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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)     
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

OR

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

Commission file number 0-24908

TRANSPORT CORPORATION OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
 
Minnesota   41-1386925  
(State or other jurisdiction  (I.R.S. Employer 
of incorporation or organization)  Identification No.) 

  1715 Yankee Doodle Road
Eagan, Minnesota 		 
 
  (Address of principal executive offices)  
 
  55121  
 
  (zip code)  
 
  (651) 686-2500  
 
  (Registrant’s telephone number, including area code)  
 
  NA  
 
  (Former name, former address and former fiscal year, if changed since last report)  

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

Indicate  by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act):

YES            NO     X   .


        As of October 15, 2004, the Company had outstanding 6,523,417 shares of Common Stock, $.01 par value.


 


TRANSPORT CORPORATION OF AMERICA, INC.
Quarterly Report on Form 10-Q

Table of Contents


Part I. 		  FINANCIAL INFORMATION      

Item 1.		  Financial Statements 
   Consolidated Balance Sheets as of 
   September 30, 2004 and December 31, 2003  Page 3 

 		  Consolidated Statements of Operations for the three 
   and nine months ended September 30, 2004 and 2003  Page 4 

 		  Consolidated Statements of Cash Flows for the 
   nine months ended September 30, 2004 and 2003  Page 5 

 		  Notes to Consolidated Financial Statements  Page 6 

Item 2.		  Management’s Discussion and Analysis of Financial 
   Condition and Results of Operations  Page 10 

Item 3.		  Quantitative and Qualitative Disclosure about Market Risk  Page 25 

Item 4.		  Controls and Procedures  Page 26 

Part II. 		  OTHER INFORMATION  

Item 1.		  Legal Proceedings  Page 26 

Item 2.		  Unregistered Sales of Equity Securities and 
   Use of Proceeds  Page 26 

Item 3.		  Defaults Upon Senior Securities  Page 26 

Item 4.		  Submission of Matters to a Vote of Security Holders  Page 26 

Item 5.		  Other Information  Page 26 

Item 6.		  Exhibits  Page 26 


2


Item 1.   Financial Statements

Transport Corporation of America, Inc.
Consolidated Balance Sheets
(In thousands)
(Unaudited)

Assets September 30,
2004
December 31,
2003
Current assets:            
        Cash and cash equivalents   $ 5,415   $ 2,345  
        Trade accounts receivable, net    27,721    24,978  
        Other receivables    2,450    1,200  
        Operating supplies - inventory    853    813  
        Deferred income tax benefit    6,516    6,452  
        Prepaid expenses    2,655    2,894  
Total current assets    45,610    38,682  

Property and equipment:		  
        Revenue equipment, at cost    183,751    180,970  
             Less accumulated depreciation    (82,664 )  (77,435 )
        Revenue equipment, net    101,087    103,535  

        Property and other equipment		  
             Land, buildings, and improvements    16,369    16,237  
             Other equipment    21,338    21,436  
                 Less accumulated depreciation    (18,275 )  (16,667 )
             Property and equipment, net    19,432    21,006  

        Revenue, property and other equipment, net		    120,519    124,541  

Other assets, net		    945    2,045  
Total assets    167,074    165,268  

Liabilities and Shareholders’ Equity 		  

Current liabilities:		  
        Current maturities of long-term debt    8,544    8,843  
        Current maturities of capital lease obligations    8,984    4,328  
        Accounts payable    9,551    3,526  
        Checks issued in excess of cash balances    1,295    1,066  
        Due to independent contractors    1,386    1,545  
        Accrued expenses    22,759    19,407  
Total current liabilities    52,519    38,715  

Long-term debt, less current maturities		    28,549    28,929  
Capital lease obligations, less current maturities    4,947    12,820  

Deferred income taxes		    25,949    26,103  

Shareholders’ equity:		  
        Common stock, $.01 par value; 15,000,000 shares authorized,  
        6,523,417 and 7,141,730 shares issued and outstanding as of  
        Sepember 30, 2004 and December 31, 2003, respectively    65    71  
        Additional paid-in capital    25,402    29,889  
        Retained earnings    29,643    28,741  
Total shareholders’ equity    55,110    58,701  
Total liabilities and shareholders’ equity   $ 167,074   $ 165,268  

See accompanying notes to consolidated financial statements.


3


Transport Corporation of America, Inc.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
(Unaudited)

Three months ended
September 30,
Nine months ended
September 30,
2004
2003
2004
2003
Operating revenues     $ 65,730   $ 64,069   $ 193,105   $ 196,808  

Operating expenses:		  
        Salaries, wages, and benefits    19,888    17,019    57,365    53,965  
        Fuel, maintenance, and other expenses    11,354    9,524    31,005    30,057  
        Purchased transportation    19,496    22,914    60,321    70,452  
        Revenue equipment leases    347    274    892    797  
        Depreciation and amortization    5,988    6,342    17,693    18,967  
        Insurance, claims and damage    3,931    2,430    9,824    8,827  
        Taxes and licenses    1,142    1,118    3,391    3,433  
        Communications    441    565    1,339    1,661  
        Other general and administrative expenses    2,343    2,271    7,226    7,341  
        Impairment of revenue equipment    —    —    —    (278 )
        Impairment of sublease office space    —    —    190    —  
        Gain on sale of property and equipment    —    (1,321 )  (22 )  (1,317 )
Total operating expenses    64,930    61,136    189,224    193,905  

Operating income		    800    2,933    3,881    2,903  

Interest expense		    777    1,116    2,447    3,387  
Interest income    (21 )  (37 )  (41 )  (188 )
Interest expense, net    756    1,079    2,406    3,199  

