##### Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-K



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



For the fiscal year ended
December 26, 2008

OR

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



For the transition period
from  to



Commission file number 000-49828



PACER INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)



|                                             |  |                                    
|-------------------------------------------- |  | -----------------------------------
|Tennessee                                    |  | 62-0935669                         
|(State or other jurisdictionof
organization) |  | (I.R.S. employeridentification no.)



2300 Clayton Road,
Suite 1200

Concord, CA 94520

Telephone Number (887) 917-2237



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



|                              |  |                                     
|----------------------------- |  | ------------------------------------
|Title of each
class           |  | Name of exchange on which registered
|Common Stock, par Value $0.01 |  | The NASDAQ Stock Market, LLC        



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



Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YesNox



Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YesNox



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.  YesxNo



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 a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):



|                                                                    |  |                          
|------------------------------------------------------------------- |  | -------------------------
|Large accelerated filerx                                            |  | Accelerated filer        
|Non-accelerated filer (Do not check if a smaller reporting company) |  | Smaller reporting company



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



The aggregate
market value of the voting stock held by non-affiliates of the registrant was approximately $744,300,022 at June 27, 2008 (based on the NASDAQ National Market closing price on that date). For purposes of this calculation, the registrant has
assumed that its directors and executive officers are affiliates. On February 3, 2009, the registrant had 34,940,620 outstanding shares of Common Stock, par value $.01 per share.



Documents Incorporated by Reference  Portions of the registrants definitive Proxy Statement for the 2009 annual meeting of
shareholders to be held on May 5, 2009 which will be filed with the Securities and Exchange Commission within 120 days after the end of the registrants fiscal year ended December 26, 2008, have been incorporated by reference into
Part III of this Annual Report on Form 10-K to the extent described herein.



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TABLE OF CONTENTS



|                                                  |  |                                                                                                              |  |    
|------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------ |  | ---
|General Information                               |  | 3                                                                                                           
|Special Note Regarding Forward-Looking Statements |  | 3                                                                                                           
|                                                  |  |                                                                                                             
|Part I.                                           |  |                                                                                                              |  |    
|Item 1.                                           |  | Business                                                                                                     |  | 5  
|                                                  |  | Overview                                                                                                     |  | 5  
|                                                  |  | Available Information                                                                                        |  | 5  
|                                                  |  | Our Service Offerings                                                                                        |  | 6  
|                                                  |  | Information Technology                                                                                       |  | 9  
|                                                  |  | Customers                                                                                                    |  | 10 
|                                                  |  | Sales and Marketing                                                                                          |  | 10 
|                                                  |  | Development of Our Company                                                                                   |  | 11 
|                                                  |  | Suppliers                                                                                                    |  | 12 
|                                                  |  | Equipment                                                                                                    |  | 13 
|                                                  |  | Risk Management and Insurance                                                                                |  | 14 
|                                                  |  | Relationship with APL Limited                                                                                |  | 14 
|                                                  |  | Business Cycle                                                                                               |  | 14 
|                                                  |  | Competition                                                                                                  |  | 15 
|                                                  |  | Employees                                                                                                    |  | 15 
|                                                  |  | Government Regulation                                                                                        |  | 15 
|                                                  |  | Legal Contingencies                                                                                          |  | 16 
|                                                  |  | Environmental                                                                                                |  | 17 
|                                                  |  | Seasonality                                                                                                  |  | 17 
|Item 1A.                                          |  | Risk Factors                                                                                                 |  | 17 
|                                                  |  | Risks Related to Our Business                                                                                |  | 17 
|                                                  |  | Risks Related to Our Common Stock                                                                            |  | 30 
|Item 1B.                                          |  | Unresolved Staff Comments                                                                                    |  | 31 
|Item 2.                                           |  | Properties                                                                                                   |  | 31 
|Item 3.                                           |  | Legal Proceedings                                                                                            |  | 31 
|Item 4.                                           |  | Submission of Matters to a Vote of Security Holders                                                          |  | 32 
|                                                  |  | Executive Officers of the Registrant                                                                         |  | 32 
|                                                  |  |                                                                                                             
|Part II.                                          |  |                                                                                                              |  |    
|Item 5.                                           |  | Market For Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 34 
|Item 6.                                           |  | Selected Financial Data                                                                                      |  | 37 
|Item 7.                                           |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 38 
|Item 7A.                                          |  | Quantitative and Qualitative Disclosures about Market Risk                                                   |  | 58 
|Item 8.                                           |  | Financial Statements and Supplementary Data                                                                  |  | 59 
|Item 9.                                           |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 59 
|Item 9A.                                          |  | Controls and Procedures                                                                                      |  | 59 
|Item 9B.                                          |  | Other Information                                                                                            |  | 61 
|                                                  |  |                                                                                                             
|Part III.                                         |  |                                                                                                              |  |    
|Item 10.                                          |  | Directors, Executive Officers and Corporate Governance                                                       |  | 62 
|Item 11.                                          |  | Executive Compensation                                                                                       |  | 62 
|Item 12.                                          |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 63 
|Item 13.                                          |  | Certain Relationships and Related Transactions, and Director Independence                                    |  | 64 
|Item 14.                                          |  | Principal Accountant Fees and Services                                                                       |  | 64 
|                                                  |  |                                                                                                             
|Part IV.                                          |  |                                                                                                              |  |    
|Item 15.                                          |  | Exhibits and Financial Statement Schedules                                                                   |  | 65 
|                                                  |  | Signatures                                                                                                   |  | 71 
|                                                  |  | Index to Consolidated Financial Statements and Financial StatementSchedules                                  |  | F-1



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General Information



In this Annual Report on Form 10-K, our company, Pacer International, we, us
and our refer to Pacer International, Inc., and its consolidated subsidiaries, and Pacer Logistics refers to our former subsidiary Pacer Logistics, Inc., which merged into Pacer International, Inc., on May 31, 2003. Our
subsidiary that provides intermodal equipment and arranges rail transportation operates under the name Pacer Stacktrain and is referred to as Stacktrain or Pacer Stacktrain in this Annual Report on Form 10-K. References to
our intermodal segment operations include our Stacktrain operations, our local cartage operations (also referred to as local trucking and drayage) conducted through our subsidiary Pacer Cartage, Inc., and our intermodal marketing operations (also
referred to as rail brokerage) conducted through our subsidiary Pacer Transportation Solutions, Inc., formerly known as Pacer Global Logistics, Inc. and is referred to as Pacer Transportation Solutions in this Annual Report on Form 10-K.
References to our logistics segment operations include our businesses providing highway brokerage, truck services, international freight forwarding, supply chain management services and warehousing and distribution services. Our highway brokerage
and supply chain management services are conducted through our Pacer Transportation Solutions subsidiary; our warehousing and distribution services and associated port drayage are conducted through our subsidiaries Pacer Distribution Services, Inc.,
and PDS Trucking, Inc.; our international freight forwarding operations are conducted through our subsidiaries RF International, Ltd., and Ocean World Lines, Inc.; and our truck services operations are conducted through our subsidiaries Pacer
Transport, Inc., and S&H Transport, Inc. Statements in this Annual Report on Form 10-K as to our size or position relative to our competitors are based on revenues.



Special Note Regarding Forward-looking Statements



This Annual Report on Form 10-K contains forward looking statements, within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that reflect our current estimates, expectations and projections about our future results, performance, prospects and opportunities.
Forward-looking statements include, among other things, the information concerning our possible future consolidated results of operations, business and growth strategies, financing plans, our competitive position and the effects of competition, the
projected growth of the industries in which we operate, and the benefits and synergies to be obtained from any future acquisitions. Forward-looking statements include all statements that are not historical facts and can be identified by
forward-looking words such as anticipate, believe, could, estimate, expect, intend, plan, may, should, will, would,
project and similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks, uncertainties and other factors that could cause our actual results, performance,
prospects or opportunities to differ materially from those expressed in, or implied by, these forward-looking statements. Important factors that could cause our actual results to differ materially from the results referred to in the forward-looking
statements we make in this Annual Report on Form 10-K are discussed under Item 1A. Risk Factors and elsewhere in this Annual Report on Form 10-K and include:



| | · |  | general economic and business conditions, including the length and severity of the current economic recession;
| | - |  | --------------------------------------------------------------------------------------------------------------



| | · |  | industry trends, including changes in the costs of services from rail and motor transportation providers;
| | - |  | ---------------------------------------------------------------------------------------------------------



| | · |  | difficulties in maintaining or enhancing our information technology systems including potential delays and cost overruns in the implementation of an enterprise
suite of software applications that we purchased in the fourth quarter of 2007;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the loss of one or more of our major customers;
| | - |  | -----------------------------------------------



| | · |  | the effect of the current economic recession and credit market disruption on our customers, including reduced transportation needs and an inability to pay us on
time or at all;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the impact of competitive pressures in the marketplace;
| | - |  | -------------------------------------------------------



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| | · |  | the frequency and severity of accidents, particularly involving our trucking operations;
| | - |  | ----------------------------------------------------------------------------------------



| | · |  | the terms of new or replacement contracts with our major underlying rail carriers that are less favorable to us relative to our current contracts as these expire
(including Union Pacific, expiring in 2011, and CSX Intermodal, expiring in 2014);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the possibility of future goodwill impairment charges;
| | - |  | ------------------------------------------------------



| | · |  | changes in, or the failure to comply with, government regulations;
| | - |  | ------------------------------------------------------------------



| | · |  | changes in our business strategy, development plans or cost savings plans;
| | - |  | --------------------------------------------------------------------------



| | · |  | congestion, work stoppages, equipment and capacity shortages, weather related issues and service disruptions affecting our rail and motor transportation providers;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the degree and timing of changes in fuel prices, including changes in the fuel costs and surcharges that we pay to our vendors and those that we are able to collect
from our customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | changes in international and domestic shipping patterns;
| | - |  | --------------------------------------------------------



| | · |  | availability of qualified personnel;
| | - |  | ------------------------------------



| | · |  | increases in interest rates;
| | - |  | ----------------------------



| | · |  | increases in our leverage;
| | - |  | --------------------------



| | · |  | our ability to integrate acquired businesses; and
| | - |  | -------------------------------------------------



| | · |  | terrorism and acts of war.
| | - |  | --------------------------



Our actual consolidated results of operations and the execution of our business strategy could differ materially from those expressed in, or implied by,
the forward-looking statements contained in this Annual Report on Form 10-K. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to
anticipate future results or future period trends. We can give no assurances that any of the events anticipated or implied by the forward-looking statements will occur or, if any of them do, what impact they will have on our consolidated results of
operations, financial condition or cash flows. In evaluating our forward-looking statements, you should specifically consider the risks and uncertainties discussed under Item 1A. Risk Factors in this Annual Report on Form 10-K. Except as
otherwise required by federal securities laws, we undertake no obligation to publicly revise our forward-looking statements to reflect events or circumstances that arise after the date of this Annual Report on Form 10-K. All forward-looking
statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this Annual Report on Form 10-K.



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Part I.



ITEM 1. BUSINESS



Overview



We are a leading asset-light North American transportation and logistics services provider. Within North America, we operate one of the largest intermodal
services networks and facilitate the movement of freight containers and trailers using two or more modes of transportation. We also provide complementary logistics services to our customers that allow us to cross sell between our intermodal and
logistics segments. We focus our business on our core intermodal products, with sales from our intermodal segment representing approximately 80% of our total revenues. We believe that our competitive advantages include:



| | · |  | our operation of one of the largest intermodal networks and equipment fleets in North America;
| | - |  | ----------------------------------------------------------------------------------------------



| | · |  | our ability to pass volume rate savings and economies of scale to our customers;
| | - |  | --------------------------------------------------------------------------------



| | · |  | our opportunity to cross-sell services to existing and potential customers;
| | - |  | ---------------------------------------------------------------------------



| | · |  | a comprehensive portfolio of transportation and logistics services;
| | - |  | -------------------------------------------------------------------



| | · |  | the flexibility to tailor services to our customers needs in rapidly changing freight markets; and
| | - |  | ---------------------------------------------------------------------------------------------------



| | · |  | the ability to provide reliable and consistent services.
| | - |  | --------------------------------------------------------



We provide transportation and logistics services to numerous Fortune 500 and multi-national companies, including Big Lots, C.H. Robinson, General
Electric, Sony, Union Pacific, Toyota and ConAgra, which named companies together represented approximately 18.7% of our revenues for the fiscal year ended December 26, 2008, as well as to numerous third party transportation companies,
including intermodal marketing companies.



We utilize an
asset-light strategy by which we seek to limit our investment in equipment and facilities and reduce working capital requirements through arrangements with transportation carriers and equipment providers. This strategy provides us with access to
freight terminals and facilities and control over transportation-related equipment without owning significant assets.



In our intermodal segment, our contractual arrangements with our underlying rail carriers and local trucking or drayage companies generally do not require
us to pay for rail or truck transportation services that are not needed to service our customers shipping needs. We can leverage our controlled intermodal equipment and network so our customers can have access to capacity and transportation at
competitive rates.



In our logistics segment, our contractual
arrangements with ocean carriers, truck carriers and equipment providers also generally do not require us to purchase or pay for carrier services or for equipment usage or availability that are not required to service our customers shipping
needs. We believe that this is customary in the non-asset based highway brokerage industries in which our logistics segment competes. Also, our trucking services units utilize independent owner-operators, who own and operate their own equipment, to
provide truck transportation for our customers, and our agreements with these owner-operators do not require us to pay for truck services or for equipment usage or availability that are not actually used to transport our customers goods. We
believe that our non-asset based competitors in the trucking services sector utilize a similar model.



Available Information



We file or furnish with or to the Securities and Exchange Commission (SEC) our quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, annual reports to shareholders and
annual proxy statements and amendments to such filings. Our SEC filings are available to



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the public on the SECs website at http://www.sec.gov. These reports are also available free of charge from our website at
http://www.pacer.com, as soon as reasonably practical after we electronically file or furnish such material with or to the SEC. Information contained on our website is not part of this Annual Report on Form 10-K or of any registration
statement that incorporates this Annual Report on Form 10-K by reference.



Our Service Offerings



We provide our transportation services from two operating segments, our intermodal segment, which provides intermodal transportation services principally
to transportation intermediaries, beneficial cargo owners (end-user customers) and international shipping companies who utilize intermodal transportation, and our logistics segment, which provides truck brokerage, truck transport (including
specialized haulage), supply chain management services, freight forwarding, ocean shipping and warehousing and distribution services to a wide variety of end-user customers.



Intermodal transportation is the movement of freight via trailer or container using two or more modes of transportation
which nearly always include rail and truck segments. The intermodal segment consists of our Stacktrain unit which provides ramp-to-ramp and door-to-door services to third party customers (such as intermodal marketing companies and brokers), our Rail
Brokerage unit which provides door-to-door services to beneficial cargo owners, and our Cartage unit which provides service between the customers door, ports and rail ramps.



Our logistics segment consists of the following business units: Highway Brokerage; Truck Services; International Shipping;
Non-Vessel Operating Common Carrier (NVOCC) and Freight Forwarding Services; Warehousing and Distribution Services; and Supply Chain Management Services.



Both segments have dedicated management teams and offer different but related products and services. Information about our
segments, including revenues, income from operations, and geographic information, is included in Note 8 to the notes to consolidated financial statements included in this report.



Intermodal Services



Rail Brokerage



Our intermodal marketing unit, which is a division of our Pacer Transportation Solutions subsidiary, arranges for and optimizes the movement of our
end-user customers freight in containers and trailers throughout North America using truck and rail transportation. We provide box capacity, drayage capacity, door-to-door shipment management and high quality customer service for our
intermodal customers. We arrange for a container or trailer shipment to be picked up at origin by truck (using either our cartage services or other truck carriers directly) and transported to a site for loading onto a train. The shipment is then
transported via railroad (using either our Stacktrain services or rail carriers directly) to a site for unloading from the train in the vicinity of the final destination. After the shipment has been unloaded from the train and is available for
pick-up, we arrange for the shipment to be transported by truck (using either our Cartage services or other truck carriers directly) to the final destination. We provide customized electronic tracking and analysis of charges and our own negotiated
rail, truck and intermodal rates, and we determine the optimal routes. We also track and monitor shipments in transit, consolidate billing, handle claims of freight loss or damage on behalf of our customers and manage the handling, consolidation and
storage of freight throughout the process. Our rail brokerage operations are based in Rutherford, NJ, Dublin, OH, and Jacksonville, FL. Our experienced transportation personnel are responsible for operations, customer service, management information
systems and our relationships with the rail carriers.



Through
our rail brokerage operations, we assist the railroads and our Pacer Stacktrain operation in balancing freight resulting in improved asset utilization. In addition, we serve our customers by passing on economies of scale that we achieve as a volume
buyer from railroads, trucking companies and other third party transportation providers, providing access to large equipment pools and streamlining the paperwork and logistics of an intermodal move.



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Stacktrain



Our Stacktrain unit has been a leader in the development and use of double-stack intermodal equipment and methodologies.
Double-stack intermodal transportation consists of the movement of cargo containers stacked two high on special railcars, which significantly improves the efficiency of our service by increasing capacity at a low incremental cost without sacrificing
quality of service. We are a major non-railroad provider of intermodal rail service in North America. We sell intermodal service primarily to intermodal marketing companies, truck brokerage companies, truckload carriers, large automotive
intermediaries and international shipping companies, as well as to our own wholly-owned internal intermodal marketing company, which we refer to in this Form 10-K as our Rail Brokerage unit. We offer both ramp-to-ramp services (rail only services)
as well as a door-to-door service offering called PacerDirect. We compete primarily with rail carriers and other private intermodal equipment and service providers and with over-the-road full truckload service providers.



Through multi-year contracts and other operating arrangements with North
American railroads, including Union Pacific, Burlington Northern Santa Fe, CSX, KCSM in Mexico, and Canadian National Railroad, we have access to over a 100,000-mile North American rail network serving most major population and commercial centers in
the United States, Canada and Mexico. These contracts and arrangements provide for, among other things, competitive rates, minimum service standards, capacity assurances, priority handling and the utilization of nationwide terminal facilities.



We maintain an extensive fleet of double-stack railcars,
containers and chassis, substantially all of which are leased. As of December 26, 2008, our equipment fleet consisted of 1,849 double-stack railcars, 28,681 containers and 29,904 chassis (steel frames with rubber tires used to transport
containers over the highway). In addition, through arrangements with APL Limited and other shipping companies, we provide customers with access to a large fleet of smaller International Standards Organization (ISO) international
containers, allowing us to provide additional transportation capacity using these containers as they are being repositioned from destinations within North America back to the West Coast. Our fleet, combined with ocean shipping companies ISO
containers, makes us a major provider of capacity in all container sizes.



The size of our leased and owned equipment fleet (as well as the smaller ISO international container westbound fleet), the frequent departures available to us through our rail contracts and the geographic coverage of
our rail network provide our customers with single-company control over their transportation requirements, which we believe gives us an advantage in attaining, at a competitive price, the responsiveness and reliability required by our customers. In
addition, our access to information technology enables us to continuously track containers, chassis and railcars throughout our transportation network. Through our equipment fleet and arrangements with rail carriers, we can control the equipment
used in our intermodal operations and employ full-time personnel on-site at many terminals to ensure close coordination of the services provided at these facilities.



Local Cartage



Our subsidiary, Pacer Cartage, Inc., provides local truck transportation (also called local cartage or drayage) largely in and around major U.S. cities,
rail ramps and ports. We contract with independent trucking owner operators and maintain interchange agreements with many major steamship lines, railroads and intermodal equipment providers for the interchange and use of equipment supplied by these
providers. This network allows us to supply door-to-door transportation across the country for shippers, ocean carriers and transportation intermediaries. Currently approximately 880 owner-operator trucks are under contract with us to haul freight
for our local cartage operations.



Logistics Services



Highway Brokerage



Through our highway brokerage unit, which is a division of our Pacer
Transportation Solutions subsidiary, we arrange the movement of freight in containers or trailers by truck using a nationwide network of over 10,000 independent trucking companies. By utilizing our aggregate volumes to negotiate



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rates, we are able to provide quality service at attractive prices. We provide highway brokerage services throughout North America through our customer
service centers in Rutherford, NJ, and Dublin, OH, and our network of independent agents and agencies. We manage all aspects of these services for our customers, including selecting qualified carriers, negotiating rates, tracking shipments, billing,
and resolving disputes.



Truck Services



Our separate truck services unit, Pacer Transport, Inc., provides dry van,
flatbed and specialized heavy-haul trucking services on behalf of our customers. We provide these trucking services through independent agents and contractors who operate approximately 500 trucks equipped with van, flatbed and heavy-haul trailers.
We also operate approximately 100 company-owned trucks.



International Freight Forwarding and NVOCC Services



As an international freight forwarder, our subsidiary, RF International, Ltd., provides freight forwarding and customs brokerage services that involve transportation of freight into or out of the United States. As a non-vessel operating
common carrier (NVOCC), our subsidiary Ocean World Lines, Inc., manages international shipping for our customers and provides or connects them with the range of services necessary to run a global business. We also provide airfreight forwarding
services as an indirect air carrier. Our international product offerings serve more than 1,000 clients internationally through offices in Lake Success, NY, Norfolk, VA, Chicago, IL, Seattle, WA, San Francisco, CA, Los Angeles, CA, Miami, FL, Dublin,
OH, Cincinnati, OH, and regional offices in Hamburg, Germany, and Ipswich, U.K., and approximately 100 agents worldwide.



As a NVOCC, we arrange the transportation of our customers freight by contracting with the actual vessel operator to obtain transportation for a
fixed number of containers between various points during a specified time period at an agreed wholesale discounted volume rate. We then are able to charge our customers rates lower than the rates they could obtain directly from actual vessel
operators for similar type shipments. We consolidate the freight bound for a particular destination from a common shipping point, prepare all required shipping documents, arrange for any inland transportation, deliver the freight to the vessel
operator and arrange transportation to the final destination. At the destination port, acting directly or through our agent, we deliver the freight to the receivers of the goods, which may include customs clearance and inland freight transportation
to the final destination. Our contracts with ocean carriers generally require us to pay a small liquidated damage amount for each committed container that we do not ship during the relevant contract period. The aggregate amount of such damages that
we have been required to pay in the past has not been material, however, and management believes that such contract terms will not have a material adverse effect on our operating results in the future.



As a customs broker, we are licensed by the U.S. Customs and Border
Protection Service to act on behalf of importers in handling customs formalities and other details critical to the importation of goods. We prepare and file formal documentation required for clearance through customs agencies, obtain customs bonds,
facilitate the payment of import duties on behalf of the importer, arrange for the payment of collect freight charges, assist with determining and obtaining the best commodity classifications for shipments and assist with qualifying for duty
drawback refunds. We provide customs brokerage services to direct domestic importers in connection with many of the shipments that we handle as a non-vessel operating common carrier, as well as shipments arranged by other freight forwarders,
non-vessel operating common carriers or vessel operating common carriers.



Warehousing and Distribution



Our warehousing and distribution unit, Pacer Distribution Services, Inc., primarily specializes in servicing the needs of importers looking to move their goods in a timely and efficient manner, either directly to a retailer or to an inland
distribution point. To accomplish this objective and deliver superior service to our import customers, we operate multiple facilities in the Los Angeles area that occupy approximately 800,000 square feet. All of these facilities are located within
18 miles of the Southern California ports, making possible a timely and efficient flow of ocean containers to and from our



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warehouses. To further improve the quality of service and expedite the delivery of ocean freight, our subsidiary, PDS Trucking, Inc., manages a trucking
fleet of over 100 owner-operators, many of whom service the Southern California ports on a daily basis. To help our customers reduce their import costs, we have extended the hours of operation of our harbor trucking fleet to take maximum advantage
of the program implemented by the Ports of Los Angeles and Long Beach to encourage the movement of cargo at night and on weekends to reduce truck traffic during peak daytime hours.



Our warehousing and distribution unit performs multiple services specifically designed for importers, including:



| | · |  | warehousing/distribution  receiving inventory to stock in order to fulfill future outbound orders,
| | - |  | ---------------------------------------------------------------------------------------------------



| | · |  | value-added services  labeling, price tagging, palletizing, pick/pack and reworking,
| | - |  | -------------------------------------------------------------------------------------



| | · |  | transloading  transferring freight from ocean containers to domestic equipment, rail or road,
| | - |  | ----------------------------------------------------------------------------------------------



| | · |  | deconsolidation  the sorting of freight for distribution to multiple outbound destinations, and
| | - |  | ------------------------------------------------------------------------------------------------



| | · |  | consolidation  the collecting of multiple smaller inbound shipments to build full truckloads.
| | - |  | ----------------------------------------------------------------------------------------------



Supply Chain Management



We use the information from our advanced information system to provide
consulting and supply chain management services to our customers. These specialized services, offered through our Pacer Transportation Solutions subsidiary, allow our customers to realize cost savings and concentrate on their core competencies by
outsourcing to us the management and transportation of their materials and inventory throughout their supply chain. We provide infrastructure and equipment, integrated with our customers existing systems, to handle distribution planning,
just-in-time delivery and automated ordering. We also manage warehouses, distribution centers and other facilities for selected customers and consult on identifying bottlenecks in our customers supply chains by analyzing freight patterns and
costs, optimizing facility locations and developing internal policies and procedures. We leverage these capabilities to drive additional volume to our other service offerings.



Information Technology



Our current intermodal and logistics transportation technology systems provide a scalable migration path designed for the
electronic interchange of data between our customers and us, and an Internet-based connectivity that allows us to communicate directly with our customers and transportation service providers. Our systems provide us with performance, utilization and
profitability indicators as they monitor and track shipments across various transportation modes, providing timely visibility regarding shipment status, location and estimated delivery times. Our exception notification system informs us of any
potential delays so we can alert our customers to minimize the impact of any problems. Our systems also report transit times, rates, equipment availability and the logistics activity of our transportation service providers, enabling us to plan and
execute freight movements more reliably, efficiently and cost effectively.



We manage our intermodal services through the continuous monitoring and tracking of our containers, chassis and railcars throughout the network. This allows us to monitor equipment location and availability and
therefore plan and provide for increased equipment utilization and balanced freight flows. We can also prepare and distribute customized accounting and billing reports for our customers as well as management reports to meet federal highway authority
requirements.



Pursuant to a long-term information technology
services agreement, APL Limited provides us with the computers, software and other information technology services necessary for the operation of and accounting for our Stacktrain business. We paid an annual fee of $10.6 million in 2008 to APL
Limited under this agreement (of which $3.4 million has been subject to a 3% compounded annual increase since May 2003). This agreement with APL Limited has a term expiring in May 2019, and is cancelable by us on 120 days notice without penalty.



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To further enhance our information technology capabilities, on September 30, 2007, we entered into a
software license agreement with SAP America, Inc. (SAP), for an enterprise suite of applications, including the latest release of SAPs Transportation Management Solution. Under the agreement, we were granted a perpetual license for
the suite of SAP software. Total capital expenditures were $17.5 million (including an accrual of $0.9 million) in 2008 and $10.6 million in 2007 (including the license fee and other expenditures), with an additional $5.8 million recorded in 2008
operating expenses. In addition, capital lease obligations of $0.8 million related to the project were recorded in 2008. No capital lease obligations were recorded in 2007.



