controls and procedures”, as such term is defined in Rule 13a-15(e) of the Exchange Act.  Based on this evaluation, the Company’s CEO and CFO have concluded that the Company’s “disclosure controls and procedures” are effective as of December 31, 2009 to enable the Company to record, process, summarize and report in a timely manner the information that the Company is required to disclose in submissions and filings with the SEC in accordance with the Exchange Act.

 
There have been no significant changes in our internal control over financial reporting, which we define in accordance with Exchange Act Rule 13a-15(f) to include our control environment, control procedures, and accounting systems, or any other factors that could materially affect or are reasonably likely to materially affect our internal control over financial reporting during the 2009 fourth quarter.

Inherent Limitation of the Effectiveness of Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the benefits of controls must be considered relative to their costs.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all the control issues and instances of management override or improper acts, if any, have been detected.  These inherent limitations include the realities that judgment in decision making can be faulty, and that breakdowns can occur because of simple errors or mistakes.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Because of the inherent limitations in a cost-effective control system, misstatements due to management override or loss may have adverse and material effects on our business, financial condition and results of operations.

Management’s Report on Internal Control over Financial Reporting

The management of Vitran Corporation Inc. (“Vitran”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Vitran’s management team assessed the effectiveness of its internal control over financial reporting using the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and based on that assessment concluded that internal control over financial reporting was effective as of December 31, 2009.

KPMG LLP, an independent public accounting firm registered with the PCAOB, has issued an attestation report on the effectiveness of Vitran’s internal control over financial reporting, as stated in their report which is included herein.

February 8, 2010                                   /s/ Richard E. Gaetz, President and Chief Executive Officer
/s/ Sean P. Washchuk, Vice President Finance and Chief Financial Officer
 
 
64

 
 
Report of Independent Registered Public Accounting Firm
 
The Board of Directors and Shareholders
Vitran Corporation Inc.

We have audited Vitran Corporation Inc.’s internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Vitran Corporation Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Vitran Corporation Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Vitran Corporation Inc. as of December 31, 2009 and 2008, and the related consolidated statements of income (loss), shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2009, and our report dated February 8, 2010 expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company’s adoption of FASB ASC 815-10-50 - Disclosures about Derivative Instruments and Hedging Activities on January 1, 2009, FASB ASC 855-10 - Subsequent Events on June 30, 2009 and FASB ASC 825-10-05 - Fair Value Measurements and FASB ASC 825-10 - The Fair Value Option for Financial Assets and Financial Liabilities on January 1, 2008.

/s/ KPMG LLP
Chartered Accountants, Licensed Public Accountants

Toronto, Canada
February 8, 2010

 
65

 
 
ITEM 9. b - OTHER INFORMATION

None.

PART III


The information for directors, Section 16(a) beneficial ownership reporting and other compliance as required by Item 407 of Regulation S-K, is reported in the Company’s definitive proxy statement filed pursuant to Regulation 14A and is incorporated herein by reference. The following table sets forth certain information concerning our executive officers:
 
 
Name
 
Age
 
Position
 
History
       
Richard E. Gaetz
(Mississauga, Canada)
52
President and Chief Executive Officer
Mr. Gaetz has been working in the transportation and logistics industry for more than 25 years.  He has been actively involved with the growth and development of Vitran and has been responsible for Vitran’s freight and logistics operations since he joined in 1989.  He was elected to the Board of Directors of Vitran in 1995.  Mr. Gaetz has extensive experience on both sides of the border.  Prior to joining Vitran, he spent ten years with Clarke Transport, a large Canadian freight company, in various positions including Vice President.  Mr. Gaetz received a Bachelor of Commerce degree from Dalhousie University in Halifax in 1979.  He is a Director of the Ontario Trucking Association and the Canadian Trucking Alliance, and Director and Chairman of Drive Products Income Fund.
 
       
Sean P. Washchuk
(Burlington, Canada)
37
Vice President Finance and Chief Financial Officer
Mr. Washchuk joined Vitran in 2000 as the Corporate Controller and was appointed Chief Financial Officer and Vice President Finance in 2004.  Prior to joining Vitran in 2000, he was a Controller at a North American plastics recycling company and was also a manager at PricewaterhouseCoopers in the assurance and business advisory services practice.  Mr. Washchuk is a Chartered Accountant with the Ontario Institute and received a Bachelor of Accounting degree from Brock University in Ontario.

CODE OF ETHICS

The Company has adopted a Code of Ethics and Professional Conduct (the “Code”) for all senior executives and directors, including the Chief Executive Officer, Chief Financial Officer and Principal Accounting Officer.  The Code is available free of charge on the Company’s website at www.vitran.com.  The Code requires that the Company’s senior executives and directors deal fairly with customers, suppliers, fellow employees and the general public.  Acceptance of the Code is mandatory for the Company’s senior executives and directors.



