UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549(Mark One )
    FORM 10-K |X|
    Annual Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934For the fiscal year ended December 31, 2004OR|_|
    Transition Report Pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934Commission File Number:  0-24908TRANSPORT CORPORATION OF AMERICA, INC.(Exact name of registrant as specified in its charter) Minnesota
    41-1386925(State or other jurisdiction
of incorporation or organization)
    (I.R.S. Employer
Identification No.)1715 Yankee Doodle RoadEagan, Minnesota 55121(Address of principal executive offices and zip code)Registrants telephone number, including area code: (651) 686-2500
    Securities registered pursuant to Section 12(b) of the Act: NoneSecurities registered pursuant to Section 12(g) of the Act:
    Common Stock, $.01 par valuePreferred Stock Purchase RightsIndicate 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 |_|
      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 this Form 10-K. **|X|**
      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2):YES  |_|    NO **|X|**
      State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: $32,957,116.
      As of February 28, 2005, the Company had outstanding 6,554,528 shares of Common Stock, $.01 par value.
    Documents Incorporated by Reference: Portions of Transport Corporation of America, Inc.s Proxy Statement for the Annual Meeting of Stockholders to be held May 25, 2005 are incorporated by reference into Part III of this Form 10-K to the extent described in such part. 1


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TRANSPORT CORPORATION OF AMERICA, INC.
    PART IItem 1.
  BUSINESSOverview
Transport Corporation of America, Inc. (the Company or Transport America) provides
a wide range of truckload carriage and logistics services in various lengths of haul in the United
States and parts of Canada. The Company has designed its business to provide high-quality, customized
transportation and logistics services that allow it to be a preferred partner or core carrier to
major shippers. The Company serves as an integral part of the distribution system of many of its
major customers. The principal categories of freight hauled by the Company are department-store merchandise,
home and office furniture, grocery, industrial, consumer, paper products, and expedited services.
The Company was incorporated under Minnesota law in 1980 and commenced substantial operations in 1984.
The Companys customers require time-definite pickup and delivery to support just-in-time inventory
management, specialized equipment, such as temperature-controlled trailers, trailers designed to
support decking, multi-stop loading and unloading, and sophisticated electronic transaction capabilities
to automate the exchange of order, load, and billing data. The Company also provides logistics services
by arranging transportation for customers with other third-party transportation providers. To support
these complex customer requirements and deliver logistics services cost-effectively, Transport America
has developed a sophisticated information management system which it believes makes it a technological
leader in the industry.
The Company carries out its business strategy by assigning an experienced marketing representative
to each customer to tailor its services, and by providing a wide range of transportation services,
including line-haul, multi-stop capability, regional and local operations, van trailers with and
without refrigeration or temperature control, time-definite pickup and delivery, satellite-monitored
transit, and information technology services. The Company also places operations personnel on-site
at certain of its customers facilities to enhance its services. As part of its mission to serve
the transportation and logistics needs of its mostly Fortune 500 customers, Transport America also
provides dedicated transportation and logistic services.
Customer Focus and Services
The Company has designed its business to be a core carrier or preferred partner to major shippers by
providing high-quality, tailored transportation and logistics services. The Company serves as an
integral part of the distribution system of many of its major customers. The principal categories
of freight hauled by the Company are department-store merchandise, home and office furniture, grocery,
industrial, consumer, paper products, and expedited services.
During 2004, the Companys largest 5, 10, and 25 customers accounted for approximately 33%, 52%,
and 74%, respectively, of operating revenues.
Marketing.  The Companys marketing personnel seek to strengthen Transport Americas relationships
with existing customers and to identify and establish new customer relationships by 2


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TRANSPORT CORPORATION OF AMERICA, INC.
promoting the Companys technological capabilities, taking advantage of the trend among shippers
toward just-in-time inventory management, private fleet conversions, outsourcing of transportation
requirements, and utilization of core carriers. The Company employs a marketing force located throughout
its primary business areas. Senior management is also actively involved in marketing, logistics planning,
and customer relations, particularly with large national customers.
Support Centers.  In 2004, the Company utilized seven strategically located full-service support
centers and an additional seven limited-service support centers to provide an added level
of customer service and support. These facilities are located in close proximity to major population
centers or customer locations, thereby enabling the Company to provide a large amount of equipment,
and local customer-service representatives to work directly with customers on a day-to-day basis.
The Company believes that these support centers allow it to maintain closer relationships with its
driver workforce through on-site driver amenities and interactions with service-center personnel.
Time-Definite Service. In each of its markets, the Company seeks to provide 100% on-time pickup and delivery, expedited
time-in-transit, logistical planning to coordinate and deliver freight within time-definite parameters,
and advanced information capabilities that provide value to customers. Time-definite transportation
requires pick-ups and deliveries to be performed within narrowly defined time frames. Time-definite
services are particularly important to the Companys customers who operate just-in-time manufacturing,
distribution, and retail inventory systems. The Company employs personnel at certain of its customers
facilities to meet critical customer transportation and logistics needs.
Human Resources
Transport
Americas human resources are an important element of its customer-focused business strategy.
Employee drivers, independent contractors, and non-driver employees regularly interact with customers
and are ultimately responsible for customer satisfaction. In order for the Company to grow and continue
to be positioned as a quality carrier of choice for existing and new customers, the Company regularly
evaluates changes to the drivers work environment that will improve driver satisfaction and
retention. The Company continues to emphasize competitive pay packages, quality at-home time, technology
that enhances the drivers experience, and driver friendly freight as the principal
means to attract and retain its driver workforce.
Independent Contractors.  The Company believes that a fleet of both employee drivers and independent contractors is essential
if the Company is to continue its growth. Independent contractors provide their own tractors, generally
have a lower turnover rate than the Company has experienced with employee drivers, and have a strong
emphasis on safety.
The
Company enters into operating agreements with its independent contractors, pursuant to which its
independent contractors agree to furnish a tractor and driver to transport, load and unload goods
on behalf of the Company. These agreements typically have terms of one year and provide for the payment
to independent contractors of fixed compensation for total loaded and empty miles, as well as for
performing other ancillary services. Independent contractors must 3


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TRANSPORT CORPORATION OF AMERICA, INC.
pay all of their operating expenses and must meet Department of Transportation (DOT) regulatory
requirements, as well as safety and other standards established by the Company. The Company has implemented
an incentive program to encourage safe driving and good customer service habits.
The Company has also implemented a lease-to-own program utilizing a limited number of tractors to attract
and retain owner-operators. This program allows an owner-operator to lease tractors previously owned
by the Company for a small down payment combined with a per-mile fee for rental and maintenance of
the equipment. Ownership of the unit is transferred at the end of the lease term.
Driver Work Environment.  The market for professional truck drivers and independent contractors tightened significantly
during 2003 and has remained tight throughout 2004. The Company has implemented several programs
to boost its recruiting efforts and increase the seated fleet percentage.
The Company believes that the type of freight it typically handles is a significant factor in retention
of employee drivers and independent contractors. Consequently, the Company focuses much of its marketing
efforts on customers with freight that is driver-friendly in that it requires minimal
loading or unloading by drivers and customer employees.
The
Company utilizes late-model, reliable equipment including standard features such as sleeper bunks,
large cabins, air-ride suspensions, and anti-lock brakes. The Company also provides satellite communications
technology that enables drivers to receive load-related information, directions, pay information,
fueling recommendations, e-mail access, and family emergency information. The Companys service
centers are strategically located to provide services for the driver, such as showers, laundry facilities,
break rooms, fuel, tractor and trailer maintenance, and in-person assistance from service center
personnel.
Compensation and Benefits.  The Companys compensation and benefits package has been structured to compensate drivers
on the basis of miles driven and ancillary services performed, with increases in base compensation
commensurate with length of service. Employee driver benefits include paid vacation days, health
insurance, and a Company-funded 401(k) retirement plan. Performance bonuses are paid based upon on-time
performance, accident-free driving experience, and a lack of workers compensation incidents.
The Company believes its compensation and benefits packages for employee drivers and independent
contractors continue to rank in the upper quartile in the truckload industry.
Recruiting and Training.  The Companys employee drivers are hired, and independent contractors are approved, in
accordance with specific Company guidelines relating to safety records, prior work history, personal
evaluation, accident and driving record verification, drug and alcohol screening, and a physical
examination. The Company has operated a training school since 2000 as a means of enhancing its recruiting
efforts and tailoring driver skills to match its specific needs. The school initially enabled persons
new to the transportation industry to obtain a commercial drivers license (CDL)
and to complete an extensive training program before being assigned their own truck; however, in
2003, the Company discontinued the CDL licensing program and instead hires students who already have
a CDL. The Companys orientation and 4


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TRANSPORT CORPORATION OF AMERICA, INC.
training seminar for all new employee and independent contractor drivers  includes a review of all Company policies and operating requirements, written and road driving
tests, defensive driving and safety skills, DOT compliance requirements, and the employee drivers
and independent contractors role in providing safe and efficient value-added service to customers.
The Company also conducts driver meetings, publishes a newsletter, and conducts specific professional
development training, including training to become an over-the-road driver instructor.
Driver and Independent Contractor Supervision.  The Company assigns each employee driver and independent contractor to a specific fleet manager.
The fleet managers role is to be the primary support resource for the employee driver or independent
contractor. The fleet manager also communicates the work assignments and coordinates driver pay matters
using satellite technology, schedules time off, reviews performance, provides day-to-day training,
arranges required safety inspections, reviews performance, and is accountable for the retention and
productivity of the assigned employee drivers and independent contractors.
As
of December 31, 2004, the Company employed 963 student and professional employee drivers, 101 mechanics,
306 persons in operations, marketing, training, and administration, and had agreements with independent
contractors who provided 551 tractors. The Companys employees are not represented by any collective
bargaining units, and the Company considers relations with its employees and independent contractors
to be good.
Technology
The
Company has developed an integrated and highly sophisticated, client/server computer information
system. This system integrates operations with the principal back-office functions of safety, maintenance,
driver and independent contractor settlement, fuel, billing, and accounting. The system also includes
satellite-based communications with the fleet. This system provides information directly to and from
the Company, its customers, and drivers to assist in managing a complex information environment.
The Company believes that technology is a cost-effective way to manage its complex operations while
improving services to its customers. The Company expects to continue to employ technology solutions
that enhance customer service, improve driver services, and that will enable it to realize other
processing efficiencies.
Operations and Communications.  The Company utilizes information systems and satellite-based communications to process orders,
optimize scheduling, dispatch loads, and monitor loads in transit. Load planners, with the benefit
of optimization software, match customer orders daily with driver availability. Once the most appropriate
load assignment decision is made, based on computer-monitored load factors, the load information
is sent directly to the driver through the satellite network. The satellite system simplifies locating
of equipment and permits timely and efficient communication of critical operating data such as shipment
orders, loading instructions, routing, fuel, taxes paid and mileage operated, payroll, safety, traffic,
and maintenance information.
Electronic Data Interchange (EDI).  The Companys system enables full electronic data interchange of load tendering, shipment
status, freight billing, and payment. This system provides significant operating advantages to the
Company and its customers, including real-time 5


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TRANSPORT CORPORATION OF AMERICA, INC.
information flow, reduction or elimination of paperwork, error-free transcription, and reductions in
clerical personnel. EDI allows the Company to exchange data with its customers in a variety of formats,
depending on the individual customers capabilities, which significantly enhances quality control,
customer service, and efficiency. A significant portion of the Companys revenues is currently
processed through EDI.
Internet Access.  The Company provides its customers with on-line access to certain load-status information as
well as the ability to retrieve document images related to customer shipments. The Companys
Web site (www.transportamerica.com) also provides access to other information for the benefit of
customers, drivers, potential employees and investors. Depending upon customer needs, technological
capabilities, and internal resources, the Company expects to continue to expand its use of the Internet
and e-commerce. The contents of the Companys website are not incorporated by reference into
this Annual Report.
Revenue Equipment
The
Company operates a modern fleet of tractors and trailers. Tractors are typically replaced every 48
to 60 months, based on factors such as age and condition, current interest rates, the market for
used equipment, and improvements in technology and fuel efficiency. The average age of the Company-operated
tractors at December 31, 2004 was approximately 25 months.
The
Company has available a variety of trailers to meet customer requirements. At December 31, 2004,
these included 4,756 dry vans, many of which are equipped with heaters, and 141 refrigerated vans.
The trailer-to-tractor ratio of 3.1 allows the Company to provide its high-volume customers with
extra trailers to accommodate loading and unloading, and to improve driver and asset utilization.
Depending on market conditions, the Company generally replaces trailers after seven to ten years
of service. The average age of in-service trailers at December 31, 2004, was approximately 71 months.
The following table shows the model years of the Company tractors and trailers as of December 31,
2004: Model Year
    Tractors
    
    Trailers2005
    
    
    110
    
    
    5002004
    
    
    290
    
    
    2003
    
    
    248
    
    
    2002
    
    
    253
    
    
    2001
    
    
    14
    
    
    132000
    
    
    56
    
    
    1,0001999
    
    
    2
    
    
    1,4571998
    
    
    29
    
    
    9851997
    
    
    1
    
    
    5471996
    
    
    
    
    
    3611995 and prior
    
    
    
    
    
    34Total Company
    
    
    1,003
    
    
    4,897Independent Contractor
    
    
    551
    
    
    Total available
    
    
    1,554
    
    
    4,897 6


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TRANSPORT CORPORATION OF AMERICA, INC.
Competition
The truckload transportation business is extremely competitive and fragmented. The Company competes
primarily with other truckload carriers, particularly those in the high service end of the truckload
market. The Company also competes with alternative forms of transportation, such as rail, intermodal,
and airfreight, particularly in the longer haul segments of its business. Competition in the truckload
industry has created pressure on the industrys pricing structure. Generally, competition for
the freight transported by the Company is based on service, equipment availability, trailer type,
efficiency, freight rates, and technological capabilities. There are a number of competitors that
have substantially greater financial resources, operate more equipment, and transport more freight
than the Company.
Executive Officers
The
executive officers of Transport America are as follows:  **Name and Age**
    **Position with Transport America**Michael J. Paxton (58)
    
    Chairman of the Board since July 2002, and President and Chief Executive Officer of TransportAmerica since November 2001. Mr. Paxton has served on the Board of Directors of Transport Americasince 1995. Mr. Paxton previously served as President and CEO of the Sunbeam Health and SafetyCompany (manufacturer of home safety and health products, a subsidiary of Sunbeam Corporation)from September 1998 to November 2001. Prior to that, he served as Chairman, President and CEO ofO-Cedar Brands, Inc. (a household cleaning products company) from January 1996 to September 1998.Keith R. Klein (41)
    
    Chief Financial Officer of Transport America since July 1999, and Chief Information Officer sinceMarch 2001. From 1997 to July 1999, Mr. Klein was founder and owner of a financial consultingfirm. From 1990 to 1997, he served in various positions at Deluxe Corporation, most recently asVice President and Corporate Controller.Craig A. Coyan (55)
    
    Vice President of Sales and Marketing since July 2003. Prior to joining Transport America, Mr.Coyan served as Vice President of Sales - Southeast and Mexico, for Swift Transportation, Phoenix,AZ. Mr. Coyan began his transportation career in 1979 with Midwestern Distribution, and spent 16years with M.S. Carriers in Memphis, TN, until the merger of Swift Transportation and M.S.Carriers in 2001.Ronald C. Kipp (58)
    
    Vice President of Operations since October 2002. For 24 years from 1978 to 2002, Mr. Kipp servedin various operations and sales positions with Schneider National, Inc. including most 7


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TRANSPORT CORPORATION OF AMERICA, INC.recently asDirector of Business Development for a major business account from 2001 to 2002, and as VicePresident of Sales for Schneider Specialized Carriers, Inc. from 1999 to 2001.Peggy C. Farra (48)
Vice President, Driver Recruitment and Safety since February 2005. Ms. Farra has held a variety ofroles with Transport America over the past 10 years, most recently serving as CorporateTreasurer. Prior to joining Transport America, Ms. Farra spent 15 years practicing publicaccounting with KPMG and various other public accounting firms.  Available Information
The Companys web site address is www.transportamerica.com. The Company has available on its web
site annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and
amendments to those reports as soon as reasonably practical after it electronically files such materials
with, or furnishes it to, the SEC. The Companys Code of Conduct, as well as any waivers from and amendments to the Code, are
also posted on the Companys web site. The contents of the Companys web site are not incorporated
by reference into this Annual Report on Form 10-K. 8