Earnings (loss) before income taxes and cumulative
        effect of change in accounting principle    44    1,854    1,475    (296 )

Provision (benefit) for income taxes		    8    811    573    (48 )

Earnings (loss) before cumulative effect
        of change in accounting principle    36    1,043    902    (248 )

Cumulative effect of change in		  
        accounting principle, net of tax effect    —    (1,089 )  —    (1,153 )

Net earnings (loss)		   $ 36   $ (46 ) $ 902   $ (1,401 )

Net earnings (loss) per share – basic:		  
        Before cumulative effect of change  
              in accounting principle    0.01    0.15    0.13    (0.03 )
        Cumulative effect of change in
              accounting principle, net of tax effect    —    (0.16 )  —    (0.17 )
        Net earnings (loss) per share   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )

Net earnings (loss) per share – diluted:		  
        Before cumulative effect of change
              in accounting principle    0.01    0.15    0.13    (0.03 )
        Cumulative effect of change in  
              accounting principle, net of tax effect    —    (0.16 )  —    (0.17 )
        Net earnings earnings (loss) per share   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )

Average common shares outstanding:		  
        Basic    6,523,417    7,141,730    6,788,123    7,181,356  
        Diluted    6,655,208    7,175,792    6,904,551    7,181,356  

See accompanying notes to consolidated financial statements.


4


Transport Corporation of America, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)

Nine months ended
September 30,
2004
2003
Operating activities:            
     Net income (loss)   $ 902   $ (1,401 )
     Adjustments to reconcile net income (loss) to net cash  
        provided by operating activities:  
           Depreciation and amortization    17,693    18,967  
           Cumulative effect of change in accounting
              principle, net of tax effect    —    1,153  
           Impairment of revenue equipment    —    (278 )
           Sublease impairment    190    —  
           Gain on sale of property and equipment    (22 )  (1,317 )
           Deferred income taxes    (218 )  (2,122 )
           Changes in operating assets and liabilities:  
              Trade receivables    (2,743 )  1,408  
              Lease and other receivables    (1,250 )  1,928  
              Operating supplies – Inventory    (40 )  227  
              Prepaid expenses    239    (950 )
              Other assets    1,100    574  
              Accounts payable    6,025    1,993  
              Due to independent contractors    (159 )  929  
              Accrued expenses    3,162    2,041  
Net cash provided by operating activities    24,879    23,152  
Investing activities:  
     Purchases of revenue equipment    (17,135 )  (12,004 )
     Purchases of property and other equipment    (671 )  (623 )
     Proceeds from disposition of equipment    4,157    5,675  
Net cash used by investing activities    (13,649 )  (6,952 )
Financing activities:  
     Proceeds from issuance of common stock,
        and exercise of options and warrants    42    18  
     Payments for repurchase and retirement of common stock    (4,535 )  (460 )
     Proceeds from issuance of long-term debt    12,098    10,906  
     Principal payments on long-term debt and capital leases    (15,994 )  (25,867 )
     Proceeds from issuance of notes payable to bank    100    53,100  
     Principal payments on notes payable to bank    (100 )  (55,600 )
     Change in net checks issued in excess of cash balances    229    1,703  
Net cash used by financing activities    (8,160 )  (16,200 )
Net increase in cash    3,070    —  
Cash and cash equivalents, beginning of period    2,345    124  
Cash and cash equivalents, end of period   $ 5,415   $ 124  
Supplemental disclosure of cash flow information:  
     Cash paid during the period for:  
        Interest   $ 2,246   $ 3,246  
        Income taxes    840    833  
Supplemental schedule of noncash investing and financing activities:  
      Lease receivables from disposition of revenue equipment   $ —   $ 1,910  
Cumulative effect of change in accounting principle  
        Current maturities of long term debt   $ —   $ 13,000  
        Purchases of property and other equipment    —    (11,229 )

See accompanying notes to consolidated financial statements.


5


TRANSPORT CORPORATION OF AMERICA, INC.

Notes to Consolidated Financial Statements
(Unaudited)

1.   Basis of Presentation

          The unaudited interim consolidated financial statements contained herein reflect all adjustments, which, in the opinion of management, are necessary for a fair statement of the interim periods. They have been prepared in accordance with the instructions to Form 10-Q, Article 10 of Regulation S-X and, accordingly, do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements.

          These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company uses the accounting policies described in that report in preparing quarterly reports.

          The Company’s business is seasonal. Operating results for the three-month or nine-month periods ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

2.   Impairment of Long-Lived Assets

          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 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, “Accounting for the Impairment or Disposal of Long-Lived Assets”, 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 of were identified as being in excess of the Company’s needs. 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 of 2003.


6


          The following is an analysis of the Company’s asset impairment reserve accounts:

(Dollars in thousands) Revenue
equipment
impairment

Balance as of December 31, 2001		     $ —  
Initial charge    4,741  
Utilization    (2,782 )
Change in estimate    (1,000 )
Balance as of December 31, 2002    959  
Utilization    (681 )
Change in estimate    (278 )
Balance as of December 31, 2003   $ —  

          During the fourth quarter of 2002, the Company established a new disposal program for an additional 400 trailers to be disposed of in 2003. The pre-tax impairment charge on this disposal program was $1.0 million. This disposal program was completed during the fourth quarter 2003 and an analysis of the initial impairment reserve demonstrated that the ultimate impairment charge on this disposal program was less than originally estimated; accordingly, the reserve was reduced by $271,000 in the fourth quarter of 2003.