The new system is expected to provide an improved integrated, streamlined platform across all business units, provide better
information management, eliminate duplicated work effort and dispersed data, and enhance customer services and communications. During 2008, we implemented the finance and accounting applications of the new system in all units but our Stacktrain
unit. Implementation of the finance and accounting applications at Stacktrain began in January 2009 and is expected to be completed by the end of the first quarter of 2009. Other operational elements of the new system for the intermodal and
logistics segments are expected to be implemented by the end of 2009 and in 2010, respectively, and include equipment management, pricing, billing and tracking and tracing applications.



We will continue to avail ourselves of the services and support under our existing long-term technology services agreement
with APL Limited until the SAP implementation project is completed. See Managements Discussion of Financial Condition and Results of Operations  Liquidity and Capital Resources for additional discussion.



Customers



We provide transportation and logistics services on a nationwide basis to
retailers, manufacturers, intermodal marketing companies and other companies, including a number of Fortune 500 and multi-national companies such as Big Lots, C.H. Robinson, General Electric, Sony, Union Pacific, Toyota and Conagra, which named
companies together represented approximately 18.7% of our 2008 revenues. In addition, we provide transportation and logistics services to numerous other shippers and transportation third parties. Other notable customers include The Scotts Company,
Whirlpool, Shaw Industries, and Costco. Approximately 20% of our 2008 total revenues were related to the automotive industry.



For the fiscal years ended December 26, 2008, December 28, 2007, and December 29, 2006, one customer contributed 10.5%, 10.4%, and
10.3% of our consolidated revenues, respectively.



Sales and Marketing



As
of December 26, 2008, we have over 150 direct sales and customer service representatives in our intermodal and logistics segments that sell and support our portfolio of services to a diverse customer base which includes transportation third
parties such as intermodal marketing companies and brokers, steamship lines, truckload carriers, logistics companies, truck brokers and beneficial cargo owners.



Our sales representatives are directly responsible for managing our business relationships with our customers. They expand our business base by
cross-selling our portfolio of services to our current and future customer base. They also collaborate with our customer service groups in an effort to provide problem-solving, cargo tracking services, reporting and the efficient processing of
customer orders and inquiries. The domestic direct sales force is also supplemented with over 60 sales agents and agencies.



In addition to our direct domestic sales force, we also have an extensive network of sales and customer service representatives for our international
NVOCC and freight forwarding business located in nine offices in North America, and regional offices in Hamburg, Germany and Ipswich, UK, along with approximately 100 agents worldwide.



In 2008, our corporate marketing efforts focused on customer and corporate communications, market research and product
development and public relations, as well as the development of a new unified Pacer brand identity and one integrated website.



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Our marketing departments efforts are focused on improving new customer acquisition and existing
customer growth through media, public relations and electronic communications to rapidly connect customers to new products, service improvements and network expansions. The marketing department also completed surveys and research projects to
ascertain customer buying behavior patterns by industry to ensure our services are updated to meet evolving customer requirements.



The marketing team led the effort in 2008 to unify our business units under a new single Pacer brand identity and tag line, Making Your World Run
Smoother, to more effectively communicate the services capabilities of the Pacer portfolio and improve our customers ease of doing business with Pacer. This effort includes the reduction of eight legacy websites into the newly launched
pacer.com website which we expect to improve our customers online experience and more effectively communicate the value of the entire Pacer portfolio of services.



Development of Our Company



We commenced operations as an independent, stand-alone company upon our recapitalization in May 1999. From 1984 until our recapitalization, our Stacktrain
business was conducted by various entities owned directly or indirectly by APL Limited.



In May 1999, we were recapitalized through the purchase of shares of our common stock from APL Limited by two affiliates of Apollo Management, and an affiliate of each of Credit Suisse First Boston LLC and Deutsche
Bank Securities Inc. and our redemption of a portion of the remaining shares of common stock held by APL Limited. On the date of the recapitalization, we also began providing retail and logistics services to customers through our acquisition of
Pacer Logistics. In connection with these transactions, our name was changed from APL Land Transport Services, Inc. to Pacer International, Inc.



Pacer Logistics, Inc. was originally incorporated on March 5, 1997, under the name PMT Holdings, Inc., and acquired the successor to a company formed
in 1974. Between the time of its formation and our acquisition of Pacer Logistics in May 1999, Pacer Logistics acquired and integrated six logistics services companies.



In 2000, we acquired four companies that complemented our business operations and expanded our geographic reach and service offerings for
intermodal marketing, highway brokerage, international freight forwarding and other logistics services. In 2001, we integrated our intermodal marketing, highway brokerage and supply chain services business operations into our Pacer Transportation
Solutions subsidiary.



In June 2002, we completed our initial
public offering of common stock and used the net proceeds to repay a significant portion of our outstanding long-term debt. During June and July 2003, we completed the refinancing of our credit facilities, including the early redemption of $150
million of 11.75% senior subordinated notes originally issued in connection with our May 1999 recapitalization. In August 2003, we completed an underwritten secondary public offering of common stock on behalf of a number of selling stockholders; no
new shares were issued and we received no proceeds from this offering.



On January 7, 2004, we filed with the SEC a shelf registration statement, providing for our issuance of up to $150 million in additional common stock, preferred stock and warrants to purchase any of such securities and for
the sale by a number of selling stockholders of 8,702,893 shares of common stock. In offerings under the registration statement in April and November 2004, all 8,702,893 shares of common stock of the selling stockholders were sold with no new shares
issued or proceeds received by the company. Upon completion of the offerings, Apollo Management and its affiliated entities no longer owned any shares of our common stock. There are currently no arrangements in place for the company to issue any
additional securities, and the registration statement has expired.



On April 5, 2007, we entered into a new $250 million, five-year revolving credit agreement and repaid the principal balance due under the term loan portion of our prior bank credit facility, which was terminated.



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Suppliers



Railroads



We have multi-year contracts and other operating arrangements with most of the major North American railroads, including Union Pacific, Burlington
Northern Santa Fe, CSX, Norfolk Southern, KCSM in Mexico, and Canadian National Railroad. These contracts and arrangements generally provide for access to terminals controlled by the railroads as well as support services related to our Stacktrain
operations. Through these contracts and arrangements, our intermodal business has established an extensive North American rail transportation network. Our rail brokerage business also maintains contracts with the railroads that govern the
transportation services and payment terms pursuant to which the railroads handle intermodal shipments. These contracts are typically of short duration, usually twelve-month terms, and subject to regular renewal or extension. We maintain close
working relationships with all of the major railroads in the United States and will continue to focus our efforts on strengthening these relationships. The multi-year rail contracts with Union Pacific (expiring in 2011) and CSX (expiring in 2014)
represent a majority of our Stacktrain units cost of purchased transportation, while other business with Union Pacific and CSX is covered by shorter-term commercial arrangements. Business with other railroads, including the Burlington Northern
Santa Fe, Canadian National Railroad and KCSM, constituted approximately 12% of our Stacktrain units cost of purchased transportation in 2008.



Through our contracts and arrangements with these rail carriers, we have access to over a 100,000 mile rail network throughout North America. Our rail
contracts and arrangements generally require the rail carriers to perform point-to-point linehaul transportation and terminal services for us. Pursuant to the service provisions, the rail carriers provide transportation of our intermodal equipment
across their rail networks and terminal services related to loading and unloading of containers, equipment movement and general administration. Our rail contracts and arrangements generally establish per container rates for Stacktrain shipments made
on the rail carriers transportation networks. The terms of our rail contracts and arrangements, including rates, are generally subject to adjustment or renegotiation throughout the term of the contract or arrangement, based on factors such as
the continuing fairness of the contract terms, prevailing market conditions and changes in the rail carriers costs to provide rail service. Based upon these provisions, and the volume of freight that we ship with each of the rail carriers, we
believe that we enjoy competitive transportation rates for our intermodal shipments.



Agents and Independent Contractors



In our long
haul and local trucking services operations, we rely on the services of independent agents, who procure business for and manage a group of trucking contractors. Although we own a small number of tractors and trailers, the majority of our truck
equipment and drivers are provided by agents and independent contractors. Our relationships with agents and independent contractors allow us to provide customers with a broad range of trucking services without the need to commit capital to acquire
and maintain a large trucking fleet. Although our agreements with independent agents and trucking contractors are typically long-term in practice, they are generally terminable by either party on short notice.



Independent agents and trucking contractors are compensated on the basis of
mileage rates, fixed fees between particular origins and destinations, fixed fees within certain distance-based zones or a fixed percentage of the revenue generated from the shipments that they arrange or haul. Under the terms of our typical lease
contracts, independent agents and trucking contractors must pay all of the expenses of operating their equipment, including driver wages and benefits, fuel, physical damage insurance, maintenance and debt service.



Local Trucking Companies



To support our intermodal operations, we have established a good working relationship with a large network of local truckers
in many major urban centers throughout the United States. The quality of these relationships helps ensure reliable pickups and deliveries, which is a major differentiating factor among intermodal marketing companies. Our strategy has been to
concentrate business with a select group of local truckers in a particular urban area, which increases our economic value to the local truckers and in turn raises the quality of service that we receive from them.



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Equipment



Our intermodal equipment fleet consists of a large number of double-stack railcars, containers and chassis that are owned or subject to
short and long-term leases. We lease almost all of our containers, approximately 87% of our chassis and approximately 89% of our double-stack railcars.



In addition, all of our railcar equipment is associated with revenue generating arrangements. Our railcar fleet consists of free running
railcars operating under the publicly reported BRAN mark. These railcars are in general service with railroads throughout North America to haul not only our own intermodal containers but also those of the railroads and their other
customers. Under this system, our railcars are freely interchanged from one rail carrier to another throughout the North American rail system. To use our railcars, the rail carrier pays us a fee, known as the car hire rate, which takes into account
the miles traveled by a railcar and the railcars time in service with a railroad. The actual rate payable is determined under our bilateral rate agreement with the railroad, or in the case of a railroad with which we have no rate agreement,
under our schedule of car hire rates maintained in the Car Hire Accounting Rate Master (CHARM) administered by Railinc in association with the Association of American Railroads. We are solely responsible for the costs of operating our railcars and
do not have any recourse to our customers for the lease or purchase of our railcars.



As of December 26, 2008, our Stacktrain equipment fleet consisted of the following:



|                      |  |       |  |        |  |       
|--------------------- |  | ----- |  | ------ |  | ------
|                      |  | Owned |  | Leased |  | Total 
|                      |  |      
|                      |  |       | 
|Containers            |  |       |  |        |  |       
|48 Containers        |  | 23    |  | 1,242  |  | 1,265 
|53 Containers        |  | 14    |  | 27,402 |  | 27,416
|                      |  |      
|Total                 |  | 37    |  | 28,644 |  | 28,681
|                      |  |      
|                      |  |       | 
|Chassis               |  |       |  |        |  |       
|20 and 40 Chassis   |  | 3     |  | 1,414  |  | 1,417 
|48 Chassis           |  | 3,489 |  | 1,656  |  | 5,145 
|53 Chassis           |  | 488   |  | 22,854 |  | 23,342
|                      |  |      
|Total                 |  | 3,980 |  | 25,924 |  | 29,904
|                      |  |      
|                      |  |       | 
|Double-stack Railcars |  | 203   |  | 1,646  |  | 1,849 
|                      |  |      



During 2008, we
received 3,079 primarily 53-ft. leased containers and 3,038 primarily 53-ft leased chassis, and returned 2,423 primarily 48-ft. leased containers, 2,275 primarily 48-ft. and 40-ft. leased chassis, and sold 1,282 48-ft. owned chassis in an effort to
continue to align our container and chassis fleets. During 2008, one leased railcar was destroyed.



During 2007, we received 1,658 primarily 53-ft. leased containers and 1,072 53-ft., 48-ft. and 40-ft. leased chassis, and we returned 2,191 primarily
48-ft. leased containers, 1,596 primarily 48-ft. and 40-ft. leased chassis, and sold 618 48-ft. owned chassis in an effort to more closely align our container and chassis fleets. During 2007, four railcars were destroyed.



During 2006, we received 2,360 53-ft. leased containers and 4,552 53-ft. and
40-ft. leased chassis, and we returned 2,033 primarily 48-ft. leased containers and 1,684 primarily 48-ft. and 40-ft. leased chassis. During 2006, four railcars were destroyed.



We also own or lease a limited amount of equipment to support our trucking operations. The majority of our trucking
operations are conducted through contracts with independent trucking companies and contractors that own and operate their own equipment. In late 2008, the fleets of our local trucking and port drayage operations in Southern California transitioned
to 230 new tractors operated by independent contractors in response to the Clean Truck Program of the Port of Los Angeles and the Port of Long Beach.



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The Ports Clean Truck Program, among other elements, imposes fees on shippers for shipments handled with tractors that do not comply with USEPA 2007
emission standards. These new tractors comply with USEPA 2007 emission standards.



Risk Management and Insurance



In our rail and highway brokerage operations, we typically require all motor carriers to which we tender freight to carry at least $1,000,000 in truckers commercial automobile liability insurance, $1,000,000 in commercial general
liability insurance and $100,000 in motor truck cargo insurance. Many carriers provide insurance exceeding these minimums. Railroads, which are largely self-insured, provide limited common carrier liability protection, generally up to $250,000 per
container. We maintain an all-risk form of cargo insurance to protect us against cargo damage claims that may not be recoverable from the responsible carriers or their insurers.



In our operations as an authorized carrier or warehouseman, we maintain legal liability insurance to protect us against
catastrophic claims arising from damage or loss to freight in transit or warehouse storage. We also maintain property damage insurance to protect us against damage to our railcars and intermodal equipment.



Our terms of carriage on international and ocean shipments limit our
liability consistent with industry standards. We offer our freight forwarding customers the option to purchase all risk cargo insurance for their shipments.



We also purchase insurance policies for commercial automobile liability, truckers commercial automobile liability, commercial general liability,
employers liability, and umbrella and excess umbrella liability, with a total insurance limit of $50 million. Our historical self-retained (deductible) levels vary based on claim frequency, severity and timing factors. Our current deductible
level per occurrence for commercial automobile liability is $25,000. Our current deductible level per occurrence for truckers commercial automobile liability is $500,000 for our Pacer Transport and Pacer Cartage operations and $100,000 for our
PDS Trucking operation. Our current deductible level per occurrence for commercial general liability is $100,000. Our current workers compensation and employers liability deductible is $150,000 per incident. Our current deductible per occurrence for
freight damage as an authorized carrier or warehouseman is $250,000, with the exception of our cartage operations which carry a $10,000 deductible.



Relationship with APL Limited



We are a party to a long-term agreement with APL Limited involving domestic transportation of APL Limiteds international freight by our Stacktrain
operation. The majority of APL Limiteds imports to the United States are transported by rail from ports on the West Coast to population centers in the Midwest and Northeast. Our agreement with APL also permits Pacer to place empty APL
equipment into domestic intermodal freight service originating predominantly in eastern and mid-western production centers to consumption centers on the West Coast thereby repositioning APLs international equipment to their respective return
ports at a reduced cost. Combining the typical westbound freight movement with the predominantly eastbound APL Limited freight movement allows us to achieve higher train-set utilization (loads per train) and higher eastbound/westbound volumes. We
also provide APL Limited with equipment repositioning services through which we transport APL Limiteds empty containers from destinations within North America to their West Coast points of origin. To the extent we are able to fill these empty
containers with the westbound freight of other customers, we receive compensation from both APL Limited for our repositioning service on a cost reimbursement basis and from the other customers for the shipment of their freight.



APL Limited also supplies us with computer software and other information
technology services for our Stacktrain business. See Information Technology, above.



Business Cycle



The transportation industry has historically performed cyclically as a result of economic recession, customers business cycles, increases in prices charged by third-party carriers, interest rate fluctuations and



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other economic factors, many of which are beyond our control. The U.S. and global economy is undergoing a period of record slowdown widely characterized as a
recession, the length and depth of which can not be predicted. The severity of this recession may impact the viability of our rail and truck transportation providers and our customers demands for our services. During economic downturns,
reduced overall demand for transportation services will likely reduce demand for our services and exert downward pressures on rates and margins. In periods of strong economic growth, demand for limited transportation resources can result in
increased rail network congestion and resulting operating inefficiencies. Although rail service deterioration increases our costs and may slow demand, we believe that our personnel on-site at many terminals, extensive equipment fleet and customer
service capabilities enable us to provide comparatively better service than others affected by rail service deterioration and thereby to retain shipping volumes. We also participate during periods of business expansion when speed of service to fill
inventories increases in importance.



Competition



The transportation services industry is highly
competitive. Our intermodal business competes primarily with over-the-road full truckload carriers, conventional intermodal movement of trailers-on-flatcars and containerized intermodal rail services offered directly by railroads and other
intermodal services providers. Our logistics business competes primarily against other domestic non-asset-based transportation and logistics companies, asset-based transportation and logistics companies, third-party freight brokers, freight
forwarders and private shipping departments. We also compete with transportation services companies for the services of independent commissioned agents, and with trucklines for the services of independent contractors and drivers. Competition in our
intermodal and logistics business is based primarily on freight rates, quality of service, such as damage-free shipments, on-time delivery and consistent transit times, reliable pickup and delivery and scope of operations. Our major competitors
include Union Pacific, CSX Intermodal, J.B. Hunt Transport and Hub Group. Other competitors include C.H. Robinson, Exel, Alliance Shippers, Burlington Northern Santa Fe and the supply chain solutions divisions of Ryder and Menlo Worldwide. Some of
these competitors, such as C.H. Robinson, Expeditors International, Union Pacific and CSX Intermodal, have significantly larger operations, revenues and resources than we have.



Employees



As of December 26, 2008, we had a total of 1,601 employees. None of our employees are represented by unions, and we generally consider our
relationships with our employees to be satisfactory.



Government Regulation



Regulation
of Our Trucking and Intermodal Operations



The
transportation industry has been subject to legislative and regulatory changes that have affected the economics of the industry by requiring changes in operating practices or influencing the demand for, and cost of, providing transportation
services. We cannot predict the effect, if any, that future legislative and regulatory changes may have on our business or consolidated results of operations.



Our highway brokerage operations are licensed by the U.S. Department of Transportation, or DOT, as a national freight broker in arranging
for the transportation of general commodities by motor vehicle. The DOT prescribes qualifications for acting as a national freight broker, including surety bonding requirements. Our truck services and local cartage operations provide motor carrier
transportation services that require registration with the DOT and compliance with economic regulations administered by the DOT, including a requirement to maintain insurance coverage in minimum prescribed amounts. Other sourcing and distribution
activities may be subject to various federal and state food and drug statutes and regulations. Although Congress enacted legislation in 1994 that substantially preempts the authority of states to exercise economic regulation of motor carriers and
brokers of freight, we continue to be subject to a variety of state vehicle registration and licensing requirements. We and the carriers upon which we rely are also subject to various federal and state safety and environmental regulations. Our
operations serving



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ports may also be subject to regulatory initiatives by the ports, such as the Ports of Los Angeles and Long Beach Clean Truck Program which bans pre-1989
trucks from the Ports, imposes fees on shipments handled with trucks that do not meet 2007 emission standards, and requires trucking companies to execute port concession agreements and comply with a variety of requirements to remain eligible for
port access. Although compliance with regulations governing licenses in these areas has not had a material adverse effect on our consolidated results of operations, financial condition or cash flows in the past, there can be no assurance that these
regulations or changes in these regulations will not adversely affect our consolidated results of operations, financial condition or cash flows in the future. Violations of these regulations could also subject us to fines or, in the event of serious
violations, suspension or revocation of operating authority or port access as well as increased claims liability.



Intermodal operations like ours were exempted from virtually all active regulatory supervision by the U.S. Interstate Commerce Commission, predecessor to
the regulatory responsibilities now held by the U.S. Surface Transportation Board. Such exemption is revocable by the Surface Transportation Board, but the standards for revocation of regulatory exemptions issued by the Interstate Commerce
Commission or Surface Transportation Board are high. While that exemption remains in place, the DOT issued final regulations in December 2008 that make intermodal equipment providers like our Stacktrain unit subject to the Federal Motor Carrier
Safety Regulations for the first time. The newly-finalized regulation, among other requirements, obligates Stacktrain to register and file with the Federal Motor Carrier Safety Administration an Intermodal Equipment Provider Report, establish a
systematic inspection, repair and maintenance program on its chassis and maintain documentation of the program. The final regulations were published in December 2008 and will become effective in June 2009. Intermodal equipment providers must comply
with the new regulations by December 2009. We are continuing to evaluate the regulations operational impact and cost of compliance. Our preliminary estimates indicate the annual incremental additional cost of the chassis maintenance and repair
program required under the new regulations will be between $1 million and $5 million.



Regulation of Our International Freight Forwarding Operations



We maintain licenses issued by the U.S. Federal Maritime Commission as an ocean transportation intermediary. These licenses govern both our operations as
an ocean freight forwarder and as a non-vessel operating common carrier. The Federal Maritime Commission has established qualifications for ocean transportation intermediaries, including surety bond requirements. The Federal Maritime Commission also
is responsible for the regulation and oversight of non-vessel operating common carriers that contract for space with vessel operating carriers and sell that space to commercial shippers and other non-vessel operating common carriers for freight
originating and/or terminating in the United States. Non-vessel operating common carriers are required to publish and maintain tariffs that establish the rates to be charged for the movement of specified commodities into and out of the United
States. The Federal Maritime Commission has the power to enforce these regulations by commencing enforcement proceedings seeking the assessment of penalties for violation of these regulations. For ocean shipments not originating or terminating in
the United States, the applicable regulations and licensing requirements typically are less stringent than in the United States. We believe that we are in substantial compliance with all applicable regulations and licensing requirements in all
countries in which we transact business.



We are also licensed
as a customs broker by the U.S. Customs and Border Protection Service of the Department of Treasury in each United States customs district in which we do business. All United States customs brokers are required to maintain prescribed records and are
subject to periodic audits by the Customs Service. In other jurisdictions in which we perform customs brokerage services, we are licensed, where necessary, by the appropriate governmental authority. We believe we are in substantial compliance with
these requirements.



Legal Contingencies



In connection with certain pending litigation and other
claims, we have estimated the range of probable loss and provided for such losses through charges to our consolidated statements of operations. These estimates have been based on our assessment of the facts and circumstances at each balance sheet
date and are subject to change based upon new information and future events.



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From time to time, we are involved in disputes that arise in the ordinary course of business, and we
expect such disputes to continue to arise from time to time in the future. We are currently involved in certain legal proceedings as discussed in Item 3. Legal Proceedings, and Note 7.  Commitments and Contingencies to
our consolidated financial statements included in this report. Based on currently available information and advice of counsel, we believe that we have meritorious defenses to the claims against us and that, except as discussed in Item 3. Legal
Proceedings and Note 7.  Commitments and Contingencies to our consolidated financial statements included in this report, none of these claims will have a material adverse impact on our consolidated financial position, results
of operations or cash flows. Our present assessment of these claims could change, however, based on new information and future events. In addition, even if successful, our defense against certain actions could be costly and could divert the time and
resources of our management and staff.



Environmental



Our
facilities and operations are subject to federal, state and local environmental, hazardous materials transportation and occupational health and safety requirements, including those relating to the handling, labeling, shipping and transportation of
hazardous materials, discharges of substances into the air, water and land, the handling, storage and disposal of wastes and the cleanup of properties affected by pollutants. In particular, a number of our facilities have underground and
above-ground storage tanks for diesel fuel and other petroleum products. These facilities are subject to requirements regarding the storage of such products and the clean-up of any leaks or spills. We could also have liability as a responsible party
for costs to clean-up contamination at off-site locations where we have sent, or arranged for the transport of, wastes. We have not received any notices that we are potentially responsible for material clean-up costs at any off-site waste disposal
location. We do not currently anticipate any material adverse effect on our capital expenditures, consolidated results of operations or competitive position as a result of our efforts to comply with environmental requirements, nor do we believe that
we have any material environmental liabilities. We also do not expect to incur material capital expenditures for environmental controls in 2009. However, future changes in environmental regulations or liabilities from newly discovered environmental
conditions could have a material adverse effect on our business, competitive position, consolidated results of operations, financial condition or cash flows.



Seasonality



Our revenues generally show a seasonal pattern as some customers reduce shipments during and after the winter holiday season. In addition, the auto
companies that we serve generally shut down their assembly plants for new model re-tooling during the summer months.



ITEM 1A. RISK FACTORS



Risks Related to Our Business



Current economic conditions may harm our business and results of operations.



During calendar 2008, the U.S. and global economies slowed dramatically as a result of a variety of serious problems,
including turmoil in the credit and financial markets, concerns regarding the stability and viability of major financial institutions and the Big Three U.S. automakers, the state of the housing markets and volatility in fuel prices and worldwide
stock markets. Given the significance and widespread nature of these nearly unprecedented circumstances, the U.S. and global economies could remain significantly challenged in a recessionary state for an indeterminate period of time. While we are
closely watching and evaluating the development of these conditions and taking steps to mitigate their effect on our operations, these economic conditions, which are beyond our control, could cause many of our existing and potential customers to
reduce their use of our products and services for some time, which in turn would harm our business by adversely affecting our revenues, results of operations, cash flows and financial condition. We cannot predict the duration of these economic
conditions or the impact they will have on our customers, vendors or business. The economic downturn negatively impacted our freight volumes in 2008 and thus our income from operations and is expected to continue to adversely affect our results in
2009.



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Continuation or further worsening of these difficult financial and macroeconomic conditions could have a
significant adverse effect on our revenues, profitability and results of operations.



Continued disruption in credit markets may adversely affect our customers and as a result our business, financial condition, and results of operations.



Recent disruptions in the financial and credit markets may adversely affect our business and our financial results. The tightening of
credit markets may reduce the funds available to our customers to purchase our services for an unknown, but perhaps lengthy, period. It may also result in customers extending times for payment and may result in our having higher customer receivables
with increased default rates. Furthermore, as we are moving products and services for other businesses, the tight credit markets may reduce funds available to consumers and businesses purchasing from our shipping customers and thereby reduce demand
for our shippers products and services and their consequent need for our transportation services. Likewise, general concerns about the fundamental soundness of domestic and foreign economies may also cause consumers and others to reduce the
amount of products and services they purchase from our shipping customers, which will translate into reduced shipping volumes, even if consumers, businesses and shippers have cash or if credit is available to them.



Changes in freight rates, as a result of competition in our industry and pricing
strategies of our transportation suppliers, could adversely affect our business and results of operations.