 
66

 
 

The information required by Item 12 of Form 10-K appears in the Company’s proxy statement for the 2010 Annual Meeting of its Shareholders, reference to which is hereby made, and the information therein is incorporated herein by reference.


None

KPMG LLP has served as the Company’s auditors since 1989.  For the fiscal years ended December 31, 2009 and 2008, fees billed by KPMG LLP to Vitran for services were:
   
Year ended December 31,
 
   
2009
   
2008
 
Audit and audit-related fees
  $ 505,895     $ 562,150  
Tax fees
 
Nil
   
Nil
 
All other fees
 
Nil
   
Nil
 
    $ 505,895     $ 562,150  
 
All services provided by KPMG to Vitran for 2009 and 2008 were approved by the Audit Committee.  The Audit Committee pre-approves all non-audit services to be provided to the Company or its subsidiary entities by its independent auditors.  For further details regarding the Audit Committee approval process, please review the Audit Committee charter which is available free of charge on Vitran’s website at www.vitran.com.

For information regarding the members and other applicable information of the Audit Committee, please review the Company’s proxy statement for the 2010 Annual Meeting of its Shareholders, reference to which is hereby made, and the information therein is incorporated herein by reference.

PART IV


(a)             (1)    Financial Statements

Consolidated Balance Sheets as at December 31, 2009 and 2008 and the Consolidated Statements of Income (Loss), Shareholders’ Equity and Cash Flows for the years ended December 31, 2009, 2008, and 2007 are reported on by KPMG LLP, Chartered Accountants.  These statements are prepared in accordance with United States GAAP.

 
 
67

 
 
 
(2)
Financial Statements Schedule:

Schedule II - Valuation and Qualifying Accounts

Vitran Corporation Inc.
Three years ended December 31, 2009
                         
Allowance for Doubtful Accounts
                       
(in thousands of dollars)
 
Balance at
   
Charges to
         
Balance
 
   
beginning
   
costs and
         
at end
 
Description
 
of year
   
expenses
 
Deductions
   
of year
 
                         
Year ended December 31, 2007
                       
Accounts receivable allowances for revenue adjustments and doubtful accounts
  $ 2,199     $ 879     $ (588 )   $ 2,490  
Year ended December 31, 2008
                               
Accounts receivable allowances for revenue adjustments and doubtful accounts
  $ 2,490     $ 2,588     $ (1,310 )   $ 3,768  
Year ended December 31, 2009
                               
Accounts receivable allowances for revenue adjustments and doubtful accounts
  $ 3,768     $ 1,436     $ (1,730 )   $ 3,474  
 
 
(3)
Exhibits Filed

The exhibits listed in the accompanying Exhibit Index are filed as part of this Annual Report on Form 10-K.

 
(b)
Separate Financial Statements

None

 
68

 
 
Exhibit Number
Description of Exhibit
4.1
Articles of Incorporation effective April 29, 1981 (1)
4.2
Articles of Amendment effective May 27, 1987 (2)
4.3
Articles of Amendment effective July 16, 1987 (3)
4.4
Articles of Arrangement effective February 5, 1991 (4)
4.5
Articles of Amendment effective April 22, 2004 (5)
4.6
Amended By-Laws effective February 7, 2008 (6)
4.7
By-law to authorize the directors to borrow and give security effective July 16, 1987 (7)
5.1
Legal Opinion of Lang Michener LLP (23)
10.1
Employee Stock Option Plan (8)
10.2
Employment agreement dated November 25, 2004 from the registrant to Sean P. Washchuk (9)
10.3
Deferred share unit plan for Directors, dated September 14, 2005 (10)
10.4
Deferred share unit plan for Senior Executives, dated March 10, 2006 (11)
10.5
Credit Agreement between JPMorgan Chase Bank, N.A. as Agent and JPMorgan Chase Bank, N.A., JPMorgan  Chase Bank, N.A., Toronto Branch, those other financial institutions whose names appear on the signature pages hereto and the other persons from time to time party hereto as Lenders as Lenders and J.P. Morgan Securities Inc.. as Lead Arranger and Sole Bookrunner and Bank of America, N.A. and Bank of Montreal as Co-Syndication Agents and National Bank of Canada and Fifth Third Bank as Co-Documentation Agents And Vitran Corporation Inc., Vitran Express Canada Inc. and Vitran Corporation as Borrowers Dated as of July 31, 2007 (12)
10.6
Amendment No.2 to Credit Agreement between JPMorgan Chase Bank N.A. and those banks whose names appear on the signature pages hereto and Vitran Corporation Inc., Vitran Express Canada Inc. and Vitran Corporation(13)
10.7
Amendment No. 3 to Credit Agreement dated December 30, 2008, by and among Vitran Corporation Inc. and certain subsidiaries, JPMorgan Chase Bank, N.A., as Agent, and the Banks named therein. (14)
10.8
Amendment No.4 to Credit Agreement between JPMorgan Chase Bank N.A. and those banks whose names appear on the signature pages hereto and Vitran Corporation Inc., Vitran Express Canada Inc. and Vitran Corporation(15)
10.9
Employment Agreement dated March 16, 2009 between the Registrant and Rick E. Gaetz (16)
10.10
Amendment No. 5 to Credit Agreement dated May 8, 2009, by and among Vitran Corporation Inc. and certain subsidiaries, JPMorgan Chase Bank, N.A., as Agent, and the Banks named therein (17)
10.11
Securities Purchase Agreement dated September 17, 2009 (18)
10.12
Amendment No. 6 to Credit Agreement dated September 17, 2009, by and among Vitran Corporation Inc. and certain subsidiaries, JPMorgan Chase Bank, N.A., as Agent, and the Banks named therein. (19)
10.13
Registration Rights Agreement dated September 21, 2009 (20)
14.1
Code of Conduct for Employees (21)
14.2
Code of Conduct for Directors  (22)
 