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TRANSPORT CORPORATION OF AMERICA, INC.Item 2.
    PROPERTIES  The following chart provides information concerning the Companys service centers and other facilities: **Support Centers and Other Facilities** ****
    
    Owned
      Or Leased
    
    
    Acreage
    
    Square
      FootageFull-Service Support CentersAtlanta, Georgia
    
    Owned
    
    
    16.2
    
    14,860Eagan, Minnesota (Terminal Drive)
    
    Owned
    
    
    14.9
    
    17,500Janesville, Wisconsin
    
    Owned
    
    
    13.6
    
    16,700Kansas City, Missouri
    
    Owned
    
    
    10.0
    
    14,862Mechanicsburg, Pennsylvania
    
    Leased
    
    
    4.5
    
    8,500North Jackson, Ohio
    
    Owned
    
    
    8.1
    
    11,230North Liberty, Iowa
    
    Owned
    
    
    13.0
    
    15,150Limited-Service Support CentersClarksville, Indiana
    
    Leased
    
    
    4.0
    
    900Fontana, California
    
    Leased
    
    
    3.5
    
    1,800Garland, Texas
    
    Owned
    
    
    9.2
    
    32,000Grand Rapids, Minnesota
    
    Leased
    
    
    0.2
    
    140Grove City, Ohio
    
    Leased
    
    
    4.7
    
    10,200Laredo, Texas
    
    Leased
    
    
    0.9
    
    700Spirit Lake, Iowa
    
    Leased
    
    
    *
    
    6,000Other FacilitiesEagan, Minnesota (1715 Yankee Doodle Road) **
    
    Leased
    
    
    8.3
    
    70,707Scottsburg, Indiana ****
    
    Leased
    
    
    6.0
    
    14,073 *       
        **     
        ***
    Office facility.
      Headquarters Facility. 
      Training Center. As of December 31, 2004, the Companys rental payments for its leased facilities range from approximately
$625 to $86,000 per month. The Company does not anticipate any difficulties renewing or continuing
these leases.
In
addition to the properties listed above, Transport America leases parking and drop lot space at various
locations. 9


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TRANSPORT CORPORATION OF AMERICA, INC.Item 3.
  LEGAL PROCEEDINGSThe Company is routinely a party to litigation incidental to its business, primarily involving claims for workers compensation or for personal injury and property damage incurred in the transportation of freight. The Company maintains insurance, which covers liability amounts in excess of retained liabilities from personal injury and property damage claims. The Company currently carries a total of $30 million liability insurance coverage per incident.Item 4.
  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERSNo
matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered
by this Report.
PART IIItem 5.
  MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIESPrice Range of Common Stock. The Companys Common Stock is traded on the Nasdaq National Market under the symbol TCAM. The following table sets forth the high and low closing prices for the Companys Common Stock, as reported by Nasdaq, for the periods indicated:  Period
    
    High
    
    Low2004:1st Quarter
    
    $
    7.78
    
    $
    7.062nd Quarter
    
    
    7.88
    
    
    7.003rd Quarter
    
    
    7.95
    
    
    7.674th Quarter
    
    
    8.49
    
    
    7.542003:1st Quarter
    
    $
    5.58
    
    $
    5.002nd Quarter
    
    
    6.19
    
    
    5.003rd Quarter
    
    
    6.23
    
    
    5.534th Quarter
    
    
    7.75
    
    
    6.15  Stockholders. As of February 28, 2005, the Company had 415 stockholders of record, including Depository Trust Company,
which held of record 6,393,102 shares.
Dividends.  The Company has never paid any cash dividends on its Common Stock and does not intend to pay
cash dividends for the foreseeable future. Any future decision as to the payment of dividends will
be at the discretion of the Companys Board of Directors and will depend upon the Companys
results of operations, financial position, cash requirements, certain corporate law restrictions,
restrictions under loan agreements and such other factors as the Board of Directors deems relevant.
Purchases of Company Equity Securities.  During the fourth quarter of 2004, the Company did not purchase any of its equity securities. 10


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TRANSPORT CORPORATION OF AMERICA, INC.Item 6.                    SELECTED FINANCIAL DATA  (In thousands, except share, per share and operating data)
    
    December 31,2004
    
    2003
    
    2002
    
    2001
    
    2000**Statement of Operations Data:**Operating revenues
    
    $
    258,408
    
    $
    258,859
    
    $
    273,227
    
    $
    274,589
    
    $
    290,611Operating expenses:Salaries, wages and benefits
    
    
    76,129
    
    
    71,080
    
    
    80,289
    
    
    82,337
    
    
    83,868Fuel, maintenance and other expenses
    
    
    42,909
    
    
    38,933
    
    
    38,903
    
    
    40,657
    
    
    42,725Purchased transportation
    
    
    79,144
    
    
    91,516
    
    
    91,706
    
    
    86,791
    
    
    91,724Revenue equipment leases
    
    
    1,266
    
    
    1,069
    
    
    841
    
    
    86
    
    
    232Depreciation and amortization
    
    
    23,757
    
    
    25,104
    
    
    27,474
    
    
    30,039
    
    
    29,237Insurance, claims and damage
    
    
    12,496
    
    
    12,287
    
    
    13,615
    
    
    9,989
    
    
    8,051Taxes and licenses
    
    
    4,604
    
    
    4,556
    
    
    4,986
    
    
    5,222
    
    
    4,989Communications
    
    
    1,788
    
    
    2,194
    
    
    2,576
    
    
    2,718
    
    
    3,336Other general and administrative expenses
    
    
    9,824
    
    
    9,611
    
    
    9,052
    
    
    9,469
    
    
    10,665Impairment of revenue equipment
    
    
    
    
    
    (549
    )
    
    4,741
    
    
    
    
    
    Loss (gain) on sale of property and equipment
    
    
    25
    
    
    (1,302
    )
    
    (36
    )
    
    318
    
    
    (712
    )Total operating expenses
    
    
    251,942
    
    
    254,499
    
    
    274,147
    
    
    267,626
    
    
    274,115Operating income (loss)
    
    
    6,466
    
    
    4,360
    
    
    (920
    )
    
    6,963
    
    
    16,496Interest expense, net
    
    
    3,115
    
    
    4,123
    
    
    5,447
    
    
    7,272
    
    
    8,836Earnings (loss) before income taxes and cumulativeeffects of changes in accounting principle
    
    
    3,351
    
    
    237
    
    
    (6,367
    )
    
    (309
    )
    
    7,660Provision (benefit) for income taxes
    
    
    1,314
    
    
    163
    
    
    (2,711
    )
    
    43
    
    
    2,987Earnings (loss) before cumulative effectof changes in accounting principle
    
    
    2,037
    
    
    74
    
    
    (3,656
    )
    
    (352
    )
    
    4,673Cumulative effect of changes in accounting principle,net of tax effects
    
    
    
    
    
    (1,153
    )
    
    (16,694
    )
    
    
    
    
    Net earnings (loss)
    
    $
    2,037
    
    
    ($ 1,079
    )
    ($ 20,350
    )
    
    ($ 352
    )
    $
    4,673Earnings (loss) per share - basicBefore cumulative effect of changes in accountingprinciple, net of tax effects
    
    $
    0.30
    
    $
    0.01
    
    $
    (0.50
    )
    $
    (0.05
    )
    $
    0.56Net earnings (loss) per share - basic
    
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )
    $
    (0.05
    )
    $
    0.56Earnings (loss) per share - dilutedBefore cumulative effect of changes in accountingprinciple, net of tax effects
    
    $
    0.30
    
    $
    0.01
    
    $
    (0.50
    )
    $
    (0.05
    )
    $
    0.46Net earnings (loss) per share - diluted
    
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )
    $
    (0.05
    )
    $
    0.46Weighted average shares outstanding
    
    
    6,722
    
    
    7,171
    
    
    7,243
    
    
    7,197
    
    
    8,317Weighted average shares outstanding,assuming dilution
    
    
    6,841
    
    
    7,204
    
    
    7,243
    
    
    7,197
    
    
    10,069Pretax margin
    
    
    1.3
    %
    
    0.1
    %
    
    (2.3
    %)
    
    (0.1
    %)
    
    2.6
    %Operating Data (company transported):Tractors (at end of period)Company
    
    
    1,003
    
    
    1,000
    
    
    1,057
    
    
    1,266
    
    
    1,261Independent contractor
    
    
    551
    
    
    713
    
    
    836
    
    
    724
    
    
    743Total
    
    
    1,554
    
    
    1,713
    
    
    1,893
    
    
    1,990
    
    
    2,004Trailers (at end of period)
    
    
    4,897
    
    
    4,974
    
    
    5,436
    
    
    5,890
    
    
    6,010Total miles (000s)
    
    
    176,722
    
    
    193,772
    
    
    210,842
    
    
    204,477
    
    
    212,185Average revenues per tractor per week (1)
    
    $
    2,880
    
    $
    2,726
    
    $
    2,714
    
    $
    2,568
    
    $
    2,633Average revenues per mile (1)
    
    $
    1.33
    
    $
    1.27
    
    $
    1.24
    
    $
    1.27
    
    $
    1.27Average empty mile percentage
    
    
    11.0
    %
    
    10.3
    %
    
    11.5
    %
    
    12.7
    %
    
    12.2
    %Average length of haul, miles
    
    
    682
    
    
    718
    
    
    718
    
    
    685
    
    
    682Average annual revenues per non-driver employee
    
    $
    642,200
    
    $
    628,300
    
    $
    592,600
    
    $
    555,400
    
    $
    549,100Balance Sheet Data (at end of period):(in thousands)Total assets
    
    $
    161,078
    
    $
    165,268
    
    $
    181,875
    
    $
    231,396
    
    $
    256,656Total debt and capital lease obligations
    
    
    49,117
    
    
    54,920
    
    
    69,483
    
    
    92,451
    
    
    118,519Stockholders equity
    
    
    56,271
    
    
    58,701
    
    
    60,222
    
    
    80,447
    
    
    80,688(1)   Excluding fuel surcharge revenue 11


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TRANSPORT CORPORATION OF AMERICA, INC.Item 7.
  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF OPERATIONSOverview
The
primary business strategy of Transport America is to provide truckload carriage and logistics services
throughout the United States and parts of Canada as an integral part of the supply chain system of
its major customers. Operations are conducted primarily from the Companys Eagan, Minnesota
corporate offices, with maintenance and driver services at its seven full-service and
various limited service terminal facilities located throughout the United States.
Organization of Financial Information
This
Managements Discussion and Analysis provides material historical and prospective disclosures
intended to enable investors and other users to assess our financial condition and results of operations.
Statements that are not historical are forward-looking and involve risks and uncertainties discussed
under the caption Forward-Looking Statements in Item 1 on page 27 of this Annual
Report on Form 10-K.
The
consolidated financial statements and notes are presented in Item 8 of this Annual Report on
Form 10-K. Included in the consolidated financial statements are the consolidated balance sheets,
consolidated statements of operations, consolidated statements of cash flows, and consolidated statements
of stockholders equity. The notes, which are an integral part of the consolidated financial
statements, provide additional information required to fully understand the nature of amounts included
in the consolidated financial statements.
Significant Transactions and Financial Trends
Throughout
these financial sections, you will read about significant transactions or events that materially
contribute to or reduce earnings and materially affect financial trends. Significant transactions
discussed in this Managements Discussion and Analysis include impairment charges recorded in
2003 and 2002 related to the disposal of tractors and trailers and reductions of these impairment
reserves during 2003 and 2002 when the ultimate impairment proved to be less than estimated; additional
charges in 2003 and 2002 for increased claim settlement costs and growth in open claims; a gain resulting
from the sale of a maintenance facility in 2003; the cumulative effect of a change in accounting
principle as a result of adopting FASB Interpretation (FIN) No. 46, Consolidation of Variable
Interest Entities which required the Company to consolidate its interest in its corporate office
facility and record the asset and related debt in the financial statement in 2003; the sale and leaseback
of this corporate office facility in 2003; and the cumulative effect of a change in accounting principle
as a result of adopting SFAS No. 142 Goodwill and Other Intangible Assets, which
required the Company to record a goodwill impairment charge in 2002.
These
significant transactions result from unique facts and circumstances that likely will not recur with
similar materiality or impact on continuing operations. While these items are important in understanding
and evaluating financial results and trends, other transactions or events such as those discussed
later in this Managements Discussion and Analysis may also 12


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TRANSPORT CORPORATION OF AMERICA, INC.
have a material impact. A complete understanding of these transactions and events is necessary in order
to estimate the likelihood that these trends will continue.
Significant Operating Trends
The Company benefited from the strong economy in 2004. High demand for freight services, combined with
limited capacity, allowed the industry to obtain rate increases with the majority of customers on
most lanes of traffic.
While the average rate per mile increased, overall revenues continued to be negatively impacted by
higher than expected unseated tractors (tractors owned by the Company for which no driver is available
to assign) and the limited availability of owner operator capacity. The hiring market tightened significantly
during the latter half of 2003 and has remained tight throughout 2004.
New Hours of Service (HOS) rules went into effect at the beginning of 2004 and the Company made a commitment
to its drivers that they would not bear the financial burden of the more restrictive limits on hours
of service; accordingly, it announced an increase in the accessorial pay for the drivers and successfully
negotiated new accessorial charges for customer events that had the effect of decreasing asset and
driver productivity. The Company also proactively worked with customers to eliminate inefficiencies
in their supply chain network.
Ongoing cost reduction efforts continue to make the Company more competitive and administrative productivity
continued to improve in 2004. The Company instituted its cost reduction program, resulting in reduced
salaries and wages, maintenance costs, accident claim costs, fuel costs, depreciation, and other
general and administrative costs.
The Company continues to drive density and balance in its network, and is attaining increased freight
rates as it better manages the network and customer mix. Finally, the Company continued to strengthen
the balance sheet in 2004 by exceeding its debt reduction plan.
Outlook
Looking forward, the Company expects the rate environment to remain strong during the early part of
2005 as limited driver availability will continue to put pressure on truckload capacity. Sequentially,
the Company has experienced eight quarters in a row of increased rates and expects this trend to
continue into early 2005.
Even though the Company has been successful in reducing specific costs, the industry continues to face
cost pressures; driver pay rates are increasing as the industry tries to attract and retain drivers;
insurance and accident costs continue to rise; medical and workers compensation costs continue to
increase; fuel costs are at historical highs; and taxing authorities continue to raise tax levies
and toll rates. In addition, tractor replacements in 2004 were required to comply with new EPA standards
that will lead to increased depreciation expenses and reduced fuel efficiency.
While the Company has been successful in minimizing the impact of the new HOS rules through proactive
planning and the ability to invoice for additional accessorial charges (primarily 13


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TRANSPORT CORPORATION OF AMERICA, INC.
detention), it is unable to predict the ultimate long-term impact of the new HOS rules. Any changes
to these rules could have an adverse effect on the operations and profitability of the Company.
The biggest challenge for the Company and the industry is seated capacity since the market for new
drivers has tightened significantly beginning in the latter half of 2003 and continuing throughout
2004. The Company expects this to be one of the biggest issues facing the industry throughout 2005.
To address this trend, the Company has implemented several programs to boost its recruiting efforts
and increase the seated fleet percentage, including increased driver pay packages and new programs
designed to improve retention of existing drivers.
Results of Operations
The
following table sets forth certain operating and other expense items as a percentage of operating
revenues for the periods indicated:  Years ended December 31,(amounts in percents)
    