The transportation services industry is highly competitive. Our logistics businesses compete primarily against other domestic asset-based and non-asset
based transportation and logistics companies, third-party freight brokers, shipping departments of our customers and other freight forwarders. Our intermodal business competes primarily with over-the-road full truckload carriers, conventional
intermodal movement of trailers on flat cars, and containerized intermodal rail services offered by railroads and other intermodal service providers. Some of our competitors have substantially greater financial, marketing and other resources than we
do, which may allow them to withstand better an economic downturn, reduce their prices more easily than we can or expand or enhance the marketing of their products. There are a number of large companies competing in one or more segments of our
industry, although the number of companies with a North American network that offer a full complement of logistics services is more limited. Depending on the location of the customer and the scope of services requested, we must compete against both
the niche players and larger entities. In addition, customers are increasingly soliciting competitive bids for transportation services from a number of competitors, including competitors that are larger than we are. We also face competition from
Internet-based freight exchanges, or electronic bid environments, that provide an online marketplace for buying and selling supply chain services.



Historically, competition has created downward pressure on freight rates. In the past and currently in the worsening economic environment, we have
experienced downward pressure in the pricing of our intermodal and logistics services that has affected our revenues and operating results. In particular, our intermodal segment has offered lower rates to its customers to match lower rates offered
by our railroad competitors in the intermodal business. Rate reductions by truckload carriers may also exert downward pressures on intermodal rates. Such rate reductions could adversely affect the yields of our intermodal product.



Rate increases, particularly when taken by our railroad and motor
transportation suppliers, may also have an adverse impact if our brokerage operations are unable to obtain commensurate price increases from our customers, on a timely basis or if at all. Because transportation costs represent such a significant
portion of our costs, even a relatively small increase in transportation costs, if we are unable to pass them through to customers, are likely to have a significant effect on our margins and operating income. Even variances between the time that the
supplier assesses higher charges and the time we are able to begin collecting higher charges from our customers can deteriorate margins and operating income. Although the application of intermodal rate increases to a portion of our Stacktrain
business is limited by some of our multi-year rail contracts, such increases have resulted in higher costs to some of our Stacktrain business and to our rail brokerage operation that we have not been able to fully pass on as quickly as the increases
are implemented by the rail carriers. While our Stacktrain operation may benefit from the intermodal rate increases, such rate increases may have the impact of slowing overall demand for intermodal services and thereby affect our consolidated
results of operations.



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We are dependent on the automotive industry which has experienced significant declines as a result of the current
economic downturn.



Approximately 20% of our revenues for
fiscal 2008 and 2007 were to customers in the automotive industry. Our automotive industry volumes have declined significantly over the past year reflecting that automotive manufacturers globally are experiencing significant declines in sales of
vehicles from the current economic downturn, credit conditions, and volatile fuel costs. In particular, there has been significant concern regarding the long-term viability of the Big Three U.S. auto manufacturers whose sales of vehicles have also
shown significant erosion. Extended automotive plant shutdowns and significant production cuts have already occurred and are likely to continue in the future, affecting shipments to and from affected plants. A large number of our customers are also
suppliers of automotive products whose own viability and operating results are tied to the long-term viability and operating results of automotive manufacturers. Continued downturns in the business of North American automobile manufacturers would
adversely affect our revenues, results of operations and cash flows.



Network changes, lane closures, rail congestion, carrier consolidation and other reductions or deterioration in rail services could increase costs, decrease demand for our intermodal services and adversely affect our operating results.



We depend on the major railroads in the United States for
substantially all of the intermodal transportation services that we provide. In many markets, rail service is limited to a few railroads or even a single railroad. As a result, any reduction or elimination of service to a particular market may limit
our ability to serve some of our customers. Furthermore, reductions in service by the railroads are likely to increase the cost of the rail-based services that we provide and reduce the reliability, timeliness and overall attractiveness of our
intermodal product. Increases in the cost of rail service reduce some of the advantages of intermodal transportation compared to truck and other transportation modes, and may reduce demand for our intermodal services.



In recent years, train resource shortages, severe weather, operating
inefficiencies and high demand for rail transportation resulted in increased transit times, terminal congestion and decreased equipment velocity. With slowing volumes in 2008 combined with the railroads recent capital investments and operating
improvements, rail transit times have recently improved. While we believe that our customer service capabilities, extensive equipment fleet and network of personnel on-site at many terminals enables us to lessen the impact to our intermodal
customers of these service disruptions, rail service issues increase our costs and create a challenging operating environment. To the extent that we operate on rail carriers that experience poor service performance, demand for our intermodal
services may be adversely affected, and customers may switch to alternate providers to avoid intermodal transportation delays.



In addition to reducing or eliminating routes and experiencing service disruptions, rail carriers may engage in further consolidations. Rail
consolidations have caused service disruptions in the past and would further reduce service choices and bargaining power for rail customers. As a result, further consolidation among railroads might adversely affect intermodal transportation and our
results of operations.



We are dependent upon third parties for equipment,
capacity and services essential to operate our business, and if we fail to secure sufficient equipment, capacity or services, we could lose customers and revenues.



We are dependent upon rail, truck and ocean transportation services and transportation equipment such as chassis and containers provided by
independent third parties. We, along with competitors in our industry, have experienced equipment and capacity shortages in the past, particularly during peak shipping season in October and November. We also depend upon the rail carriers to provide
sufficient rail slots on the train to transport our containers and access to the rail terminal for the delivery of our containers for shipment. From time to time, as with other users of Union Pacifics rail service, we have not been able to
obtain sufficient gate reservations for all containers to be shipped on a particular day and have had to wait for the gate reservation necessary to allow the container to enter the rail terminal and to be loaded on the train. If we cannot secure
sufficient transportation equipment, capacity or services from these third parties to meet our customers needs and schedules, customers may seek to have their transportation and logistics needs met by other providers on a temporary or
permanent basis, which could materially adversely affect our business, consolidated results of operations and financial condition.



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Likewise, the intermodal industry from time to time faces excess demand for the current rail network
size, which causes network congestion and service delays and allows rail carriers to implement rate increases and to limit volumes. In addition, the trucking industry, including the local drayage community, has difficulty from time to time
maintaining a consistent supply of qualified drivers. Shortages such as this may cause our motor transportation suppliers to increase drivers compensation, thereby increasing our cost of providing motor transportation, including the local
cartage portion of an intermodal move, to our customers. Driver shortages and tight rail capacity could adversely impact our profitability and limit our ability to expand our intermodal and highway service offerings.



Since our relationships with the major North American railroads are critical to our
ability to provide intermodal transportation services, our business may be adversely affected by any adverse change to those relationships.



We have important relationships with most of the major U.S. railroads supported by multi-year contracts and other operating arrangements. To date, the
railroads have chosen to allow us, other intermodal marketing companies and other intermodal competitors to market their intermodal services and supply intermodal equipment to many beneficial cargo owners rather than marketing their services
directly to all beneficial cargo owners. If one or more of the major railroads were to decide to change their strategy regarding our business and other intermodal intermediaries, the margins and volume of intermodal shipments we arrange would likely
decline, which could adversely affect our results of operations and financial condition.



Our multi-year rail contracts, which have varied expiration dates, contain favorable provisions that we believe enable us to provide competitive transportation rates and services to our customers. In particular, our
current Union Pacific contract expires in October 2011, and our current CSX Intermodal contract expires in December 2014. Our loss of one or more of the multi-year contracts or failure to enter into renewal or replacement contracts with comparably
favorable terms upon expiration of the current contract or contracts could materially adversely affect our business, results of operations and cash flows. While we expect to be able to continue to obtain competitive terms and conditions from our
railroad vendors, no assurance can be given that such terms and conditions will be comparable to those in our current rail contracts.



Congestion, work stoppages, capacity shortages, weather related issues or other disruptions affecting the transportation network could adversely affect our operating
results.



As transportation services are provided through a
network of rail and trucking transportation providers, a disruption in one area or in one sector can affect the flow of traffic over the entire network. In addition, our business could be adversely affected by labor disputes between the railroads
and their union employees. Negotiations have been in progress between the railroads and rail unions for new collective bargaining agreements since November 2004 and were concluded with the remaining unions (yardmasters, United Transportation Union
and International Association of Machinists) in 2008. These union agreements resolve all wages, work rule and benefit issues through December 31, 2009, with the next round of negotiations to begin in late 2009.



Our business could also be adversely affected by a work stoppage affecting
providers of local trucking services to and from rail terminals. For example, during 2004, independent owner-operators providing local drayage services in parts of California refused to transport shipments to and from the rail facilities, leading to
terminal congestion and a Union Pacific embargo on shipments to Northern California destinations which adversely affected our consolidated results of operations in the second quarter of 2004. In 2008, independent owner operators in Northern
California again refused to transport shipments to protest high fuel prices which negatively impacted our second quarter results. We have also experienced service disruptions due to other conditions, such as hurricanes, flooding and other adverse
weather conditions, that hinder the railroads and local trucking companies ability to provide transportation services and negatively impact our operating results.



Work stoppages affecting seaports may also adversely impact our operations as we experienced in the second half of 2002 when
West Coast ports were shut down as a result of a labor dispute with the longshoremen who offload freight that we subsequently transport. Third party international loadings,



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container repositioning revenue and railcar utilization revenues from our intermodal segment were adversely impacted during the port shutdown. The shutdown
also impacted our local cartage and harbor drayage on the West Coast with lower volumes and our international freight forwarding operations with reduced ship sailings. Other work stoppages, slowdowns or other disruptions, such as those that could
result from an act of terrorism or war, are beyond our control and could adversely affect our operating income and cash flows in both our intermodal and logistics segments, particularly if they have a material effect on major railroad interchange
facilities or areas through which significant amounts of our rail shipments pass, such as the Los Angeles and Chicago gateways.



If we fail to develop, integrate, upgrade or replace our information technology systems, including the new SAP enterprise suite of applications, we may lose orders and
customers or incur costs beyond our expectations.



Increasingly, we compete for customers based upon the flexibility and sophistication of the information technologies that support our current services or any new services that we may introduce. The failure of the hardware or software that
supports our information technology systems, the loss of data contained in the systems, or our customers inability to access or interact with our website and other systems could significantly disrupt our operations, prevent our customers from
placing orders, or cause us to lose orders or customers. If our information technology systems are unable to handle additional volume for our operations as our business and scope of services grow, our service levels, operating efficiency and future
freight volumes will decline. In addition, we expect customers to continue to demand more sophisticated, fully integrated information systems from their supply chain management service providers. If we fail to hire qualified personnel to implement
and maintain our information technology systems or fail to upgrade or replace our information technology systems to handle increased volumes, meet the demands of our customers and protect against disruptions of our operations, we may lose orders and
customers which could adversely affect our business.



During
the fourth quarter of 2007, we entered into a software license agreement with SAP America, Inc. (SAP) under which we licensed an enterprise suite of applications, including the latest release of SAPs transportation management
solution. During 2008, the financial and accounting applications of the new system were implemented on all units but our Stacktrain unit. The financial and accounting applications will be implemented on our Stacktrain unit during the first quarter
of 2009. Other operational elements of the new system for the intermodal and logistics segments are expected to be implemented by the end of 2009 and in 2010, respectively, and include equipment management, pricing, billing and tracking and tracing
applications. The new system is intended to provide an integrated, streamlined platform across business units that will provide better management information, eliminate duplicated work effort and dispersed data, and enhance customer service and
communications. Currently, we operate numerous systems with varying degrees of integration, which can lead to inefficiencies, workarounds and rework. As such, delays in the SAP project will also delay cost savings and efficiencies expected to result
from the project. Delays and problems with the project may also result in higher than anticipated costs for development and implementation. If the systems to be implemented with the SAP software do not operate as anticipated or contain unforeseen
problems, our business, consolidated results of operations financial condition and cash flows could be materially adversely affected. We may also experience operational difficulties consolidating our current systems, moving to a common set of
operational processes and implementing a successful change management process. These difficulties may impact our clients and our ability to efficiently meet their needs. Any such delays or difficulties may have a material and adverse impact on our
business, client relationships and financial results.



Our revenues could be
reduced by the loss of major customers.



We have derived,
and believe we will continue to derive, a significant portion of our revenues from our largest customers. In 2008, Union Pacific affiliate(s) accounted for approximately 10.5% of our revenues and our 10 largest customers accounted for approximately
39.9% of our revenues. The loss of one or more of our major customers or a significant change in their shipping patterns could have a material adverse effect on our revenues, business and prospects.



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Ongoing insurance and claims expenses could adversely affect our earnings.



We are exposed to claims related to property damage, personal injury, cargo
loss and damage and workers compensation. We carry significant insurance with third party insurance carriers. The cost of such insurance has varied over the past five years, reflecting our operational growth, the insurance environment for our
industry, our claim experience and our self-retained (deductible) level. We have maintained self-retained (deductible) levels for our public liability exposures to optimize cost efficiency, reflecting our claims experience and the insurance
environment for our industry. Our current deductible per occurrence for commercial automobile liability is $25,000. Our current deductible level for truckers commercial automobile liability is $500,000 for our truck services and cartage
operations and $100,000 for trucking operations related to our warehousing and distribution operations. Our current deductible level per occurrence for commercial general liability is $100,000. Our current workers compensation and employers
liability deductible is $150,000 per incident. Our current deductible per occurrence for freight damage as an authorized motor carrier or warehouseman is $250,000, except for our cartage operations which carry a $10,000 deductible. We are also
responsible for legal expenses within our deductible levels for liability and workers compensation claims. We currently accrue the estimated probable loss for incurred and reported but not yet paid claim amounts and expenses, and regularly
evaluate and adjust our claim accruals to reflect actual experience. If the ultimate results differ from our estimates, we could incur costs in excess of accrued amounts. To cover claims and expense in excess of our deductible levels, we maintain
insurance with insurance companies that we believe are financially sound. Although we believe our aggregate insurance limits are sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed those limits. If the
number or severity of claims within our deductible levels increases, or if we are required to accrue or pay additional amounts because the claims prove to be more severe than our original assessment, our operating results would be adversely
affected.



If we have difficulty attracting and retaining agents and
independent contractors, our consolidated results of operations could be adversely affected.



We rely extensively on the services of agents and independent contractors to provide our trucking services. We rely on a fleet of vehicles which are owned
and operated by independent trucking contractors and on agents representing groups of trucking contractors to transport customers goods by truck. Although we believe our relationships with our agents and independent contractors are good, we
may not be able to maintain our relationships with them. Contracts with agents and independent contractors are, in most cases, terminable upon short notice by either party. If an agent terminates its relationship with us, some customers and
independent contractors with which such agent has a direct relationship may also terminate their relationship with us. We may have difficulty replacing our agents and independent contractors with equally qualified persons. We compete with
transportation service companies and trucking companies for the services of agents and with trucking companies for the services of independent contractors and drivers. The pool of agents, contractors and drivers is limited, and therefore competition
from other transportation service companies and trucking companies can increase the price we must pay to obtain services from agents, contractors and drivers. From time to time the trucking industry experiences a shortage of independent contractors
resulting in increased compensation expenses to us and our competitors who also rely on them. In addition, because independent contractors are not employees, they may not be as loyal to our company, requiring us to pay more to retain their services
and to implement aggressive recruitment efforts to offset turnover. If we are unable to attract or retain agents and independent contractors or need to increase the amount paid for their services, our consolidated results of operations could be
adversely affected and we could experience difficulty increasing our business volume. This adverse effect was seen in 2005 and 2006 as the cost of qualified driver acquisition and retention increased and negatively impacted our consolidated results
of operations. Driver acquisition and retention issues remain a focus of our trucking operations, and during 2008, programs were implemented to more effectively manage driver turnover.



Our customers who are also competitors could transfer their business to their non-competitors and our suppliers who are also competitors
could provide preferences to others, including their own competing operations, which in both cases would decrease our profitability.



As a result of our company operating in two distinct but related channels, we buy and sell transportation services from and to many companies with which
we compete. For example, Hub Group,



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NYK Logistics and Alliance Shippers, who together accounted for 9.6% of the 2008 revenues of our intermodal segment operations, are also competitors. It is
possible that these customers could transfer their business away from us to other companies with which they do not compete. The loss of one or more of these customers could have a material adverse effect on the profitability of our intermodal
operations. In addition, rather than outsourcing their transportation logistics requirements to us, some of our customers could decide to provide these services internally, which could further adversely affect our business volumes and revenues.



Similarly, our Stacktrain business competes in some cases with
the intermodal service offerings of our rail transportation providers and their affiliated equipment provider operations. For example, CSX Intermodal and Union Pacific Railroad, two of our primary rail transportation providers, offer
transcontinental and other long-haul intermodal transportation services that compete with our Stacktrain services. Our rail transportation providers may provide preferences to their internal service offerings or to other customers that are not
competitors. These preferences could have a material adverse effect on the profitability of our intermodal operations and on our ability to continue to provide efficient intermodal services to our customers.



We may be required to record a significant additional charge to earnings if our goodwill
becomes further impaired.



In accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), we performed the standard annual evaluation of our intangible assets as of December 26, 2008. Based on a combination of
factors, including the current economic downturn, the steep, sustained decline in our stock price and resulting market capitalization that has continued into 2009, and the operating results of our logistics reporting unit, we concluded that the
carrying value of our logistics reporting unit (including goodwill) exceeded the fair value of our logistics reporting unit. As a result, we recorded a non-cash impairment charge of $87.9 million, $73.3 million net of tax, or $2.11 per diluted share
during 2008. As a result of our annual evaluation, we concluded that no impairment of the goodwill assigned to our intermodal reporting unit had occurred; however, the excess of the fair value of our intermodal reporting unit over carrying value of
the intermodal reporting unit had declined to approximately $65 million from $288 million at December 28, 2007 and $1.1 billion at December 29, 2006. Should the current economic recession worsen or be prolonged, growth rates in the
transportation industry decline, the trading price of our common stock deteriorate further or other adverse events occur, the determination of fair value in the future could result in an additional goodwill impairment with respect to one or both of
our reporting units which would negatively impact the operating results and net worth of the company. See Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies
and Estimates for further discussion on goodwill evaluation.



Clean
truck requirements at the Ports of Los Angeles and Long Beach which became effective on October 1, 2008 and other California tractor emissions requirements could adversely affect our business and profitability.



On October 1, 2008, the ports of Los Angeles and Long Beach began
implementing clean truck plans that ban the use of pre-1989 trucks in the ports, require trucks accessing the ports to comply with phased-in emission standards and require trucking companies accessing the ports to sign concession agreements that
impose a number of conditions. In February 2009, the ports are expected to begin charging shippers a $70 per container fee for each 40-foot or longer container ($35 per 20-foot container) moving in and out of the ports by trucks that do not meet
2007 emissions standards. These port programs affect our cartage and warehousing and distribution operations. We have initiated programs that would transition our owner-operator fleet new trucks that comply with 2007 emission standards in order to
help our customers to avoid the per container fee to be assessed by the ports. Among other increased costs, we must pay the owner-operators higher fees for their services due to expected demand for the limited supply of 2007 tractors and the
owner-operators need and desire to recover the increased lease or acquisition cost of such tractors. Our ability to meet our customers requirements, maintain our competitive position and preserve our profitability would be adversely
impacted if we are unable to bring a sufficient number of emission-compliant trucks into our contractor fleet. Furthermore, our profitability will also be adversely affected if we are unable to collect higher charges from our customers to cover our
increased costs.



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In addition, the port of Los Angeles plan has a requirement that would require trucking companies to
increase the percentage of employee drivers servicing the port of Los Angeles from 20% by December 31, 2009 to 100% by December 31, 2013. While this and other provisions of the port of Los Angeles plan are being litigated, should this
element of the port plan remain in effect, we would either have to change from our current owner-operator structure to an employee driver structure to service the port of Los Angeles or cease business at this location. Operating an employee fleet to
service the port of Los Angeles and an independent owner-operator fleet for the rest of our local transportation network could result in operational inefficiencies, increased costs, and reduced profitability.



We, our suppliers and our customers are subject to changes in government regulation which
could result in additional costs and thereby affect our consolidated results of operations.



The transportation industry is subject to legislative and regulatory changes that can affect its economics. Although we primarily operate in the
intermodal segment of the transportation industry, which has been essentially deregulated, changes in the levels of regulatory activity in the intermodal segment could potentially affect us and our suppliers and customers. Our trucking operations
and those of the trucking companies and independent contractors whom we engage are subject to regulation by the DOT and various state and local agencies, which govern such activities as authorization to engage in motor carrier operations, safety,
and insurance requirements. As an example, on January 4, 2004, revised DOT hours of service regulations became effective and after further regulatory and court action, were revised effective October 1, 2005. Since 2005, additional court
and regulatory actions have occurred, and our trucking operations now operate under interim and final DOT rules substantially the same as those effective in 2005. These revised regulations reduced the amount of time that drivers can spend driving.
Since these regulations went into effect, we have endeavored to make appropriate pricing, operational and training adjustments to address the regulations and mitigate their impact on our consolidated results of operations. While difficult to
quantify, we believe that the hours of service regulations have negatively impacted our operating results due to the slight productivity decreases experienced by our drivers. These changes, in effect, increase the amounts charged by the trucking
companies and independent contractors whom we engage to provide transportation for our customers. If we cannot pass the additional costs through to our customers, our consolidated operating results could be adversely affected.



Future laws and regulations may be more stringent and require changes in our
operating practices, influence the demand for our transportation services or require the outlay of significant additional costs. Additional expenditures incurred by us, or by our suppliers and passed on to us, could adversely affect our consolidated
results of operations. For instance, in December 2008, the DOT issued final regulations mandated by the Safe, Accountable, Flexible, Efficient Transportation Equity Act enacted in August 2005. These newly-finalized regulations regulate intermodal
equipment providers like our Stacktrain unit and require them to establish a systematic inspection, repair and maintenance program on chassis and to provide a means to effectively respond to driver and motor carrier reports about chassis defects and
deficiencies. Intermodal equipment providers must comply with the new regulations by December, 2009. We are continuing to evaluate the regulations operational impact and compliance cost of compliance. Our preliminary estimates indicate that
the annual incremental additional cost of the chassis maintenance and repair program required under the new regulations will be between $1 million and $5 million. Similarly, a January 2007 ruling by the Surface Transportation Board found
that the railroads practice of assessing fuel surcharges based on a percentage calculation of the base rate charged to the shipper was unreasonable. Although the ruling expressly does not apply to intermodal shipments, if the railroads change
their methodology for assessing fuel surcharges on intermodal traffic to a per mile or other calculation, our Pacer Stacktrain and rail brokerage units may also change their fuel surcharge methodology. Such a change may adversely affect our
revenues. Other potential effects are more difficult to quantify as we generally pass through fuel surcharges to our customers but may experience timing issues where we are unable to adjust charges to our customers to match fuel adjustments from our
suppliers.



In addition, we have a substantial number of
wholesale customers who provide ocean carriage of intermodal shipments. These wholesale customers and our own international freight forwarding operations are subject to regulation by the Federal Maritime Commission, U.S. Customs and other
international, foreign, federal and state authorities. Regulatory changes in the ocean shipping or international freight



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forwarding industries could adversely affect our freight forwarding operations or have a material impact on the competitiveness or efficiency of operations
of our various ocean carrier customers, which could adversely affect our business.



In addition, as a publicly-traded company, we are also affected by new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, SEC
rules and regulations and the NASDAQ Stock Market rules. Our efforts to comply with these continually evolving laws, regulations and standards have resulted in, and are likely to continue to result in, increased general and administrative expenses
and a diversion of management time and attention from revenue-generating activities to compliance activities as well as the risks of noncompliance, including damage to our reputation with investors and our stock price.



A determination by regulators that our independent contractors are employees could expose
us to various liabilities and additional costs and adversely affect our operating results.



From time to time, tax and other regulatory authorities have sought to assert that independent contractors in the trucking industry are employees, rather than independent contractors. In the future these authorities
could be successful in asserting this position, or the interpretations and tax laws that consider these persons independent contractors could change. If our independent contractors are determined to be our employees, that determination could
materially increase our exposure under a variety of federal and state tax, workers compensation, unemployment benefits, labor, employment and tort laws, as well as our potential liability for employee benefits. Our business model assumes that
our independent contractors are not deemed to be our employees, and exposure to any of the above increased costs would impair our competitiveness in the industry and materially adversely affect our operating results.



If we fail to comply with or lose any required licenses, governmental regulators could
assess penalties against us or issue a cease and desist order against our operations which are not in compliance.



Our rail and highway brokerage and Stacktrain operations are licensed by the DOT as a broker in arranging for the transportation of general commodities by
motor vehicle. The DOT has established requirements for acting in this capacity, including insurance and surety bond requirements. Our truck services and local cartage operations are regulated as motor carriers by the DOT and various state agencies,
subjecting these operations to insurance, surety bond, safety and other regulatory requirements. Our international freight forwarding operation is licensed as an ocean transportation intermediary by the U.S. Federal Maritime Commission. The Federal
Maritime Commission regulates ocean freight forwarders and non-vessel operating common carriers like us that contract for space with the actual vessel operator and sell that space to commercial shippers and other non-vessel operating common carriers
for freight originating or terminating in the United States. Non-vessel operating common carriers must publish and maintain tariffs for the movement of specified commodities into and out of the United States. The Federal Maritime Commission may
enforce these regulations by instituting proceedings seeking the assessment of penalties for violations of these regulations. For ocean shipments not originating or terminating in the United States, the applicable regulations and licensing
requirements typically are less stringent than in the United States. Our international freight forwarding operation is also licensed, regulated and subject to periodic audit as a customs broker by the Customs Service of the Department of Treasury in
each United States customs district in which we do business. In other jurisdictions where we perform customs brokerage services, we are licensed, where necessary, by the appropriate governmental authority. Our failure to comply with the laws and
regulations of any of these governmental regulators, and any resultant suspension or loss of our licenses, could result in penalties or a cease and desist order against any operations that are not in compliance. Such an occurrence would have an
adverse effect on our consolidated results of operations, financial condition and liquidity.



Access to the funds available under our revolving credit facility and to the public capital markets could be adversely affected by the turmoil and uncertainty impacting credit markets generally.



As a result of current economic conditions, including turmoil and uncertainty
in the capital markets, credit markets have tightened significantly such that the ability to obtain new capital has become more challenging and more expensive. In addition, several large financial institutions have either recently



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failed or been dependent on the assistance of the U.S. federal government to continue to operate. Although we believe that the banks under our revolving
credit facility have adequate capital and resources, we can provide no assurance that all of these banks will continue to operate as a going concern in the future. If any of the banks in our lending group were to fail or otherwise fail to provide us
funds as required under our revolving credit facility, it is possible that the borrowing capacity under our credit facility would be reduced. In the event that the availability under our credit facility were reduced significantly, we could be
required to obtain capital from alternate sources in order to finance our operations or capital needs. Our options for addressing such capital constraints would include, but not be limited to (i) obtaining commitments from the remaining banks
in our lending group or from new banks to fund increased amounts under the terms of our credit facility, (ii) accessing the public capital markets, or (iii) delaying or reducing our capital expenditures or certain of our projects. If it
became necessary to access additional capital, it is likely that any such alternatives in the current market would be on terms less favorable than under our existing revolving credit facility, which could have a material effect on our consolidated
financial position, results of operations and cash flows.