(Dollars in thousands) Revenue
equipment
impairment

Balance as of December 31, 2001		     $ —  
Initial charge    1,000  
Utilization    —  
Balance as of December 31, 2002    1,000  
Utilization    (729 )
Change in estimate    (271 )
Balance as of December 31, 2003   $—  





7


3.   Stock-Based Employee Compensation

          The Company has adopted the disclosure only provisions of SFAS No. 148 Accounting for Stock–Based Compensation – Transition and Disclosure. SFAS No. 148 amends the disclosure requirements of SFAS No. 123, Accounting for Stock-Based Compensation, for stock-based employee compensation, effective as of January 1, 2003. As of September 30, 2004, the Company has two stock-based employee compensation plans. 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 underlying common stock on the date of grant. The following table illustrates the effect on net income (loss) and earnings (loss) per share if the Company had applied the fair value recognition provisions of SFAS No. 123.

Three months ended
September 30,
 Nine months ended
September 30,
2004
2003
2004
2003
Net earnings (loss), as reported     $ 36   $ (46 ) $ 902   $ (1,401 )

Deduct:   Total stock-based employee		  
compensation expense determined under  
fair value based method for all awards,  
net of related tax effects    (124 )  (128 )  (176 )  (189 )

Pro forma net earnings (loss)		   $ (88 ) $ (174 ) $ 726   $ (1,590 )
Earnings (loss) per share:  
Basic–as reported   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )
Basic–pro forma   $ (0.01 ) $ (0.02 ) $ 0.11   $ (0.22 )

Diluted–as reported		   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )
Diluted–pro forma   $ (0.01 ) $ (0.02 ) $ 0.11   $ (0.22 )





8


  Computation of Earnings (Loss) per Common Share
(In thousands, except share and per share amounts)

Three months ended
September 30,
 Nine months ended
September 30,
2004
2003
2004
2003
Earnings (loss) before cumulative effect                    
      of change in accounting principle   $ 36   $ 1,043   $ 902   $ (248 )
Cumulative effect of change in  
      accounting principle, net of tax effect    —    (1,089 )  —    (1,153 )
Net earnings (loss)   $ 36   $ (46 ) $ 902   $ (1,401 )
Average number of common  
      shares outstanding    6,523,417    7,141,730    6,788,123    7,181,356  
Dilutive effect of outstanding stock  
      options and warrants    131,791    34,062    116,428    —  
Average number of common and common  
      equivalent shares outstanding    6,655,208    7,175,792    6,904,551    7,181,356  
Net earnings (loss) per share - basic:  
      Before cumulative effect of change  
           in accounting principle    0.01   $ 0.15   $ 0.13   $ (0.03 )
      Cumulative effect of change in  
           accounting principle, net of tax effect    —    (0.16 )  —    (0.17 )
      Net earnings (loss) per share   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )
Net earnings (loss) per share - diluted:  
      Before cumulative effect of change  
           in accounting principle   $ 0.01   $ 0.15   $ 0.13   $ (0.03 )
      Cumulative effect of change in  
           accounting principle, net of tax effect    —    (0.16 )  —    (0.17 )
      Net earnings (loss) per share   $ 0.01   $ (0.01 ) $ 0.13   $ (0.20 )




9


  Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations

  Organization of Financial Information

          This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) provides material historical and prospective disclosures intended to enable investors and other users to assess the Company’s 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” on page 23 of this Quarterly Report on Form 10-Q. The Company believes it may be useful to read this MD&A in conjunction with its Annual Report on Form 10-K for the year ended December 31, 2003, and its reports on Forms 10-Q and 8-K and other publicly available information.

          The condensed consolidated financial statements and notes are presented in Item 1 of this Quarterly Report on Form 10-Q. Included in the condensed consolidated financial statements are the consolidated statements of operations, consolidated balance sheets, and consolidated statements of cash flows. The notes, which are an integral part of the condensed consolidated financial statements, provide additional information required to fully understand the nature of amounts included in the condensed consolidated financial statements.

  Significant Transactions and Financial Trends

          Throughout this MD&A, you will read about significant transactions or events that materially contribute to or reduce earnings and materially affect financial trends. Significant transactions and events discussed in this MD&A include:

    •   Impairment charges recorded in 2002 related to the disposal of tractors and trailers and reductions of these impairment reserves during 2003 when the ultimate impairment proved to be less than originally estimated;
    •   The adoption in the first quarter 2003 of Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations” which required the Company to establish 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;
    •   The adoption in the third quarter 2003 of Financial Accounting Standards Boards (FASB) Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities” requiring the Company to record a lease arrangement, previously accounted for as an operating lease, in its financial statements as an asset of $11.2 million, with related debt of $13.0 million, and a cumulative-effect adjustment of $1.1 million (net of a tax benefit of $0.7 million);




10


    •   The sale during the third quarter 2003 of a maintenance facility located in Clarksville, Indiana, for net cash proceeds of $2.1 million, resulting in a gain on the sale of $1.3 million; and
    •   The signing of a sub-lease agreement to rent 9,000 square feet of its headquarters facility at a rental rate that is less than the rental rate paid by the Company, which required the Company to record a pre-tax impairment charge related to this sub-lease agreement of $190,000 in the second quarter 2004.

          These significant transactions and events result from unique facts and circumstances that likely will not recur with similar materiality or impact on future 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 MD&A may also have a material impact on future operations. A complete understanding of these transactions and events is necessary in order to estimate the likelihood that these trends will continue.