    2004
    
    2003
    
    2002Operating revenues
    
    
    100.0
    
    
    100.0
    
    
    100.0Operating expenses:Salaries, wages, and benefits
    
    
    29.5
    
    
    27.5
    
    
    29.4Fuel, maintenance, and other expenses
    
    
    16.6
    
    
    15.0
    
    
    14.2Purchased transportation
    
    
    30.6
    
    
    35.4
    
    
    33.6Revenue equipment leases
    
    
    0.5
    
    
    0.4
    
    
    0.3Depreciation and amortization
    
    
    9.2
    
    
    9.7
    
    
    10.1Insurance, claims and damage
    
    
    4.8
    
    
    4.7
    
    
    5.0Taxes and licenses
    
    
    1.8
    
    
    1.8
    
    
    1.8Communications
    
    
    0.7
    
    
    0.8
    
    
    0.9Other general and administrative expenses
    
    
    3.8
    
    
    3.7
    
    
    3.3Impairment of revenue equipment
    
    
    
    
    
    (0.2
    )
    
    1.7(Gain) loss on sale of property and equipment
    
    
    
    
    
    (0.5
    )
    
    Total operating expenses
    
    
    97.5
    
    
    98.3
    
    
    100.3Operating income (loss)
    
    
    2.5
    
    
    1.7
    
    
    (0.3
    )Interest expense, net
    
    
    1.2
    
    
    1.6
    
    
    2.0Earnings (loss) before income taxes and cumulative effect ofchanges in accounting principle
    
    
    1.3
    
    
    0.1
    
    
    (2.3
    )Provision (benefit) for income taxes
    
    
    0.5
    
    
    0.1
    
    
    (1.0
    )Earnings (loss) before cumulative effect of changes inaccounting principle
    
    
    0.8
    
    
    (0.0
    )
    
    (1.3
    )Cumulative effect of changes in accounting principle,net of tax effects
    
    
    
    
    
    (0.4
    )
    
    (6.1
    )Net earnings (loss)
    
    
    0.8
    
    
    (0.4
    )
    
    (7.4
    ) 14


---

TRANSPORT CORPORATION OF AMERICA, INC.
      Year Ended December 31, 2004, Compared to Year Ended December 31, 2003
    Operating revenues, including fuel surcharges, were $258.4 million for the year ended December 31, 2004, compared to $258.9 million for the year ended December 31, 2003, a decrease of 0.2%. Fuel surcharges were $18.5 million and $10.8 million for the years ended December 31, 2004 and 2003, respectively, reflecting the effect of higher fuel costs in 2004. Excluding fuel surcharges, revenues decreased 3.3% when compared to 2003. Revenues in 2004 were negatively impacted by a lower than expected number of seated tractors and the limited availability of independent contractor capacity when compared to 2003. Seated Company and independent contractor average tractor counts by quarter were as follows:  2004
    
    2003Average 
      Seated
      Company 
      Tractors
    
    
    Average 
      Seated
      Independent
      Contractor
      Tractors
    
    
    Total 
      Average
      Seated
      Tractors
    
    
    Average 
      Seated
      Company
      Tractors
    
    
    Average 
      Seated
      Independent
      Contractor
      Tractors
    
    
    Total
      Average
      Seated
      Tractors1st Quarter
    
    832
    
    
    698
    
    
    1,530
    
    
    971
    
    
    845
    
    
    1,8162nd Quarter
    
    895
    
    
    667
    
    
    1,562
    
    
    926
    
    
    850
    
    
    1,7763rd Quarter
    
    920
    
    
    628
    
    
    1,548
    
    
    852
    
    
    805
    
    
    1,6574th Quarter
    
    897
    
    
    580
    
    
    1,477
    
    
    827
    
    
    746
    
    
    1,573  At December 31, 2004, the Companys fleet included 1,003 Company-owned tractors and 551 tractors
provided by independent contractors compared to 1,000 Company-owned tractors and 713 tractors provided
by independent contractors at December 31, 2003. At December 31, 2004, 143 tractors were unseated
compared to 178 unseated tractors at December 31, 2003.
The Company measures revenue excluding fuel surcharges, or freight revenue, in addition
to operating revenue, because management believes removing this sometimes volatile source of revenue
affords a more consistent basis for comparing results of operations from period to period. Operating
revenues per total mile, which includes fuel surcharges, were $1.44 per total mile for 2004 compared
to $1.32 per total mile for 2003. Freight revenues per total mile, which excludes fuel surcharges,
were $1.33 per total mile for 2004 compared to $1.27 per total mile for 2003. The increase in 2004
is primarily a result of rate increases achieved with our customers due to increased demand for freight
capacity, improving customer mix, as well as increased accessorial charges related to new HOS regulations
implemented in 2004.
The following table reconciles the differences between these non-GAAP financial measures excluding


fuel surcharges and the most directly comparable GAAP measures including fuel surcharges.  **2004**
    
    **2003**Operating Revenue per total mile
    
    $
    1.44
    
    $
    1.32Fuel surcharge per total mile
    
    
    0.11
    
    
    0.05Freight revenue per total mile
    
    $
    1.33
    
    $
    1.27 15


---

TRANSPORT CORPORATION OF AMERICA, INC.
      Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $3,106 during 2004 compared to $2,846 during 2003. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,880 during 2004 compared to $2,726 during 2003. The increase in equipment utilization in 2004 reflects increased rates and higher miles per tractor per week when compared to 2003, offset by a higher percentage of empty (deadhead) miles in 2004.
    The following table reconciles the differences between these non-GAAP financial measures excluding fuel surcharges and the most directly comparable GAAP measures including fuel surcharges. **2004**
    
    **2003**Operating revenue per tractor per week
    
    
    $
    3,106
    
    $
    2,846Fuel surcharge per tractor per week
    
    
    
    226
    
    
    120Freight revenue per tractor per week
    
    
    $
    2,880
    
    $
    2,726  Logistics revenues were $3.1 million and $2.7 million in 2004 and 2003, respectively. Profit contribution
related to the logistics revenue was $0.6 million and $0.5 million in 2004 and 2003, respectively.
During 2004, Company-owned tractors averaged 60.0% of all available tractors, compared to 54.4% in
2003, with the remaining portion of the tractor fleet provided by independent contractors. The shift
from owner-operators to Company drivers is primarily due to the difficulties in recruiting and retaining
owner-operators, since the market for these drivers has tightened significantly. As a result of the
change in mix as a percentage of the total fleet, Company drivers drove a greater proportion of miles
in 2004 than in the prior year. Accordingly, certain expenses, as a percentage of revenues, shifted
among several expense categories in 2004 when compared to 2003 as explained below.
Salaries, wages, and benefits increased $5.0 million to $76.1 million during 2004 compared to $71.1
million during 2003. Salaries, wages, and benefits, as a percentage of operating revenues, were 29.5%
in 2004 compared to 27.5% in 2003. The increase is primarily a result of higher miles driven by employee
drivers when compared to independent contractors (employee transported miles represented 57.3% of
total miles in 2004 compared to 51.3% of total miles in 2003), as well as an increase in the line-haul
rates paid to drivers. In addition, accessorial compensation increased as a result of the new hours
of service rules, trainer pay increased as a result of additional trainers, shop wages increased
in order to provide maintenance services to owner operators, and workers compensation costs
increased due to increased per-claim costs.
Fuel, maintenance, and other expenses increased $4.0 million to $42.9 million during 2004 compared
to $38.9 million in 2003. Fuel, maintenance, and other expenses, as a percentage of operating revenues,
were 16.6% in 2004 compared to 15.0% in 2003. The increase reflects higher fuel prices, a higher
proportion of miles driven by company drivers, and increased equipment damage costs. These increases
were offset by lower maintenance costs during 2004 when compared to 2003. 16


---

TRANSPORT CORPORATION OF AMERICA, INC.
Purchased transportation decreased $12.4 million to $79.1 million in 2004 compared to $91.5 million
in 2003. Purchased transportation, as a percentage of operating revenues, was 30.6% in 2004 compared
to 35.4% in 2003. The decrease reflects lower miles driven by independent contractors (independent
contractor transported miles represented 42.7% of total miles in 2004 compared to 48.7% of total
miles in 2003), offset by an increase in the line-haul and accessorial rates paid to independent
contractors, along with increased fuel surcharge pass-through costs resulting from higher fuel costs.
Revenue equipment leases increased $0.2 million to $1.3 million in 2004 compared to $1.1 million in
2003. Revenue equipment leases, as a percentage of operating revenues, were 0.5% in 2004 compared
to 0.4% in 2003, reflecting the Companys use of operating leases for certain tractors acquired
in 2002 and 2004. The increase reflects the addition of 50 used tractors financed via operating leases
in 2004.
Depreciation and amortization decreased $1.3 million to $23.8 million in 2004 compared to $25.1 million
in 2003. Depreciation and amortization, as a percentage of operating revenues, was 9.2% of operating
revenues in 2004 compared to 9.7% in 2003. The decrease is primarily due to reduced depreciation
as a result of the sale of the Companys rights in the corporate headquarters in the fourth
quarter of 2003, partially offset by increased depreciation on trailers acquired in 2004.
Insurance, claims and damage expense increased $0.2 million to $12.5 million in 2004 compared to $12.3
million in 2003. Insurance, claims and damage expense, as a percentage of operating revenues, was
4.8% in 2004 compared to 4.7% in 2003. In the fourth quarter 2003 the Company increased accident
and workers compensation reserves by $1.8 million as a result of increased claim settlement costs
and growth in open claims. The Company experienced higher accident frequency and severity during
2004 when compared to 2003.
Taxes and licenses expense remained at $4.6 million in both 2004 and 2003 even though the Companys
overall fleet is smaller in 2004, due to increased fees and assessments levied by taxing authorities.
Taxes and licenses, as a percentage of operating revenues, was 1.8% in 2004 and 2003.
Communication expense decreased $0.4 million to $1.8 million in 2004 compared to $2.2 million in 2003.
Communication expense, as a percentage of operating revenues, was 0.7% in 2004 compared to 0.8% in
2003. The decrease reflects the effect of favorable rates for communication services in 2004 combined
with fewer tractors in the overall fleet.
Other general and administrative expense remained at $9.6 million in both 2004 and 2003. Other general
and administrative expense, as a percentage of operating revenues, was 3.7% in 2004 and 2003. Increases
in other general and administrative expenses include driver hiring and training expenses and building
rent as a result of the Company selling its rights in the corporate headquarters facility and leasing
back a portion of the space in the fourth quarter of 2003. Decreases in other general and administrative
expenses include office management expenses, building repair costs, and real estate taxes resulting
from the Companys sale of its rights in the headquarters facility. Included in 2004 other general
and administrative expense is a pre-tax impairment charge of $190,000 related to a sub-lease agreement
whereby the Company 17


---

TRANSPORT CORPORATION OF AMERICA, INC.
signed an agreement to rent 9,000 square feet of its headquarters facility at a rental rate that was
less than the rental rate paid by the company.
During 2002, the Company initiated plans to accelerate the disposal of a number of tractors and trailers,
which resulted in the Company recording an impairment charge under Statement of Financial Accounting
Standards (SFAS) No. 144. These programs were substantially completed during 2003, and
an analysis of the initial impairment reserves demonstrated that the ultimate impairment was less
than originally estimated by $549,000; accordingly, this amount was reversed and recorded as income
in 2003.
Loss on the disposition of revenue equipment was $25,000 in 2004, compared to a gain of $1.3 million
in 2003. The gain in 2003 was primarily related to the sale of a maintenance facility located in
Clarksville, Indiana.
As a result of the items discussed above, the Companys operating income increased $2.1 million
to $6.5 million in 2004 compared to $4.4 million in 2003. The Companys operating ratio (operating
expenses as a percentage of operating revenues) was 97.5% in 2004 compared to 98.3% in 2003.
Net interest expense decreased $1.0 million to $3.1 million in 2004 compared to $4.1 million in 2003.
Net interest expense, as a percentage of operating revenues, was 1.2% in 2004 compared to 1.6% in
2003. The decrease primarily reflects lower average debt balances during 2004.
Income tax provision increased $1.2 million to $1.3 million in 2004 compared to $163,000 in 2003. The
effective tax expense rate in 2004 was 39.2%, compared to an effective tax benefit rate of 68.7%
in 2003. The difference between the effective rates and statutory rates is due to the effect and
timing of non-deductible items in 2004 and 2003, further compounded by the fact that the 2003 income
before income taxes and the cumulative effect of a change in accounting principle was near break-even.
Net income before the effect of changes of accounting principle increased $1.9 million to $2.0 million
in 2004 compared to $74,000 in 2003. Net income before the effect of changes in accounting principle
was 0.8% of operating revenues for 2004 compared to 0.03% of operating revenues for 2003.
The Company adopted SFAS No. 143 Accounting for Asset Retirement Obligations in 2003, which resulted
in the Company establishing a liability of $212,000 for the fair value of tire disposal fees, a prepaid
asset related to tire disposal fees of $106,000, and a charge of $64,000, net of a tax benefit of
$42,000, representing the cumulative effect of change in accounting principle.
In 1999, the Company entered into a lease arrangement for its corporate headquarters facility which
was accounted for as an operating lease in accordance with SFAS No. 13, Accounting for Leases. In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities.
The Company evaluated the treatment of this leasing arrangement under Interpretation No. 46 and concluded
the pronouncement required the Company to consolidate this lease and record an asset and related
liability in its financial 18


---

TRANSPORT CORPORATION OF AMERICA, INC.
      statements.  Accordingly, the Company recorded an asset of $11.2 million, debt of $13.0 million, and a cumulative-effect adjustment to earnings of $1.1 million (net of tax benefit of $0.7 million) related to this lease.
      Net income including the cumulative effect of changes in accounting principle was $2.0 million, or 0.8% of operating revenue, in 2004 compared to a net loss of 1.1 million, or 0.4% of operating revenues in 2003.
      Year Ended December 31, 2003, Compared to Year Ended December 31, 2002
    Operating revenues, including fuel surcharges, were $258.9 million for the year ended December 31, 2003, compared to $273.2 million for the year ended December 31, 2002, a decrease of 5.2%. Fuel surcharges were $10.8 million and $5.3 million for the years ended December 31, 2003 and 2002, respectively, reflecting the effect of higher fuel costs in 2003. Excluding fuel surcharges, revenues decreased 7.4% when compared to 2002. Revenues in the latter half of the year were negatively impacted by lower than expected seated tractors and the limited availability of independent contractor capacity. Seated Company and independent contractor average tractor counts by quarter were as follows: **2003**
    
    2002Average 
      Seated
      Company 
      Tractors
    
    
    Average Seated
      Independent
      Contractor
      Tractors
    
    
    Total 
      Average
      Seated
      Tractors
    
    
    Average 
      Seated
      Company
      Tractors
    
    
    Average 
      Seated
      Independent
      Contractor
      Tractors
    
    
    Total 
      Average
      Seated 
      Tractors1st Quarter
    
    
    
    971
    
    
    845
    
    
    1,816
    
    
    1,153
    
    
    742
    
    
    1,8952nd Quarter
    
    
    
    926
    
    
    850
    
    
    1,776
    
    
    1,078
    
    
    770
    
    
    1,8483rd Quarter
    
    
    
    852
    
    
    805
    
    
    1,657
    
    
    989
    
    
    801
    
    
    1,7904th Quarter
    
    
    
    827
    
    
    746
    
    
    1,573
    
    
    993
    
    
    820
    
    
    1,813  At December 31, 2003, the Companys fleet included 1,000 Company-owned tractors and 713 tractors
provided by independent contractors compared to 1,057 Company-owned tractors and 836 tractors provided
by independent contractors at December 31, 2002. At December 31, 2003, 178 tractors were unseated
compared to 45 unseated tractors at December 31, 2002. The increase in unseated tractors in 2003
was due to difficulties in recruiting and retaining professional and student drivers.
The Company measures revenue excluding fuel surcharges, or freight revenue, in addition
to operating revenue, because management believes removing this sometimes volatile source of revenue
affords a more consistent basis for comparing results of operations from period to period. Operating
revenues per total mile, which includes fuel surcharges, were $1.32 per total mile for 2003 compared
to $1.27 for 2002. Freight revenues per total mile, which excludes fuel surcharges, were $1.27 per
total mile for 2003, compared to $1.24 for 2002. The increase in 2003 is primarily a result of lower
empty (deadhead) miles and rate increases achieved with our customers.
The following table reconciles the differences between these non-GAAP financial 19


---

TRANSPORT CORPORATION OF AMERICA, INC.
    measures excluding fuel surcharges and the most directly comparable GAAP measures including fuel surcharges. **2003**
    