The
public capital markets are also currently experiencing a period of dislocation and instability as evidenced by a lack of liquidity in both the equity and debt capital markets, significant write-offs in the financial services sector, the re-pricing
of credit risk in the broadly syndicated credit market and the failure of certain major financial institutions. These events have contributed to worsening general economic conditions that are materially and adversely impacting the broader financial
and credit markets and reducing the availability of debt and equity capital for the market as a whole. If we were required to access the public equity or debt capital markets to fund our operations and capital expenditures or any acquisitions that
we may decide to make, given the current economic environment, no assurance can be given that we would be able to do so on favorable terms or at all.



Volatility in our revenue stream and resultant operational results may result in stock price declines.



As discussed in this report, we are subject to a variety of events, such as
economic conditions, customers business cycles, rate changes, rail network changes, severe weather and other rail service disruptions, strikes, interest rate and fuel cost fluctuations, and claims, over which we have little or no control.
These factors may unexpectedly affect one or more quarters results. Any unexpected reduction in revenues or operating income for a particular quarter could cause our quarterly operating results to be below the expectations of public market
analysts or stockholders. In this event, the trading price of our common stock may fall significantly.



Changes in shipping patterns that reduce container volumes into West Coast ports could adversely affect our revenues and operating results.



A significant portion of the intermodal shipments we handle are transcontinental moves originating from West Coast ports.
For example, approximately 33% of our Stacktrain units total volumes in 2008 (32% in 2007) were from the West Coast ports. Furthermore, our warehouse and distribution operation is concentrated in Southern California, and a significant portion
of our local cartage revenues derive from our Southern California terminals. Reductions in West Coast shipping volume can therefore have a material adverse effect on our operations and did adversely affect our revenues in 2008 as compared to 2007.
The development of a Suez Canal route from China, the planned expansion of the Panama Canal that would allow an all-water route from China to East Coast ports, and/or onerous port and other West Coast regulations may result in the diversion of
volumes from West Coast ports. Developments such as these and others that would reduce shipments into the West Coast ports could adversely affect our revenues and operating results.



We have determined that we have a material weakness in our internal controls over financial reporting. The lack of effective internal
controls could adversely affect our financial condition and damage our reputation with stakeholders.



As discussed in Item 9A, Controls and Procedures of this Annual Report, our management team for financial reporting, under the
supervision and with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of the design and operation of our



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internal controls over financial reporting. As of December 26, 2008, they concluded that our disclosure controls and procedures and our internal control
over financial reporting were not effective as a result of a material weakness in our internal controls related to the preparation and review of certain balance sheet reconciliations. Although we believe that the circumstances that led to this
weakness are not likely to recur and we have made and are continuing to make improvements in our internal controls, if we are unsuccessful in our effort to permanently and effectively remediate this weakness in our internal controls over financial
reporting over time, our ability to report our financial condition and results of operations in the future accurately and in a timely manner may be adversely affected, which may adversely impact our reputation with stakeholders and the market price
of our common stock.



If the markets in which we operate do not grow, our
business could be adversely affected.



The failure of the
transportation and logistics industries and their segments, including the third-party logistics market, to continue to grow may have a material adverse effect on our business and the market price of our common stock.



Our debt levels may limit our flexibility in obtaining additional financing and in
pursuing other business opportunities.



As of
December 26, 2008, our long-term debt was $44.6 million. We have the ability to incur new debt, subject to limitations in our credit agreement. Our level of indebtedness could have important consequences to us, including the following:



| | · |  | Payments on our indebtedness will reduce the funds that would otherwise be available for our operations and future business opportunities;
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| | · |  | A substantial decrease in our net operating cash flows could inhibit our ability to meet our debt service requirements and force us to modify our operations;
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| | · |  | We may be more highly leveraged than our competitors, which may place us at a competitive disadvantage;
| | - |  | -------------------------------------------------------------------------------------------------------



| | · |  | Our debt level may make us more vulnerable than our competitors to a downturn in our business or the economy generally;
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| | · |  | Our debt level reduces our flexibility in responding to changing business and economic conditions;
| | - |  | --------------------------------------------------------------------------------------------------



| | · |  | Our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such
financing may not be available on favorable terms; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | All of our debt has a variable rate of interest, which increases our vulnerability to interest rate fluctuations.
| | - |  | -----------------------------------------------------------------------------------------------------------------



Our debt agreements contain operating and financial restrictions which may restrict our
business and financing activities.



The operating and
financial restrictions and covenants in our credit agreement and any future financing agreements could adversely affect our ability to finance future operations or capital needs or to engage in other business activities. In addition, our credit
agreement restricts or limits our ability to: (1) pay dividends and redeem or repurchase capital stock; (2) prepay, redeem or purchase debt; (3) incur liens and engage in sale and leaseback transactions; (4) make loans and
investments; (5) incur additional indebtedness; (6) amend or otherwise change debt and other material agreements; (7) make capital expenditures; (8) engage in mergers, acquisitions and asset sales; (9) enter into
transactions with affiliates; and (10) change our primary business. Our credit facility also requires us to satisfy interest coverage and leverage ratios.



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A breach of any of the restrictions, covenants, ratios or tests in our debt agreements could result in
defaults under these agreements. A significant portion of our indebtedness then may become immediately due and payable. We might not have, or be able to obtain, sufficient funds to make these accelerated payments. In addition, our obligations under
our credit agreement are secured by a pledge of all of the capital stock of our domestic subsidiaries and a portion of the capital stock or other equity interests of certain of our foreign subsidiaries.



We may not have sufficient cash to service our indebtedness.



Our ability to service our indebtedness will depend upon, among other things:



| | · |  | Our future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some
of which are beyond our control; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The future availability of borrowings under our credit facility or any successor facility, the availability of which may depend on, among other things, our
complying with certain covenants.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



If our
operating results and borrowings under our credit facility are not sufficient to service our current or future indebtedness, we will be forced to take actions such as reducing or delaying acquisitions, investments, strategic alliances or capital
expenditures, selling assets, restructuring or refinancing our indebtedness, or seeking additional equity capital or bankruptcy protection. There is no assurance that we can affect any of these remedies on satisfactory terms, or at all.



If we lose key personnel and qualified technical staff, our ability to manage the
day-to-day aspects of our business will be weakened which could adversely affect our operating results and ability to grow our business.



We believe that the attraction and retention of qualified personnel is critical to our success. If we lose key personnel or are unable to recruit
qualified personnel, our ability to manage the day-to-day aspects of our business will be adversely affected. Our operations and prospects depend in large part on the performance of our senior management team. The loss of the services of one or more
members of our senior management team could have a material adverse effect on our business, results of operation, financial condition or cash flows. We face significant competition in attracting and retaining personnel who possess the skill sets
that we seek. Because our senior management team has unique experience with our company and within the transportation industry, it would be difficult to replace them without adversely affecting our business operations. In addition to their unique
experience, our management team has fostered key relationships with our suppliers and customers. Such relationships are especially important for an asset-light company such as ours. Loss of these relationships could have a material adverse effect on
our profitability.



We have an extensive relationship with APL Limited, and
we depend on APL Limited for essential services. Our business and consolidated results of operations could be adversely affected if APL Limited failed or refused to provide such services or terminated the relationship.



Pursuant to long-term contracts that expire in May 2019, APL Limited, the
former owner of our Stacktrain services business, supplies us with chassis from its equipment fleet for the transport of international freight on behalf of other international shippers. In addition, we transport APL Limiteds international
cargo on our Stacktrain network to locations in the United States using chassis and equipment supplied by APL Limited. The additional volume attributable to the transport of APL Limiteds international cargo contributes to our ability to obtain
favorable provisions in our rail contracts. APL Limited pays us a fee for repositioning its empty containers within North America so that the containers can be reused in trans-Pacific shipping operations. In addition, APL Limited is currently
providing us with computers, software and other information technology services necessary for the operation of our Stacktrain business pursuant to a long-term contract that expires in May 2019. We are in the process of replacing the information
technology services provided by APL Limited with SAP software which will require substantial resources and time. If any of our contracts with APL Limited were terminated or if APL Limited were unwilling or unable to fulfill its obligations to us
under the terms of these contracts, or if the



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systems to be implemented with the SAP software do not operate as anticipated or contain unforeseen problems, our business, consolidated results of
operations, financial condition and cash flows could be materially adversely affected.



If we make future acquisitions, they may be financed in a way that reduces our reported earnings or imposes additional restrictions on our business.



If we make future acquisitions, we may issue shares of capital stock that dilute other stockholders, incur debt, assume
significant liabilities or create additional expenses related to intangible assets, any of which might reduce our reported earnings or reduce earnings per share and cause our stock price to decline. In addition, any financing that we might need for
future acquisitions may be available to us only on terms that restrict our business.



If we are unable to identify, make and successfully integrate acquisitions, our profitability could be adversely affected.



Identifying, acquiring and integrating businesses require substantial management, financial and other resources and may pose risks with respect to
customer service and market share. Further, acquisitions involve a number of special risks, some or all of which could have a material adverse effect on our business, results of operation, financial condition and cash flows. These risks include:



| | · |  | unforeseen operating difficulties and expenditures;
| | - |  | ---------------------------------------------------



| | · |  | difficulties in assimilation of acquired personnel, operations and technologies;
| | - |  | --------------------------------------------------------------------------------



| | · |  | the need to manage a significantly larger and more geographically dispersed business;
| | - |  | -------------------------------------------------------------------------------------



| | · |  | impairment of goodwill and other intangible assets;
| | - |  | ---------------------------------------------------



| | · |  | the cost of integrating and documenting the internal controls of the acquired business and potential material weaknesses in internal control over financial
reporting under Section 404 of the Sarbanes-Oxley Act of 2002;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | diversion of managements attention from ongoing development of our business or other business concerns;
| | - |  | --------------------------------------------------------------------------------------------------------



| | · |  | potential loss of customers;
| | - |  | ----------------------------



| | · |  | failure to retain key personnel of the acquired businesses; and
| | - |  | ---------------------------------------------------------------



| | · |  | the use of substantial amounts of our available cash.
| | - |  | -----------------------------------------------------



We have acquired a number of businesses in the past and we may consider acquiring businesses in the future that provide complementary services to those we
currently provide or that expand our geographic presence. We cannot predict whether we will be able to identify suitable acquisition candidates or to acquire them on reasonable terms or at all, and a failure to do so could limit our ability to
expand our business. While we believe that we have sufficient financial and management resources and experience to successfully conduct our acquisition activities and integrate the acquired businesses into our operations, our acquisition activities
involve more difficult integration issues than those of many other companies because the value of the companies we acquire comes mostly from their business relationships, rather than their tangible assets. The integration of business relationships
poses more of a risk than the integration of tangible assets because relationships may suddenly weaken or terminate, or key personnel responsible for those relationships may depart. Further, logistics businesses that we have acquired and that we may
acquire in the future compete with many customers of our Stacktrain operations, and these customers may shift their business elsewhere if they believe our logistics operations receive favorable treatment from our Stacktrain operations. If we are
unable to successfully integrate any business that we may acquire in the future, we could experience difficulties with customers, personnel or others, and our acquisitions might not enhance our competitive position, business or financial prospects.



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As we expand our services internationally, we may become subject to international economic and political risks.



A portion of our business is providing services
internationally. International revenues accounted for approximately 11% to 12% of our revenues in each of 2008, 2007 and 2006. Doing business outside the United States subjects us to various risks, including changing economic and political
conditions, major work stoppages, exchange controls, currency fluctuations, armed conflicts and unexpected changes in United States and foreign laws relating to tariffs, trade restrictions, transportation regulations, foreign investments and
taxation. Significant expansion of our services in foreign countries will expose us to the increased effect of foreign currency fluctuations and exchange controls as well as longer accounts receivable payment cycles. We have no control over most of
these risks and may be unable to anticipate changes in international economic and political conditions and, therefore, unable to alter our business practices in time to avoid the adverse effect of any of these changes.



Risks Related to Our Common Stock



Because we have various mechanisms in place to discourage takeover attempts, a change in
control of our company that a stockholder may consider favorable could be prevented.



Provisions of our charter and bylaws or Tennessee law may discourage, delay or prevent a change in control of our company that a stockholder may consider favorable. These provisions could also discourage proxy
contests and make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:



| | · |  | Authorizing the issuance of blank check preferred stock that could be issued by our Board of Directors to increase the number of outstanding shares in
order to thwart a takeover attempt;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | A classified Board of Directors with staggered, three-year terms, which may lengthen the time required to gain control of the Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Prohibiting cumulative voting in the election of directors, which would otherwise allow less than a majority of stockholders to elect director candidates;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Requiring super-majority voting to effect particular amendments to our restated charter and amended bylaws;
| | - |  | -----------------------------------------------------------------------------------------------------------



| | · |  | Limitations on who may call special meetings of stockholders;
| | - |  | -------------------------------------------------------------



| | · |  | Requiring all stockholder actions to be taken at a meeting of the stockholders unless the stockholders unanimously agree to take action by written consent in lieu
of a meeting;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Establishing advance notice requirements for nominations of candidates for election to the Board of Directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | Prohibiting business combinations with interested stockholders unless particular conditions are met.
| | - |  | ----------------------------------------------------------------------------------------------------



As a result, these provisions could limit the price that investors are
willing to pay in the future for shares of our common stock. In addition, the Tennessee Greenmail Act and the Tennessee Control Share Acquisition Act may discourage, delay or prevent a change in control of our company.



We have suspended payment of the dividend on our common stock. Should we not declare and
pay cash dividends in the future, our stock price could be negatively impacted.



We paid quarterly dividends of $0.15 per common share from October 2005 through January 2009. However, in view of the challenges we face in the current economic environment and in order to conserve cash, in February
2009 our Board of Directors decided to discontinue the payment of dividends.



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The declaration of future dividends by the company and the amount thereof is in the discretion of our Board of Directors and will depend on our consolidated
results of operations, financial condition, compliance with financial ratios and other limitations in our credit agreement, cash requirements, future prospects and other factors deemed relevant by the Board of Directors including prevailing and
forecasted economic conditions. We cannot predict when we might resume paying dividends in the future, if ever, or whether any such dividends will be at the same level as in the past. The suspension of our dividend and the failure to pay dividends
in the future may adversely affect the market price of our common stock.



ITEM 1B. UNRESOLVED STAFF COMMENTS



None.



ITEM 2. PROPERTIES



We lease space in office buildings in Concord, California for our Stacktrain operation and our corporate headquarters and an office building in Dublin,
Ohio for our Pacer Transportation Solutions headquarters. We also lease space in office buildings in many other locations including Fort Worth, Texas, Oakbrook, Illinois, Commerce, California, DeSoto, Texas, Jacksonville, Florida, Lake Success, New
York, Memphis, Tennessee, and Orange, California. We lease four facilities in Los Angeles, California for dock space, warehousing and parking for tractors and trailers. In addition, we lease terminal facilities for our cartage operations in
approximately 23 cities across the U.S.



Our Stacktrain
transportation network operates out of more than 80 railroad terminals across North America. Our integrated rail network, combined with our leased equipment fleet, enables us to provide our customers with single-company control over rail
transportation to locations throughout North America.



Substantially all of the terminals we use are owned and managed by rail or highway carriers. However, we employ full-time personnel on-site at many major locations to ensure close coordination of the services provided at the facilities. In
addition to these terminals, other locations throughout the eastern United States serve as stand-alone container depots, where empty containers can be picked up or dropped off, or supply points, where empty containers can be picked up only. In
connection with our trucking services, agents provide marketing and sales, terminal facilities and driver recruiting, while operations centers provide, among other services, insurance, claims handling, safety compliance, credit, billing and
collection and operating advances and payments to drivers and agents.



ITEM 3. LEGAL PROCEEDINGS



We are subject to routine litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our
business, consolidated results of operations, financial condition or cash flows, except as described below. Most of the lawsuits to which the company is a party are covered by insurance and are being defended in cooperation with insurance carriers.



The Union Pacific Railroad has asserted two claims against us
for retroactive and prospective rate adjustments for containers shipped on their railroad. Both claims are in an early stage of development. One claim is in the early stage of arbitration before the American Arbitration Association (AAA). If we are
unable to resolve the second claim, it may be submitted for arbitration before the AAA as well. The information available to us at this time does not indicate that it is probable that a liability has been incurred as of the year ended
December 26, 2008, and we cannot make an estimate of the amount, or range of amounts, of any liability that would be incurred if one or both claims were resolved against our favor. Accordingly, we have not accrued any liability for these claims
in our financial statements at and for the year ended December 26, 2008. Union Pacifics calculation of the dollar amount of retroactive rate adjustments that it claims from us, which covers the period from January 1, 2005, through
October 31, 2008, is approximately $90 million. We dispute these claims in their entirety and believe that we have meritorious defenses to them and that the Union Pacific Railroad is not entitled to any of the claimed rate adjustments. We
intend to vigorously defend against these claims and pursue our other related rights and remedies. If these claims were to be adversely determined against us, the amount we could be required to pay could have a material adverse effect on our results
of operations and cash flows in the quarter in which such loss is incurred.



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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of security holders during the fourth
quarter of 2008.



EXECUTIVE OFFICERS OF THE
REGISTRANT



The following table sets forth information
regarding our executive officers.



|                     |  |     |  |                                                                  
|-------------------- |  | --- |  | -----------------------------------------------------------------
|Name                 |  | Age |  | Title                                                            
|Michael E. Uremovich |  | 65  |  | Chairman and Chief Executive Officer                             
|Daniel W. Avramovich |  | 57  |  | Retail Intermodal Services President                             
|Adriene B. Bailey    |  | 45  |  | Wholesale Intermodal Services President                          
|Jeffrey R. Brashares |  | 56  |  | Logistics Services Group President                               
|Marc L. Jensen       |  | 54  |  | Vice President, Corporate Controller                             
|Brian C. Kane        |  | 53  |  | Executive Vice President, Chief Financial Officer                
|Michael F. Killea    |  | 46  |  | Executive Vice President, Chief Legal Officer and General Counsel
|Donald C. Orris      |  | 67  |  | Executive Vice President                                         
|Karen S. Rice        |  | 37  |  | Vice President, Human Resources                                  
|James E. Ward        |  | 57  |  | Executive Vice President, Chief Information Officer              



Michael E. Uremovich
has served as Chairman and Chief Executive Officer of our company since November 2006. He served as Vice Chairman of our company from October 2003 until his promotion to Chairman and Chief Executive Officer. Mr. Uremovich served as a consultant
to our company from 1998 until October 2003. From 1991 until 1995, Mr. Uremovich was the Vice President of Marketing for the Southern Pacific Railroad. Prior to Southern Pacific Railroad, Mr. Uremovich held a variety of positions at
American President Companies, including Vice President of Marketing and Logistics Services. Prior to employment at American President, he was a Principal at the consulting firm of Booz, Allen and Hamilton.



Daniel W. Avramovich joined our company effective as of June 30, 2008 as
Retail Intermodal Services President. Prior to joining our company, Mr. Avramovich served as Executive Vice President, Sales & Marketing of Kansas City Southern, a rail carrier, from May 2006 to May 2008 and as President, Network
Services Americas for Exel plc, a provider of contract logistics and supply chain management, from 2003 to 2006. From 2000 to 2003, he served as President, Exel Direct for Exel plc.



Adriene B. Bailey served as Executive Vice President, Strategy and Organizational Development from October 2007 until June
2008 when she was promoted to head the Wholesale Intermodal Services operation. From February 2007 until October 2007, she led our Development Team focused on cost efficiencies and organizational effectiveness across all of our companys
operations. Since joining our company in 2000 as Vice President of Planning, Ms. Bailey has held several executive management positions with our Stacktrain operation, including Executive Vice President, Wholesale Product Development from
November 2005 to February 2007, Executive Vice President, Business Development and Transportation Purchasing from November 2002 to November 2007, and Executive Vice President, Equipment and Logistics from January 2001 to November 2002. Prior to
joining our company, her positions included Assistant Vice President for Service Planning and Operations Research for CSX Transportation, Vice President of Service Planning and Design for Southern Pacific Railroad, and consultant for Mercer
Management Consulting and its predecessor firm, Temple, Barker & Sloane.



Jeffrey R. Brashares served as Executive Vice President, Chief Operating Officer  Logistics Segment from June 2007, with a change in his title to Logistics Services Group President in October 2008. He served as
Vice Chairman of Commercial Sales from January 2005 through May 2007. From December 2000 to December 2004, he served as President of Transportation Services of Pacer Transportation Solutions, Inc., which was formerly known as Pacer Global Logistics,
Inc. From 1984 until its acquisition by our company in December 2000, Mr. Brashares was an owner and served as President of Rail Van, Inc. since 1984. Mr. Brashares joined Rail Van, Inc. as Regional Sales Manager in 1976.



Marc L. Jensen has served as Vice President, Corporate Controller since June
2007. From January 2006 until June 2007, he was Assistant Vice President, Internal Audit and Compliance. Before joining the company, Mr. Jensen was President of MLJ Consulting, Inc. from May 2000 to December 2005, providing



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business process and systems consulting services, primarily to the company. Previously, Mr. Jensen served as Director of Worldwide System Support of ACS
Logistics, Inc, a subsidiary of American President Lines, LTD, from 1998 to 2000 and as Director of Customer Information Support of ACS Logistics, Inc. from 1997 to 1998.



Brian C. Kane has served as Executive Vice President and Chief Financial Officer since September 2008. From June 2008 until September 2008,
he served as Senior Vice President, Finance. From October 2006 until June 2008, he served as Executive Vice President and Chief Operating Officer of our Intermodal segment. Mr. Kane served as Vice President and Corporate Controller of our
company from November 2003 until October 2006. Mr. Kane served as Vice President and Controller of Pacer Stacktrain from May 1999 until November 2003 and prior to that as Director of Financial Reporting from May 1998 until May 1999. Prior to
joining our company, Mr. Kane was Vice President of Finance for the Shell Martinez Refining Company from November 1996 until May 1998 and Controller for Southern Pacific Transportation Company from April 1990 until November 1996.



Michael F. Killea has served as Executive Vice President, Chief Legal Officer
and General Counsel of our company since August 2001. From October 1999 through July 2001, he was a partner at the law firm of Holland & Knight LLP in New York City and Jacksonville, Florida, and from September 1987 through September 1999,
he was a partner and an associate at the law firm of OSullivan LLP (now OMelveny & Myers LLP) in New York City.



Donald C. Orris has served as an Executive Vice President of our company since January 2009 after stepping down from his role as Interim President,
Intermodal Segment, in which he had served from November 2007 through December 2008. He served as our Chief Executive Officer and Chairman of the Board from May 1999 to November 2006 and as President from May 1999 through May 2006. He became Vice
Chairman of the company in November 2006 with Mr. Uremovichs appointment as Chief Executive Officer and Chairman and temporarily retired as an executive officer of the company from April 2007 to November 2007. From January 1995 to
September 1996, Mr. Orris served as President and Chief Operating Officer, and from 1990 until January 1995, he served as an Executive Vice President of Southern Pacific Transportation Company. Mr. Orris was the President and Chief
Operating Officer of American President Domestic Company and American President Intermodal Company from 1982 until 1990.



Karen S. Rice has served as our Vice President, Human Resources since June 2008. She served as our Assistant Vice President, Human Resources between July
2006 and June 2008 and from December 2003 to July 2006 as Director, Human Resources to Pacer Transportation Solutions, Inc. Prior to joining Pacer, Ms. Rice worked in human resource management in the hospitality, banking, and financial services
industries, including Adams Mark Hotel, an upscale hotel chain from June 2001 to December 2003. She served in a consulting capacity for NSB Retail Systems and Profound Communications from October 2000 to June 2001 and as the Director, Human
Resources, for Kemba Columbus Credit Union from September 1999 to October 2000.



James E. Ward has served as Executive Vice President, Chief Information Officer of the company since April 2007. As an independent contractor, Mr. Ward served as acting Chief Information Officer for the company
from August 2006 until joining the company as an employee. From May 2003 to April 2007, Mr. Ward served as a consultant to Dynotech, LLC, a consulting firm focusing on global ERP implementations, IT evaluations, offshore development, interim
CIO positions, and data center outsourcing. During his time as a consultant, he also held interim CIO positions with Clark Steel framing, a steel framing manufacturer (from April 2005 to April 2007) and with Norton Lilly International, a provider of
shipping, logistics and marine services in the United States, Canada, Panama and Caribbean ports (from May 2004 to December 2006). From July 1996 to April 2003, Mr. Ward served as Senior Vice President and Chief Information Officer of Inchcape
Shipping Services, a leading marine services provider.



There
is no family relationship between any of our executive officers or directors, and there are no arrangements or understandings between any of our executive officers or directors and any other person pursuant to which any of them was appointed or
elected as an officer or director, other than arrangements or understandings with our directors or officers acting solely in their capacities as such.



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Part II.



ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES



Market Information



Our common stock is listed and traded on The NASDAQ Stock Markets
Global Select Market (NASDAQ) under the symbol PACR.



The following table sets forth, for our two most recent fiscal years, the per share range of high and low sales prices of our common stock as reported on NASDAQ and dividends declared.



|           |  |      |       |     |   |                        |  |   |     
|---------- |  | ---- | ----- | --- | - | ---------------------- |  | - | ----
|           |  | High |       | Low |   | Cash DividendsDeclared
|2008       |  |      |       |     |   |                        |  |   |     
|1stquarter |  | $    | 18.25 |     | $ | 11.73                  |  | $ | 0.15
|2ndquarter |  | $    | 22.85 |     | $ | 17.20                  |  | $ | 0.15
|3rdquarter |  | $    | 25.21 |     | $ | 15.51                  |  | $ | 0.15
|4thquarter |  | $    | 18.47 |     | $ | 7.19                   |  | $ | 0.15
|           |  |      |      
|2007       |  |      |       |     |   |                        |  |   |     
|1stquarter |  | $    | 33.80 |     | $ | 25.00                  |  | $ | 0.15
|2ndquarter |  | $    | 28.39 |     | $ | 23.27                  |  | $ | 0.15
|3rdquarter |  | $    | 24.64 |     | $ | 19.13                  |  | $ | 0.15
|4thquarter |  | $    | 19.56 |     | $ | 12.96                  |  | $ | 0.15



As of
December 26, 2008 there were approximately 36 record holders of our common stock.



Dividends



We paid quarterly dividends of $0.15
per common share ($0.60 per common share per annum) from October 2005 through January 2009. However, in view of the challenges we face in the current economic environment and in order to conserve cash, in February 2009 our Board of Directors decided
to discontinue the payment of dividends.



The declaration of
future dividends and the amount thereof is in the discretion of our Board of Directors and will depend on our consolidated results of operations, financial condition, cash requirements, future prospects and other factors deemed relevant by the Board
of Directors, including prevailing and forecasted economic conditions. In addition, our credit agreement imposes restrictions on our ability to pay cash dividends, including that no event of default has occurred, or would result therefrom and that
we demonstrate to the administrative agent and the required lenders under the credit facility that as of the last day of the fiscal quarter most recently ended our leverage ratio on a pro forma basis after giving effect to the dividend was less than
or equal to 2.50 to 1.00. The leverage ratio is calculated using earnings before interest, taxes, depreciation and amortization (EBITDA). As defined in the 2007 Credit Agreement, the calculation of EBITDA excludes non-recurring, non-cash
items such as the goodwill impairment write-off taken in 2008.