 
69

 
 
Exhibit Number
Description of Exhibit
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (23)
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (23)
32.1
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (23)
 
Notes:
(1)
Filed as Exhibit 1.1 to the Registrant’s Registration Statement on Form 20-F filed with the Commission on June 14, 1995.

(2)
Filed as Exhibit 1.2 to the Registrant’s Registration Statement on Form 20-F filed with the Commission on June 14, 1995.

(3)
Filed as Exhibit 1.3 to the Registrant’s Registration Statement on Form 20-F filed with the Commission on June 14, 1995.

(4)
Filed as Exhibit 1.4 to the Registrant’s Registration Statement on Form 20-F filed with the Commission on June 14, 1995.

(5)
Filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 7, 2004.

(6)
Filed as Exhibit 4.6 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on September 11, 2009

(7)
Filed as Exhibit 1.6 to the Registrant’s Registration Statement on Form 20-F filed with the Commission on June 14, 1995.

(8)
Filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 filed with the Commission on September 11, 2009.

(9)
Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on December 9, 2004.
 
(10)
Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 15, 2005.

(11)
Filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on March 13, 2006.

(12)
Filed as Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on August 9, 2007.

(13)
Filed as Exhibit 10.9.7 to the Registrant’s Current Report on Form 8-K filed on April 24, 2008.

(14)
Filed as Exhibit 10.9.8  to the Registrant’s Current Report on Form 8-K filed on January 5, 2009.

(15)
Filed as Exhibit 10.9.9 to the Registrant’s Annual Report on Form 10-K filed on March 11, 2009.

(16)
Filed as Exhibit 10.23 to the Registrant’s Current Report on Form 8-K filed on March 17, 2009.

(17)
Filed as Exhibit 10.9.9 to the Registrant’s Current Report on Form 8-K filed on May 28, 2009.

(18)
Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 18, 2009.

(19)
Filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 18, 2009.

(20)
Filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 22, 2009.

(21)        Filed as Exhibit 99.1 to the Registrant’s Current Report on Form 8-K filed on August 3, 2004.

(22)        Filed as Exhibit 99.2 to the Registrant’s Current Report on Form 8-K filed on August 3, 2004.

(23)        Filed as an exhibit to this Annual Report on Form 10-K.

 
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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Toronto, Province of Ontario, on the 8th day of February, 2010.
 
  Vitran Corporation Inc.  
       
 
By:
/s/ SEAN P. WASHCHUK   
       
   
Sean P. Washchuk
Vice President Finance and
Chief Financial Officer
 
       

 
 
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Signatures
 
Title
 
Date
         
         
/s/ RICHARD D. McGRAW
 
Chairman of the Board
 
February 8, 2010
         
Richard D. McGraw
       
         
/s/ RICHARD E. GAETZ
 
President and Chief Executive Officer, Director
 
February 8, 2010
         
Richard E. Gaetz
       
         
/s/ GEORGES L. HÉBERT
 
Director
 
February 8, 2010
         
Georges L. Hébert
       
         
/s/ WILLIAM S. DELUCE
 
Director
 
February 8, 2010
         
William S. Deluce
       
         
/s/ ANTHONY F. GRIFFITHS
 
Director
 
February 8, 2010
         
Anthony F. Griffiths
       
         
/s/ JOHN R. GOSSLING
 
Director
 
February 8, 2010
         
John R. Gossling
       
         
/s/ SEAN P. WASHCHUK
 
Vice President Finance and Chief Financial Officer
 
February 8, 2010
   
 (Principal Financial Officer)
   
Sean P. Washchuk
       
         
/s/ FAYAZ D. SULEMAN
 
Corporate Controller
 
February 8, 2010
   
(Principal Accounting Officer)
   
Fayaz D. Suleman
       
         
         

 
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