    **2002**Operating Revenue per total mile
    
    $
    1.32
    
    $
    1.27Fuel surcharge per total mile
    
    
    0.05
    
    
    0.03Freight revenue per total mile
    
    $
    1.27
    
    $
    1.24Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $2,846 during 2003, compared to $2,769 for 2002. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,726 during 2003, compared to $2,714 for 2002. The increase in equipment utilization in 2003 reflects lower deadhead miles, offset by a decrease in the number of seated tractors, when compared to the same period of 2002.
    The following table reconciles the differences between these non-GAAP financial measures excluding fuel surcharges and the most directly comparable GAAP measures including fuel surcharges.  **2003**
    
    **2002**Operating revenue per tractor per week
    
    $
    2,846
    
    $
    2,769Fuel surcharge per tractor per week
    
    
    120
    
    
    55Freight revenue per tractor per week
    
    $
    2,726
    
    $
    2,714  Logistics revenues were $2.7 million and $5.7 million in 2003 and 2002, respectively. The majority
of the decrease in logistics revenues was due to the elimination of a specific lane of business for
a specific customer that did not fit the Companys operating strategy. Profit contribution related
to the logistics revenue was $0.5 million and $1.0 million in 2003 and 2002, respectively.
During 2003, Company-owned tractors averaged 54.4% of all available tractors, compared to 59.0% in
2002, with the remaining portion of the tractor fleet provided by independent contractors. The shift
from Company drivers to owner-operators is primarily due to the success of the Companys lease-to-own
program. As a result of the change in mix as a percentage of the total fleet, independent contractors
drove a greater proportion of miles in 2003 than in the prior year. Accordingly, certain expenses,
as a percentage of revenues, shifted among several expense categories in 2003 when compared to 2002
as explained below.
Salaries, wages, and benefits decreased $9.2 million to $71.1 million during 2003 compared to $80.3
million during 2002. Salaries, wages and benefits expenses, as a percentage of operating revenues,
were 27.5% for 2003 compared to 29.4% for 2002. The decrease is primarily a result of lower miles
driven by employee drivers when compared to independent contractors (employee transported miles represented
51.3% of total miles in 2003 compared to 55.3% of total miles in 2002), lower driver assessorial
wages due to reduced stop-offs, 20


---

TRANSPORT CORPORATION OF AMERICA, INC.
detentions, and layovers; and a reduction in non-driver payroll expense in 2003, partially offset by
higher workers compensation insurance and claims costs. The reduction in non-driver payroll
is primarily the result of closing two service centers.
Fuel, maintenance, and other expenses remained consistent at $38.9 million in both 2003 and 2002. Fuel,
maintenance and other expenses, as a percentage of operating revenues, were 15.0% for 2003 compared
to 14.2% for 2002. The increase is primarily a result of increased maintenance and tire replacement
costs partially offset by a lower proportion of miles driven by Company drivers.
Purchased transportation decreased $0.2 million to $91.5 million in 2003 compared to $91.7 million
in 2002. Purchased transportation, as a percentage of operating revenues, was 35.4% for 2003 compared
to 33.6% for 2002. The increase as a percentage of operating revenues reflects higher miles driven
by independent contractors (independent contractor transported miles represented 48.7% of total miles
in 2004 compared to 44.7% of total miles in 2002), and higher pass-through of fuel surcharge revenues
to independent contractors as a reflection of higher fuel costs.
Revenue equipment leases increased $0.3 million to $1.1 million in 2003 compared to $0.8 million in
2002. Revenue equipment leases, as a percentage of operating revenues, were 0.4% in 2003 compared
to 0.3% in 2002, reflecting the Companys use of operating leases for certain tractors acquired
in 2002.
Depreciation and amortization decreased $2.4 million to $25.1 million in 2003 compared to $27.5 million
in 2002. Depreciation and amortization, as a percentage of operating revenues, was 9.7% for 2003,
compared to 10.1% for 2002. The decrease is primarily a result of a reduction in the number of company
owned tractors and trailers.
Insurance, claims and damage expense decreased $1.3 million to $12.3 million in 2003 compared to $13.6
million in 2002. Insurance, claims and damage expense, as a percentage of operating revenues, was
4.7% in 2003 compared to 5.0% in 2003. The decrease is due to a reduction in the number and severity
of accidents in 2003 compared to 2002, and to fourth quarter adjustments to increase accident and
workers compensation reserves of $1.8 million in 2003 compared to fourth quarter adjustments
of $2.6 million in 2002 as a result of increased claim settlement costs and growth in open claims,
partially offset by higher premiums.
Taxes and licenses expense decreased $0.4 million to $4.6 million in 2003 compared to $5.0 million
in 2002. This decrease is due to the reduction in the overall fleet size. Taxes and licenses, as
a percentage of operating revenues, were consistent at 1.8% for 2003 and 2002.
Communication expense decreased $0.4 million to $2.2 million in 2003 compared to $2.6 million in 2002.
Communications expense, as a percentage of operating revenues, was 0.8% for 2003 compared to 0.9%
for 2002. The decrease reflects the effect of fewer tractors in the overall fleet.
Other general and administrative expense increased $0.5 million to $9.6 million in 2003 compared to
$9.1 million in 2002. Other general and administrative expense, as a percentage of operating revenues
was 3.7% for 2003, compared to 3.3% for 2002. The increase is primarily a 21


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TRANSPORT CORPORATION OF AMERICA, INC.
result of increased security costs at the service centers, employee-moving expenses, increased consulting
fees, and increased software maintenance fees.
Impairment of revenue equipment was a credit to income of $549,000 or 0.2% of operating revenue in
2003, compared to an expense of $4.7 million, or 1.7% of operating revenues in 2002. During March
2002, the Company initiated a plan to accelerate the disposal of approximately 260 tractors and 500
trailers. As a result of the change in the utilization period and the related estimated cash flows,
the Company recorded a pre-tax $4.7 million impairment charge under Statement of Financial Accounting
Standards (SFAS) No. 144 related to this disposition of revenue equipment. This initial
impairment program was substantially completed during the first quarter 2003. An analysis of this
initial impairment reserve demonstrated that the ultimate impairment on this disposal program was
less than originally estimated and the reserve was reduced by $1.0 million in the fourth quarter
of 2002 and a further $278,000 in the first quarter of 2003. During the fourth quarter 2002, the
Company established an additional disposal program for 400 trailers that it intended to dispose of
in 2003. The impairment charge on this disposal program was estimated to be approximately $1.0 million.
The ultimate impairment on this disposal program was less than originally estimated by approximately
$271,000; accordingly, this amount was reversed and recorded as income in the fourth quarter of 2003.
Gain on the disposition of property and equipment was $1.3 million in 2003 related primarily to the
disposition of real estate property, compared to a gain of $36,000 in 2002.
As a result of the items discussed above, the Companys operating income increased $5.3 million
to $4.4 million in 2003 compared to a loss of $0.9 million in 2002. The Companys operating
ratio (operating expenses as a percentage of operating revenues) was 98.3% for 2003 compared to 100.3%
for 2002.
Net interest expense decreased $1.3 million to $4.1 million in 2003 compared to $5.4 million in 2002.
Net interest expense, as a percentage of operating revenues, was 1.7% for 2003, compared to 2.0%
for 2002. The decrease reflects lower average outstanding debt balances during 2003.
Income tax provision increased $2.9 million to $163,000 in 2003 compared to an income tax benefit of
$2.7 million in 2002. The effective tax expense rate for 2003 was 68.7%, compared to an effective
tax benefit rate of 42.6% for 2002. The tax expense rate in 2003 is primarily a result of the effect
of non-deductible items for tax purposes in relation to low pre-tax income. The 2002 tax benefit
rate of 42.6% includes a 4.7% benefit due to a favorable adjustment related to tax contingency reserves.
Net income before the effect of changes of accounting principle was $74,000, or 0.02% of operating
revenues for 2003, compared to a net loss of $3.7 million, or 1.3% of operating revenues for 2002.
In 2003, the Company adopted SFAS No. 143 Accounting for Asset Retirement Obligations, which
resulted in the Company establishing a liability of $212,000 for the fair value of tire disposal
fees, a prepaid asset related to tire disposal fees of $106,000, and a charge of $64,000, net of
a tax benefit of $42,000, representing the cumulative effect of change in accounting principle. 22


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TRANSPORT CORPORATION OF AMERICA, INC.
In 1999, the Company entered into a lease arrangement for its corporate headquarters facility which
was accounted for as an operating lease in accordance with SFAS No. 13, Accounting for Leases. In
January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities.
The Company evaluated the treatment of this leasing arrangement under Interpretation No. 46 and concluded
the pronouncement required the Company to consolidate this lease and record an asset and related
liability in its financial statements. Accordingly, the Company recorded an asset of $11.2 million,
debt of $13.0 million, and a cumulative-effect adjustment to earnings of $1.1 million (net of tax
benefit of $0.7 million) related to this lease.
In 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets; which
resulted in the Company recording a goodwill impairment charge of $16.7 million, net of tax benefit
of $7.7 million benefit, as a cumulative effect of change in accounting principle. At December 31,
2001, the carrying value of goodwill, net of amortization, was $24.4 million.
Net loss including the cumulative effect of changes in accounting principle was $1.1 million or 0.4%
of operating revenues for 2003, compared to a net loss of $20.4 million or 7.4% of operating revenues
for the year ended December 31, 2002.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make decisions based upon estimates, assumptions,
and factors it considers as relevant to the circumstances. Such decisions include the selection of
applicable accounting principles and the use of judgment in their application, the results of which
impact reported amounts and disclosures. Changes in future economic conditions or other business
circumstances may affect the outcomes of managements estimates and assumptions. Accordingly,
actual results could differ from those anticipated. A summary of the significant accounting policies
followed in preparation of the financial statements is contained in Note 1 of the financial statements
attached hereto. Other footnotes describe various elements of the financial statements and the assumptions
on which specific amounts were determined. Not all of these significant accounting policies require
management to make difficult subjective or complex judgments or estimates. An accounting estimate
is considered to be critical if it meets both of the following criteria: (i) the estimate requires
assumptions about matters that are highly uncertain at the time the accounting estimate is made,
and (ii) different estimates reasonably could have been used or changes in the estimate that are
reasonably likely to occur from period to period would have a material impact on the presentation
of the financial condition or results of operations. The Companys critical accounting policies include the following:
Revenue Equipment, Property, and Other Equipment. Revenue equipment, property, and other equipment are recorded at cost. Depreciation, including amortization
of capitalized leases, is computed using the straight-line basis over the estimated useful lives
of the assets or the lease periods, whichever is shorter. As part of a purchase program with a tractor
manufacturer, the Company has obtained residual value guarantees for a significant portion of its
tractors. Management must make significant estimates regarding the useful lives and salvage values for 23


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TRANSPORT CORPORATION OF AMERICA, INC.
purposes of depreciating tractors and trailers. A ten percent decrease in estimated salvage values on tractors and trailers would have decreased the Companys net revenue equipment as of December 31, 2004 by approximately $1.9 million.Estimated Liability for Insurance Claims.Management estimates accruals for the self-insured portion of pending accident liability, workers compensation, physical damage,
and cargo damage claims. In the month claims are reported, the Company estimates and establishes
a liability for its share of ultimate settlements using all available information, coupled with the
Companys history of such claims. Claim estimates are adjusted as additional information becomes
available. The recorded expense depends upon actual loss experience and changes in estimates of settlement
amounts for open claims that have not been fully resolved. However, final settlement of these claims
could differ materially from the amounts the Company has accrued at year-end. If the accident and
property claims settlement costs increased by ten percent, the estimated outstanding loss reserves
as of December 31, 2004 would have had to increase by approximately $1.2 million. If the workers compensation settlement costs increased by ten percent the outstanding loss reserves as of December
31, 2004 would have had to increase by approximately $0.2 million.
Impairment of Long-Lived Assets.Long-lived assets
and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted
cash flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Liquidity and Capital Resources
Net cash provided by operating activities was $29.9 million, $28.9 million, and $29.2 million, for
the years ended December 31, 2004, 2003, and 2002, respectively. During 2004, 2003, and 2002, the
net change of operating assets and liabilities provided cash of $3.3 million, $6.9 million, and $3.3
million, respectively. The primary changes in operating assets and liabilities relate to reduced
accounts receivables as a result of lower revenues and ongoing collection efforts, reduced lease
receivables as a result of independent contractors who participate in the Companys lease to
own program continue to make payments under the program, and increased accounts payable and increased
accrued insurance, claims and damage expense.
Investing activities consumed cash of $19.0 million in 2004, including $18.0 million for the purchase
of new revenue equipment, net of proceeds from the disposition of used revenue equipment, and $1.0
million for software development and purchases of other equipment. Investing activities consumed
cash of $11.3 million in 2003, including $10.5 million for the purchase of new revenue equipment,
net of proceeds from the disposition of used revenue equipment, and $0.8 million for software development
and purchases of other equipment. Investing activities consumed cash of $7.6 million in 2002, including
$6.2 million for the purchase of new revenue equipment, net of proceeds for the disposition of used
revenue 24


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TRANSPORT CORPORATION OF AMERICA, INC.
equipment, and $1.4 million for software development and purchases of other equipment. In 2004, 2003,
and 2002, the Company acquired 200, 250, and 334 tractors, respectively and disposed of 197, 318,
and 582 tractors, respectively. In addition, in 2004 the Company acquired 15 trailers related to
a new dedicated operation, replaced 500 trailers and disposed of an additional 95 trailers in excess
of current needs. The Company disposed of 481 trailers in 2003 and 459 trailers in 2002 that were
determined to be in excess of Company needs.
Net cash consumed by financing activities in 2004 was $9.5 million, including $26.4 million for repayments
of long-term debt, and $20.6 million of proceeds from the issuance of new long-term debt associated
with new revenue equipment. Net cash consumed by financing activities in 2003 was $15.3 million,
including $2.5 million net repayments to the Companys credit facility, $32.5 million for repayments
of long-term debt, and $20.5 million from proceeds from the issuance of new long-term debt associated
with new revenue equipment. Net cash consumed by financing activities in 2002 was $22.6 million,
including $16.5 million net repayments to the Companys credit facility, $27.9 million for repayments
of long-term debt, and $21.4 million from proceeds from the issuance of new long-term debt associated
with new revenue equipment. At December 31, 2004, 2003, and 2002, the Company had $25.6 million,
$3.2 million, and $0.0 outstanding commitments for the purchase of revenue equipment, respectively.
Working capital was negative $7.9 million at December 31, 2004 and $33,000 at December 31, 2003. The
Company relies primarily on its operating cash flows and available borrowings under its credit facility
to satisfy its short-term capital and debt-service requirements.
The
Company has a credit agreement for a secured credit facility with maximum combined borrowings and
letters of credit of $30 million. The credit agreement expires May 4, 2007. Amounts actually available
under the credit facility are limited by the Companys accounts receivable and unencumbered
revenue equipment. At December 31, 2004, the Company had additional amounts available under its credit
facility of $19.8 million based on available borrowing and collateral requirements. The credit facility
is used to meet working capital needs, purchase revenue equipment and other assets, and to satisfy
letter of credit requirements associated with the Companys self-insured retention arrangements.
At December 31, 2004, there were no outstanding borrowings against this credit facility. At December
31, 2004, the Company had outstanding letters of credit of $5.3 million against this credit facility.
The credit agreement contains certain financial covenants, which include maintenance of a minimum
net worth, maintenance of a consolidated funded indebtedness to consolidated earnings before interest,
taxes, depreciation, amortization and lease rental expenses, and maintenance of a minimum cash flow
coverage ratio. The Company was in compliance with these covenants at December 31, 2004. The Company
expects to continue to fund its liquidity needs and anticipated capital expenditures with cash flows
from operations, the credit facility, and other borrowing arrangements related to revenue equipment purchases.
Off-Balance Sheet Arrangements and Contractual Obligations
It is not the Companys usual business practice to enter into off-balance sheet arrangements,
except for off-balance sheet arrangements related to operating lease commitments and letters of credit
for self-insured workers compensation reserves disclosed in the table of 25