Equity
Compensation Plan Information



Information concerning our
equity compensation plans is shown under Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters included elsewhere in this Annual Report on Form 10-K.



Recent Sales of Unregistered Securities



None.



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Purchases of Equity Securities by the Issuer and Affiliated Purchasers



On June 12, 2006, we announced that our Board of Directors had
authorized the purchase of up to $60 million of our common stock, and, on April 3, 2007, we announced that our Board of Directors had authorized the purchase of an additional $100 million of our common stock. Both authorizations expire on
June 15, 2009. We repurchased a total of 2,938,635 shares at an average price of $24.64 per share through December 28, 2007, and 19,039 shares at an average price of $21.54 per share during 2008. At December 26, 2008, $61.1 million
remains available for the purchase of common stock under the current Board authorizations. We intend to make further share repurchases from time to time as market conditions warrant. Our credit agreement imposes restrictions on our ability to
repurchase our capital stock, including that no event of default has occurred or would result therefrom and that we demonstrate to the administrative agent and the required lenders under the credit facility that as of the last day of the fiscal
quarter most recently ended our leverage ratio on a pro forma basis after giving effect to the repurchase was less than or equal to 2.50 to 1.00. The leverage ratio is calculated using EBITDA. As defined in the 2007 Credit Agreement, the calculation
of EBITDA excludes non-recurring, non-cash items such as the goodwill impairment write-off taken in 2008.



Common Stock Repurchases



There were no common stock repurchases during the fourth quarter of fiscal 2008.



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Performance Graph*



The graph below shows, for the five years ended December 26, 2008, the cumulative total return on an investment of $100 assumed to have been made on
December 26, 2003 (the last day of trading for the fiscal year ended December 26, 2003) in our common stock. The graph compares such return with that of comparable investments assumed to have been made on the same date in the Nasdaq
Composite Index and the Nasdaq Transportation Index. Cumulative total stockholder returns for our common stock, the Nasdaq Composite Index and the Nasdaq Transportation Index are based on our fiscal year.



The total return for the assumed investment assumes the reinvestment of all
dividends. We began paying dividends in October 2005 and continued through January 2009. In view of the challenges we face in the current economic environment and in order to conserve cash, in February 2009 our Board of Directors decided to
discontinue the payment of dividends.



Our common stock is
listed and traded on The NASDAQ Stock Markets Global Select Market (trading symbol: PACR).



The comparisons in the graph below are based upon historical data and are not indicative of, or intended to forecast, future performance of our common
stock.



LOGO



|                    |  |        |     |        |   |        |  |        |     |        |   |        |  |   |     |  |   |    
|------------------- |  | ------ | --- | ------ | - | ------ |  | ------ | --- | ------ | - | ------ |  | - | --- |  | - | ---
|                    |  | Dec-03 |     | Dec-04 |   | Dec-05 |  | Dec-06 |     | Dec-07 |   | Dec-08
|Pacer International |  | $      | 100 |        | $ | 104    |  | $      | 129 |        | $ | 149    |  | $ | 76  |  | $ | 48 
|NASDAQ Composite    |  | $      | 100 |        | $ | 110    |  | $      | 112 |        | $ | 122    |  | $ | 136 |  | $ | 78 
|NASDAQ Transp.      |  | $      | 100 |        | $ | 127    |  | $      | 139 |        | $ | 147    |  | $ | 154 |  | $ | 101





*The performance graph is not soliciting material, is not deemed filed with the SEC, and is not to be
incorporated by reference into any filing of our company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation
language contained in such filing.



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ITEM 6. SELECTED FINANCIAL DATA



The following table presents, as of the dates and for the periods indicated,
selected historical financial information for our company. The selected historical information at December 26, 2008 and December 28, 2007 and for the fiscal years ended December 26, 2008, December 28, 2007 and
December 29, 2006 have been derived from, and should be read in conjunction with, our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. The selected historical information at
December 29, 2006, December 30, 2005 and December, 31, 2004 and for the fiscal years ended December 30, 2005 and December 31, 2004 have been derived from our audited financial statements which are not included in this Annual
Report on Form 10-K.



The following table should also be read
in conjunction with Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Annual Report on Form 10-K.



|                                                               |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|-------------------------------------------------------------- |  | ------------------------------------------------- | ---------- | - | ------------ | - | ---------- | ------------ |  | - | ------------ | - |  | ------------ | ---------- | -- |  | - | ---------- | -
|                                                               |  | Fiscal Year Ended                                 |           
|                                                               |  | Dec. 26,2008                                      |            |   | Dec. 28,2007 |   |            | Dec. 29,2006 |  |   | Dec. 30,2005 |   |  | Dec. 31,2004 |           
|                                                               |  | (in millions, except share and per share amounts) |           
|Statements of Operations Data:                                 |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|                                                               |  |                                                   |            |   |             
|Revenues                                                       |  | $                                                 | 2,087.7    |   |              | $ | 1,969.4    |              |  | $ | 1,887.8      |   |  | $            | 1,860.1    |    |  | $ | 1,808.1    |  
|Cost of purchased transportation and services                  |  |                                                   | 1,659.7    |   |              |   | 1,537.7    |              |  |   | 1,446.4      |   |  |              | 1,428.6    |    |  |   | 1,413.1    |  
|Direct operating expenses (excluding depreciation)             |  |                                                   | 132.2      |   |              |   | 130.5      |              |  |   | 123.1        |   |  |              | 115.4      |    |  |   | 110.7      |  
|Selling, general and administrative expenses                   |  |                                                   | 199.9      |   |              |   | 200.5      | 1/           |  |   | 193.0        |   |  |              | 204.8      |    |  |   | 190.6      |  
|Goodwill impairment charge 4/                                  |  |                                                   | 87.9       |   |              |   | -          |              |  |   | -            |   |  |              | -          |    |  |   | -          |  
|Write-off of computer software                                 |  |                                                   | -          |   |              |   | -          |              |  |   | -            |   |  |              | 11.3       | 2/ |  |   | -          |  
|Depreciation and amortization                                  |  |                                                   | 6.2        |   |              |   | 6.2        |              |  |   | 7.0          |   |  |              | 6.9        |    |  |   | 7.2        |  
|Income from operations                                         |  |                                                   | 1.8        |   |              |   | 94.5       |              |  |   | 118.3        |   |  |              | 93.1       |    |  |   | 86.5       |  
|Net income (loss) 4/                                           |  |                                                   | (16.6      | ) |              |   | 54.3       |              |  |   | 68.3         |   |  |              | 50.9       |    |  |   | 47.2       |  
|Net income (loss) per share 4/:                                |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|Basic                                                          |  | $                                                 | (0.48      | ) |              | $ | 1.53       |              |  | $ | 1.83         |   |  | $            | 1.36       |    |  | $ | 1.27       |  
|Diluted                                                        |  | $                                                 | (0.48      | ) |              | $ | 1.51       |              |  | $ | 1.80         |   |  | $            | 1.34       |    |  | $ | 1.24       |  
|Weighted average common shares outstanding:                    |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|Basic                                                          |  |                                                   | 34,616,598 |   |              |   | 35,587,755 |              |  |   | 37,354,785   |   |  |              | 37,381,647 |    |  |   | 37,257,076 |  
|Diluted                                                        |  |                                                   | 34,616,598 |   |              |   | 35,911,246 |              |  |   | 38,020,862   |   |  |              | 38,042,454 |    |  |   | 38,140,409 |  
|Cash dividends declared per common share                       |  | $                                                 | 0.60       |   |              | $ | 0.60       |              |  | $ | 0.60         |   |  | $            | 0.30       |    |  | $ | -          |  
|                                                               |  |                                                   |            |   |             
|Balance Sheet Data (at period end):                            |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|                                                               |  |                                                   |            |   |             
|Total assets                                                   |  | $                                                 | 494.6      |   |              | $ | 574.1      |              |  | $ | 565.3        |   |  | $            | 590.2      |    |  | $ | 605.5      |  
|Total debt including capital leases (excluding book overdraft) |  |                                                   | 44.6       |   |              |   | 64.0       |              |  |   | 59.0         |   |  |              | 90.0       |    |  |   | 154.1      |  
|Total stockholders equity                                     |  |                                                   | 270.7      |   |              |   | 302.7      |              |  |   | 337.1        |   |  |              | 306.7      |    |  |   | 264.5      |  
|Working capital                                                |  |                                                   | 46.4       |   |              |   | 34.5       |              |  |   | 64.3         |   |  |              | 55.0       |    |  |   | 61.7       |  
|                                                               |  |                                                   |            |   |             
|Cash Flow Data:                                                |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|                                                               |  |                                                   |            |   |             
|Net cash provided by operating activities                      |  | $                                                 | 59.6       |   |              | $ | 108.0      |              |  | $ | 66.7         |   |  | $            | 82.3       |    |  | $ | 63.0       |  
|Net cash used in investing activities                          |  |                                                   | (23.0      | ) |              |   | (13.1      | )            |  |   | (3.5         | ) |  |              | (5.0       | )  |  |   | (4.3       | )
|Net cash used in financing activities                          |  |                                                   | (38.1      | ) |              |   | (87.9      | )            |  |   | (72.1        | ) |  |              | (67.9      | )  |  |   | (59.3      | )
|                                                               |  |                                                   |            |   |             
|Other Financial Data:                                          |  |                                                   |            |   |              |   |            |              |  |   |              |   |  |              |            |    |  |   |            |  
|                                                               |  |                                                   |            |   |             
|Capital expenditures 3/                                        |  | $                                                 | 24.8       |   |              | $ | 14.0       |              |  | $ | 3.7          |   |  | $            | 5.3        |    |  | $ | 4.6        |  





1/ 2007 includes $6.0 million for facility closings and other severance costs. See note 3 to the notes to our consolidated financial
statements.



2/ Based upon the completed
evaluation of software development work in our Stacktrain unit that had been performed by a developer, we determined to abandon the software and to write-off all $11.3 million of capitalized costs.



3/ 2008 includes $16.6 million and 2007 includes $10.6
million for a software license agreement with SAP America, Inc. See Note 9 to the notes to our consolidated financial statements.



4/ In accordance with SFAS 142, we recorded an $87.9 million pre-tax write-off of goodwill ($73.3 million after-tax or $2.11 per diluted
share) related to the logistics segment in 2008.



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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS



Overview



We are a leading asset-light North American third-party logistics provider
offering a broad array of services to facilitate the movement of freight from origin to destination. We operate in two segments, the intermodal segment and the logistics segment. See Note 8 to the notes to our consolidated financial statements
included in this report for segment information. Our intermodal segment provides intermodal rail transportation, local cartage and intermodal marketing services. Our logistics segment provides non-intermodal highway brokerage, truck services,
warehousing and distribution, international freight forwarding and supply chain management services.



Executive Summary



In
2008, Pacer continued to focus on four major initiatives designed to position our company for the future: (1) continuing the development of our best-in-class intermodal services, (2) redefining our relationships with our major rail
suppliers, (3) improving performance in our logistics segment, and (4) implementing the SAP systems platform to improve productivity and rationalize our cost structure.



However, we have been challenged by the current economic environment, which is nearly unprecedented in recent times. In
accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), we performed the standard annual evaluation of our goodwill. Based on a combination of factors,
including the current economic downturn, the steep, sustained decline in our stock price and market capitalization that has continued into 2009, and the operating results of our logistics reporting unit, we concluded that the carrying value of our
logistics reporting unit (including goodwill) exceeded the fair value of our logistics reporting unit. As a result, we recorded a non-cash impairment charge of $87.9 million, $73.3 million net of tax, or $2.11 per share during 2008. As a result of
our annual impairment analysis, we concluded that no impairment of our intermodal reporting unit had occurred, though the excess of that units fair value over its carrying value had decreased substantially. See below for further discussion.



We believe, however, that our sources of liquidity and low
debt level will help us weather current economic conditions. Our operating cash flows continue to finance the majority of our capital requirements including costs associated with our SAP software project. We estimate that 2009 total capital
expenditures will be $12.8 million, of which $8.2 million will relate to the SAP project. At December 26, 2008, we had an outstanding debt balance of $44.6 million and $184.6 million available under our 2007 Credit Agreement which expires on
April 5, 2012. The 2007 Credit Agreement is supplied by a syndicate of eleven banks, led by Bank of America with a 22% funding commitment. No other bank in the syndicate has a funding commitment greater than 12%. We complied with all financial
covenants in our 2007 Credit Agreement at December 26, 2008. The 2007 Credit Agreement includes an interest coverage ratio and a leverage ratio, both of which are calculated using EBITDA. As defined in the 2007 Credit Agreement, the calculation
of EBITDA excludes non-recurring non-cash items such as the goodwill impairment write-off taken in 2008.



In 2008, our overall Stacktrain volumes declined 5.9% from 2007 and include an 11.3% automotive shipment decline, a 4.3% domestic decline and 2.6%
international shipment decline, and our rail brokerage volumes were down 8.9% from the prior year, with most of the decrease occurring in the fourth quarter of 2008. These volume declines largely reflect the difficult conditions in a number of the
industries we serve, particularly the automotive industry, but also consumer products and international shippers. In view of the current economic conditions, we expect that volumes will remain depressed and could decline further in 2009 placing
added pressure on our rates and margins.



Our annual revenues
continued to grow in both operating segments. Intermodal segment revenues were up 4.2% year-over-year and logistics segment revenues increased 13.4% due primarily to increased exports from our international unit. Fuel surcharges averaged 34.3%
during 2008 compared to 21.0% during 2007. Operating income for the year was $1.8 million, and we incurred a net loss of $16.6 million,



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both of which include the non-cash goodwill impairment charge. Excluding the goodwill impairment charge, our operating income was $89.7 million, or 5.1%
lower than 2007. However, net income excluding the goodwill impairment was $56.7 million in 2008, or 4.4% higher than 2007, and included a non-recurring $3.5 million tax benefit ($0.10 per share) related to the resolution of open tax positions. See
the table on page 48 reconciling the GAAP financial results to adjusted financial results excluding the goodwill impairment charge.



Operating income for the intermodal segment was up 1.2% compared to last year. The modest increase was due to the timing of the fuel surcharge changes
offset by competitive pressures in the marketplace, higher costs associated with increased traffic on the higher cost BNSF Railway as well as increased PacerDirect volumes. Operating income for the logistics segment, excluding the impairment charge,
was down almost 105% from 2007. The primary drivers of the decrease were excess capacity, declining prices and higher transportation and fuel costs affecting our truck services and truck brokerage units. Our investment in personnel to grow the truck
brokerage operation and expand service offerings also reduced income from operations during 2008.



Our operating cash flows remained strong at $59.6 million for 2008. During 2008, we incurred $24.8 million of capital expenditures, primarily for the SAP
software project, repaid $20.2 million of debt and capital lease obligations and paid $20.8 million of cash dividends. In view of the challenges we face in the current economic environment and in order to conserve cash, in February 2009 our Board of
Directors decided to discontinue the payment of dividends.



In
2008, we implemented an initiative to unify our business units under a new single Pacer brand identity to more effectively connect customers to Pacers services capabilities and improve our customers ease of doing business with Pacer.
This effort includes the reduction of eight legacy websites into the newly launched pacer.com website which we expect to improve our customers online experience and more effectively communicate the value of the entire Pacer portfolio of
services.



We have also continued our investment in the SAP
software project and during 2008 implemented the finance and accounting modules in all but one of our business units. The last business unit, Stacktrain, will go on-line with the financial and accounting modules during the first quarter of 2009.
Other operational elements of the new system for the intermodal and logistics segments are expected to be implemented by the end of 2009 and in 2010, respectively, and include equipment management, pricing, billing and tracking and tracing
applications.



During the fourth quarter of 2008, in response
to the ports of Los Angeles and Long Beach implementing clean truck plans which ban trucks that do not meet certain emissions standards from entering the ports, assess fees on shipments moved with trucks that do not meet 2007 emission standards and
impose other requirements on trucking companies serving these ports, we placed 230 new trucks meeting 2007 emission standards into service with owner-operators servicing the ports. The new trucks will reduce our customers exposure to new fees
from the ports as well as meet the ports new truck emission standards.



We believe that the current U.S. and global recession will continue into 2009 impacting our business and financial results. Overall volumes are continuing to be depressed in 2009, especially with further cutbacks in
the majority of the industries that we serve. For example, the number and length of automotive plant shutdowns is increasing in 2009. During economic downturns, demand for transportation services decreases and creates excess capacity and rate
pressures which further impacts earnings. The severity of this recession, the length and depth of which can not be predicted, will continue to impact our financial condition, results of operations and cash flows.



Critical Accounting Policies



The preparation of financial statements in conformity with United States
generally accepted accounting principles (GAAP) requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their
effects cannot be predicted with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial
statements. Management believes the following critical



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accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.



| | · |  | Recognition of Revenue
| | - |  | ----------------------



We recognize revenue when all of the following conditions are met: persuasive evidence of an arrangement exists, delivery has occurred or services have
been rendered, the price is determinable and collectability is reasonably assured. We maintain signed contracts with many of our customers and have bills of lading specifying shipment details including the rates charged for our services. Our
Stacktrain operation recognizes revenue for loads that are in transit at the end of an accounting period on a percentage-of-completion basis. Revenue is recorded for the portion of the transit that has been completed because reasonably dependable
estimates of the transit status of loads are available in our computer systems. Our intermodal segment cartage and rail brokerage operations and our logistics segment recognize revenue after services have been completed.



| | · |  | Recognition of Cost of Purchased Transportation and Services
| | - |  | ------------------------------------------------------------



Both our intermodal and logistics segments estimate the cost of purchased transportation and services and accrue an amount
on a load by load basis in a manner that is consistent with revenue recognition.



| | · |  | Allowance for Doubtful Accounts
| | - |  | -------------------------------



We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Estimates are
used in determining this allowance based on our historical collection experience, current trends, credit policy and a percentage of our accounts receivable by aging category. If the financial condition of our customers were to deteriorate, resulting
in an impairment of their ability to make payments, additional allowances could be required. The following table illustrates the allowance for doubtful accounts as a percentage of accounts receivable for 2008, 2007 and 2006 (in millions, except
percentages):



|                                                                       |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                                       |  | 2008 |       |   | 2007 |   |       | 2006 | 
|Accounts receivable                                                    |  | $    | 188.5 |   |      | $ | 209.9 |      |  | $ | 215.7 |  
|Allowance for doubtful accounts                                        |  |      | 4.9   |   |      |   | 4.6   |      |  |   | 5.3   |  
|Allowance for doubtful accounts as a percentage of accounts receivable |  |      | 2.60  | % |      |   | 2.21  | %    |  |   | 2.46  | %



Historically, our
actual losses have been within the estimated allowances. However, unexpected or significant future events or changes in trends could result in a material impact to future consolidated results of operations. For example, in 2008 our allowance for
doubtful accounts increased marginally from 2007 to reflect the current economic environment. While we have experienced additional customer bankruptcies in 2008, our days sales outstanding and delinquent accounts receivable remained consistent with
prior years. Based on our results for the fiscal year ended December 26, 2008, a 25 percent deviation from our estimates would have resulted in an increase or decrease in expense of approximately $1.2 million. The following analysis
demonstrates the potential effect that a 25 percent deviation from our estimates would have had on our consolidated results of operations and is not intended to provide an estimated range of exposure or expected deviation (in millions, except per
share data):



|                                  |  |            |       |   |                           |   |       |            |  |   |       |  
|--------------------------------- |  | ---------- | ----- | - | ------------------------- | - | ----- | ---------- |  | - | ----- | -
|                                  |  | -25Percent |       |   | Managements2008 Estimate |   |       | +25Percent | 
|Allowance for doubtful accounts   |  | $          | 3.7   |   |                           | $ | 4.9   |            |  | $ | 6.1   |  
|Income/(loss) from operations     |  |            | 3.0   |   |                           |   | 1.8   |            |  |   | 0.6   |  
|Net income (loss)                 |  |            | (15.9 | ) |                           |   | (16.6 | )          |  |   | (17.3 | )
|Diluted earnings (loss) per share |  | $          | (0.46 | ) |                           | $ | (0.48 | )          |  | $ | (0.50 | )



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| | · |  | Goodwill
| | - |  | --------



We adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets
(SFAS 142) on December 29, 2001 (the first day of our fiscal 2002). Our annual testing in 2008 in accordance with SFAS 142 resulted in an impairment in the value of goodwill assigned to our logistics reporting unit. Based on a
combination of factors, including the current economic downturn, the steep, sustained decline in our stock price and resulting market capitalization, and the operating results of our logistics reporting unit, we concluded that the carrying value of
our logistics reporting unit (including goodwill) exceeded the fair value of our logistics reporting unit. As a result, we recorded a non-cash goodwill impairment charge of $87.9 million, $73.3 million net of tax, or $2.11 per share during 2008.
Based on our year-end 2008 annual impairment analysis, we concluded that no impairment of the goodwill assigned to our intermodal reporting unit had occurred; however, the excess of fair value of the intermodal reporting unit (including goodwill)
over the carrying value of the intermodal reporting unit declined substantially, continuing the trend over the previous two years. The excess of fair value over carrying value of our intermodal reporting unit as of December 26, 2008, the annual
testing date, was approximately $65 million, as compared to $288 million as of December 28, 2007 and $1.1 billion on December 29, 2006. The carrying amount of goodwill at December 26, 2008, after the impairment charge, assigned to our
intermodal and logistics reporting units was $169.0 million and $31.4 million, respectively.



Goodwill and other intangible assets are subject to periodic testing, at least annually, for impairment, and recognition of impairment losses in the future could be required based on the methodology for measuring
impairments described below. SFAS 142 requires a two-step method for determining goodwill impairment where step one is to compare the fair value of the reporting unit with the units carrying amount, including goodwill. If this test indicates
that the fair value is less than the carrying value, then step two is required to compare the implied fair value of the reporting units goodwill with the carrying amount of the reporting units goodwill. We determine the fair value of
each reporting unit based upon the average value determined using an income approach based on the present value of estimated future cash flows, and a market approach based on market price data of stocks of corporations engaged in similar businesses.
If the carrying amount of the reporting units goodwill is greater than the implied fair value of its goodwill, an impairment loss must be recognized for the excess and charged to operations. We base our fair value estimates on projected
financial information which we believe to be reasonable. However, actual future results may differ from those projections, and those differences may be material. The valuation methodology used to estimate the fair value of our total company and
reporting units requires inputs and assumptions that reflect current market conditions as well as management judgment.



The valuation methodology used to estimate the fair value of our total company and reporting units requires inputs and assumptions that reflect current
market conditions as well as management judgment. Solely for purposes of establishing inputs for the fair value calculations described above related to goodwill impairment testing, we made the following assumptions. We assumed that the current
economic downturn would continue through 2009, followed by a recovery period beginning in 2010. We applied transportation margin assumptions reflecting our current estimates. We used our current estimate of operations for the forecast period and
applied an 11.5% discount rate to these interim periods. We applied a 3.5% growth factor to our intermodal reporting unit and a 4% growth factor to our logistics reporting unit to calculate the terminal value of our reporting units under the income
approach. The 11.5% discount rate was the weighted average cost of capital using comparable publicly traded companies. The sum of the fair values of our reporting units was reconciled to our current market capitalization plus an estimated control
premium. Our fair value estimates based on these assumptions were used to prepare projected financial information which we believe to be reasonable. However, actual future results may differ from those projections, and those differences may be
material.



The calculation of fair value for our intermodal and
logistics reporting units could increase or decrease in the future depending on changes in the inputs and assumptions used, such as changes



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in the reporting units future growth rates, control premium, discount rates, etc. In order to evaluate the sensitivity of the fair value calculations
on the goodwill impairment test, we applied a hypothetical 5% decrease to the fair value of our intermodal reporting unit. This hypothetical 5% decrease would result in excess fair value over carrying value of $49 million for our intermodal
reporting unit at December 26, 2008.



Use of Non-GAAP Financial
Measures



From time to time in press releases regarding
quarterly earnings, presentations and other communications, we may provide financial information determined by methods other than in accordance with GAAP. Recent non-GAAP financial measures have presented financial information excluding our goodwill
impairment write-off in 2008, a non-cash charge. Management uses this non-GAAP measure in its analysis of the companys performance and regularly reports such information to our Board of Directors. Management believes that presentations of
financial measures excluding the impact of this item provides useful supplemental information that is essential to a proper understanding of the operating results of our core businesses and allows investors, management and our Board to more easily
compare operating results from period to period. However, the use of any such non-GAAP financial information should not be considered in isolation or as a substitute for net income, cash flows from operations or other income or cash flow data
prepared in accordance with GAAP or as a measure of our profitability or liquidity.



Background



Our intermodal segments
Stacktrain operations fiscal year ends on the last Friday in December and the intermodal segments local cartage and rail brokerage operations fiscal year and our logistics segments fiscal year end on the last day in December.
The following section describes some of our revenue and expense categories and is provided to facilitate investors understanding of the discussion of our historical financial results, including these revenue and expense items, discussed under
the caption Results of Operations.



Revenues



The intermodal segments revenues from Stacktrain operations are
generated through rates, fuel surcharges and other fees charged to customers for the transportation of freight utilizing the rail transportation services that we purchase from rail carriers under our transportation agreements with North American
railroads. The growth of these revenues is primarily driven by increases in volume of freight shipped and rate changes on a route-by-route basis. The average rate is impacted by product mix, rail routes utilized, fuel surcharge and market
conditions. Also included in revenues are railcar rental income, container per diem charges and incentives paid by APL Limited and others for the repositioning of empty containers with domestic westbound (backhaul) loads. Revenues are reported net
of volume discounts provided to customers. Our intermodal segment Stacktrain operation generates revenues from three lines of business: international (shipments tendered by ocean shipping companies), automotive (shipments tendered by intermediaries
arranging transportation for automotive manufacturers and parts suppliers) and domestic (shipments tendered by intermodal marketing companies for shippers within North America). Growth in the intermodal segments revenues from local cartage
operations, which primarily support our Stacktrain operations and intermodal marketing companies (including our rail brokerage unit) through the use of independent owner-operators, is driven primarily by increased volume as well as length of haul
and the rates charged to the customer. Our rail brokerage unit generates revenues through intermodal marketing operations which involves arranging the movement of freight in containers and trailers utilizing truck and rail transportation. Increases
in revenues from intermodal marketing operations are generated from increased volumes, rate increases, product mix and route changes.