          Revenues continue to be negatively impacted by lower than expected seated tractors and the limited availability of independent contractor capacity. Average seated tractor counts by quarter for tractors owned by the Company and tractors provided by independent contractors were as follows:

Average Seated
Company Tractors 		Average Independent
Contractor Tractors 		Total Average
Seated Tractors
 
1st  Qtr 2003     971     845     1,816    
2nd  Qtr 2003   926   850   1,776  
3rd  Qtr 2003   852   805   1,657  
4th  Qtr 2003   827   746   1,573  
1st  Qtr 2004   832   698   1,530  
2nd  Qtr 2004   895   667   1,562  
3rd  Qtr 2004   920   628   1,548  

          The reduction in overall capacity reduces the number of miles the Company operates. Total miles decreased 6.3% to 45.0 million miles in the third quarter 2004 compared to 48.0 million miles for the same period in 2003. For the nine months ended September 30, 2004, total miles decreased 8.7% to 135.3 million miles compared to 148.2 million miles for the same period in 2003. The Company has been able to partially offset the effect on revenues and earnings of the decrease in total miles by adding customers and lanes that build density and better balance the network, resulting in increased productivity and reduced costs.

          The Company experienced increased accident and claim costs during the third quarter of 2004. Insurance, claims and damage expense increased $1.5 million to $3.9 million in the third quarter 2004 compared to $2.4 million in the third quarter 2003. The increase is a result of higher accident frequency and severity during the third quarter 2004 when compared to the same period in 2003,





11


  and is further impacted by higher liability insurance premiums in 2004 when compared to 2003. The Company is currently undertaking an internal review of its safety and training standards and expects to further enhance its safety programs.

          High fuel costs continue to impact the Company’s industry. While the Company is able to recover most of this increased cost through fuel surcharge arrangements with the majority of its customers, the Company does absorb increased fuel costs on empty miles. Third quarter 2004 and year-to-date 2004 results were negatively impacted in 2004 by $83,000 and $309,000, respectively, due to increased fuel costs, when compared to the same periods of 2003.

  Significant Operating Trends

          As discussed above, revenues continue 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 independent contractor capacity. While the hiring market has tightened significantly, the Company continues to take actions that it expects will address this trend, including increasing driver pay rates and attempting to design its network in such a manner as to offer drivers more time to be at home.

          The Company has benefited from broad cost reduction initiatives implemented in 2003 and has implemented new initiatives in 2004 which are expected to continue to reduce non-driver salaries and wages, maintenance costs, accident claim costs, depreciation and other general and administrative costs.

          Finally, the Company continues to secure new opportunities that drive density and balance in the Company’s network. In addition, the Company is attaining increased freight rates as it better manages its network and customer mix.

  Outlook

          Looking forward, the Company expects the rate environment to remain favorable throughout the remainder of 2004 and into 2005. The improved economic conditions and limited driver availability continue to put pressure on truckload capacity. Sequentially, the Company has experienced seven quarters in a row of increased rates, and expects to pursue further increases with specific customers or on specific lanes that do not adequately contribute to profitability and the overall strategy of network density and balance.

          The Company expects upward pressure on costs throughout the remainder of 2004 and into 2005. The tight driver market continues to put pressure on driver hiring expenses, insurance premiums continue to increase, and tractor replacements in 2004 are required to comply with new EPA standards that will lead to increased depreciation expenses and reduced fuel efficiency.

          The biggest challenge for the Company and the industry will continue to be seated capacity since the market for new drivers has tightened significantly.




12


  The Company has implemented several programs to boost its recruiting efforts and increase the seated fleet percentage. While the Company has begun to reverse the attrition rate and is improving Company driver retention, it continues to experience increased turnover in its fleet of independent contractors due to competitive pressures and drivers leaving the industry.

  Three Months Ended September 30, 2004 and 2003

          Operating revenues, including fuel surcharges, were $65.7 million for the quarter ended September 30, 2004, an increase of 2.5% compared to $64.1 million for the same quarter of 2003. Fuel surcharges were $4.8 million and $2.3 million for the third quarters of 2004 and 2003, respectively, reflecting the effect of higher fuel costs in 2004. Excluding fuel surcharges, revenues for this year’s third quarter decreased 1.5% when compared to the same period of 2003.

          The Company measures revenue before 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 mile for the third quarter of 2004 compared to $1.32 for the same quarter of 2003. Freight revenues per total mile, which excludes fuel surcharges, were $1.33 per mile for the third quarter of 2004, compared to $1.27 for the same quarter of 2003. Operating revenues per loaded mile, which includes fuel surcharges, were $1.62 for the third quarter of 2004 compared to $1.47 for the same period of 2003. Freight revenues per loaded mile, which excludes fuel surcharges, were $1.50 for the third quarter of 2004 compared to $1.42 for the same period of 2003. These increases are primarily a result of increased line-haul rates and increased accessorial charges related to the new hours of service rules, as well as changes in customer mix.

          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.

3rd  Quarter
2004
3rd  Quarter
2003
Operating Revenue per total mile     $ 1.44   $ 1.32  
Fuel surcharge per total mile    0.11    0.05  
Freight revenue per total mile   $ 1.33   $ 1.27  

Operating Revenue per loaded mile		   $ 1.62   $ 1.47  
Fuel surcharge per loaded mile    0.12    0.05  
Freight revenue per loaded mile   $ 1.50   $ 1.42  





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          Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $3,113 during the third quarter of 2004, compared to $2,828 for the same quarter of 2003. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,882 during the third quarter of 2004, compared to $2,725 for the same quarter of 2003.

          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.

3rd  Quarter
2004
3rd  Quarter
2003
Operating revenue per tractor per week     $ 3,113   $ 2,828  
Fuel surcharge per tractor per week    231    103  
Freight revenue per tractor per week   $ 2,882   $ 2,725  

          At September 30, 2004, the Company’s fleet was comprised of 1,023 Company-owned tractors and 625 tractors provided by independent contractors, compared to 1,035 Company-owned tractors and 803 tractors provided by independent contractors at September 30, 2003.