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TRANSPORT CORPORATION OF AMERICA, INC.
      contractual obligations below. While it is not the Companys normal policy to issue guarantees to third parties, the Company entered into lease arrangements in 2002 for revenue equipment that are classified as operating leases. The lease agreements are for terms of 48 months and contain TRAC (terminal rental adjustment clause) provisions, which require the Company to guarantee a termination value as a percentage of the original cost of the leased equipment at the lease termination date. The maximum potential amount the Company could be required to pay under the guarantee is $1.1 million.
    The following tables set forth the Companys contractual obligations as of December 31, 2004:Payments Due by Period
      (In thousands) **Contractual Obligations**
    **Total**
    
    **Less than
      one year**
    
    **1 - 3
      Years**
    
    **3 - 5
      Years**
    
    **More than
      5 years**Long-term debt
    $
    36,301
    
    $
    7,965
    
    $
    19,294
    
    $
    9,042
    
    $
    Interest on long-term debt
    
    3,983
    
    
    1,548
    
    
    1,959
    
    
    476Capital leases
    
    12,816
    
    
    9,990
    
    
    2,826
    
    
    
    
    
    Interest on capital leases
    
    669
    
    
    562
    
    
    107
    
    
    
    
    
    Purchase Obligations for Revenue Equipment
    
    25,624
    
    
    25,624
    
    
    
    
    
    
    
    
    Operating leases
    
    17,550
    
    
    2,954
    
    
    4,302
    
    
    2,170
    
    
    8,124Letters of credit
    
    5,300
    
    
    5,300
    
    
    
    
    
    
    
    
    Guarantees
    
    1,050
    
    
    
    
    
    1,050
    
    
    
    
    
    Total Obligations
    $
    103,293
    
    $
    53,943
    
    $
    29,538
    
    $
    11,688
    
    $
    8,124  In 1999, the Company entered into a lease arrangement for its corporate office facility, which has
been financed by a special purpose entity (SPE) sponsored by a bank. The SPE was not
consolidated in the Companys financial statements and the Company had accounted for this arrangement
as an operating lease in accordance with SFAS No. 13, Accounting for Leases. In
conjunction with this arrangement, the Company had a residual value guarantee of up to $11.2 million,
plus selling costs, if the Company did not exercise its purchase option and the property was sold
for less than $13.0 million, the Asset Termination Value. As discussed more fully in Note 1 to the
consolidated financial statements, the Company evaluated the treatment of this leasing arrangement
under Interpretation No. 46 and concluded the pronouncement required the Company to record the asset
and related liability in its financial statements. The Company elected early adoption and the prospective
application provisions of Interpretation No. 46, and accordingly, recorded an asset of $11.2 million,
the related debt of $13.0 million, and a cumulative-effect adjustment of $1.1 million (net of tax
benefit of $0.7 million). The Company sold its rights in this property on December 23, 2003 and concurrent
with the sale signed a thirteen-year lease for the two-thirds of the building the Company currently
occupies. This transaction has been accounted for as a sale-leaseback and thus the related asset
and long-term debt balances have been removed from the balance sheet. 26


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TRANSPORT CORPORATION OF AMERICA, INC.
Forward-looking Statements
Statements
included in this Managements Discussion and Analysis of Financial Condition and Results of
Operations, in the Companys Annual Report, elsewhere in this Report, in future filings by the
Company with the SEC, in the Companys press releases, and in oral statements made with the
approval of an authorized executive officer which are not historical or current facts, are forward-looking
statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical results and those presently anticipated
or projected. The Company wishes to caution readers not to place undue reliance on any forward-looking
statements, which speak only as of the date made. The following important factors, among other things,
in some cases have affected and in the future could affect the Companys actual results and
could cause the Companys actual financial performance to differ materially from that expressed
in any forward-looking statement: (1) the highly competitive conditions that currently exist in the
Companys market and the Companys ability to compete, (2) the Companys ability to
recruit, train, and retain qualified drivers, (3) increases in fuel prices, and the Companys
ability to recover these costs from its customers, (4) the impact of environmental standards and
regulations on new revenue equipment, (5) changes in governmental regulations applicable to the Companys
operations, including the changes related to hours of service which went into effect on January 4,
2004, (6) adverse weather conditions, (7) accidents, (8) the market for used revenue equipment, (9)
changes in interest rates, (10) cost of liability insurance coverage, and (11) downturns in general
economic conditions affecting the Company and its customers. The foregoing list should not be construed
as exhaustive, and the Company disclaims any obligation subsequently to revise or update any previously
made forward-looking statements. Unanticipated events are likely to occur.
Seasonality
As
is typical in the truckload industry, the Companys operations fluctuate seasonally according
to customer shipping patterns, which tend to peak in the summer and fall, then increase again after
the holiday and winter seasons. Operating expenses also tend to be higher during the cold weather
months, primarily due to lower fuel economy and increased maintenance costs.
Inflation
Many
of the Companys operating expenses are sensitive to the effects of inflation, which could result
in higher operating costs. With the exception of fuel price increases, the effects of inflation on
the Companys business have not been significant during the last three years. The Company has
in place with the majority of its customers fuel surcharge provisions that allow the Company to partially
recover additional fuel costs when fuel prices exceed a certain reference price per gallon.
New Accounting Pronouncements to be adoptedIn December 2004, the FASB issued SFAS No. 123R Share based payment which is a 27


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TRANSPORT CORPORATION OF AMERICA, INC. revision to SFAS No. 123 Accounting for Stock Based Compensation. The provisions of this
statement shall be effective for interim periods beginning after June 15, 2005. This new accounting
pronouncement will require the Company to recognize in the income statement the grant-date fair value
of stock-based compensation issued to employees. The Company currently accounts for stock-based compensation
under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation
cost is currently reflected in net income, but the Company does disclose in its footnotes the effect
on net income and earnings per share if the Company had applied the fair value recognition provisions
of Statement No. 123. The Company is still evaluating the ultimate financial statement impact as
it relates to Statement No. 123R, however, it does not currently believe the impact will be significantly
different from the amounts currently disclosed in the notes to the financial statements.In December 2004, the FASB issued SFAS No. 153, Exchanges of non-monetary assets,an amendment of APB Opinion No. 9. The provisions of this statement shall be effective for interim periods beginning after June 15, 2005. The adoption of this new accounting standard is not expected to have a material impact on the Companys financial statements. Item 7A.
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKThe Company is exposed to market risk from changes in interest rates and commodity prices.
Interest Rate Risk
The
Company is exposed to certain market risks with its $30 million credit agreement, of which $0 was
outstanding at December 31, 2004. The agreement bears interest at a variable rate, which was
5.75% at December 31, 2004. Consequently, the Company is exposed to the risk of greater borrowing
costs if interest rates increase.
Commodity Price Risk
The price and availability of diesel fuel are subject to fluctuations due to changes in the level of
global oil production, seasonality, weather, and other market factors. Historically, the Company
has been able to recover a majority of fuel price increases from customers in the form of fuel surcharges.
The Company cannot predict the extent to which high fuel price levels will occur in the future or
the extent to which fuel surcharges could be collected to offset such increases. As of December 31,
2004, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations. 28


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TRANSPORT CORPORATION OF AMERICA, INC.Item 8.
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements described in Item 14(a)1 of this report are incorporated herein. See Quarterly Financial Data appearing on page F-24 of the audited consolidated financial statements, which are incorporated herein, by reference.Item 9.
  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.Item 9A.
  CONTROLS AND PROCEDURESThe Companys management, including the Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the 1934 Act) as of December 31, 2004. Based on that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports it files or submits under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms.
    There have been no changes in internal control over financial reporting during the quarter ended December 31, 2004 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.Item 9B.
OTHER INFORMATIONNone.PART IIIItem 10.
  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTFor information concerning the Companys executive officers, reference is made to the information set forth under the caption Executive Officers located in Item 1 of this Form 10-K. For information concerning the Companys directors and compliance by the Companys directors, executive officers and significant stockholders with the reporting requirements of Section 16(a) of the Securities Exchange Act of 1934, as amended, reference is made to the information set forth under the captions Election of Directors and Beneficial Ownership of Common Stock, respectively, in the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 29


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TRANSPORT CORPORATION OF AMERICA, INC.Item 11.
        EXECUTIVE COMPENSATIONReference is made to the information set forth under the caption Executive Compensation and Other Information in the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference, except to the extent stated therein.Item 12.
        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSReference is made to the information set forth under the caption Beneficial Ownership of Common Stock and under Executive Compensation and Other Information  Equity Compensation Plan Information in the Companys Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.Item 13.
        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSNone.Item 14.
        PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information required by this item is incorporated by reference to the information set forth under the heading Approval of Auditors  Audit Fees in the Companys Proxy Statement for the Annual Meeting of Shareholders to be held May 25, 2005, to be filed pursuant to Regulation 14A, which information is incorporated herein by reference.Item 15.
        EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)

Documents filed as part of this Form 10-K1.
Consolidated Financial StatementsForm 10-K
    Page ReferenceIndex to Consolidated Financial Statements
  F-1Report of Independent Registered Public Accounting Firm
  F-2Consolidated Balance Sheets
  F-3Consolidated Statements of Operations
  F-4Consolidated Statements of Stockholders Equity
  F-5Consolidated Statements of Cash Flows
  F-6Notes to Consolidated Financial Statements
  F-72.
  Consolidated Financial Statement SchedulesConsolidated Financial Statement SchedulesIncluded in Part IV of this report:Report of Independent Registered Public Accounting Firm
  S-1Schedule II - Valuation and Qualifying Accounts
  S-2 30


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TRANSPORT CORPORATION OF AMERICA, INC. (b)
    
    ExhibitsExhibit
      Number
    
    Description3.1
    
    Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys Registration Statement on Form S-1 (File No. 33-84140) as declared effective by the Commission on November 3, 1994 (the 1994 S-1)).3.2
    
    Bylaws (incorporated by reference to Exhibit 3.2 to the 1994 S-1).4.1
    
    Rights Agreement by and between the Company and Wells Fargo Bank Minnesota, N.A. (formerly Norwest Bank Minnesota, N.A.) dated February 25, 1997 (incorporated by reference to Exhibit 1 to the Companys Registration Statement on Form 8-A, as amended, filed with the SEC on February 27, 1997; to Exhibit 1 to the Companys Registration Statement on Form 8-K/A, filed with the SEC on June 29, 1998; and to Exhibit 1 to the Companys Registration Statement on Form 8-A/A, filed with the SEC on January 21, 2000).10.1
    
    Amended and Restated Credit Agreement dated as of October 5, 2001, among LaSalle Bank, N.A., Firstar Bank, N.A. and the Company (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2001).10.2
    
    1986 Stock Option Plan, as amended (incorporated by reference to Exhibit 10.2 to the Companys Form 10-K for the year ended December 31, 1996).10.3
    
    401(k) Retirement Plan (incorporated by reference to Exhibit 10.3 to the 1994 S-1).10.4
    
    Master Lease dated as of April 9, 1999, between the Company and ABN/AMRO Leasing, Inc. (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1999).10.5
    
    Agreement to terminate lease and assignment dated December 23, 2003, between the Company and ABN/AMRO Leasing, Inc. (incorporated by reference to Exhibit 10.5 to the Companys Form 10-K for the year ended December 31, 2003).10.6
    
    Lease termination agreement dated as of December 23, 2003, between the Company and ABN/AMRO Leasing, Inc. (incorporated by reference to Exhibit 10.6 to the Companys Form 10-K for the year ended December 31, 2003).10.7
    
    Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1999). 31


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TRANSPORT CORPORATION OF AMERICA, INC.10.8
        
        Form of Vehicle Lease and Independent Contractor Agreement (incorporated by reference to Exhibit 10.11 to the Companys Form 10-K for the year ended December 31, 1996).10.9
        
        Description of the terms of employment of Michael J. Paxton (incorporated by reference to Exhibit 10.7 to the Companys Form 10-K for the year ended December 31, 2001).10.10
        
        Supplement to Employment Offer and Change in Control Agreement between the Company and Keith R. Klein, dated December 31, 2001 (incorporated by reference to Exhibit 10.8 to the Companys Form 10-K for the year ended December 31, 2001).10.11
        
        2001 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.12 to the Companys Form 10-K for the year ended December 31, 2000).10.12
        
        1995 Stock Plan, as amended (incorporated by reference to Exhibit 10.13 to the Companys Form 10-K for the year ended December 31, 1996).10.13
        
        Non-Plan, Non-Qualified Stock Option Agreement of Michael J. Paxton (incorporated by reference to Exhibit 4.1 of the Companys Registration Statement on Form S-8, filed with the SEC on September 6, 2002).10.14
        
        Description of the terms of employment of Craig A. Coyan, with Addendum, dated July 1, 2003 (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003).10.15
        
        Severance Agreement between the Company and Richard R. Lane, dated March 3, 2003 (incorporated by reference to Exhibit 10.18 to the Companys Annual Report on Form 10-K for the quarter ended December 31, 2003).10.16
        
        Description of the terms of employment of Ronald C. Kipp, dated October 3, 2002 (incorporated by reference to Exhibit 10.19 to the Companys Annual Report on Form 10-K for the quarter ended December 31, 2003).10.17
        
        Description of the terms of employment of Christopher R. Licht, dated January 27, 2003 (incorporated by reference to Exhibit 10.20 to the Companys Annual Report on Form 10-K for the quarter ended December 31, 2003).10.18
        
        Severance Agreement between the Company and Christopher R. Licht, dated October 3, 2004 (filed herewith).10.19
        
        Forms of incentive stock option agreement, non-qualified stock option agreement and director stock option agreement under the Companys 1995 Stock Plan (filed herewith).21
        
        Subsidiaries of the Registrant (filed herewith).23
        
        Consent of Independent Registered Public Accounting Firm (filed herewith). 32


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TRANSPORT CORPORATION OF AMERICA, INC.31.1.
        
        Section 302 Certification of Chief Executive Officer (filed herewith).31.2.
        