The logistics segments revenues are generated through rates and other fees charged for our portfolio of freight transportation services, including
highway brokerage, truck services, warehousing and distribution, international NVOCC, freight forwarding and supply chain management services. Overall growth in revenues for the logistics segment is driven by expanding our service offerings and
marketing our broad array of transportation services to our existing customer base and to new customers. Growth in revenues from highway brokerage is driven primarily through increased volume and outsourcing by



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companies of their transportation and logistics needs. Growth in revenues from truck services operations, which primarily provide specialized transportation
services to customers through independent contractors and owner-operators, is driven primarily by increased volume as well as length of haul and the rate per mile charged to the customer. Increases in revenues for warehousing and distribution, which
includes the handling, consolidation/deconsolidation and storage of freight on behalf of the shipper, are driven by increased outsourcing and import volumes and by shipping lines increased use of third-party containers, rather than their own
containers, on the West Coast to move freight inland. Through our supply chain management services, we manage all aspects of the supply chain from inbound sourcing and delivery logistics through outbound shipment, handling, consolidation,
deconsolidation, distribution, and just-in-time delivery of end products to our customers customers. Revenues for supply chain management services are recognized on a net basis and increases are driven by increased outsourcing. We also provide
international freight forwarding services, which involves arranging transportation and other services necessary to move our customers freight to and from a foreign country. Increases in revenues for international freight forwarding are driven
by increases in international trade volumes, rate increases, product mix and route changes.



Cost of Purchased Transportation and Services



The intermodal segments cost of purchased transportation and related services consists primarily of the amounts charged to us by railroads and local trucking companies under our agreements with these carriers.
Third-party rail costs are charged through agreements with the railroads and are dependent upon the competitive environment, capacity constraints, fuel surcharges, product mix and traffic lanes. In addition, terminal and cargo handling services
represent the variable expenses directly associated with handling freight at a terminal location. The cost of these services is variable in nature and is based on the volume of freight shipped and rates charged.



The logistics segments cost of purchased transportation and related
services consists of amounts paid to third parties under our agreements with them to provide such services, such as independent contractor truck drivers, ocean carriers, freight terminal operators and dock workers. Sub-contracted or independent
operators are paid on a percentage of revenues, mileage or a fixed fee from point-to-point or between zones.



Direct Operating Expenses



Direct operating expenses are both fixed and variable expenses directly relating to our Stacktrain operations and consist of equipment lease expense, equipment maintenance and repair costs, fixed terminal and cargo handling expenses and
other direct variable expenses. Our fleet of leased equipment is financed through a variety of short- and long-term leases. Increases to our equipment fleet will primarily be through additional leases as the growth of our business dictates.
Equipment maintenance and repair costs consist of the costs related to the upkeep of the equipment fleet, which can be considered semi-variable in nature, as a certain amount relates to the annual preventative maintenance costs in addition to
amounts driven by fleet usage. Fixed terminal and cargo handling costs primarily relate to the fixed rent and storage expense charged to us by terminal operators and is expected to remain relatively fixed.



Selling, General and Administrative Expenses



The intermodal segments selling, general and administrative expenses
consist of costs relating to customer acquisition, billing, customer service, salaries and related expenses of the executive and administrative staff, office expenses and professional fees, and includes the $10.6 million annual fee currently paid to
APL Limited for information technology services under a long-term agreement (of which $3.4 million has been subject to a 3% compounded annual increase since May 2003).



The logistics segments selling, general and administrative expenses relate to the costs of customer acquisition, billing, customer
service and salaries and related expenses of marketing, as well as the executive and administrative staffs compensation, office expenses and professional fees.



Corporate selling, general and administrative expenses relate to the costs of executive and administrative compensation, and
internal audit, marketing, finance, legal, and human resources functions.



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Results of Operations



Fiscal Year Ended December 26, 2008 Compared to Fiscal Year Ended December 29, 2007



The following table sets forth our historical financial data for the fiscal years ended December 26, 2008 and
December 28, 2007.



Financial Data Comparison by
Reportable Segment

Fiscal Years Ended December 26, 2008 and December 28, 2007

(in millions)



|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | -------- | - |  | ------ | --
|                                              |  | 2008 |         |   | 2007 |   |         | Change |  |   | % Change |  
|Revenues                                      |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  | $    | 1,633.4 |   |      | $ | 1,567.9 |        |  | $ | 65.5     |   |  | 4.2    | % 
|Logistics                                     |  |      | 455.9   |   |      |   | 402.1   |        |  |   | 53.8     |   |  | 13.4   |   
|Inter-segment elimination                     |  |      | (1.6    | ) |      |   | (0.6    | )      |  |   | (1.0     | ) |  | 166.7  |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 2,087.7 |   |      |   | 1,969.4 |        |  |   | 118.3    |   |  | 6.0    |   
|                                              |  |      |         |  
|Cost of purchased transportation and services |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | 1,272.1 |   |      |   | 1,207.9 |        |  |   | 64.2     |   |  | 5.3    |   
|Logistics                                     |  |      | 389.2   |   |      |   | 330.4   |        |  |   | 58.8     |   |  | 17.8   |   
|Inter-segment elimination                     |  |      | (1.6    | ) |      |   | (0.6    | )      |  |   | (1.0     | ) |  | 166.7  |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 1,659.7 |   |      |   | 1,537.7 |        |  |   | 122.0    |   |  | 7.9    |   
|                                              |  |      |         |  
|Direct operating expenses                     |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | 132.2   |   |      |   | 130.5   |        |  |   | 1.7      |   |  | 1.3    |   
|Logistics                                     |  |      | -       |   |      |   | -       |        |  |   | -        |   |  | -      |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 132.2   |   |      |   | 130.5   |        |  |   | 1.7      |   |  | 1.3    |   
|                                              |  |      |         |  
|Selling, general & administrative expenses    |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | 111.3   |   |      |   | 112.2   |        |  |   | (0.9     | ) |  | (0.8   | ) 
|Logistics                                     |  |      | 65.4    |   |      |   | 66.8    |        |  |   | (1.4     | ) |  | (2.1   | ) 
|Corporate                                     |  |      | 23.2    |   |      |   | 21.5    |        |  |   | 1.7      |   |  | 7.9    |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 199.9   |   |      |   | 200.5   |        |  |   | (0.6     | ) |  | (0.3   | ) 
|                                              |  |      |         |  
|Goodwill Impairment Write-Off                 |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | -       |   |      |   | -       |        |  |   | -        |   |  | -      |   
|Logistics                                     |  |      | 87.9    |   |      |   | -       |        |  |   | 87.9     |   |  | n.m.   |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 87.9    |   |      |   | -       |        |  |   | 87.9     |   |  | n.m.   |   
|                                              |  |      |         |  
|Depreciation and amortization                 |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | 4.5     |   |      |   | 5.3     |        |  |   | (0.8     | ) |  | (15.1  | ) 
|Logistics                                     |  |      | 1.5     |   |      |   | 0.8     |        |  |   | 0.7      |   |  | 87.5   |   
|Corporate                                     |  |      | 0.2     |   |      |   | 0.1     |        |  |   | 0.1      |   |  | 100.0  |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 6.2     |   |      |   | 6.2     |        |  |   | -        |   |  | -      |   
|                                              |  |      |         |  
|Income/(loss) from operations                 |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Intermodal                                    |  |      | 113.3   |   |      |   | 112.0   |        |  |   | 1.3      |   |  | 1.2    |   
|Logistics                                     |  |      | (88.1   | ) |      |   | 4.1     |        |  |   | (92.2    | ) |  | n.m.   |   
|Corporate                                     |  |      | (23.4   | ) |      |   | (21.6   | )      |  |   | (1.8     | ) |  | 8.3    |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Total                                         |  |      | 1.8     |   |      |   | 94.5    |        |  |   | (92.7    | ) |  | (98.1  | ) 
|                                              |  |      |         |  
|Interest expense/income                       |  |      | 2.4     |   |      |   | 3.7     |        |  |   | (1.3     | ) |  | (35.1  | ) 
|Loss on extinguishment of debt                |  |      | -       |   |      |   | 1.8     |        |  |   | (1.8     | ) |  | (100.0 | ) 
|Income tax expense                            |  |      | 16.0    |   |      |   | 34.7    |        |  |   | (18.7    | ) |  | (53.9  | ) 
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   
|Net income/(loss)                             |  | $    | (16.6   | ) |      | $ | 54.3    |        |  | $ | (70.9    | ) |  | (130.6 | )%
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |        |   



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Revenues. Revenues increased $118.3 million, or 6.0%, for the fiscal year ended December 26,
2008 compared to the fiscal year ended December 28, 2007. Intermodal segment revenues increased $65.5 million, reflecting increases in our Stacktrain, and cartage operations offset in part by a decline in rail brokerage revenues. Stacktrain
revenues increased $56.3 million in 2008 compared to 2007 and reflected increases in all three Stacktrain lines of business. Avoided repositioning cost, or ARC, revenues (the incremental revenue to Pacer for moving international
containers in domestic service) were comparable between periods. The period-over-period increases in the three Stacktrain lines of business were as follows:



| | · |  | The 2.2% increase in Stacktrain third-party domestic revenues reflected a 2.2% increase in revenues from our rail brokerage unit and growth in the PacerDirect
product as well as modest increases from other intermodal marketing companies. The average fuel surcharge in effect during 2008 was 34.3% compared to 21.0% during 2007, resulting in a 6.8% increase in the average freight revenue per container. The
increase in fuel surcharge revenues was partially offset by higher fuel payments to our underlying rail carriers; however, due to timing of underlying contract provisions, fuel costs generally lag the timing of customer surcharges. Overall domestic
volumes declined 4.3% compared to 2007 due primarily to softness in the market related to the general economic downturn and aggressive price competition from other wholesale providers. In addition, the inclement weather and floods in the Midwest
during the second quarter of 2008, which resulted in a one week railroad embargo by the Union Pacific of Midwest traffic, and the brief work stoppage by independent owner-operators in Northern California also during the second quarter of 2008,
contributed to the volume decline.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The 7.1% increase in automotive revenues reflected a 20.7% increase in the average freight revenue per container due to favorable customer and lane mix coupled with
the increased fuel surcharge revenues (which were substantially offset by higher fuel payments to our underlying rail carriers, increasing our cost of purchased transportation). This was partially offset by lower volumes which declined 11.3% due
primarily to reduced auto sales related to the economic downturn that resulted in a higher number of automotive plant shutdowns during the 2008 period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The 14.1% increase in Stacktrain international revenues reflected a 17.1% increase in the average freight revenue per container due primarily to the increased fuel
surcharge revenues (which were substantially offset by higher fuel payments to our underlying rail carriers, increasing our cost of purchased transportation) coupled with a 2.6% decline in containers handled. The volume decline was due to the loss
of one customer partially offset by increased volumes from other international customers.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Rail brokerage revenues for 2008 were $1.1 million, or 0.3%, below 2007 due to an 8.9% decline in volumes related to the economic downturn, Midwest floods
and loss of customers during 2008. While overall volumes were down compared to last year, traffic moved on our Stacktrain unit increased during 2008. This was partially offset by a 9.4% increase in the average revenue per load, due primarily to
higher fuel surcharges. Cartage revenues were $10.2 million, or 10.0%, above 2007 due primarily to increased intra-segment revenues from our Stacktrain and rail brokerage units. Cartage volumes grew 7.9% in 2008, and increased use of our cartage
services by our Stacktrain and rail brokerage units will continue to be a management focus in 2009. All three cartage regions, West, East and Midwest, recorded increased revenues from 2007.



Revenues in our logistics segment increased $53.8 million, or 13.4%, in 2008
compared to 2007, reflecting increased revenues in all logistic segment business units with the exception of the warehousing and distribution and supply chain services units. The 29.0% revenue increase in our international unit was due to strong
export business coupled with increased agricultural shipments. Our truck services unit revenues increased 10.6% and included increases from owner/operator, brokerage and company truck operations as well as increased fuel surcharges (which partially
offset increased fuel costs that could not be fully passed through to our customers). Our truck brokerage unit recorded a revenue increase of 2.7% due to the combination of traffic generated from a program implemented in October 2007 for additional
personnel to expand service offerings and to fuel surcharges, partially offset by the loss of a customer in late 2007. Our warehousing and distribution units revenues decreased 0.2% due primarily to reductions resulting from a customer moving
into their own distribution center and the closure of a container transload



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facility. The transload facility did not achieve anticipated volumes as a result of increased inland transportation costs. Our transload business is handled
at other existing facilities. This decrease was substantially offset by more year-round warehousing business compared to 2007. Our supply chain services unit revenues decreased 6.4% due to reduced management fees associated with the loss of a
customer.



Cost of Purchased Transportation and Services.Cost of purchased transportation and services increased $122.0 million, or 7.9%, in 2008 compared to 2007. Despite declining volumes, the intermodal segments cost of purchased transportation and services increased $64.2 million, or 5.3%,
in 2008 compared to 2007. Stacktrain experienced a 13.4% increase in the cost per container due to increased fuel costs from our underlying rail and other service providers, rate increases from our underlying rail carriers, increased traffic on the
higher cost BNSF Railway and costs associated with some rerouting required due to the Midwest floods. Local dray costs from the ramp to customer location increased $10.8 million in 2008 compared to 2007 due to the increase in door-to-door
PacerDirect product volumes. In addition, repositioning costs increased $6.4 million for required container and chassis repositioning reflecting the imbalances in the network, as well as additional costs associated with the increased traffic on the
BNSF Railway. The increased cartage costs were related to the increased shipments noted above. The decreased rail brokerage costs were related to the decline in volumes associated with the economic downturn, Midwest floods and the loss of a customer
in 2008.



The overall transportation margin percentage,
revenues less the cost of purchased transportation divided by revenues, for the intermodal segment declined from 23.0% in 2007 to 22.1% in 2008. The decrease was due to the added local dray costs associated with the increase in door-to-door
PacerDirect product volumes, increased traffic on the higher cost BNSF Railway, lower pricing to maintain equipment flow, minimize repositioning costs and maintain volume due to competitive pressures, and increases in underlying rail costs both in
contract lanes pursuant to contract rate adjustment provisions and rail rate actions in non-contract lanes.



Cost of purchased transportation and services in our logistics segment increased $58.8 million, or 17.8%, in 2008 compared to 2007, reflecting increases
in all business units with the exception of the warehousing and distribution and supply chain services units where costs were comparable between periods. The overall transportation margin percentage for our logistics businesses decreased from 17.8%
in 2007 to 14.6% in 2008 due primarily to excess capacity affecting our truck services and truck brokerage units and higher purchased transportation and fuel costs affecting our truck services, truck brokerage and international units.



Direct Operating Expenses.Direct operating expenses, which are only
incurred by our Stacktrain operations, increased $1.7 million, or 1.3%, in 2008 compared to 2007 due primarily to higher container lease costs partially offset by slightly lower equipment maintenance and repair costs related to a smaller fleet of
chassis and newer containers requiring less maintenance. At December 26, 2008, we had 656, or 2.3%, more containers and 519, or 1.7%, fewer chassis than at December 28, 2007.



Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.6 million, or
0.3%, in 2008 compared to 2007. The decrease was due to $6.0 million incurred in 2007 for the severance of 134 personnel that did not recur in 2008, $1.1 million less stock based compensation costs as well as reduced professional fees during 2008.
Substantially offsetting these decreases were increases of $5.5 million incurred related to our SAP software project, an increased performance incentive accrual and increased personal injury and cargo claims costs during 2008 at our truck services
unit. In addition, in 2007 there was an arbitration settlement that reduced costs in our supply chain services and corporate units. The average employment level was 39 higher in 2008 compared to 2007 and reflected increases primarily in our truck
brokerage unit associated with efforts to expand service offerings, and increases associated with our SAP software project.



Goodwill Impairment Write-Off.In accordance with SFAS 142, we conducted our annual goodwill impairment test at the end of 2008. Based on a
combination of factors including the recent deterioration of the economy and the steep, sustained decline in our stock price and resulting market capitalization, and the operating results of our logistics reporting unit, we concluded that the
carrying value of our logistics



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reporting unit (including goodwill) exceeded the fair value of our logistics reporting unit. As a result, we recorded a non-cash goodwill impairment charge
of $87.9 million, $73.3 million net of tax, or $2.11 per diluted share during 2008. Further information regarding the impairment is detailed in Note 1 of the notes to our consolidated financial statements.



Depreciation and Amortization. Depreciation and amortization expense
was comparable between periods. As additional components of our SAP software project are placed in service in 2009 and 2010, we expect increases in depreciation expense.



Income/(loss) From Operations. Income from operations decreased $92.7 million, or 98.1% from $94.5 million in 2007 to $1.8 million
in 2008.



Income from operations excluding goodwill impairment
decreased $4.8 million, or 5.1%, from $94.5 million in 2007 to $89.7 million in 2008. See the table below reconciling the GAAP financial results to adjusted financial results excluding the goodwill impairment charge.



Intermodal segment income from operations increased $1.3 million. This
relatively minor increase was due to downward margin pressures which were seen throughout the year resulting from increased pricing pressure, increasing operations on the higher cost BNSF network and volume declines which were substantial for all
businesses in the fourth quarter, but were seen in the automotive line of business throughout the year. Offsetting these negatives were a positive margin impact of rising fuel prices where our rail contracts lag our market fuel surcharges,
increasing cartage volumes and revenues and lower selling, general and administrative costs. The lower selling, general and administrative costs were due, in large part, to the absence in 2008 of $1.8 million in severance costs for the intermodal
segment expensed during 2007 relating to our facility rationalization and severance program.



Logistics segment income from operations excluding goodwill impairment decreased $4.3 million to a loss of $0.2 million in 2008 compared to income of $4.1 million in 2007. The primary drivers of this decrease were
excess capacity, declining prices and higher transportation and fuel costs affecting our truck services and truck brokerage units. Our investment in personnel to grow the truck brokerage operation also reduced income from operations during 2008. The
decline in income from operations from our supply chain services unit was due to the loss of a customer. In addition, there was a $0.8 million increase in logistics segment costs related primarily to the SAP software project. Partially offsetting
these declines in income from operations was increased income from operations from our warehousing and distribution unit due to higher year-round warehousing business and our international unit with increased export traffic. Segment operating income
also reflected the absence of $2.1 million of severance costs incurred during 2007 from our facility rationalization and severance program.



Corporate expenses were $1.8 million higher than 2007 due to higher performance incentive accruals in 2008 compared to 2007, partially offset by lower
stock based compensation costs and lower professional fees. Corporate expenses in 2008 also reflected the absence of $2.1 million of severance costs incurred in 2007 from our facility rationalization and severance program.



Interest (Expense)/Income. Interest (expense)/income decreased by $1.3
million for 2008 compared to 2007. This decrease reflects the lower average debt balance outstanding during 2008 and reduced interest rates. The outstanding debt balance at December 26, 2008 was $44.6 million compared to $64.0 million at
December 28, 2007. The average interest rate during 2008 was 2.9% compared to 5.7% during 2007. In addition, during 2008, we capitalized $0.7 million of interest related to the SAP software project.



Loss on Extinguishment of Debt. On April 5, 2007, we completed
the refinancing of our term loan and revolving credit facility with a new $250 million, five-year revolving credit facility. See the discussion under Liquidity and Capital Resources below. Charges totaling $1.8 million were incurred due
to the write-off of existing deferred loan fees related to the prior credit facility.



Income Tax Expense.Income tax expense decreased $18.7 million in 2008 compared to 2007 due primarily to the tax impacts of the $87.9 million pre-tax goodwill impairment charge. Excluding the



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goodwill impairment charge, income tax expense decreased by $4.1 million from 2007, and included a tax benefit from the release of $3.5 million in tax
reserves resulting from the resolution of open tax positions. The effective tax rate, excluding the goodwill impairment charge and reserve adjustment, was comparable between periods.



Net Income/(loss). Net income decreased $70.9 million, or 130.6% from $54.3 million in 2007 to a loss of $16.6
million in 2008. Net income excluding goodwill impairment increased by $2.4 million, or 4.4%, from $54.3 million in 2007 to $56.7 million in 2008, reflecting reduced income from operations (down $4.8 million), reduced interest expense (down $1.3
million) and reduced income tax expense (down $4.1 million) as discussed above. Net income in 2008 also reflected an increase over 2007 due to a $1.8 million loss in extinguishment of debt incurred in 2007.



Reconciliation of GAAP Financial Results to Adjusted Financial Results
Excluding the Goodwill Impairment Charge

For the Fiscal Year Ended December 26, 2008 (in millions, except share and per share
amounts)



|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  
|----------------------------------- |  | ----------- | ---------- | --------------- | ----------- | ---------------------------------------- | ---------- | --------------- |  | - | ---------- |  | - | ---------- |  | - | ---------- | -
|                                    |  | 2008        |            | 2007GAAPResults |             | 2008(as adjusted)vs 2007(actual)Variance |           
|Item                                |  | GAAPResults |            |                 | Adjustments |                                          |            | AdjustedResults |  |  
|Income from operations              |  | $           | 1.8        |                 |             | $                                        | 87.9       | 1/              |  | $ | 89.7       |  | $ | 94.5       |  | $ | (4.8       | )
|Interest expense, net               |  |             | 2.4        |                 |             |                                          | -          |                 |  |   | 2.4        |  |   | 5.5        |  |   | (3.1       | )
|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  
|Income/(loss) before income taxes   |  |             | (0.6       | )               |             |                                          | 87.9       |                 |  |   | 87.3       |  |   | 89.0       |  |   | (1.7       | )
|Income taxes                        |  |             | 16.0       |                 |             |                                          | 14.6       | 2/              |  |   | 30.6       |  |   | 34.7       |  |   | (4.1       | )
|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  
|Net income/(loss)                   |  | $           | (16.6      | )               |             | $                                        | 73.3       |                 |  | $ | 56.7       |  | $ | 54.3       |  | $ | 2.4        |  
|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  
|Diluted earnings/(loss) per share   |  | $           | (0.48      | )               |             | $                                        | 2.11       |                 |  | $ | 1.63       |  | $ | 1.51       |  | $ | 0.12       |  
|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  
|Weighted average shares outstanding |  |             | 34,616,598 |                 |             |                                          | 34,739,597 |                 |  |   | 34,739,597 |  |   | 35,911,246 |  |   | (1,171,649 | )
|                                    |  |             |            |                 |             |                                          |            |                 |  |   |            |  |   |            |  |   |            |  





1/ Logistics segment goodwill impairment charge.



2/ Estimated tax impact at the statutory tax rate.



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Fiscal Year Ended December 28, 2007 Compared to Fiscal Year Ended December 29, 2006



The following table sets forth our historical financial data for the fiscal
years ended December 28, 2007 and December 29, 2006.



Financial Data Comparison by Reportable Segment

Fiscal Years Ended December 28, 2007 and December 29, 2006

(in millions)



|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|--------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ------ |  | - | -------- | - |  | ----- | --
|                                              |  | 2007 |         |   | 2006 |   |         | Change |  |   | % Change |  
|Revenues                                      |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  | $    | 1,567.9 |   |      | $ | 1,491.7 |        |  | $ | 76.2     |   |  | 5.1   | % 
|Logistics                                     |  |      | 402.1   |   |      |   | 397.0   |        |  |   | 5.1      |   |  | 1.3   |   
|Inter-segment elimination                     |  |      | (0.6    | ) |      |   | (0.9    | )      |  |   | 0.3      |   |  | (33.3 | ) 
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 1,969.4 |   |      |   | 1,887.8 |        |  |   | 81.6     |   |  | 4.3   |   
|                                              |  |      |         |  
|Cost of purchased transportation and services |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  |      | 1,207.9 |   |      |   | 1,121.7 |        |  |   | 86.2     |   |  | 7.7   |   
|Logistics                                     |  |      | 330.4   |   |      |   | 325.6   |        |  |   | 4.8      |   |  | 1.5   |   
|Inter-segment elimination                     |  |      | (0.6    | ) |      |   | (0.9    | )      |  |   | 0.3      |   |  | (33.3 | ) 
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 1,537.7 |   |      |   | 1,446.4 |        |  |   | 91.3     |   |  | 6.3   |   
|                                              |  |      |         |  
|Direct operating expenses                     |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  |      | 130.5   |   |      |   | 123.1   |        |  |   | 7.4      |   |  | 6.0   |   
|Logistics                                     |  |      | -       |   |      |   | -       |        |  |   | -        |   |  | -     |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 130.5   |   |      |   | 123.1   |        |  |   | 7.4      |   |  | 6.0   |   
|                                              |  |      |         |  
|Selling, general & administrative expenses    |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  |      | 112.2   |   |      |   | 108.5   |        |  |   | 3.7      |   |  | 3.4   |   
|Logistics                                     |  |      | 66.8    |   |      |   | 68.7    |        |  |   | (1.9     | ) |  | (2.8  | ) 
|Corporate                                     |  |      | 21.5    |   |      |   | 15.8    |        |  |   | 5.7      |   |  | 36.1  |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 200.5   |   |      |   | 193.0   |        |  |   | 7.5      |   |  | 3.9   |   
|                                              |  |      |         |  
|Depreciation and amortization                 |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  |      | 5.3     |   |      |   | 5.8     |        |  |   | (0.5     | ) |  | (8.6  | ) 
|Logistics                                     |  |      | 0.8     |   |      |   | 1.1     |        |  |   | (0.3     | ) |  | (27.3 | ) 
|Corporate                                     |  |      | 0.1     |   |      |   | 0.1     |        |  |   | -        |   |  | -     |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 6.2     |   |      |   | 7.0     |        |  |   | (0.8     | ) |  | (11.4 | ) 
|                                              |  |      |         |  
|Income from operations                        |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Intermodal                                    |  |      | 112.0   |   |      |   | 132.6   |        |  |   | (20.6    | ) |  | (15.5 | ) 
|Logistics                                     |  |      | 4.1     |   |      |   | 1.6     |        |  |   | 2.5      |   |  | 156.3 |   
|Corporate                                     |  |      | (21.6   | ) |      |   | (15.9   | )      |  |   | (5.7     | ) |  | 35.8  |   
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Total                                         |  |      | 94.5    |   |      |   | 118.3   |        |  |   | (23.8    | ) |  | (20.1 | ) 
|                                              |  |      |         |  
|Interest expense/income                       |  |      | 3.7     |   |      |   | 6.6     |        |  |   | (2.9     | ) |  | (43.9 | ) 
|Loss on extinguishment of debt                |  |      | 1.8     |   |      |   | -       |        |  |   | 1.8      |   |  | n.m.  |   
|Income tax expense                            |  |      | 34.7    |   |      |   | 43.4    |        |  |   | (8.7     | ) |  | (20.0 | ) 
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   
|Net income                                    |  | $    | 54.3    |   |      | $ | 68.3    |        |  | $ | (14.0    | ) |  | (20.5 | )%
|                                              |  |      |         |   |      |   |         |        |  |   |          |   |  |       |   



Revenues.
Revenues increased $81.6 million, or 4.3%, for the fiscal year ended December 28, 2007 compared to the fiscal year ended December 29, 2006. Intermodal segment revenues increased $76.2 million for 2007, reflecting increases in our
Stacktrain, rail brokerage and cartage operations. Stacktrain revenues increased $58.8 million in 2007 compared to 2006 and reflected increases in all three Stacktrain lines of business, partially offset by lower avoided repositioning cost
ARC revenues (the incremental



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revenue to Pacer for moving international containers in domestic service) and lower container and chassis per diem revenues. The period-over-period increases
in the three Stacktrain lines of business were as follows:



| | · |  | The 7.1% increase in Stacktrain third-party domestic revenues was due to a 5.1% increase in domestic containers handled coupled with a 1.9% increase in the average
freight revenue per container for 2007 compared to 2006. The average fuel surcharge in effect during 2007 was 21.0% compared to 19.2% during 2006. The increase in domestic containers handled was due to increases in Pacer container volumes partially
offset by an 8.5% reduction in ARC international container volumes. One of our major suppliers of international boxes has had increased export loadings which reduced our supply of international containers available for repositioning.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The 12.6% increase in automotive revenues reflected a volume increase of 6.0% over 2006 coupled with a 6.2% increase in the average freight revenue per container.
The increase in the average freight revenue per container was due to a combination of business mix, rate increases and slightly higher fuel surcharges.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | The 14.9% increase in Stacktrain international revenues resulted from an 8.7% increase in containers handled primarily from additional customers which began
shipping during the first quarter of 2006, coupled with a 5.7% increase in the average freight revenue per container. The increase in average freight revenue per container was due primarily to changes in business mix and slightly higher fuel
surcharges.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The $3.2 million decline in
container and chassis per diem revenues in 2007 compared to 2006 reflected recoveries of container and chassis misuse charges from several third parties (a result of improved billing and collection practices) which benefited 2006 combined with a
reduction in the number of days equipment was controlled by the customer. While the reduction in customer controlled days reduces per diem revenue, it provides an operational benefit allowing faster equipment reloading. Container and chassis per
diem revenues have declined over the past two years due primarily to the reduction in the number of customer controlled days, and we anticipate that this reduction may continue but at a slower rate. Westbound ARC revenues for 2007 were $0.7 million
below 2006 because of rate competition and the use by international shipping companies of their own equipment for export loading. Rail brokerage revenues for 2007 were $15.3 million, or 3.6%, above 2006 primarily due to a 4.3% increase in volume
partially offset by competitive rate pressures. The average revenue per load for our rail brokerage unit declined by 0.6% in 2007 compared to 2006. Cartage revenues increased $2.1 million due primarily to increased revenues in the Midwest and
Pacific Northwest regions including two additional business locations which began operations in the latter part of 2006, partially offset by reduced Southern California business including reduced container repositioning revenue as well as reduced
port to rail terminal drayage related to decreases from two international customers.