          Salaries, wages, and benefits increased $2.9 million to $19.9 million during the third quarter of 2004 compared to $17.0 million during the third quarter of 2003. The increase is primarily a result of higher miles driven by employee drivers when compared to independent contractors (employee transported miles represented 58.7% of total miles in the third quarter of 2004 compared to 50.4% of total miles in the third quarter of 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, driver benefits increased due to higher medical coverage costs, and workers’ compensation costs increased due to increased per-claim costs. Offsetting these increases is a reduction in G&A wages related to reversing previously recorded management incentive accruals during the third quarter of 2004 as annualized year-to-date results indicate incentive targets will not be achieved for 2004. Salaries, wages, and benefits, as a percentage of operating revenues, were 30.2% for the third quarter of 2004, compared to 26.6% for the same quarter of 2003.

          Fuel, maintenance, and other expenses increased $1.9 million to $11.4 million during the third quarter of 2004 compared to $9.5 million in the third quarter of 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 the third quarter of 2004 when compared to the same period of 2003. Fuel, maintenance, and other




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  expenses, as a percentage of operating revenues, were 17.3%, compared to 14.9% for the same quarter of 2003.

          Purchased transportation decreased $3.4 million to $19.5 million in the third quarter of 2004 compared to $22.9 million in the third quarter of 2003. The decrease reflects lower miles driven by independent contractors (independent contractor transported miles represented 41.3% of total miles in the third quarter of 2004 compared to 49.6% of total miles in the third quarter of 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 rising fuel costs. Purchased transportation, as a percentage of operating revenues, was 29.7% for the third quarter of 2004 compared to 35.8% for the same quarter of 2003.

          Revenue equipment leases were $0.3 million in both the third quarter of 2004 and the same period of 2003. Revenue equipment leases, as a percentage of operating revenues, were 0.5% for the third quarter of 2004 compared to 0.4% for the same period of 2003, reflecting the Company’s use of operating leases for certain tractors acquired in 2002 and 2004.

          Depreciation and amortization decreased $0.3 million to $6.0 million in the third quarter of 2004 compared to $6.3 million in the third quarter of 2003. Depreciation and amortization, as a percentage of operating revenues, was 9.1% of operating revenues for the third quarter of 2004 compared to 9.8% for the same quarter of 2003. The decrease is 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.

          Insurance, claims and damage expense increased $1.5 million to $3.9 million in the third quarter 2004 compared to $2.4 million in the third quarter 2003. Insurance, claims and damage expense, as a percentage of operating revenues, was 6.0% for the third quarter of 2004 compared to 3.8% for the same quarter of 2003. The increase is a result of higher accident frequency and severity during the third quarter of 2004 as compared to the same period of 2003.

          Taxes and licenses expense remained at $1.1 million in both the third quarter of 2004 and the same period of 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 1.7% for the third quarter of 2004 and the same quarter of 2003.

          Communication expense decreased $0.2 million to $0.4 million in the third quarter 2004 compared to $0.6 million in the third quarter 2003. Communication expense, as a percentage of operating revenues, was 0.6% for the third quarter 2004 versus 0.9% for the third quarter of 2003. The decrease reflects the effect of favorable rates for communication services in 2004 combined with fewer tractors in the overall fleet.





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          Other general and administrative expense remained at $2.3 million in both the third quarter of 2004 and the same period of 2003. Other general and administrative expenses that increased 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. Other general and administrative expenses which decreased include office management expenses, building repair costs, and real estate taxes as a result of the Company’s sale of its rights in the headquarters facility. Other general and administrative expense, as a percentage of operating revenues, was 3.5% in the third quarter 2004 compared to 3.6% in the third quarter 2003.

          During the second quarter of 2003, the Company sold a maintenance facility located in Clarksville, Indiana for net cash proceeds of $2.1 million and recorded a gain on the sale of the property of $1.3 million.

          As a result of the items discussed above, the Company’s operating ratio (operating expenses as a percentage of operating revenues) was 98.8% for the third quarter of 2004 compared to 95.4% for the same quarter of 2003.

          Net interest expense decreased $0.3 million to $0.8 million in the third quarter of 2004 compared to $1.1 million in the third quarter of 2003. Net interest expense, as a percentage of operating revenues, was 1.2% for the third quarter of 2004 compared to 1.7% for the same quarter of 2003. The decrease primarily reflects lower average debt balances during the third quarter of 2004 as well as reduced interest expense for the corporate building due to the Company’s sale of its rights in the headquarters facility during the fourth quarter of 2003.

          The effective tax rate was 18.2% for the third quarter of 2004 compared to 43.7% for the same quarter of 2003. Excluding the taxes attributable to the$1.3 million gain on the sale of the Clarksville facility, the effective tax rate was 56.8% for the third quarter of 2003. The third quarter 2004 effective rate is lower than statutory rates due to an adjustment during the quarter to bring rates in line with projected annual rates, and is subject to additional volatility as the Company is close to break-even for the quarter due to the impact of permanent and temporary tax timing differences.

          In 1999, the Company entered into a lease arrangement for its corporate headquarters 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. In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities.” The Company evaluated the treatment of this




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  leasing arrangement under FIN No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements. During the third quarter 2003, the Company elected early adoption and the prospective applications provisions of FIN 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).

          Net earnings were $36,000 for the third quarter of 2004 compared to a net loss of $46,000 for the same quarter of 2003.