        Section 302 Certification of Chief Financial Officer (filed herewith).32.1
        
        Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003 (filed herewith).32.2
        
        Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2003 (filed herewith).(c)
        
        SchedulesReference is made to Item 15(a)2. 33


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TRANSPORT CORPORATION OF AMERICA, INC.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. TRANSPORT CORPORATION OF AMERICA, INC. (Registrant)Dated: March 3, 2005By :        /s/ Michael J. PaxtonMichael J. Paxton
Chairman, President and Chief Executive Officer  Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.  Signature and Title
        
        Date/s/ Michael J. Paxton
        
        March 3, 2005Michael J. Paxton
        Chairman, President, and Chief Executive Officer 
        (Principal Executive Officer)/s/ Keith R. Klein
        
        March 3, 2005Keith R. KleinChief Financial Officer and Chief Information Officer(Principal Financial and Accounting Officer)/s/ William D. Slattery
        
        March 3, 2005William D.Slattery, Director/s/ Anton J. Christianson
        
        March 3, 2005Anton J. Christianson, Director/s/ William P. Murnane
        
        March 3, 2005William P. Murnane, Director/s/ Kenneth J. Roering
        
        March 3, 2005Kenneth J. Roering, Director/s/ Charles M. Osborne
        
        March 3, 2005Charles M. Osborne, Director/s/ Thomas R. McBurney
        
        March 3, 2005Thomas R. McBurney, Director 34


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TRANSPORT CORPORATION OF AMERICA, INC.INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  PageReport of Independent Registered Public Accounting Firm
    F-2Consolidated Balance Sheets
    F-3Consolidated Statements of Operations
    F-4Consolidated Statements of Stockholders Equity
    F-5Consolidated Statements of Cash Flows
    F-6Notes to Consolidated Financial Statements
    F-7 F-1


---

TRANSPORT CORPORATION OF AMERICA, INC.
Report of Independent Registered Public Accounting Firm
The Board of Directors and StockholdersTransport Corporation of America, Inc.:
We have audited the accompanying consolidated balance sheets of Transport Corporation of America, Inc.
and subsidiaries (the Company) as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders equity and cash flows for each of the years in the three-year
period ended December 31, 2004. 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 consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 Transport Corporation of America, Inc. and subsidiaries as of
December 31, 2004 and 2003, and the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions
of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, on January
1, 2002 and the provisions of FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
on July 1, 2003.
/s/ KPMG LLP
Minneapolis, MinnesotaFebruary 25, 2005 F-2


---

TRANSPORT CORPORATION OF AMERICA, INC.Consolidated Balance Sheets 
    (In thousands, except share and per share amounts)December 31,Assets
    2004
    
    2003Current assets:Cash and cash equivalents
    $
    3,714
    
    $
    2,345Trade accounts receivable, net of allowances for doubtful account andother billing adjustments of $800 in 2004 and $766 in 2003
    
    24,610
    
    
    24,978Other receivables
    
    1,170
    
    
    1,200Operating supplies - inventory
    
    800
    
    
    813Deferred income tax benefit (note 7)
    
    6,316
    
    
    6,452Prepaid expenses
    
    2,626
    
    
    2,894Total current assets
    
    39,236
    
    
    38,682Property and equipment:Land, buildings, and improvements
    
    16,516
    
    
    16,237Revenue equipment (note 1 and 9)
    
    180,827
    
    
    180,970Other equipment
    
    21,219
    
    
    21,436Total property and equipment
    

    218,562
    
    
    218,643Less accumulated depreciation
    
    (98,776
    )
    
    (94,102
    )Property and equipment, net
    
    119,786
    
    
    124,541Other assets, net (note 2)
    
    2,056
    
    
    2,045Total assets
    $
    161,078
    
    $
    165,268Liabilities and Stockholders EquityCurrent liabilities:Current maturities of long-term debt (note 3)
    $
    7,965
    
    $
    8,843Current maturities of capital lease obligations (note 9)
    
    9,990
    
    
    4,328Accounts payable
    
    5,026
    
    
    3,526Checks issued in excess of cash balances
    
    1,871
    
    
    1,066Due to independent contractors
    
    1,157
    
    
    1,545Accrued expenses (note 4)
    
    21,132
    
    
    19,407Total current liabilities
    
    47,141
    
    
    38,715Long-term debt, less current maturities (note 3)
    
    28,336
    
    
    28,929Capital lease obligations, less current maturities (note 9)
    
    2,826
    
    
    12,820Deferred income taxes (note 7)
    
    26,504
    
    
    26,103Commitments and contingencies (note 1, 5 and 9)Stockholders equity (note 5):Common stock, $.01 par value; 15,000,000 shares authorized;6,527,392 and 7,141,730 shares issued and outstanding as ofDecember 31, 2004 and 2003, respectively
    
    65
    
    
    71Additional paid-in capital
    
    25,428
    
    
    29,889Retained earnings
    
    30,778
    
    
    28,741Total stockholders equity
    
    56,271
    
    
    58,701Total liabilities and stockholders equity
    $
    161,078
    
    $
    165,268See accompanying notes to consolidated financial statements F-3


---

TRANSPORT CORPORATION OF AMERICA, INC.Consolidated Statements of Operations 
    (In thousands, except per share amounts)Years ended December 31,2004
    
    2003
    
    2002Operating revenues
    $
    258,408
    
    $
    258,859
    
    $
    273,227Operating expenses:Salaries, wages, and benefits
    
    76,129
    
    
    71,080
    
    
    80,289Fuel, maintenance, and other expenses
    
    42,909
    
    
    38,933
    
    
    38,903Purchased transportation
    
    79,144
    
    
    91,516
    
    
    91,706Revenue equipment leases
    
    1,266
    
    
    1,069
    
    
    841Depreciation and amortization
    
    23,757
    
    
    25,104
    
    
    27,474Insurance, claims and damage
    
    12,496
    
    
    12,287
    
    
    13,615Taxes and licenses
    
    4,604
    
    
    4,556
    
    
    4,986Communications
    
    1,788
    
    
    2,194
    
    
    2,576Other general and administrative expenses
    
    9,824
    
    
    9,611
    
    
    9,052Impairment of revenue equipment
    
    
    
    
    (549
    )
    
    4,741Loss (gain) on sale of property and equipment
    
    25
    
    
    (1,302
    )
    
    (36
    )Total operating expenses
    
    251,942
    
    
    254,499
    
    
    274,147Operating income (loss)
    
    6,466
    
    
    4,360
    
    
    (920
    )Interest expense
    
    3,281
    
    
    4,312
    
    
    5,571Interest income
    
    (166
    )
    
    (189
    )
    
    (124
    )Interest expense, net
    
    3,115
    
    
    4,123
    
    
    5,447Earnings (loss) before income taxes andcumulative effect of changes in accounting
    
    3,351
    
    
    237
    
    
    (6,367
    )Provision (benefit) for income taxes (note 7)
    
    1,314
    
    
    163
    
    
    (2,711
    )Earnings (loss) before cumulative effect ofchanges in accounting principle
    $
    2,037
    
    $
    74
    
    $
    (3,656
    )Cumulative effect of changes in accountingprinciple, net of tax effects (note 1)
    $
    
    
    
    (1,153
    )
    $
    (16,694
    )Net income (loss)
    $
    2,037
    
    $
    (1,079
    )
    $
    (20,350
    )Net earnings (loss) per share - basic:Before cumulative effect of changes in accounting principle
    $
    0.30
    
    $
    0.01
    
    $
    (0.50
    )Net earnings (loss) per share
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )Net earnings (loss) per share - diluted:Before cumulative effect of changes in accounting principle
    $
    0.30
    
    $
    0.01
    
    $
    (0.50
    )Net earnings (loss) per share
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )Average common shares outstanding:Basic
    
    6,722
    
    
    7,171
    
    
    7,243Diluted
    
    6,841
    
    
    7,204
    
    
    7,243See accompanying notes to consolidated financial statements. F-4


---

TRANSPORT CORPORATION OF AMERICA, INC.Consolidated Statements of Stockholders Equity(In thousands, except share amounts)Additional
paid-in
capital
    
    Retained
earnings
    
    Total 
      stockholdersequityCommon StockShares
    
    AmountBalance, December 31, 2001
    
    7,203,815
    
    
    72
    
    
    30,205
    
    
    50,170
    
    
    80,447Common stock optionsand stock purchase plan
    
    54,016
    
    
    
    
    
    306
    
    
    
    
    
    306Purchase and retirementof common stock
    
    (38,000
    )
    
    
    
    
    (189
    )
    
    
    
    
    (189
    )Tax benefit related toemployee stock optiontransactions
    
    
    
    
    
    
    
    8
    
    
    
    
    
    8Net loss
    
    
    
    
    
    
    
    
    
    
    (20,350
    )
    
    (20,350
    )Balance, December 31, 2002
    
    7,219,831
    
    
    72
    
    
    30,330
    
    
    29,820
    
    
    60,222Common stock optionsand stock purchase plan
    
    6,599
    
    
    
    
    
    29
    
    
    
    
    
    29Purchase and retirementof common stock
    
    (84,700
    )
    
    (1
    )
    
    (470
    )
    
    
    
    
    (471
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (1,079
    )
    
    (1,079
    )Balance, December 31, 2003
    
    7,141,730
    
    $
    71
    
    $
    29,889
    
    $
    28,741
    
    $
    58,701Common stock optionsand stock purchase plan
    
    11,662
    
    
    
    
    
    64
    
    
    
    
    
    64Purchase and retirementof common stock
    
    (626,000
    )
    
    (6
    )
    
    (4,529
    )
    
    
    
    
    (4,535
    )Tax benefit related toemployee stock optiontransactions
    
    
    
    
    
    
    
    4
    
    
    
    
    
    4Net income
    
    
    
    
    
    
    
    
    
    
    2,037
    
    
    2,037Balance, December 31, 2004
    
    6,527,392
    
    
    65
    
    
    25,428
    
    
    30,778
    
    
    56,271See accompanying notes to consolidated financial statements. F-5


---

TRANSPORT CORPORATION OF AMERICA, INC.Consolidated Statements of Cash Flows 
    (In thousands)Years ended December 31,2004
    
    2003
    
    2002Operating activities:Net income (loss)
    $
    2,037
    
    $
    (1,079
    )
    $
    (20,350
    )Adjustments to reconcile net loss to net cashprovided by operating activities:Depreciation and amortization
    
    23,757
    
    
    25,104
    
    
    27,474Effect of changes in accounting principle, net of tax
    
    
    
    
    1,153
    
    
    16,694Effect of revenue equipment impairment charge
    
    
    
    
    (549
    )
    
    4,741Loss (gain) on sale of property and equipment
    
    25
    
    
    (1,302
    )
    
    (36
    )Deferred income taxes
    
    537
    
    
    (1,353
    )
    
    (2,641
    )Changes in operating assets and liabilitiesTrade receivables
    
    368
    
    
    3,396
    
    
    (1,510
    )Lease and other receivables
    
    30
    
    
    1,634
    
    
    3,593Operating supplies
    
    13
    
    
    263
    
    
    120Prepaid expenses
    
    268
    
    
    (936
    )
    
    (51
    )Other assets
    
    (11
    )
    
    2,074
    
    
    (773
    )Accounts payable
    
    1,500
    
    
    (901
    )
    
    (1,446
    )Due to independent contractors
    
    (388
    )
    
    (113
    )
    
    162Accrued expenses
    
    1,725
    
    
    1,487
    
    
    3,213Net cash provided by operating activities
    
    29,861
    
    
    28,878
    
    
    29,190Investing activities:Purchases of revenue equipment
    
    (25,142
    )
    
    (19,677
    )
    
    (21,606
    )Purchases of property and other equipment
    
    (1,014
    )
    
    (827
    )
    
    (1,443
    )Proceeds from sales of equipment
    
    7,129
    
    
    9,190
    
    
    15,433Net cash used in investing activities
    
    (19,027
    )
    
    (11,314
    )
    
    (7,616
    )Financing activities:Proceeds from issuance of common stock,and exercise of options and warrants
    
    68
    
    
    29
    
    
    314Payments for purchase and retirement of common stock
    
    (4,535
    )
    
    (471
    )
    
    (189
    )Proceeds from issuance of long-term debt
    
    20,639
    
    
    20,463
    
    
    21,393Principal payments on long-term debt
    
    (26,442
    )
    
    (32,526
    )
    
    (27,861
    )Proceeds from issuance of notes payable to bank
    
    100
    
    
    60,100
    
    
    57,400Principal payments on notes payable to bank
    
    (100
    )
    
    (62,600
    )
    
    (73,900
    )Change in net checks issued in excess of cash balances
    
    805
    
    
    (338
    )
    
    286Net cash used in financing activities
    
    (9,465
    )
    
    (15,343
    )
    
    (22,557
    )Net increase (decrease) in cash
    
    1,369
    
    
    2,221
    
    
    (983
    )Cash and cash equivalents, beginning of year
    
    2,345
    
    
    124
    
    
    1,107Cash and cash equivalents, end of year
    $
    3,714
    
    $
    2,345
    
    $
    124Supplemental disclosure of cash flow information:Cash paid (received) during the year for:Interest
    $
    3,017
    
    $
    4,120
    
    $
    5,411Income taxes, net
    
    1,038
    
    
    1,354
    
    
    199Supplemental Schedule of noncash investing and financing     activities:Lease receivables from disposition of revenue equipment
    $
    
    
    $
    2,208
    
    $
    3,945See accompanying notes to consolidated financial statements. F-6


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TRANSPORT CORPORATION OF AMERICA, INC.Notes to Consolidated Financial Statements 
  Years ended December 31, 2004, 2003, and 2002 (1)
  Summary of Significant Accounting Policies and Nature of BusinessNature of BusinessTransport Corporation of America, Inc. (the Company) is a truckload motor carrier engaged in thetransportation of a variety of general commodities for customers principally in the United States and portions of Canada, pursuant to nationwide operating authority. Customer freight is transported by Company equipment and by independent contractors. Payments to Company drivers and independent contractors are primarily based upon miles driven.Principles of ConsolidationThe consolidated financial statements include all accounts of the Company and its wholly ownedsubsidiaries, TA Logistics, Inc., FV Leasing Company, TCA of Ohio, Inc., and Transport International Express, Inc. (TIE). All significant intercompany accounts and transactions have been eliminated in consolidation.Revenue RecognitionOperating revenues are recognized when the freight to be transported has been loaded. TheCompany operates primarily in the short-to-medium length of haul category of the trucking industry; therefore, the Companys typical customer delivery is completed within two days after pickup. Accordingly, this method of revenue recognition is not materially different from recognizing revenue based on completion of delivery. Amounts payable to independent contractors for purchased transportation, to Company drivers for wages and any other direct expenses are accrued when the related revenue is recognized.Lease ReceivablesThe Company has lease receivables for equipment leased to drivers and recorded as direct-financecapital
leases. At December 31, 2004, approximately $0.5 million is included in other receivables and $0.1
million is included in Other Assets. Deferred interest income is recorded at the time of lease inception
and amortized over the life of the lease.Revenue Equipment, Property, and Other EquipmentRevenue equipment, property, and other equipment are recorded at cost. Costs for repairs andmaintenance
are charged to operations. Depreciation, including amortization of capitalized leases, is computed
using the straight-line basis over the estimated useful lives of the assets or the lease periods,
whichever is shorter. At December 31, 2004, the Company had $25.6 million outstanding commitments
for the purchase or lease of revenue equipment in 2005. F-7


---

TRANSPORT CORPORATION OF AMERICA, INC.The estimated useful lives for new equipment when placed in service are as follows: YearsTractors
    4-6Trailers
    8-12Building improvements
    10-30Buildings
    30-40Other equipment, including computers and furniture
    3 - 8 TiresTires placed on new equipment after December 31, 1996, are capitalized as part of revenueequipment and amortized over its estimated life. Tires placed on new equipment prior to December 31, 1996, are included in other assets (net) and are capitalized and recorded as prepaid tires and amortized over their estimated life. Replacement tires are expensed when placed in service.Impairment of Long-Lived AssetsLong-lived assets and certain identifiable intangibles are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net undiscounted cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.During March 2002, the Company initiated a plan to accelerate the disposal of approximately 260tractors
and 500 trailers. As a result of the change in utilization period and related estimated cash flows,
the Company recorded a pre-tax $4.7 million impairment charge under Statement of Financial Accounting
Standards (SFAS) No. 144 related to this disposition of revenue equipment. The estimated
fair value of the revenue equipment was based on a combination of market quotes and independent appraisals
of the equipment. The tractors identified for accelerated disposition represent over-the-road units
not covered by manufacturer guaranteed residual value programs. The trailers to be disposed were
identified as being in excess of the Companys needs. Subsequently, an analysis of the initial
impairment reserve demonstrated that the ultimate impairment charge on this disposal program was
less than originally estimated and the reserve was reduced by $1.0 million in the fourth quarter
of 2002 and a further $278,000 in the first quarter of 2003. This disposal program was completed
during the second quarter 2003. F-8


---

TRANSPORT CORPORATION OF AMERICA, INC. The following is an analysis of the Companys asset impairment reserve accounts: (Dollars in thousands)
    Revenue
      equipment 
      impairmentBalance as of December 31, 2001
    $
    Initial Charge
    
    4,741Utilization
    
    (2,782
    )Change in estimate
    
    (1,000
    )Balance as of December 31, 2002
    
    959Utilization
    
    (681
    )Change in estimate
    
    (278
    )Balance as of December 31, 2003
    $
      During the fourth quarter of 2002, the Company established a new disposal program of an additional400 trailers that were disposed of in 2003. The pre-tax impairment charge on this new disposal program was approximately $1.0 million. Subsequently, an analysis of this impairment reserve demonstrated that the ultimate impairment charge on this disposal program was less than originally estimated and the reserve was reduced by $271,000 in the fourth quarter of 2003. This disposal program was completed during the fourth quarter 2003.  (Dollars in thousands)
    Revenue
      equipment 
      impairmentBalance as of December 31, 2001
    $
    Initial Charge
    
    1,000Utilization
    
    Balance as of December 31, 2002
    
    1,000Utilization
    
    (729
    )Change in estimate
    
    (271
    )Balance as of December 31, 2003
    $
     GoodwillIn2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually. As a result of its adoption of SFAS No. 142 on January 1, 2002, the Company recorded a $16.7 million impairment charge for goodwill, net of tax benefit of $7.7 million, which has been reported as a cumulative effect of change in accounting principle. F-9