Revenues in our logistics segment increased $5.1 million, or 1.3%, in 2007 compared to 2006 reflecting increased revenues in all units except the truck services and truck brokerage units. The warehousing and
distribution units revenues increased 15.8% because of current customers requiring year-round storage and increased storage and warehouse handling revenues. In addition, this unit started a container transload facility in Southern California
in June 2007, which, while not yet profitable, contributed to the revenue increase. Our supply chain services units revenues increased 44.8% principally due to the addition of a new customer, and our international units revenues
increased 11.5% because of increased import/export business partially offset by reduced overseas aid cargo and agricultural shipments. Our truck services units revenues decreased by 5.4% as a result of lower truck counts and soft demand and
our truck brokerage units revenues decreased by 30.3% in 2007 compared to 2006 due to fewer shipments and competitive rate pressures.



Cost of Purchased Transportation and Services.Cost of purchased transportation and services increased $91.3 million, or 6.3%, in 2007 compared to
2006. The intermodal segments cost of purchased transportation and services increased $86.2 million, or 7.7%, for 2007 compared to 2006 reflecting increases in Stacktrain and rail brokerage costs, partially offset by reduced cartage costs. The
larger



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percentage increase in intermodal segment purchased transportation and services costs compared to intermodal segment revenue was due to arbitration and other
settlements benefiting 2006, increases in underlying service provider costs in 2007, increases in local dray costs and equipment repositioning costs discussed below. The Stacktrain increase was related to the increased shipments noted above combined
with a 5.9% increase in the cost per container because of increased fuel costs and rates from our underlying service providers, and changes in business mix. Reducing the Stacktrain 2006 costs was a gross benefit of $5.3 million, related to expenses
accrued in prior years, from the settlement of a series of arbitration cases and other rate disputes during 2006 that resulted in the reversal of prior year expense accruals in 2006. In addition, in connection with our periodic reconciliation and
settlement of amounts owed to our carriers based on actual usage, during the first quarter of 2006 we reached favorable settlements of several prior period rail payables that resulted in lower reported transportation costs in 2006 compared to 2007.
Local dray costs from the ramp to the customer location increased $5.1 million in 2007 compared to 2006 due primarily to the increase in PacerDirect product volumes and Stacktrain international volumes. Equipment repositioning costs were up 1.7% in
2007 compared to 2006 due to increased chassis repositioning costs to support our trailer-on-flatcar product. The increased rail brokerage costs were related to the increased shipments noted above combined with increased fuel costs and rates from
our underlying service providers, and changes in business mix. The cartage decrease in costs is related to less ocean port to rail terminal and back type of movements, also known as landbridge movements. Ocean shipping lines are loading containers
onto rail cars at the port rather than moving them inland to the rail terminal for loading to a larger extent in 2007 compared to 2006.



The overall transportation margin percentage, revenues less the cost of purchased transportation divided by revenues, for the intermodal segment decreased
from 24.8% in 2006 to 23.0% in 2007 because of the arbitration and rail payable settlements in 2006 discussed above, competition and lower pricing to maintain equipment flow and minimize repositioning costs. Transportation margins were also impacted
by increases in underlying rail costs both in contract lanes pursuant to market rate adjustment provisions and in non-contract lanes.



Cost of purchased transportation and services in our logistics business increased $4.8 million in 2007 compared to 2006 reflecting the increased business
in the majority of the logistics segment units. The overall transportation margin percentage for our logistics segment decreased from 18.0% in 2006 to 17.8% in 2007 due primarily to business mix changes and competitive pressures primarily in our
truck services unit due to the recent economic downturn. The transportation margin percentage in each of our other logistics segment units was slightly higher in 2007 compared to 2006.



Direct Operating Expenses.Direct operating expenses, which are only incurred by our Stacktrain operations, increased
$7.4 million, or 6.0%, in 2007 compared to 2006 because of higher container and chassis lease costs for newer 53 ft. equipment and higher maintenance costs associated with increased per unit material costs and increased equipment velocity. Our
overall fleet size declined in 2007 compared to 2006 due to the retirement of more 48-ft. equipment than the additional 53-ft. equipment leased during the year. At December 28, 2007, we had 1.9% or 533 fewer containers and 3.6% or 1,142 fewer
chassis than at December 29, 2006. Container and chassis lease costs have increased over the last two years due to year-over-year increases in newer, higher cost equipment. This trend should continue into the near future as we continue to
replace older 48-ft. equipment with newer 53-ft. equipment.



Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $7.5 million, or 3.9%, in 2007 compared to 2006. During 2007, $6.0 million was incurred for the severance of 134 personnel and for
facility exit activities ($2.1 million in the logistics segment, $2.1 million in corporate and $1.8 million in the intermodal segment), $3.0 million was incurred for performance bonus and discretionary retention and incentive payments and stock
compensation cost increased by $1.4 million in 2007 compared to 2006. The stock compensation cost increase was due to the initial years vesting and dividends related to the June 2006 and August 2007 restricted stock awards under the 2006
Long-Term Incentive Plan as approved by shareholders in May 2007. The timing of the shareholders approval resulted in a full year of vesting during 2007, with the initial dividends prior to shareholder approval treated as compensation expense.
On an on-going basis, the compensation cost related to current awards will be approximately $2.0 million per year with dividends charged to retained earnings. There were neither severance or facility exit costs nor bonus accruals during 2006.
Selling,



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general and administrative expenses in 2006 also benefited from the adjustment of previously accrued expenses for third party vendor services that were
determined would not be payable under the contract with the provider. Our cartage and warehousing and distribution units also incurred increased damage claim costs in 2007 compared to 2006.



Partially offsetting the increase in 2007 was reduced employment in both of
our operating segments and reduced legal fees during 2007 compared to 2006.Our overall average employment level decreased by 122, or 7.6%, in 2007 compared to 2006 due to our cost reduction efforts and normal attrition, with reductions
across all business units. Average employment levels for 2007 were down 71 in our logistics segment and 53 in our intermodal segment. The average corporate employment level increased by two for 2007 compared to 2006. In addition, during the 2006
period, we settled a motor vehicle accident case adversely impacting our truck services units and corporate results in that period.



Depreciation and Amortization. Depreciation and amortization expenses decreased $0.8 million for 2007 compared to 2006 as a result of normal
property retirements.



Income From Operations. Income
from operations decreased $23.8 million, or 20.1%, from $118.3 million in 2006 to $94.5 million in 2007. Corporate expenses were $5.7 million above 2006 of which $3.0 million represented the 2007 performance bonus and discretionary retention and
incentive payments and $2.1 million was for severance costs. Corporate expenses were also affected in 2007 by increased stock compensation costs. Intermodal segment income from operations decreased $20.6 million reflecting a $12.0 million decrease
in Stacktrain income from operations, an $8.8 million decrease in rail brokerage income from operations and a $0.2 million increase in cartage income from operations. The Stacktrain decrease was due, in part, to the 2006 transactions that benefited
that year but did not recur in 2007, including the recoveries of chassis misuse charges from several third parties (a result of improved billing and collection efforts), various settlements of prior period rail payables, the adjustment of a
previously accrued expense for third party vendor services and the 2006 arbitration and rate dispute settlements, combined with higher direct operating expenses, reduced ARC business and reduced margins in the 2007 period. The rail brokerage
decrease was due to competitive rate pressures and increases in underlying service provider costs and an increase in lower average revenue westbound business to balance traffic flows. The increase in our cartage unit was because of additional
business including two additional locations in 2007 and additional business from our Stacktrain and rail brokerage units compared to 2006, partially offset by increased personal injury/property damage costs during 2007. Income from operations in
2007 for the intermodal segment was reduced by severance costs of $1.8 million.



Logistics segment income from operations improved $2.5 million to $4.1 million in 2007 compared to $1.6 million in 2006 reflecting increases in all business units except the truck services and truck brokerage units.
The $0.5 million increase in our warehousing and distribution unit was because of additional storage and handling business partially offset by start-up related costs from the new Southern California transload facility and higher cargo claims costs.
Our supply chain services unit increase of $3.6 million was due primarily to the addition of a new customer, and included $0.6 million in severance and facility closure costs. Our international units increase of $0.1 million reflected strong
import/export business partially offset by reduced overseas aid and agricultural shipments and $0.4 million of severance and facility closure costs. The $0.3 million decrease for our truck services unit was due primarily to lower truck counts in
2007 and soft demand, and included $0.3 million of severance and facility closure costs. The $1.4 million decrease in our truck brokerage units income from operations was due to decreased shipments and competitive rate pressure, and included
$0.8 million of severance and facility closure costs. In total, the logistics segments income from operations in 2007 was reduced by severance and facility closure costs of $2.1 million.



Interest Expense/Income. Interest expense, net, decreased by $2.9
million, or 43.9%, for 2007 compared to 2006 reflecting the award of $1.6 million of interest as part of an arbitration settlement during 2007 coupled with a lower average debt balance outstanding during 2007 as compared to 2006 during which we
repaid approximately $31.0 million of long-term debt, and lower interest rates. At December 28, 2007, total long-term debt was $64.0 million compared to $59.0 million at December 29, 2006. The average interest rate during 2007 was 5.7%
compared to 6.9% during 2006.



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Loss on Extinguishment of Debt. On April 5, 2007, we completed the refinancing of our term
loan and revolving credit facility with a new $250 million, five-year revolving credit facility. See the discussion under Liquidity and Capital Resources below. Charges totaling $1.8 million were incurred due to the write-off of existing
deferred loan fees related to the prior credit facility.



Income Tax Expense.Income tax expense decreased $8.7 million in 2007 compared to 2006 because of lower pre-tax income in 2007. The effective tax rate was equivalent between years. In October 2007, Mexico enacted a new tax law which
replaces the existing asset tax with a new flat tax to supplement the regular income tax in that country. The new tax was effective on January 1, 2008, and did not have, and in the future is not expected to have, a material impact on our
results of operations and financial condition.



Net
Income. Net income decreased by $14.0 million, or 20.5%, from $68.3 million in 2006 to $54.3 million in 2007 reflecting the lower income from operations (down $23.8 million, of which $6.0 million related to severance and facility closure costs
and $3.0 million to bonuses) as discussed above, and the write-off of loan fees associated with the refinancing of debt ($1.8 million), partially offset by reduced net interest costs (down $2.9 million) including interest income from the settlement
of an arbitration case. Net income in 2007 also reflected lower income tax expense (down $8.7 million) related to a lower pre-tax income.



Liquidity and Capital Resources



Cash provided by operating activities was $59.6 million, $108.0 million and $66.7 million for the fiscal years ended December 26,
2008, December 28, 2007 and December 29, 2006, respectively. The decrease in cash provided by operating activities in 2008 was due to the combination of the 2007 settlement of the Del Monte arbitration case increasing cash from
operations in 2007 and the impact of lower traffic volumes in 2008 compared to 2007. While our balances of accounts receivable and accounts payable both declined in 2008 compared to 2007, our overall days sales outstanding on trade receivables
and our days payable outstanding on trade payables remained consistent between years. In addition, in 2008 there were amounts paid related to our 2007 restructuring program and higher tax payments. Tax payments were $32.6 million in 2008
compared to $24.1 million in 2007. The lower payment in the 2007 period was due to a lower federal extension payment which is based on the timing of earnings during the year.



The increase in cash provided by operating activities in 2007 compared to 2006 was due primarily to the increase in accounts
payable and other accrued liabilities compared to 2006. During 2006 there was a bonus payout (related to and accrued in the 2005 fiscal year) as well as increased payouts in 2006 compared to 2007 for taxes and litigation settlements. In addition,
accounts payable was higher in 2007 due to the increase in business in 2007. As mentioned above, the Del Monte arbitration settlement, which was received in the second quarter of 2007, increased cash from operations in 2007 compared to 2006. Also
contributing to the increased cash flow from operating activities in 2007 were $24.1 million of tax payments in 2007 compared to $37.4 million during 2006.



Cash generated from operating activities is typically used for working capital purposes, to fund capital expenditures, to repurchase common stock from
time to time, to repay debt, and in the future would be available to fund any acquisitions or dividend payments we decide to make. We utilize a revolving credit facility in lieu of maintaining large cash reserves. In general, we prefer to reduce
debt and minimize our interest expense rather than to maintain large cash balances and incur increased interest costs. However, because of favorable market conditions, we may from time to time repurchase common stock rather than reducing debt.
Interest paid was $3.2 million, $4.7 million and $6.7 million in 2008, 2007 and 2006, respectively.



We had working capital of $46.4 million and $34.5 million at December 26, 2008 and December 28, 2007, respectively.



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Our operating cash flows are also the primary source for funding our contractual obligations. The table
below summarizes as of December 26, 2008, our major commitments (in millions).



Contractual Obligations



|                           |  |       |       |                 |   |          |  |          |       |                  |   |       |  |   |      
|-------------------------- |  | ----- | ----- | --------------- | - | -------- |  | -------- | ----- | ---------------- | - | ----- |  | - | -----
|                           |  | Total |       | Less than 1year |   | 1-3years |  | 3-5years |       | More than5 years
|                           |  |       |       |                 |  
|Long-term debt             |  | $     | 44.0  |                 | $ | -        |  | $        | -     |                  | $ | 44.0  |  | $ | -    
|Capital lease obligations  |  |       | 0.6   |                 |   | 0.3      |  |          | 0.3   |                  |   | -     |  |   | -    
|Interest on long-term debt |  |       | 5.4   |                 |   | 1.7      |  |          | 3.3   |                  |   | 0.4   |  |   | -    
|Operating leases           |  |       | 398.3 |                 |   | 87.8     |  |          | 149.4 |                  |   | 100.7 |  |   | 60.4 
|Dividends                  |  |       | 5.2   |                 |   | 5.2      |  |          | -     |                  |   | -     |  |   | -    
|Volume incentives          |  |       | 3.2   |                 |   | 3.2      |  |          | -     |                  |   | -     |  |   | -    
|APL IT agreement           |  |       | 119.0 |                 |   | 10.8     |  |          | 21.9  |                  |   | 22.5  |  |   | 63.8 
|SAP IT agreement           |  |       | 25.1  |                 |   | 8.0      |  |          | 12.0  |                  |   | 5.1   |  |   | -    
|Other IT agreements        |  |       | 2.4   |                 |   | 2.0      |  |          | 0.4   |                  |   | -     |  |   | -    
|HR agreements              |  |       | 1.4   |                 |   | 0.6      |  |          | 0.6   |                  |   | 0.2   |  |   | -    
|Income tax contingencies   |  |       | 0.6   |                 |   | 0.6      |  |          | -     |                  |   | -     |  |   | -    
|Severance liability        |  |       | 0.4   |                 |   | 0.4      |  |          | -     |                  |   | -     |  |   | -    
|Purchased transportation   |  |       | 29.8  |                 |   | 29.8     |  |          | -     |                  |   | -     |  |   | -    
|                           |  |       |       |                 |   |          |  |          |       |                  |   |       |  |   |      
|                           |  |       |       |                 |  
|Total                      |  | $     | 635.4 |                 | $ | 150.4    |  | $        | 187.9 |                  | $ | 172.9 |  | $ | 124.2
|                           |  |       |       |                 |   |          |  |          |       |                  |   |       |  |   |      



Long-term debt is the
amount outstanding on our revolving credit agreement. The capital lease obligations were incurred in 2008 and are related to our SAP software project. Cash interest expense on long-term debt was estimated using current rates for all periods based
upon the current outstanding balance. The majority of the operating lease obligations relate to our intermodal segments lease of railcars, containers and chassis, but also include operating leases for tractors used in our truck services and
local trucking operations. Each year a portion of the operating leases must be renewed or can be terminated based upon equipment requirements. Partially offsetting these lease payment requirements are railcar and container per diem revenues (not
reflected in the table above) which were $60.9 million in 2008, $66.2 million in 2007 and $69.5 million in 2006. The dividends reflected in the table were paid on January 12, 2009. Volume incentives (which are recorded as a reduction of
revenues in our consolidated financial statements) relate to amounts payable to companies that ship on our Stacktrain unit that met certain volume shipping commitments for the year 2008. Our APL IT agreement is a long-term contract expiring in May
2019. The amounts in the table above are based on the contractual annual increases in costs of this agreement through expiration. The agreement, however, is cancelable by us on 120 days notice without penalty. Accordingly, upon any such termination,
our obligation under the contract would be limited to only $3.6 million. The SAP IT agreement reflects commitments for on-going maintenance and support detailed further below. The Other IT agreements reflect a telecommunications commitment for
voice, data and frame relay services and IT licensing, hosting and maintenance commitments. The human resources agreements reflect our human resources benefit system and payroll processing contract. Income tax contingencies relate to uncertain tax
positions, including accrued interest, as of December 26, 2008 (see Recently Issued Accounting Pronouncements below). The severance liability relates to amounts to be paid related to our 2007 severance and facility exit program. The
purchased transportation amount reflects our estimate of the cost of transportation purchased by our segments that is in process at year-end but not yet completed and minimum container commitments to ocean carriers made by our non-vessel operating
common carrier operation.



Based upon the current level of
operations, management believes that estimated operating cash flow and availability under the 2007 Credit Agreement will be adequate to meet our working capital, capital expenditure, dividend and other cash needs during 2009, although no assurance
can be given in this regard. Should the economic downturn continue or worsen, our operating cash flows may be adversely impacted. Continued disruption of the credit markets, the failure of banks in our lending group or their inability or refusal to
provide funds under our credit facility and instability in capital markets could reduce the availability of funding under our 2007 Credit Agreement or for operating lease transactions.



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Cash flows used in investing activities were $23.0 million, $13.1 million and $3.5 million for 2008, 2007
and 2006, respectively. The use of cash in 2008 included $16.6 million of cash capital expenditures related to the SAP project discussed below. An additional $4.6 million of capital expenditure was incurred for the purchase of 450 new 53-foot
chassis as part of our effort to rationalize our equipment fleet. The remaining 2008 capital expenditures of $3.6 million were primarily for normal computer replacement items, partially offset by net proceeds of $1.8 million from the sale of
primarily 48-foot chassis and containers. The use of cash in 2007 included $10.6 million related to the SAP project as discussed below. The remaining 2007 capital expenditures of $3.4 million were primarily for normal computer replacement items,
partially offset by net proceeds of $0.9 million from the sale of property. The use of cash in 2006 was primarily for normal computer replacement items, partially offset by net proceeds of $0.2 million from the sale of property.



On September 30, 2007, we entered into a software license agreement with
SAP under which we licensed an enterprise suite of applications, including the latest release of SAPs transportation management solution. Under the agreement, we were granted a perpetual license for the suite of SAP software, and agreed to a
two-year maintenance and support commitment for an annual fee of $2 million. During 2008, total cash expenditures for the SAP project were $22.4 million, $16.6 million of which was capitalized and $5.8 million was included in the Selling, General
and Administrative line item of the Consolidated Statement of Operations. In addition, $0.8 million of capital lease obligations related to the SAP project were incurred in 2008. During 2007, total expenditures for the SAP project were $10.9
million, $10.6 million of which was capitalized (including the initial license fee of $9.3 million) and $0.3 million was included in the Selling, General and Administrative line item of the Consolidated Statement of Operations. During 2008, the
finance and accounting modules of the new system were implemented at all business units with the exception of our Stacktrain unit. These modules will be implemented at our Stacktrain unit during the first quarter of 2009. Other operational elements
of the new system for the intermodal and logistics segments are expected to be implemented by the end of 2009 and in 2010, respectively, and include equipment management, pricing, billing and tracking and tracing applications. Total capital
investment for the remaining portions of the new system still to be implemented will range from $5 million to $10 million (not reflected in the above table) over the course of the project. It is anticipated that these amounts will be financed from a
combination of operating cash flows and borrowings under our revolving credit agreement. We will continue to avail ourselves of the services and support under our existing long-term technology services agreement with APL Limited until such time as
the SAP implementation project is completed. Accordingly, the table above assumes payments in respect of both the SAP and APL IT agreements over the 5-year period even though we currently expect that the new SAP system will be operational and
replace the APL system prior to the end of the 5-year period.



Capital expenditures for 2009 are budgeted at $12.8 million including $8.2 million for the SAP implementation project and $4.6 million primarily for normal computer and equipment replacement items.



Cash flows used in financing activities were $38.1 million, $87.9 million and
$72.1 million for 2008, 2007 and 2006, respectively. During the 2008 period, we repaid $20.0 million on our revolving credit facility and $0.2 million of capital lease obligations related to the SAP software project, and paid $20.8 million for cash
dividends. Options to purchase 274,865 shares of our common stock were exercised in 2008 for total proceeds of $3.0 million. The excess tax benefit associated with the exercise of the options and the vesting of restricted stock pursuant to SFAS
No. 123 (R) was $0.2 million. Also during the 2008 period, 19,039 shares of our common stock were surrendered for payment of employee taxes due upon the annual June 1, 2008 vesting of restricted stock. These shares were retired,
thereby reducing stockholders equity by $0.3 million. During 2007, we refinanced our prior bank revolving credit and term loan facility and the $59.0 million outstanding thereunder with a new $250 million revolving credit facility (see the
discussion below). During 2007, we borrowed an additional net $5.0 million under the new facility to repurchase common stock and for general corporate purposes. During 2007, options to purchase 169,132 shares of our common stock were exercised for
total proceeds of $1.8 million. The excess tax benefit associated with the exercise of the options and vesting of restricted stock was $0.2 million. Also during the 2007 period, 2,938,635 shares of our common stock were repurchased and retired for
$72.5 million and we paid $21.6 million in common stock cash dividends. During 2006, we repaid $31.0 million of long-term debt, paid $22.5 million in common stock cash dividends and repurchased and retired $26.8 million of our common stock under a
stock repurchase program announced in June 2006. During 2006, options to



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purchase 647,117 shares of our common stock were exercised for total proceeds to the company of $4.4 million. The excess tax benefit associated with the
exercise of options was $3.8 million during 2006.



On
April 5, 2007, we entered into a new $250 million, five-year revolving credit agreement (the 2007 Credit Agreement). We have utilized $59.0 million of the 2007 Credit Agreement to repay the principal balance due under the term loan
portion of our prior bank credit facility, which was terminated. In connection with the refinancing, we paid $0.8 million of fees and expenses ($0.6 million to lenders and $0.2 million to other third parties) and $0.5 million of interest due under
the prior credit facility at closing. We also charged to expense $1.8 million for the write-off of existing deferred loan fees related to the prior credit facility. The 2007 Credit Agreement is supplied by a syndicate of eleven banks, led by Bank of
America with a 22% funding commitment. No other bank in the syndicate has a funding commitment greater than 12%. While we believe that the funds available under the 2007 Credit Agreement will be provided by our syndicate of lenders as and when
required by us and will be adequate to meet our cash needs during 2009, no assurance in this regard can be given.



Borrowings under the 2007 Credit Agreement bear interest, at our option, at a base rate plus a
margin between 0.0% and 0.5% per annum, or at a Eurodollar rate plus a margin between 0.625% and 1.75% per annum, in each case depending on our leverage ratio. The base rate is the higher of the prime lending rate of the administrative
agent or the federal funds rate plus 1/2of 1%. Our obligations under the 2007 Credit Agreement are guaranteed by all of our
direct and indirect domestic subsidiaries, and are secured by a pledge of all of the stock or other equity interests of our domestic subsidiaries and a portion of the stock or other equity interest of certain of our foreign subsidiaries.



The 2007 Credit Agreement also provides for letter of credit
fees between 0.625% and 1.75%, and a commitment fee payable on the unused portion of the facility, which accrues at a rate per annum ranging from 0.125% to 0.350%, in each case depending on our leverage ratio.



The 2007 Credit Agreement contains affirmative, negative and financial
covenants customary for such financings, including, among other things, limits on the incurrence of debt, the incurrence of liens, and mergers and consolidations and leverage and interest coverage ratios. We were in compliance with these covenants
at December 26, 2008. It also contains customary representations and warranties. Breaches of the covenants, representations or warranties may give rise to an event of default. Other events of default include our failure to pay certain debt, the
acceleration of certain debt, certain insolvency and bankruptcy proceedings, certain ERISA events or unpaid judgments over a specified amount, or a change in control of the company as defined in the 2007 Credit Agreement.



As noted above, the 2007 Credit Agreement requires us to satisfy a minimum
interest coverage ratio and a maximum leverage ratio. The interest coverage ratio which is tested at the end of every quarter on a trailing four quarter basis, can be no less than 3:00:1.00. The maximum leverage ratio cannot exceed 3.00:1.00 at any
time during any period of four consecutive fiscal quarters. Both ratios are based on our consolidated EBITDA for the applicable period adjusted to add-back non-recurring, non-cash charges, such as the goodwill impairment charge we recorded in 2008,
that reduce our consolidated net income. As of December 26, 2008, we were in compliance with both the minimum interest coverage ratio and the maximum leverage ratio requirements.