  Nine Months Ended September 30, 2004 and 2003

          Operating revenues, including fuel surcharges, were $193.1 million for the nine months ended September 30, 2004, a decrease of 1.9% compared to $196.8 million for the same period of 2003. Fuel surcharges were $11.8 million and $8.5 million for the first nine months of 2004 and 2003, respectively, reflecting the effect of higher fuel costs in 2004. Freight revenues, excluding fuel surcharges, revenues decreased 3.7% when compared to the same period of 2003.

          Operating revenues per total mile, which includes fuel surcharges, were $1.41 per mile for the first nine months of 2004, compared to $1.31 for the same period of 2003. Freight revenues per total mile, which excludes fuel surcharges, were $1.32 per mile for the first nine months of 2004, compared to $1.26 for the same period of 2003. Operating revenues per loaded mile, which includes fuel surcharges, were $1.58 for the first nine months of 2004, compared to $1.47 for the same period 2003. Freight revenues per loaded mile, which excludes fuel surcharges, were $1.48 for the first nine months of 2004 compared to $1.40 for the same period of 2003. These increases are primarily a result of increased line-haul and accessorial rates, as well as changes in customer mix.

          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.

Nine months ended
September 30,
2004
Nine months
ended September 30,
2003
Operating Revenue per total mile     $ 1.41   $ 1.31  
Fuel surcharge per total mile    0.09    0.05  
Freight revenue per total mile   $ 1.32   $ 1.26  

Operating Revenue per loaded mile		   $ 1.58   $ 1.47  
Fuel surcharge per loaded mile    0.10    0.07  
Freight revenue per loaded mile   $ 1.48   $ 1.40  





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          Equipment utilization, as measured by average operating revenues per tractor per week (including fuel surcharges), was $3,053 during the first nine months of 2004 compared to $2,809 for the same period of 2003. Equipment utilization, as measured by average freight revenues per tractor per week (excluding fuel surcharges), was $2,865 during the first nine months of 2004 compared to $2,687 for the same period of 2003. The improvement in equipment utilization in 2004 reflects increased line-haul rates and accessorial charges related to the new hours of service rules and increased miles per tractor per week, offset by an increase in deadhead miles.

          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.

Nine months ended
September 30,
2004
Nine months ended
September 30,
2003
Operating Revenue per tractor per week     $ 3,053   $ 2,809  
Fuel surcharge per tractor per week    188    122  
Freight revenue per tractor per week   $ 2,865   $ 2,687  

          Salaries, wages, and benefits increased $3.4 million to $57.4 million for the first nine months of 2004 compared to $54.0 million for the same period in 2003. The increase is primarily a result of higher miles driven by employee drivers (employee transported miles represented 56.4% of total miles in the first nine months of 2004 compared to 51.1% of total miles in the same period of 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 and student pay increased as a result of additional trainers and increased turnover, driver benefits increased due to higher medical coverage costs, and workers’ compensation costs have increased due to increased per-claim costs. Salaries, wages, and benefits, as a percentage of operating revenues, were 29.7% for the first nine months of 2004 compared to 27.4% for the same period of 2003.

          Fuel, maintenance, and other expenses increased $0.9 million to $31.0 million during the first nine months of 2004 compared to $30.1 million for the same period of 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 the first nine months of 2004 when compared to the same period of 2003. Fuel, maintenance, and other expenses, as a percentage of operating revenues, were 16.1% for the nine months ending September 30, 2004, compared to 15.3% for the same period of 2003.





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          Purchased transportation decreased $10.2 million to $60.3 million during the first nine months of 2004 compared to $70.5 million for the same period of 2003. Purchased transportation, as a percentage of operating revenues, was 31.2% for the first nine months of 2004 compared to 35.8% for the same period of 2003. The decrease reflects lower miles driven by independent contractors (independent contractor transported miles represented 43.6% of total miles in the first nine months of 2004 compared to 48.9% of total miles in the same period of 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 rising fuel costs.

          Revenue equipment leases were $0.9 million during the first nine months of 2004 compared to $0.8 million for the same period of 2003. Revenue equipment leases, as a percentage of operating revenues, were 0.5% for the first nine months of 2004 compared to 0.4% for the same period of 2003, reflecting the Company’s use of operating leases for certain tractors acquired during 2002 and 2004.

          Depreciation and amortization decreased $1.3 million to $17.7 million for the first nine months of 2004 compared to $19.0 million for the same period of 2003. The decrease is a result of fewer tractors and trailers in 2004 due to a reduction in the fleet and implementation of a lease-to-own program with independent contractors rolled out in 2002 and early-2003. The decrease also resulted from reduced depreciation related to the Company’s corporate facility and leasehold improvements as a result of the sale of its rights in the corporate headquarters in the fourth quarter of 2003. Depreciation and amortization, as a percentage of operating revenues, was 9.2% of operating revenues for the first nine months of 2004 compared to 9.7% for the same period of 2003.

          Insurance, claims and damage expense increased $1.0 million to $9.8 million for the first nine months of 2004 compared to $8.8 million for the same period of 2003. Insurance, claims and damage expense, as a percentage of operating revenues, was 5.1% for the first nine months of 2004 compared to 4.5% for the same period of 2003. The increase is primarily a result of higher accident frequency and severity during 2004 as compared to 2003.

          Taxes and licenses were $3.4 million for the first nine months of both 2004 and 2003. Taxes and licenses, as a percentage of operating revenues, was 1.8% for the first nine months of 2004 compared to 1.7% for the same period of 2003.

          Communication expense decreased $0.4 million to $1.3 million for the first nine months of 2004 compared to $1.7 million for the same period of 2003. Communication expense, as a percentage of operating revenues, was 0.7% for the first nine months of 2004 compared to 0.9% for the same period of 2003. The decrease reflects the effect of favorable rates for communication services in 2004 combined with fewer tractors in the overall fleet.