---

TRANSPORT CORPORATION OF AMERICA, INC. The fair value of the Company was determined based on quoted market prices for the Companys common stock.A roll-forward of goodwill for the years ended December 31 is as follows: Year ended 
      December 31,2004
    
    2003
    
    2002(Dollars in thousands)Balance at beginning of year
    $
    
    
    
    
    
    
    24,366Goodwill amortization
    
    
    
    
    
    
    
    Impairment charge
    
    
    
    
    
    
    
    (24,366
    )Balance at end of year
    $
    
    
    
    
    
    
     Operating SuppliesOperating supplies representing repair parts, fuel, and replacement tires for revenue equipment arerecorded at cost.Accounting EstimatesThe preparation of consolidated financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.Estimated Liability for Insurance ClaimsThe Company maintains automobile, general, cargo, and workers compensation claim liabilityinsurance coverage under both deductible and retrospective rating policies. The Company maintains a self-insurance program with a qualified department of risk management professionals.For the policy year from January to December 2002, the Company assumed liability for claims up to$1.0 million, plus administrative expense, for each occurrence involving personal injury or property damage. The Company was also responsible for the first $600,000 aggregate for claims occurring in the layer between $1.0 million and $5.0 million. Liability for claims in excess of the self-insured retention, if it occurred, was covered under premium-based policies with reputable insurance companies to coverage levels that management considers adequate. For the policy period from January to October 2003, the Company assumed liability for the first $750,000 per occurrence, plus an additional 25% pro-rata share on the layer between $750,000 and $3.0 million, plus administrative expenses, for each occurrence involving personal injury or property damage. Liability for claims in excess of the self-insured retention, F-10


---

TRANSPORT CORPORATION OF AMERICA, INC. if it occurred, was covered under premium-based policies with reputable insurance companies to coverage levels that management considers adequate. The Company has renewed these same terms for the policy year beginning November 2003 and 2004.The Company has assumed responsibility for workers compensation and has obtained insurance forindividual claims above $250,000 per occurrence. Under these insurance arrangements, the Company maintains $5.3 million in letters of credit as of December 31, 2004.The Company accrues for health insurance claims reported, as well as for claims incurred but notreported, based upon the Companys past experience. The Company has obtained insurance for individual claims above $175,000 per participant.In the month claims are reported, the Company estimates and establishes a liability for its share ofultimate settlements using all available information, coupled with the Companys history of such claims. Claim estimates are adjusted when additional information becomes available. The recorded expense depends upon actual loss experience and changes in estimates of settlement amounts for open claims that have not been fully resolved. However, final settlement of these claims could differ materially from the amounts the Company has accrued at year-end.Stock-Based Employee CompensationThe Company has adopted the disclosure provisions of Statement of Financial AccountingStandards No. 148, Accounting for Stock-Based Compensation  Transition and Disclosure (Statement No. 148). Statement No. 148 amends the disclosure requirements of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (Statement No. 123). As of December 31, 2004, the Company has two stock-based employee compensation plans, which are described more fully in Note 5. The Company accounts for these plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under these plans had an exercise price equal to the market value of the common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied
the fair value recognition provisions of Statement No. 123: F-11


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TRANSPORT CORPORATION OF AMERICA, INC. In thousands except per share amounts
    2004
    
    2003
    
    2002Net earnings (loss):As reported
    $
    2,037
    
    $
    (1,079
    )
    $
    (20,350
    )Pro forma expense, net of taxes
    $
    230
    
    $
    373
    
    $
    354Pro forma
    $
    1,807
    
    $
    (1,452
    )
    $
    (20,704
    )Net basic earnings (loss) per share:As reported
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )Pro forma
    $
    0.27
    
    $
    (0.20
    )
    $
    (2.86
    )Net diluted earnings (loss) per share:As reported
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )Pro forma
    $
    0.26
    
    $
    (0.20
    )
    $
    (2.86
    )  The above pro forma amounts may not be representative of the effects on reported net (loss)earnings for future years.The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted-average assumptions used for grants in 2004, 2003, and 2002: 2004
    
    2003
    
    2002Dividend yield
    
    0.0
    %
    
    0.0
    %
    
    0.0
    %Expected volatility
    
    23.0
    %
    
    40.0
    %
    
    55.0
    %Risk-free interest rate
    
    4.3
    %
    
    3.9
    %
    
    5.0
    %Expected lives
    
    7 years
    
    
    8 years
    
    
    10 yearsWeighted average fair value of options granted
    $
    2.55
    
    $
    2.98
    
    $
    4.04  Income TaxesDeferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the amounts presented on the consolidated financial statements for the 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.Net Earnings Per Share: Basic and DilutedBasic net earnings per common share is computed by dividing net earnings by the weighted averagenumber of common shares outstanding during the year.Diluted net earnings per share is computed by dividing net earnings by the weighted averagenumber of potential common shares outstanding, assuming exercise of F-12


---

TRANSPORT CORPORATION OF AMERICA, INC. dilutive stock options. The potential common shares are computed using the treasury stock method based upon the average market price of the Companys stock during each period. The Company had net earnings before cumulative effect of change in accounting principle for the year ended December 31, 2004 so the effects of potential common shares were included in the calculation to the extent their impact was dilutive. Because the Company suffered net losses for the years ended December 31, 2003, and 2002, the effects of potential common shares were not included in the calculation as their effects would be anti-dilutive. Stock options outstanding at December 31, 2004, 2003 and 2002 and excluded from the calculation totaled 0, 510,603, and 520,159, respectively. Computation of Earnings (Loss) per Common Share
      (In thousands, except per share amounts)Years ended December 31,2004
    
    2003
    
    2002Net earnings (loss)
    $
    2,037
    
    $
    (1,079
    )
    $
    (20,350
    )Average number of commonshares outstanding
    
    6,722,157
    
    
    7,171,368
    
    
    7,242,893Dilutive effect of outstanding stock options
    
    119,038
    
    
    32,322
    
    
    Average number of common and commonequivalent shares outstanding
    
    6,841,195
    
    
    7,203,690
    
    
    7,242,893Basic earnings (loss) per share
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    )Diluted earnings (loss) per share
    $
    0.30
    
    $
    (0.15
    )
    $
    (2.81
    ) Fair Value of Financial InstrumentsThe carrying value of the Companys financial assets and liabilities, excluding debt, approximates fairvalue because of their short-term nature. The fair value of the Companys revenue equipment debt, if recalculated based on current interest rates at December 31, 2004, would approximate $48.2 million compared with a carrying value of $49.1 million. At December 31, 2003, it approximated $54.8 million, compared with a carrying value of $54.9 million.Statements of Cash FlowsFor purposes of the statements of cash flows, the Company considers all highly liquid investmentswith initial maturities of three months or less to be cash equivalents.New Accounting PronouncementsInJune 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143,Accounting for Asset Retirement Obligations effective for fiscal years beginning after June 15, 2002. The standard requires businesses to record the fair F-13


---

TRANSPORT CORPORATION OF AMERICA, INC. value of a liability for an asset retirement obligation in the period in which it is incurred. It has been determined that SFAS 143 applies to environmental disposal fees related to tractor and trailer tires. As a result of its adoption of SFAS No. 143 in the first quarter of 2003, the Company established a liability of $212,000 for the fair value of tire disposal fees. In addition, the Company recorded a prepaid asset related to tire disposal fees of $106,000 and a charge of $64,000, net of a tax benefit of $42,000, representing the cumulative effect of the change in accounting principle.In January 2003, the Financial Accounting Standards Board (FASB) issued FASB InterpretationNo. 46, Consolidation of Variable Interest Entities (FIN 46), which requires an entity to consolidate a variable interest entity if it is the primary beneficiary of that entity even if the entity does not have a majority of voting interests. A variable interest entity is generally defined as an entity where its equity is inadequate to finance its activities or where the owners of the entity lack the risk and rewards of ownership. The provisions of this statement apply at inception for any entity created after January 31, 2003. For an entity created before February 1, 2003, the provisions of this interpretation were initially effective in the first fiscal year or interim period beginning after June 15, 2003. On October 8, 2003, the FASB deferred the implementation date from interim periods beginning after June 15, 2003 to interim periods ending after December 15, 2003 (or later, in certain circumstances). The
Company elected early adoption and the prospective application provisions of Interpretation No. 46 during the quarter ended September 30, 2003. In 1999, the Company entered into a lease arrangement for its corporate office facility, which had been financed by a special purpose entity (SPE) sponsored by a bank. The SPE was not consolidated in the Companys financial statements and the Company had accounted for this arrangement as an operating lease in accordance with SFAS No. 13, Accounting for Leases. In conjunction with this arrangement, the Company had a residual value guarantee of up to $11.2 million, plus selling costs, if the Company did not exercise its purchase option and the property was sold for less than $13.0 million, the Asset Termination Value. The Company evaluated the treatment of this leasing arrangement under Interpretation No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements;
accordingly, the Company recorded an asset of $11.2 million, the related debt of $13.0 million, and a cumulative-effect charge adjustment of $1.1 million (net of tax benefit of $0.7 million) in the third quarter of 2003.(2)
    Other AssetsOther assets at December 31, 2004 primarily include long-term lease receivables and equipmentavailable for lease of $1.4 million and capitalized tires of $0.4 million. Other assets at December 31, 2003 primarily include long-term lease receivables and equipment available for lease of $0.7 million and capitalized tires of $0.7 million. F-14


---

TRANSPORT CORPORATION OF AMERICA, INC. (3)
    Credit Facility and Long-Term DebtThe Company has a credit agreement for a secured credit facility with maximum combined borrowingsand letters of credit of $30 million. Amounts actually available under the credit facility are limited by the Companys accounts receivable and unencumbered revenue equipment. At December 31, 2004, there were outstanding borrowings and letters of credit of $0 and $5.3 million, respectively. Net of actual outstanding borrowings and letters of credit at December 31, 2004, the Company had available additional borrowings of $19.8 million. The credit agreement expires May 4, 2007. At December 31, 2004, the interest rate on outstanding borrowings was 5.75%.The credit agreement contains certain financial covenants, which include maintenance of a minimumnet worth, maintenance of a consolidated funded indebtedness to consolidated earnings before interest, taxes, depreciation, amortization and lease rental expenses, and maintenance of a minimum cash flow coverage ratio. The Company was in compliance with these covenants at December 31, 2004.The following is a summary of data relating to the credit facility: In thousands
    Years ended 
      December 31,2004
    
    2003Outstanding balance at year end
    $
    
    
    $
    Average amount outstanding
    
    

    
    
    1,165Maximum amount outstanding
    
    100
    
    
    5,600Weighted average interest rate during the year
    
    5.08
    %
    
    5.08
    %Commitment fee on unused balances
    
    0.25
    %
    
    0.40
    % F-15


---

TRANSPORT CORPORATION OF AMERICA, INC. In 1998, as part of its acquisition of North Star, the Company issued 1.2 million shares of commonstock with a non-detachable put option. In January 2000, 45,000 shares of this were converted to common stock. In December 2000, the Company repurchased the remaining 1,155,000 shares for $11.7 million of subordinated debt and $7.8 million in cash. In September 2001, and again in October 2002, the Company renegotiated and amended the terms of this subordinated debt. The debt was payable through fixed quarterly payments and variable quarterly payments based on actual earnings. In October 2001 proceeds of $1.4 million received from the sale of the Companys previous headquarters were used to reduce the outstanding debt as required by the agreement. In October 2002, another principal payment of $4.0 million was made to reduce the outstanding debt to $4.6 million, as allowed by the second amendment. Scheduled quarterly principal payments aggregating $1.0 million were made through September 2003 to reduce the outstanding debt to $3.6
million. During December 2003, the remaining balance of the subordinated debt was paid off.Long-term debt consists of the following: In thousands
    December 31,2004
    
    2003Notes payable to banks and other financial institutions withmaturities through December 2008, secured by certain revenueequipment with interest rates ranging from 4.0% to 7.76%
    $
    36,301
    
    $
    37,772Less current maturities of long-term debt
    
    7,965
    
    
    8,843Long-term debt, less current maturities
    $
    28,336
    
    $
    28,929 The aggregate annual maturuties of long-term debt at December 31, 2004, are as follows: In thousands 
      Years ended December 31,
    Amount2004
    
    7,9652005
    
    7,6872006
    
    11,6072007
    
    4,2972008
    
    4,745Total
    $
    36,301 The carrying value of assets pledged as collateral against the notes payable includes revenueequipment totaling $39.2 million at December 31, 2004. The carrying value of assets pledged as collateral against the secured credit facility includes revenue equipment totaling $5.8 million and accounts receivable totaling $24.8 million. F-16


---

TRANSPORT CORPORATION OF AMERICA, INC.  (4)
    Accrued ExpensesAccrued expenses are as follows: In thousands
     December 31,2004
     
     2003Salaries, wages and benefits
     $3,453
        
     $3,246Insurance, claims and damage11,570
        
     10,063Insurance, medical and dental1,790
        
     1,710Workers compensation2,577
        
     2,478Taxes1,231
        
     1,353Other511
        
     557Total$21,132
        
     $19,407  (5)
    Stockholders EquityStockholder Rights Plan and Preferred Stock DistributionThe Company has adopted a stockholder rights plan, which provides for a dividend of one PreferredStock Purchase Right (Right) for each outstanding share of the Companys common stock. The plan and dividend become operative in certain events involving the acquisition of 15% or more of the Companys voting stock by any person or group in a transaction not approved by the Board of Directors.Each Right entitles the holder to purchase one two-hundredths of a share of Series A JuniorParticipating Preferred Stock for $60 upon the occurrence of certain specified events. Additionally, the Rights entitle the holder, upon the occurrence of certain specified events, to purchase common stock having a value of twice the exercise price of the Right; upon the occurrence of certain other specified events, to purchase from an entity acquiring at least 15% of the voting securities or voting power of the Company, common stock of the acquiring entity having twice the exercise price of the Right. The Rights may be redeemed by the Company at a price of $0.001 per Right. The Rights expire on February 25, 2007, and are not presently exercisable.Employee Stock Purchase Plan In 2001, the Company adopted an Employee Stock Purchase Plan (the 2001 Plan). The 2001 Planreplaced the Companys prior employee stock purchase plan adopted in 1996 (the 1996 Plan). The provisions of the 1996 Plan are substantially the same as the 2001 Plan. The purpose of the 2001 Plan is to encourage employees to purchase shares of common stock in the Company, thereby providing a greater alignment of interests between the Company and its employees. There are 100,000 shares of the Companys common stock reserved for issuance under the 2001 Plan, which terminates on December 31, 2011. F-17


---

TRANSPORT CORPORATION OF AMERICA, INC.The 2001 Plan permits employees to purchase shares of common stock of the Company at a priceequal to the lesser of 85% of the market value of the common stock at the commencement or termination dates of each phase. Each year, during the term of the 2001 Plan, there are two six-month phases commencing on January 1 and July 1, respectively. Employees who have been employed for one year and who are regularly scheduled to work more than 20 hours per week and who are less than 5% owners are eligible to participate in the 2001 Plan via payroll deductions. Purchases are limited to 10% of a participants base pay during the respective phase.During 2004, 2003, and 2002, employees purchased 5,788, 5,148, and 8,636 shares, respectively, ataverage prices of $6.41, $4.28, and $4.67, per share, respectively, under the Plans.TA Rewards ProgramThe Company had an incentive program to reward employee drivers and independent contractordrivers who achieve certain performance and safety goals. Under this program, drivers were awarded points on a quarterly basis for achieving their safety and performance goals. Drivers could redeem these points for various rewards, including shares of the Companys common stock.In 1998, the Board approved the TA Rewards Program  Stock Component (TA Rewards). TARewards provided for the issuance of up to 100,000 shares of the Companys common stock for driver redemptions of their TA Rewards points. During 2004, 2003, and 2002, 1,899, 1,451, and 6,654 common shares, respectively, were issued under this program. The TA Rewards program was terminated on December 31, 2002. Eligible participants had until December 31, 2003 to redeem points. The 1,899 shares issued in 2004 were for points redeemed as of December 31, 2003.Stock Option PlansThe Company has adopted two stock option plans that allow for the grant of options to officers andother key employees to purchase common shares at an exercise price not less than 100% of fair market value on the date of grant. Officers and other key employees of the Company who are responsible for, or contribute to, the management, growth and/or profitability of the business of the Company, as well as selected consultants under contract to the Company and non-employee directors are eligible to be granted awards.These option plans allow for the grant of up to 1,050,000 shares. Options generally vest incumulative annual increments over periods from one to four years and expire five or ten years from date of issuance. At December 31, 2004, the exercise prices of outstanding options ranged from $4.53 to $7.85 with a weighted average contractual life of approximately 9.2 years. F-18


---

TRANSPORT CORPORATION OF AMERICA, INC.The following table summarizes information about fixed stock options
      outstanding at December 31, 2004:Outstanding options
    
    Exercisable optionsExercise
      price 
      range
    Number
    
    Weighted average
      remaining 
      contractual life
    
    Weighted 
      average 
      exercise price
    
    Number
    
    Weighted 
      average 
      exercise price$ 2.50 - 5.00
    
    11,500
    
    
    5.4 years
    
    $
    4.57
    
    
    7,750
    
    $
    4.605.00 - 7.50
    
    469,205
    
    
    6.1 years
    
    
    5.77
    
    
    351,537
    
    
    5.827.50 - 10.00
    
    136,025
    
    
    9.4 years
    
    
    7.80
    
    
    4,000
    
    
    7.80616,730
    
    
    
    
    
    
    
    
    363,287 Option transactions are summarized as follows:Shares
    
    Weighted average
      exercise price2004
    
    2003
    
    2002
    
    2004
    
    2003
    
    2002Options outstanding at beginning of year
    
    510,603
    
    
    520,159
    
    
    492,018
    
    $
    6.19
    
    $
    6.54
    
    $
    6.65Granted
    
    161,855
    
    
    82,322
    
    
    96,794
    
    
    7.73
    
    
    5.88
    
    
    5.97Canceled or Expired
    
    (51,753
    )
    
    (91,878
    )
    
    (29,927
    )
    
    10.96
    
    
    7.88
    
    
    7.37Exercised
    
    (3,975
    )
    
    
    
    
    (38,726
    )
    
    5.70
    
    
    
    
    
    5.81Options outstanding at end of year
    
    616,730
    
    
    510,603
    
    
    520,159
    
    $
    6.20
    
    $
    6.19
    
    $
    6.54Options exercisable at end of year
    
    363,287
    
    
    279,111
    
    
    218,779
    
    $
    5.82
    
    $
    6.70
    
    $
    7.84 Stock Repurchase Plan In 1997, the Board of Directors approved repurchasing up to 350,000 shares of the Companyscommon stock. As of December 31, 2003, the Company had repurchased 229,400 shares, leaving 120,600 shares available for repurchase under this authority. In March 2004, the Board of Directors approved repurchasing an additional 500,000 shares of the Companys common stock. In May 2004, the Board of Directors again approved repurchasing another 500,000 shares of the Companys common stock. During 2004, the Company repurchased 626,000 shares of its own common stock, leaving 494,600 shares available for repurchase under this combined authority.(6)
    Employee Benefit PlansThe Company has a savings retirement plan (the Plan) for eligible employees under Section 401(k)of the Internal Revenue Code. The Plan allows employees to defer amounts of their compensation on a pretax basis subject to IRS limitations. The Company may, at its discretion, match a portion of the employee deferrals. During 2004, 2003, and 2002, the Company contributed amounts equal to one-fourth of the employee deferrals, up to 1% of each participants compensation. For participants F-19


---

TRANSPORT CORPORATION OF AMERICA, INC.who are employed as truck drivers with pay based on actual miles driven, the Company may also elect to contribute 1⁄2¢ and 1¢ per paid mile driven for drivers with over one and two years of service, respectively. On behalf of all employees, the Company contributed $628,000, $535,000, and $661,000 to the Plan in 2004, 2003, and 2002, respectively.(7)
    Income TaxesTotal income tax expense (benefit) for the years ended December 31, 2004 , 2003 and 2002 wasallocated as follows: 2004
    
    2003
    
    2002Earnings (loss) before cumulative effect ofchanges in accounting principle
    $
    1,314
    
    $
    163
    
    $
    (2,711
    )Cumulative effect of changes in accounting principle
    
    
    
    
    (725
    )
    
    (7,673
    )Total
    $
    1,314
    
    $
    (562
    )
    $
    (10,384
    ) The provision (benefit) for income taxes attributable from earnings (loss) before income taxes and cumulative effect of changes in accounting principle consists of the following: In thousands
    Current
    
    Deferred
    
    TotalFor the year ended December 31, 2004:Federal
    $
    459
    
    $
    685
    
    $
    1,144State
    
    318
    
    
    (148
    )
    
    170Total
    $
    777
    
    $
    537
    
    $
    1,314For the year ended December 31, 2003:Federal
    $
    1,475
    
    $
    (1,323
    )
    $
    152State
    
    453
    
    
    (442
    )
    
    11Total
    $
    1,928
    
    $
    (1,765
    )
    $
    163For the year ended December 31, 2002:Federal
    $
    (299
    )
    $
    (1,920
    )
    $
    (2,219
    )State
    
    188
    
    
    (680
    )
    
    (492
    )Total
    $
    (111
    )
    $
    (2,600
    )
    $
    (2,711
    ) The income tax expense (benefit) attributable to earnings (loss) before income taxes and cumulative effect of changes in accounting principle differs from the expected tax expense (benefit) as follows for the years ended December 31, 2004, 2003 and 2002: In thousands
    2004
    
    2003
    
    2002Expected federal tax expense (benefit) at statutory rates
    $
    1,140
    
    $
    80
    
    $
    (2,165
    )Increases in taxes resulting from:State income taxes, net of federal effect
    
    112
    
    
    7
    
    
    (325
    )Expenses not deductible for tax purposes
    
    62
    
    
    72
    
    
    78Favorable resolution of tax contingency
    
    
    
    
    
    
    
    (299
    )Other
    
    
    
    
    4
    
    
    Actual tax expense (benefit)
    $
    1,314
    
    $
    163
    
    $
    (2,711
    ) F-20


---

TRANSPORT CORPORATION OF AMERICA, INC.The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2004 and 2003, are presented below: In thousands
    2004
    
    2003Deferred tax assets:Intangible assets
    $
    5,018
    
    $
    5,606Insurance, claims, and damage reserves
    
    5,414
    
    
    5,374Vacation accrual
    
    416
    
    
    404Allowance for doubtful accounts
    
    357
    
    
    296Federal & state alternative minimum tax credit carryforward
    
    23
    
    
    53Other
    
    242
    
    
    233Total deferred tax assets
    
    11,470
    
    
    11,966Deferred tax liabilities:Equipment, principally due to differences in depreciation andlease accounting
    $
    31,658
    
    $
    31,617Total deferred tax liabilities
    
    31,658
    
    
    31,617Net deferred tax liability
    $
    20,188
    
    $
    19,651 These amounts are presented in the accompanying balance sheet as follows:2004
    
    2003Current deferred tax asset
    $
    6,316
    
    $
    6,452Noncurrent deferred tax liability
    
    26,504
    
    
    26,103Net deferred tax liability
    $
    20,188
    
    $
    19,651 At December 31, 2004, the Company had state alternative minimum tax credit carry-forwards ofapproximately $23,000, which are available to reduce future state income taxes, if any, over an indefinite period.In assessing its realizability of deferred tax assets, the Company considers whether it is more likelythan not that some portion of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent on the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the Companys scheduling of taxable temporary differences, which generate sufficient taxable income in future periods to offset deductible temporary differences as of December 31, 2004, management believes that it is more likely than not the Company will realize the benefits of these temporary differences and therefore no valuation allowance is needed.During the years ended December 31, 2004, 2003, and 2002, respectively, $3,500, $0, and $8,000 wasadded to additional paid-in capital in accordance with APB No. 25 reflecting the permanent book to tax difference in accounting for tax benefits related to employee stock option transactions. F-21


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TRANSPORT CORPORATION OF AMERICA, INC.(8)
    Major CustomersSales to the Companys five largest customers represented 33%, 29%, and 32% of total revenues for2004, 2003, and 2002, respectively. The Companys largest customer in 2004 represented approximately 9.7%, 7.6%, and 7.0% of operating revenues in years 2004, 2003, and 2002 respectively.(9)
    CommitmentsCapital LeasesThe Company has entered into several leases for revenue equipment which qualify as capital
         leasesunder SFAS 13. The lease agreements are for terms of 36 to 70 months.Following is a summary of revenue equipment under capital leases: Years ended December 31,In thousands
    2004
    
    2003Revenue equipment
    $
    30,495
    
    $
    31,934Less accumulated depreciation
    
    (14,269
    )
    
    (12,199
    )$
    16,226
    
    $
    19,735 Operating LeasesIn 1999, the Company entered into a lease arrangement for its corporate office facility, which hadbeen financed by a special purpose entity (SPE) sponsored by a bank. The SPE was not consolidated in the Companys financial statements and the Company had accounted for this arrangement as an operating lease in accordance with SFAS No. 13, Accounting for Leases. In conjunction with this arrangement, the Company had a residual value guarantee of up to $11.2 million, plus selling costs, if the Company did not exercise its purchase option and the property was sold for less than $13.0 million, the Asset Termination Value. In 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities. The Company evaluated the treatment of this leasing arrangement under Interpretation No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements; accordingly, the Company recorded an asset of $11.2 million, the related debt
of $13.0 million, and a cumulative-effect change adjustment of $1.1 million (net of tax benefit of $0.7 million). The Company sold its rights in this property on December 23, 2003 and concurrent with the sale signed a thirteen-year lease for the two-thirds of the building the Company currently occupies. This transaction has been accounted for as a sale-leaseback and thus the related asset and long-term debt balances have been removed from the balance sheet. In connection with this transaction, the Company deferred a gain of $250,000 that will be recognized over the lease period. Annual lease payments on this property will be approximately $1.0 million. F-22


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TRANSPORT CORPORATION OF AMERICA, INC.Rental expense under facility operating leases was approximately $1,352,000 in 2004, $409,000 in 2003, and $614,000 in 2002.In 2002, the Company entered into lease arrangements for revenue equipment that are classified asoperating leases. The lease agreements are for terms of 48 months and contain TRAC (terminal rental adjustment clause) provisions, which require the Company to guarantee a termination value as a percentage of the original cost of the leased equipment at the lease termination date. The maximum potential amount the Company could be required to make under the guarantee is $1.1 million. Management does not believe that it is probable that the fair market value of the property at the end of the lease term will be less than the termination value; accordingly, the Company has not recorded an additional liability related to this guarantee. Rental expense for revenue equipment operating leases was approximately $1,037,000 in 2004, $929,000 in 2003, and $742,000 in 2002.Future minimum payments by year and in the aggregate, under the aforementioned capital andoperating leases and other non-cancelable operating leases with initial or remaining terms in excess of one year as of December 31, 2004, are as follows: In thousandsYear ending December 31,
    Capital
      Leases
    
    Operating
      Leases2005
    
    10,552
    
    
    2,9542006
    
    2,933
    
    
    3,0662007
    
    
    
    
    1,2362008
    
    
    
    
    1,0772009
    
    
    
    
    1,093Thereafter
    
    
    
    
    8,124Total minimum lease payments
    $
    13,485
    
    $
    17,550Less amount representing interest with imputed ratesranging from 6.5% to 7.8%
    
    (669
    )Present value of net minimum lease payments
    
    12,816Less current maturities
    
    (9,990
    )Long term maturities
    $
    2,826 F-23


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TRANSPORT CORPORATION OF AMERICA, INC.(10)
    Quarterly Financial Data (Unaudited)Summarized quarterly financial data for 2004 and 2003:(In thousands, except per share amounts) Quarter2004:
    First
    
    Second
    
    Third
    
    FourthOperating revenues
    $
    62,143
    
    $
    65,232
    
    $
    65,730
    
    $
    65,303Operating income
    
    962
    
    
    2,119
    
    
    800
    
    
    2,585Net earnings
    
    71
    
    
    795
    
    
    36
    
    
    1,135Earnings per share - basic:Net earnings per share
    $
    0.01
    
    $
    0.12
    
    $
    0.01
    
    $
    0.17Earnings per share - diluted:Net earnings per share
    $
    0.01
    
    $
    0.12
    
    $
    0.01
    
    $
    0.17  Quarter2003:
    First
    
    Second
    
    Third
    
    Fourth (1)Operating revenues
    $
    67,101
    
    $
    65,638
    
    $
    64,069
    
    $
    62,051Operating income (loss)
    
    319
    
    
    (349
    )
    
    2,933
    
    
    1,457Earnings (loss) before cumulative effect of 
      changes in accounting principle
    $
    (454
    )
    $
    (837
    )
    $
    1,043
    
    $
    322Cumulative effect of changes in acounting 
      principle, net of tax effects
    
    64
    
    
    
    
    
    1,089
    
    
    Net earnings (loss)
    
    (518
    )
    
    (837
    )
    
    (46
    )
    
    322Earnings (loss) per share - basic:Before cumulative effect of changes in 
     accounting principle
    $
    (0.06
    )
    $
    (0.12
    )
    
    0.15
    
    $
    0.05Net earnings (loss) per share
    $
    (0.07
    )
    $
    (0.12
    )
    $
    (0.01
    )
    $
    0.05Earnings (loss) per share - diluted:Before cumulative effect of changes in 
     accounting principle
    $
    (0.06
    )
    $
    (0.12
    )
    $
    0.15
    
    $
    0.04Net earnings (loss) per share
    $
    (0.07
    )
    $
    (0.12
    )
    $
    (0.01
    )
    $
    0.04 (1)
    Fourth quarter 2003 includes a $1.8 million charge for increased claim costs and growth in open claims.Basic and diluted net income (loss) per common share is computed independely for each of the periods presented. Accordingly, the sum of the quarterly basic and diluted net income (loss) per common share may not agree to the total for the year. F-24


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TRANSPORT CORPORATION OF AMERICA, INC.
        Report of Independent Registered Public Accounting Firm on Schedule
        The Board of Directors and StockholdersTransport Corporation of America, Inc.:
        Under date of February 25, 2005, we reported on the consolidated balance sheets of Transport Corporation of America, Inc. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements, and our report thereon, are included in the annual report on Form 10-K for the year 2004. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule as listed in the accompanying index. This consolidated financial statement schedule is the responsibility of the Companys management. Our responsibility is to express an opinion on the consolidated financial statement schedule based on our audits.
        In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
        /s/ KPMG LLP
        Minneapolis, MinnesotaFebruary 25, 2005 S-1


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TRANSPORT CORPORATION OF AMERICA, INC.Schedule IIValuation and Qualifying Accounts
      (In thousands)Description
    Balance at
      beginning
      of year
    
    Additions 
      charged to
      cost and 
      expense
    
    Deductions
    
    Balance
      at end
      of yearAllowance for doubtful accounts(deducted from accounts receivable)Year ended December 31, 2004
    $
    766
    
    
    669
    
    
    635
    
    $
    800Year ended December 31, 2003
    $
    930
    
    
    164
    
    
    328
    
    $
    766Year ended December 31, 2002
    $
    470
    
    
    620
    
    
    160
    
    $
    930Reserve for insurance, claim and damage liabilityYear ended December 31, 2004
    $
    10,063
    
    
    9,145
    
    
    7,638
    
    $
    11,570Year ended December 31, 2003
    $
    8,160
    
    
    8,749
    
    
    6,846
    
    $
    10,063Year ended December 31, 2002
    $
    5,288
    
    
    10,711
    
    
    7,839
    
    $
    8,160Reserve for workers compensation liabilityYear ended December 31, 2004
    $
    2,478
    
    
    2,742
    
    
    2,643
    
    $
    2,577Year ended December 31, 2003
    $
    1,840
    
    
    2,569
    
    
    1,931
    
    $
    2,478Year ended December 31, 2002
    $
    1,177
    
    
    2,293
    
    
    1,630
    
    $
    1,840 S-2