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          Other general and administrative expense decreased $0.1 million to $7.2 million for the first nine months of 2004 compared to $7.3 million for the same period of 2003. Other general and administrative expenses that increased 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. Other general and administrative expenses that decreased include office management expenses, building repair costs, and real estate taxes as a result of the Company’s sale of its rights in the headquarters facility, and reduced consulting fees. Other general and administrative expense, as a percentage of operating revenues, was 3.7% for both periods.

          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 utilization period and related estimated cash flows, the Company recorded a pre-tax $4.7 million impairment charge under SFAS No. 144 related to this disposition of revenue equipment. An analysis of the Company’s initial impairment reserve demonstrated that the ultimate impairment on this disposal program was less than originally estimated and the reserve was reduced by $278,000 in the first quarter of 2003.

          On April 9, 2004, the Company signed a sub-lease agreement to rent 9,000 square feet of its headquarters facility at a rental rate that is less than the rental rate paid by the Company. Accordingly, the Company recorded a pre-tax impairment charge related to this sub-lease agreement of $190,000 in the second quarter of 2004.

          Gain on the disposition of equipment was $22,000 for the first nine months of 2004 compared to a gain of $1.3 million for the same period 2003 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 was $3.9 million for the first nine months of 2004 compared to $2.9 million for the same period of 2003. The Company’s operating ratio (operating expenses as a percentage of operating revenues) was 98.0% for the first nine months of 2004 compared to 98.5% for the same period of 2003.

          Net interest expense decreased $0.8 million to $2.4 million for the first nine months of 2004 compared to $3.2 million for the same period of 2003. Net interest expense, as a percentage of operating revenues, was 1.2% for the first nine months of 2004 compared to 1.6% for the same period of 2003. The decrease primarily reflects lower average debt balances during the first nine months of 2004.

          The effective tax rate was 38.8% for the first nine months of 2004 compared to 16.2% for the same period of 2003. The higher effective rate for the




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  first nine months of 2004 reflects the effect of non-deductible items in both 2004 and 2003 for tax purposes. The lower effective rate for the first nine months of 2003 also results from the adjustment of year-to-date tax benefit from operations to the computed rate of 16.2% as of September 30, 2003. The difference between the effective rate and statutory rates is due to the effect of non-deductible items in 2003 in relation to the fact that the Company’s year-to-date loss before income taxes and the cumulative effect of a change in accounting principle is near break-even.

          Earnings before the cumulative effect of a change in accounting principle was $0.9 million, or 0.5% of operating revenues, for the first nine months of 2004 compared to a loss of $0.2 million, or 0.1% of operating revenues, for the same period of 2003.

          In 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” effective for fiscal years beginning after June 15, 2002. The Statement requires businesses to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. It has been determined that SFAS No. 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 a change in accounting principle.

          In 1999, the Company entered into a lease arrangement for its corporate headquarters 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. In January 2003, the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities”. The Company evaluated the treatment of this leasing arrangement under FIN No. 46 and concluded the pronouncement required the Company to record the asset and related liability in its financial statements. During the third quarter 2003, the Company elected early adoption and the prospective applications provisions of FIN 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).

          Net earnings, including the cumulative effect of a change in accounting principle, for the first nine months of 2004 was $0.9 million compared to a net loss of $1.4 million for the same period of 2003.





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  Liquidity and Capital Resources

          Cash and cash equivalents was $5.4 million at September 30, 2004 compared to $0.1 million at September 30, 2003. Net cash provided by operating activities for the first nine months of 2004 was $24.9 million compared to $23.1 million provided for the same period of 2003. The net change in operating assets and liabilities provided cash of $6.3 million during the first nine months of 2004 and provided cash of $8.2 million during the same period of 2003. Trade receivables have increased as a result of new accessorial charges, and other receivables have increased due to an accrual for proceeds related to the disposal of 53 tractors during the third quarter of 2004. Other assets have decreased as a result of independent contractors continuing to pay down balances due on tractor purchases under the Company’s lease-to-own program, accounts payable have increased due to an accrual related to the payment for the purchase of 167 trailers, and other liabilities have increased as a result of increased insurance reserves.

          Investing activities for the first nine months of 2004 consumed net cash of $13.7 million compared to $6.9 million net cash consumed by investing activities in the same period of 2003. Gross capital expenditures were $17.8 million in the first nine months of 2004 primarily related to the acquisition of 90 replacement tractors and 399 trailers. Gross capital expenditures were $12.6 million in the first nine months of 2003 primarily related to the acquisition of 130 replacement tractors and 27 trailers. Proceeds from the disposition of property and equipment for the first nine months of 2004 were $4.2 million, primarily related to the disposition of 94 replacement tractors and 368 trailers. Proceeds from the disposition of property and equipment for the first nine months of 2003 were $5.7 million primarily related to the disposition of 150 replacement tractors and 351 trailers.

          Financing activities for the first nine months of 2004 consumed $8.2 million compared to $16.2 million consumed for the first nine months of 2003. Cash consumed to date in 2004 included net payments on long-term debt of $3.9 million, and $4.5 million for the repurchase and retirement of common stock. The Company’s Board of Directors continues to believe that the Company’s stock is an appropriate investment given current market prices. Cash consumed for the first nine months of 2003 included net payments on long-term debt of $15.0 million and $0.5 million for the repurchase and retirement of common stock.

          In 1997, the Board of Directors approved purchasing up to 350,000 shares of the Company’s common stock and did not impose an expiration date on such authority. On March 10, 2004, the Board of Directors approved repurchasing an additional 500,000 shares of the Company’s common stock and again on May 27, 2004, the Board of Directors approved repurchasing an additional 500,000 shares of the Company’s common stock. As of September 30, 2004, the Company has repurchased 855,400 shares, leaving 494,600 shares available for authorized repurchases.





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          The following table shows the monthly 2004 stock repurchase activity:

Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased As Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)

January 2004		      —    —    —    120,600  
February 2004    102,800   $ 7.53    102,800    17,800  
March 2004    57,900    7.38    57,900    459,900  
  First Quarter Totals    160,700   $ 7.48    160,700    459,900  

April 2004		    16,700    7.07    16,700    443,200  
May 2004    443,100    7.17    443,100    500,100  
June 2004    5,500    7.30    5,500    494,600  
  Second Quarter Totals    465,300   $ 7.17    465,300    494,600  

July 2004		    —    —    —    494,600  
August 2004    —    —    —    494,600  
September 2004    —    —    —    494,600  
  Third Quarter Totals    —   $ 0.00    —    494,600  
Year to Date Totals    626,000   $ 7.24    626,000    494,600  

(1)   As initially approved in 1997, and further increased in March and May of 2004, the Board of Directors has authorized the Company to purchase up to 1,350,000 shares of the Company’s common stock. This program has no expiration date but may be terminated by the Board of Directors at any time.


          The large increase in share repurchases in first and second quarter 2004 reflects the Company’s strong cash flow, which has historically been used for early extinguishment of debt. The Company’s current outstanding debt has favorable interest rates and/or prepayment penalties; accordingly, the Company is using cash generated from operations to enhance shareholder value by repurchasing shares of its common stock.

          Working capital was negative $6.9 million at September 30, 2004, compared to negative $33,000 at December 31, 2003 and negative $19.5 million at September 30, 2003. The decrease in working capital from December 31, 2003 to September 30, 2004 is a result of balloon payments on capital leases that mature in the next twelve months as well as increased insurance reserves. 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 which expires on May 5, 2007, for a secured credit facility with maximum combined borrowings and letters of credit at September 30, 2004 of $30.0 million. Amounts actually available under the credit facility are limited by the Company’s accounts receivable and certain unencumbered revenue equipment. The credit facility is used to meet working capital needs, purchase revenue equipment and other assets, and satisfy letter of credit requirements associated with the Company’s self-insured retention arrangements. At September 30, 2004, there were outstanding borrowings and letters of credit of $0.0 and $5.1 million, respectively, and the Company was in compliance with the financial covenants under the credit facility. At September 30, 2004, the Company had additional amounts available under its credit facility




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  of $23.2 million. The Company expects to continue to fund its liquidity needs and anticipated capital expenditures with cash flows from operations, the credit facility, and other financing 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 contractual obligations below. 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 guarantees is $1.1 million.

          The following tables set forth the Company’s contractual obligations on balance sheet and off-balance sheet obligations as of September 30, 2004:

Payments Due by Period
(In thousands)

Contractual Obligations on Balance Sheet Total Less than
one year 		Years
2 and 3 		Years
4 and 5 		Year 6
and after
Long-term debt     $ 37,093   $ 8,544   $ 19,337   $ 9,136   $ 76  
Capital leases    13,931    8,984    4,947    —    —  
Total Balance Sheet Contractual Obligations   $ 51,024   $ 17,528   $ 24,284   $ 9,136   $ 76  
 
Off-Balance Sheet Obligations Total Less than
one year 		Years
2 and 3 		Years
4 and 5 		Year 6
and after
Operating leases    17,264    2,569    4,135    2,162    8,398  
Letters of credit    5,090    5,090    —    —    —  
Guarantees    1,100    —    1,100    —    —  
Total Off-Balance Sheet Obligations   $ 23,454   $ 7,659   $ 5,235   $ 2,162   $ 8,398  
Total Obligations   $ 74,478   $ 25,187   $ 29,519   $ 11,298   $ 8,474  

  Forward-looking Statements

          Statements included in this MD&A , elsewhere in this report, in the Company’s Annual Report on Form 10-K, 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




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  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 hours of service regulations (6) adverse weather conditions, (7) accidents, (8) the market for used revenue equipment, (9) changes in interest rates, (10) the 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.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

  Interest Rate Risk

          The Company is exposed to certain market risks with its $30.0 million credit agreement, of which $0.0 was outstanding at September 30, 2004. The agreement bears interest at a variable rate, which was 5.25% at September 30, 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 September 30, 2004, the Company had no derivative financial instruments to reduce its exposure to fuel price fluctuations.





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Item 4.   Controls and Procedures

          The 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 the end of the period covered by this quarterly report. 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 September 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II   OTHER INFORMATION

Item 1.   Legal Proceedings

  None

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

  The information regarding issuer purchases of equity securities is incorporated herein from Item 2 of Part 1 of this Quarterly Report on Form 10-Q.

Item 3.   Defaults Upon Senior Securities

  None

Item 4.   Submission of Matters to a Vote of Security Holders

  None

Item 5.   Other Information

  None

Item 6.   Exhibits

  Exhibit
Number 		   
Description

  3.1   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).





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  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).
  31.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
  31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
  32.1   Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).
  32.2   Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

             
  TRANSPORT CORPORATION OF AMERICA, INC.
 
Date: October 27, 2004 /s/   Michael J. Paxton  
 
 Michael J. Paxton
Chairman, President and Chief Executive Officer
(Principal Executive Officer)		 
 
    /s/   Keith R. Klein 
  
 Keith R. Klein
Chief Financial Officer and Chief Information Officer
(Principal Financial and Accounting Officer)		 













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