At December 26, 2008, we had $184.6 million available under the 2007 Credit Agreement, net of $44.0 million outstanding
and $21.4 million of outstanding letters of credit. At December 26, 2008, borrowings under the 2007 Credit Agreement bore a weighted average interest rate of 2.9% per annum.



During 2008, we received 3,079 primarily 53-ft. leased containers and 3,038 53-ft., 48-ft. and 40-ft. primarily leased
chassis, and returned 2,423 primarily 48-ft. leased containers, 2,275 primarily 48-ft. and 40-ft. leased chassis, and sold 1,282 48-ft. owned chassis in an effort to continue to align our container and chassis fleets. During 2008, one leased railcar
was destroyed.



During 2007, we received 1,658 primarily 53-ft.
leased containers and 1,072 53-ft., 48-ft. and 40-ft. leased chassis, and we returned 2,191 primarily 48-ft. leased containers, 1,596 primarily 48-ft. and 40-ft. leased chassis, and sold 618 48-ft. owned chassis in an effort to more closely align
our container and chassis fleets. During 2007, four railcars were destroyed.



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During 2006, we received 2,360 53-ft. leased containers and 4,552 53-ft. and 40-ft. leased chassis, and
we returned 2,033 primarily 48-ft. leased containers and 1,684 primarily 48-ft. and 40-ft. leased chassis. During 2006, four railcars were destroyed.



Common Stock Repurchase Program



On June 12, 2006, we announced that our Board of Directors had authorized the purchase of up to $60 million of our common stock, and, on
April 3, 2007, the company announced that our Board of Directors had authorized the purchase of an additional $100 million of our common stock. Both authorizations expire on June 15, 2009. We repurchased a total of 2,938,635 shares at an
average price of $24.64 per share through December 28, 2007, and 19,039 shares at an average price of $21.54 per share during 2008. At December 26, 2008, $61.1 million remains available for the purchase of common stock under the current
Board authorizations. We may make further share repurchases from time to time as market conditions warrant.



Off-Balance Sheet Arrangements



We have not entered into any transactions with unconsolidated entities whereby the company has financial guarantees, subordinated retained interests, derivative instruments, or other contingent arrangements that expose us to material
continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides financing, liquidity, market risk, or credit risk support to us.



Recently Issued Accounting Pronouncements



In June 2008, the Financial Accounting Standards Board (FASB)
issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP 03-6-1). Under FSP 03-6-1, unvested share-based payment awards that contain
rights to receive non-forfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus should be included in the two-class method of computing earnings per share. The FSP is effective for fiscal years
beginning after December 15, 2008 and requires that all prior period earnings per share data be adjusted retroactively. We adopted FSP 03-6-1 on December 27, 2008 (the first day of our 2009 fiscal year). The 2009 fiscal year adoption and
retroactive application is not expected to have a material impact on our disclosure of earnings per share.



In May 2008, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 162, The Hierarchy of Generally Accepted
Accounting Principles. SFAS No. 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with generally accepted accounting
principles in the United States for nongovernmental entities. The hierarchy within SFAS No. 162 is consistent with that previously defined in the AICPA Statement on Auditing Standards No. 69, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is effective 60 days following the September 16, 2008 United States Securities and Exchange Commissions approval of the Public Company Accounting Oversight
Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS No. 162 is not expected to have a material impact on our results of operations
or financial condition.



In March 2008, the FASB issued SFAS
No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of SFAS No. 133. SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their effects on an entitys financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008. Due to our limited use of derivative instruments, the adoption of SFAS No. 161 is not expected to have a material impact on our results of operations or financial
condition.



In December 2007, the FASB issued SFAS No. 141
(revised 2007), Business Combinations, which establishes principles and requirements for how an acquirer recognizes and measures assets



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acquired, liabilities assumed including any non-controlling interest, and goodwill or gain from a bargain purchase. It also establishes the information to
disclose regarding the nature and financial effects of a business combination. SFAS No. 141 (revised 2007) was effective for us on December 27, 2008 (the first day of our 2009 fiscal year). The adoption of SFAS No. 141 (revised 2007)
is not expected to have a material impact on our results of operations or financial condition.



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51, which establishes accounting and reporting standards
that require: ownership interests held by parties other than the parent to be clearly identified and presented in the consolidated statement of financial position within equity, but separate from the parents equity; consolidated net income
attributable to the parent and to the noncontrolling interest be identified and presented on the face of the consolidated statement of income; and that changes in ownership interest while the parent retains its controlling interest be accounted for
consistently and disclosed. SFAS No. 160 was effective for us on December 27, 2008 (the first day of our 2009 fiscal year). The adoption of SFAS No. 160 is not expected to have a material impact on our results of operations or
financial condition.



In September 2006, the FASB issued SFAS
No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the United States of America and expands disclosures about fair value
measurements. The financial asset and liability portion of SFAS No. 157 was adopted by us on December 29, 2007 (the first day of our 2008 fiscal year) with no impact on results of operations and financial condition. The remaining portion
of SFAS No. 157 related to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis was applicable on December 27, 2008 (the first day of our 2009
fiscal year). The adoption of SFAS No. 157 is not expected to have a material impact on our results of operations or financial condition, with the exception of the step two analyses under SFAS No. 142 for goodwill impairment which is still
being assessed. Beginning in 2009, we will measure any identified goodwill impairment using the principles in SFAS No. 157 and SFAS No. 141 (revised 2007). These principles differ from the methods used to measure goodwill impairment in
prior years and could result in a different amount of impairment than would have been measured under our previous methodology.



Inflation



We contract with railroads and independent truck operators for our transportation requirements. These third parties are responsible for providing their
own diesel fuel. To the extent that changes in fuel prices are passed along to us, we have historically passed these changes along to our customers. There is no guarantee, however, that this will be possible in the future.



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK



Our market risk is affected primarily by
changes in interest rates. Under our policies, we may use hedging techniques and derivative financial instruments to reduce the impact of adverse changes in market prices. The quantitative information presented below and the additional qualitative
information presented above in Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 2 to the notes to our consolidated financial statements included in this Annual Report on
Form 10-K describe significant aspects of our financial instrument programs which have market risk.



We have market risk in interest rate exposure, primarily in the United States. We manage interest exposure through floating rate debt. Interest rate swaps
may be used to adjust interest rate exposure when appropriate based on market conditions. No interest rate swaps were outstanding at December 26, 2008 or December 28, 2007.



Based upon the average variable interest rate debt outstanding during 2008, a 100 basis point change in our variable
interest rates would have affected our 2008 pre-tax earnings by approximately $0.5 million. For 2007, a 100 basis point change in our variable interest rates would have affected our 2007 pre-tax earnings by approximately $0.6 million. For 2006, a
100 basis point change in our variable interest rates would have affected our 2006 pre-tax earnings by approximately $0.8 million.



As our foreign business expands, we will be subjected to greater foreign currency risk.



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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



The consolidated financial statements, including supplementary data and the
accompanying report of independent registered public accounting firm, are listed in the Index to Consolidated Financial Statements and Financial Statement Schedules on page F-1 filed as part of this Annual Report on Form 10-K.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A. CONTROLS AND PROCEDURES



Disclosure Controls and Procedures



Evaluation of Disclosure Controls.We evaluated the
effectiveness of the design and operation of the companys disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act) as of
December 26, 2008. This evaluation (the disclosure controls evaluation) was done under the supervision and with the participation of management, including our chief executive officer (CEO) and chief financial officer
(CFO). Rules adopted by the SEC require that in this section of our Annual Report on Form 10-K we present the conclusions of the CEO and the CFO about the effectiveness of our disclosure controls and procedures as of December 26,
2008 based on the disclosure controls evaluation.



Objective
of Controls. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, such as this Annual Report on Form 10-K, is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms. Our disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to our management, including the
CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the
circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its
judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.



Conclusion. Based upon the disclosure controls evaluation and the identification of a material weakness in our internal control over financial
reporting, which we view as an integral part of our disclosure controls and procedures as further discussed below under Managements Report on Internal Control over Financial Reporting, our CEO and CFO have concluded that as of
December 26, 2008, our disclosure controls and procedures were not effective to provide reasonable assurance that the foregoing objectives are achieved.



However, giving full consideration to the material weakness described below, additional analyses and other procedures have been performed in order to
provide assurance that our Consolidated Financial Statements included in this Annual Report were prepared in accordance with generally accepted accounting principles (GAAP) and present fairly, in all material respects, our financial
position, results of operations and cash flows for the periods presented in conformity with GAAP. As a result of our consideration of the events and circumstances giving rise to the material weakness and these procedures, we concluded that the
Consolidated Financial Statements included in this Annual Report present fairly, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.



Managements Report on Internal Control over Financial Reporting



The management of Pacer is responsible for establishing and
maintaining adequate internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the



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Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.



Management of the
company, under the supervision and with participation of the CEO and CFO, has assessed the effectiveness of the companys internal control over financial reporting as of December 26, 2008. In making its assessment of internal control over
financial reporting, management used the criteria described in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).



A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis.



We did not maintain effective internal controls over the preparation and
review of certain balance sheet reconciliations. Specifically, we did not timely identify and resolve reconciling items in certain cash accounts pertaining to Pacer Cartage and in various intercompany accounts among our intermodal segment
operations. This control deficiency resulted in audit adjustments to certain balance sheet accounts in the companys consolidated financial statements for the year ended December 26, 2008. Additionally, this control deficiency could result
in misstatements of the aforementioned accounts and other financial statement accounts and disclosures that would result in a material misstatement of the consolidated financial statements that would not be prevented or detected. Accordingly, our
management has determined that this control deficiency constitutes a material weakness.



Because of this material weakness, management concluded that the company did not maintain effective internal control over financial reporting as of December 26, 2008, based on criteria in Internal Control
 Integrated Framework issued by the COSO.



The
effectiveness of the companys internal control over financial reporting as of December 26, 2008 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report beginning on page
F-2.



Changes in Internal Control Over Financial Reporting



As previously discussed, in September 2007 we acquired an
enterprise suite of software applications from SAP that will provide an integrated, streamlined platform across business units and provide better management information, eliminate duplicated work effort and enhance customer service and
communications. During the quarter ended December 26, 2008, we converted all but one of our business units to the accounting modules of the SAP software. This conversion will continue for the next few months as we convert all of our business
units to the SAP accounting modules. As part of this conversion, we are modifying, as necessary, the design and documentation of internal control processes and procedures relating to the new systems to supplement and complement existing internal
controls over financial reporting. These control changes include the automation of access controls and segregation of duties that were previously accomplished with manual processes. The conversion to the SAP accounting system was undertaken as part
of an SAP project to integrate systems and improve information and process flow, and not in response to any actual or perceived deficiencies in our internal control over financial reporting. There were no additional changes in the companys
internal control over financial reporting during the quarter ended December 26, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



Remediation Plan



We are in the process of developing and implementing remediation plans to
address our material weakness. The control deficiency arose in part due to the transition to the new SAP accounting modules as



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our Pacer Cartage accounting group in Commerce, California experienced delays in the normal processing of payments as they were learning the new system. As
our personnel become more experienced in using the system, the issues that contributed to the material weakness should be mitigated. Furthermore, we are undertaking enhanced analysis of balance sheet accounts to identify and reexamine period to
period fluctuations and avoid reclassifications. Similarly, we are developing enhanced management review procedures around the bank reconciliation process that include more timely review and subsequent resolution of reconciling items. As we continue
to implement the common SAP accounting platform, we also plan to consolidate, centralize and streamline accounting activities performed at various operating unit field locations, which should allow for better work dispersal among accounting
personnel, improve compliance with processes and enhance monitoring of controls.



ITEM 9B. OTHER INFORMATION



On February 11, 2009, the companys Board of Directors expanded the size of the Board to eight members and appointed Robert J. Grassi to the Board, with such appointment to be effective March 1,
2009. The Board determined that Mr. Grassi qualifies as an audit committee financial expert as defined under SEC regulations and appointed him to serve as a member of the audit committee. Mr. Grassis term will begin on
March 1, 2009 and continue until the 2009 annual meeting of the shareholders, at which time he will be considered for election for a three-year term expiring at the 2012 annual meeting of shareholders.



Mr. Grassis compensation for his services as a director will be
consistent with that of our other non-employee directors, as described in our definitive proxy statement with respect to our 2008 annual meeting of shareholders filed with the Securities and Exchange Commission on March 12, 2008, including,
consistent with past practice, the grant, as of March 1, 2009, of a nonqualified stock option to purchase 12,000 shares of the companys common stock under the 2006 Long-Term Incentive Plan. Such grant will vest in four equal annual
installments beginning on March 1, 2010, the first anniversary of the grant date. Other than the foregoing standard compensation arrangements, there are no arrangements or understandings between Mr. Grassi and any other person pursuant to
which he was appointed as a director. Mr. Grassi is not a party to any transaction with the Company that would require disclosure under Item 404(a) of Regulation S-K.



Also on February 11, 2009, the Compensation Committee of the companys Board of Directors approved the
payment of bonuses to the companys employees, including the named executive officers, under the companys 2008 Performance Bonus Plan (the 2008 Plan), which was filed as Exhibit 10.28 to our Annual Report on Form 10-K for
the year ended December 28, 2007. Under the 2008 Plan, the payment of bonuses to the companys named executive officers, all of whom are currently employees of our corporate unit, was contingent on the companys fiscal year 2008
consolidated earnings per share (calculated before accrual of bonus payments) falling within specified minimum and maximum consolidated earnings per share targets established by the Compensation Committee and the Board at the beginning of the year,
and bonus payments were capped at 100% of a participants bonus opportunity (stated as a percentage of base salary). In approving the bonus payments to all of our employees, including the named executive officers, the Compensation Committee,
pursuant to its discretionary authority under the 2008 Plan, decided to exclude the impact of the 2008 non-cash goodwill impairment charge in determining the companys EPS for purposes of the 2008 Plan, which resulted in the company achieving
the maximum EPS target in the 2008 Plan, but at the same time the Committee also decided to reduce the amount of bonuses otherwise payable under the 2008 Plan to the named executive officers. The Compensation Committee also awarded a
discretionary bonus to the Interim President, Intermodal Segment, Mr. Orris, who was not originally included as a participant in the 2008 Plan, in an amount equal to the reduced bonus amount awarded to the Chief Executive Officer,
Mr. Uremovich, in recognition of Mr. Orris efforts as Interim President, Intermodal Segment, and the segments performance in 2008. The cash bonuses payable to the named executive officers for 2008 are as follows: the Chief
Executive Officer, Mr. Uremovich  $405,508; the Interim President, Intermodal Segment, Mr. Orris  $405,508; the Chief Financial Officer through September 14, 2008, Mr. Yarberry  $132,297; the Chief Financial
Officer beginning September 15, 2008, Mr. Kane  $88,000; the General Counsel, Mr. Killea  $132,921; and the Logistics Services Group President, Mr. Brashares  $127,745.



Pacer will provide additional information regarding the compensation of its
executive officers in its proxy statement for its 2009 annual meeting of shareholders.



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Part III.



ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



|(a) |  | Identification of Directors.
|--- |  | ----------------------------



| |  | The information required by this Item, with respect to our directors, is incorporated herein by reference to the discussion under the heading Proposal 1: Election of
Directors in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our 2008 fiscal year.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Identification of Executive Officers.
|--- |  | -------------------------------------



| |  | Certain information concerning our executive officers is presented in Part I of this Annual Report on Form 10-K under the heading Executive Officers of the Registrant in
accordance with General Instruction G(3) of Form 10-K.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) |  | Audit Committee Information; Financial Expert.
|--- |  | ----------------------------------------------



| |  | The information required by this Item with respect to the Audit Committee of our Board of Directors and the Audit Committee financial expert is incorporated herein by reference to
the discussion under the heading Audit Committee in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our 2008 fiscal year.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) |  | Section 16(a) Compliance.
|--- |  | -------------------------



| |  | The information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated herein by reference to the discussion under the
heading Section 16(a) Beneficial Ownership Reporting Compliance in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our 2008 fiscal year.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) |  | Code of Ethics.
|--- |  | ---------------



| |  | Our code of ethics applicable to all directors and employees, including our CEO, CFO, principal accounting officer or controller, or persons performing similar functions, was
adopted by our Board of Directors on January 27, 2004. Our code of ethics is posted on our website at www.pacer.com in the Investor Relations sub-pages and is also available free of charge by written request to our Treasurer
at Pacer International, Inc., 2300 Clayton Road, Suite 1200, Concord, California 94520. Any amendment to, or waiver from, our code of ethics will be posted on our website within four business days following such amendment or waiver.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(f) |  | Policy for Nominees.
|--- |  | --------------------



| |  | The information required under Item 407(c)(3) of Regulation S-K is incorporated herein by reference to the discussion concerning procedures by which shareholders may recommend
nominees contained under the heading Nominating and Corporate Governance Committee in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our
2008 fiscal year. No material changes to the nominating process have occurred.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



ITEM 11. EXECUTIVE COMPENSATION.



The information required by this Item, with respect to compensation of our directors and executive officers, is incorporated herein by reference to the
discussions under the headings 2008 Director Compensation, Executive Compensation and Compensation Committee Interlocks and Insider



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Participation in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days
after the end of our 2008 fiscal year. The information required under Item 407(e)(5) of Regulation S-K is set forth under the heading Compensation Committee Report in our Proxy Statement for our 2009 annual meeting of shareholders,
and is being furnished in this Annual Report on Form 10-K and is not incorporated herein by reference.



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



EQUITY COMPENSATION PLAN INFORMATION



|                                                           |  |                                                                                            |     |  |                                                                             |       |                                                                                                                                           |           |    
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ | --- |  | --------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|Plan Category                                              |  | Number of securitiesto be issued uponexercise ofoutstanding options,warrants and rights(a) |     |  | Weighted-averageexercise price ofoutstanding options,warrants and rights(b) |       | Number of securitiesremaining available for futureissuance under equitycompensation plans(excluding
securitiesreflected in column (a))(c) |          
|Equity compensation plans approved by security holders     |  | 562,050                                                                                    | (1) |  | $                                                                           | 17.18 |                                                                                                                                           | 2,178,750 | (1)
|Equity compensation plans not approved by security holders |  | -                                                                                          |     |  |                                                                             | -     |                                                                                                                                           | -         |    
|                                                           |  |                                                                                            |     |  |                                                                             |       |                                                                                                                                           |           |    
|Total                                                      |  | 562,050                                                                                    | (1) |  | $                                                                           | 17.18 |                                                                                                                                           | 2,178,750 | (1)
|                                                           |  |                                                                                            |     |  |                                                                             |       |                                                                                                                                           |           |    





(1) Under our 1999 Stock Option Plan, options to purchase 237,850 shares of our common stock were outstanding as of
December 26, 2008, our fiscal year end, and no further option grants can be made under that plan. Under our 2002 Stock Option Plan, options to purchase 312,200 shares of our common stock were outstanding as of December 26, 2008, and no
further option grants can be made under that plan. As of December 26, 2008, options to purchase 12,000 shares of our common stock were outstanding under our 2006 Long-Term Incentive Plan (the 2006 Plan). In addition, at
December 26, 2008, 200,875 restricted shares of common stock had been issued and were outstanding under the 2006 Plan. As of December 26, 2008, we have available 2,178,750 shares of our common stock for future issuance under the 2006 Plan.



The Board has reserved a total of 2.5 million shares of common stock for
issuance under the 2006 Plan. The 2.5 million shares authorization is subject to adjustment for a stock split, reverse stock split, stock dividend, combination or reclassification of the shares, or any other similar transaction (but not the
issuance or conversion of convertible securities). If an award, other than a Substitute Award (defined below), is forfeited or otherwise terminates without the issuance or delivery of some or all of the shares underlying the award to the grantee, or
becomes unexercisable without having been exercised in full, the remaining shares that were subject to the award will become available for future awards under the 2006 Plan (unless the 2006 Plan has terminated). The grant of a stock appreciation
right will not reduce the number of shares that may be subject to awards, but the number of shares issued upon the exercise of a stock appreciation right will so reduce the available number of shares.



Substitute Awards will not reduce the number of shares available for issuance
under the 2006 Plan. Substitute Awards are awards granted in assumption of or in substitution for outstanding awards previously granted by a company acquired by or merged into the Company or any of its subsidiaries or with which the
Company or any of its subsidiaries.



The other information
required by this Item, with respect to security ownership of certain of our beneficial owners and management, is incorporated herein by reference to the discussion under the heading Security Ownership of Certain Beneficial Owners and
Management in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our 2008 fiscal year.



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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE



The information required by this Item is incorporated herein
by reference to the discussion under the headings Certain Relationships and Related Transactions, Review, Approval or Ratification of Transactions with Related Persons and Director Independence in our Proxy
Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than 120 days after the end of our 2008 fiscal year.



ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information required by this Item is incorporated herein by reference to the discussion under the headings Fees
Billed by Independent Registered Public Accounting Firm and Pre-Approval of Audit and Non-Audit Services in our Proxy Statement for our 2009 annual meeting of shareholders which is expected to be filed with the SEC no later than
120 days after the end of our 2008 fiscal year.



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Part IV.



ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.



| |  |  | The following documents are filed as a part of this annual report on Form 10-K:
| |  |  | -------------------------------------------------------------------------------



|(1) |  | List of Financial Statements Filed as Part of this Annual Report on Form 10-K:
|--- |  | ------------------------------------------------------------------------------



| |  | A list of our consolidated financial statements, notes to consolidated financial statements, and accompanying report of independent registered public accounting firm appears in the
Index to Consolidated Financial Statements and Financial Statement Schedules on page F-1, which is filed as part of this Annual Report on Form 10-K.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) |  | Financial Statement Schedules:
|--- |  | ------------------------------



| |  | Schedule II  Valuation and Qualifying Accounts, for each of the fiscal years ended December 26, 2008, December 28, 2007 and December 29, 2006, which
appears on page S-1, is filed as part of this Annual Report on Form 10-K.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | All other schedules are omitted because they are not applicable, the amounts are not significant, or the required information is shown in our consolidated financial statements or
the notes thereto.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Exhibits:
|--- |  | ---------



| |  | The following exhibits are filed herewith or are incorporated herein by reference to exhibits previously filed with the SEC:
| |  | ----------------------------------------------------------------------------------------------------------------------------



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|              | 
|3.1           |  | Second Amended and Restated Charter of Pacer International, Inc. (Incorporated by reference to Exhibit 3.1 to the Companys Quarterly Report on Form 10-Q for the Quarter ended
June 28, 2002). (Commission File No. 0-49828).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|              | 
|3.2           |  | Second Amended and Restated Bylaws of Pacer International, Inc. (Incorporated by reference to Exhibit 3.2 to the Companys Quarterly Report on Form 10-Q for the Quarter Ended
June 28, 2002). (Commission File No. 0-49828).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|              | 
|4.1           |  | Credit Agreement, dated April 5, 2007, among Pacer International, Inc., the lenders from time to time party thereto, the issuers of letters of credit from time to time party thereto,
Bank of Montreal, as Syndication Agent, BMO Capital Markets Corp., as Joint Lead Arranger, Union Bank of California, N.A., LaSalle Bank National Association and Deutsche Bank Trust Company Americas, as Co-Documentation Agents, Banc of America
Securities LLC, as Joint Lead Arranger and Sole Book Manager, and Bank of America, N.A., as Swing Line Lender and Administrative Agent. (Incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K dated April 9,
2007). (Commission File No. 0-49828).
|              | 
|4.2           |  | Guaranty dated April 5, 2007 of the Guarantors named on the signature pages thereof in favor of the Administrative Agent, the lenders from time to time party thereto, the issuers of
letters of credit from time to time party thereto and certain other persons. (Incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K dated April 9, 2007). (Commission File No. 0-49828).                                                                                                                                                                                                                                                                                                               



65



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                            
|              | 
|4.3           |  | Pledge Agreement, dated as of April 5, 2007, between each Pledgor named on the signature pages thereof and Bank of America, N.A., as Administrative Agent. (Incorporated by reference to
Exhibit 10.3 to the Companys Current Report on Form 8-K dated April 9, 2007). (Commission File No. 0-49828).                                                                                         
|              | 
|10.1          |  | Non-Competition Agreement, dated as of May 28, 1999, among Neptune Orient Lines Limited, APL Limited, Pacer International, Inc. and Coyote Acquisition LLC. (Incorporated by reference to
Exhibit No. 4.5 to the Companys Registration Statement on Form S-4 dated August 12, 1999). (Registration File No. 333-85041).                                                                       
|              | 
|10.2          |  | Administrative Services Agreement, dated as of May 29, 2000, between APL Limited and Pacer International, Inc. (Incorporated by reference to Exhibit No. 10.12 to the Companys
Registration Statement on Form S-1 dated January 12, 2001). (Registration File No. 333-53700).                                                                                                                 
|              | 
|10.3          |  | IT Supplemental Agreement, dated as of May 11, 1999, between APL Limited, APL Land Transport Services, Inc. and Coyote Acquisition LLC. (Incorporated by reference to Exhibit No. 10.10 to
the Companys Registration Statement on Form S-4 dated November 5, 1999). (Registration File No. 333-85041).                                                                                        
|              | 
|10.4          |  | Stacktrain Services Agreement, dated as of May 28, 1999, among American President Lines, Ltd., APL Co. Pte Ltd., APL Limited and Pacer International, Inc. (Incorporated by reference to
Exhibit No. 4.8 to the Companys Registration Statement on Form S-4 dated August 12, 1999). (Registration File No. 333-85041).                                                                        
|              | 
|10.5          |  | Equipment Supply Agreement, dated as of May 28, 1999, among American President Lines, Ltd., APL Co. Pte Ltd., APL Limited and Pacer International, Inc. (Incorporated by reference to
Exhibit No. 4.10 to the Companys Registration Statement on Form S-4 dated August 12, 1999). (Registration File No. 333-85041).                                                                          
|              | 
|10.6          |  | Primary Obligation and Guaranty Agreement, dated as of March 15, 1999, by Neptune Orient Lines Limited in favor of Coyote Acquisition LLC and APL Land Transport Services, Inc.
(Incorporated by reference to Exhibit No. 4.11 to the Companys Registration Statement on Form S-4 dated August 12, 1999). (Registration File No. 333-85041).                                                  
|              | 
|10.7          |  | Amended and Restated Intermodal Transportation Agreement No. 11111, dated as of May 13, 2002, between CSX Intermodal, Inc., Pacer International, Inc. d/b/a Pacer Stacktrain, APL Limited
and APL Co. Pte Ltd. (Incorporated by reference to Exhibit No. 10.22 to the Companys Registration Statement on Form S-1 dated June 11, 2002). (Registration File No. 333-53700).                    
|              | 
|10.8          |  | Domestic Incentive Agreement, dated as of May 4, 1999, between CSX Intermodal, Inc. and Pacer International, Inc. (Incorporated by reference to Exhibit No. 10.20 to the Companys
Registration Statement on Form S-4 dated October 7, 1999). (Registration File No. 333-85041).                                                                                                               
|              | 
|10.9          |  | Amended and Restated Rail Transportation Agreement, dated as of May 15, 2002, between Union Pacific Railroad Company, Pacer International, Inc. d/b/a Pacer Stacktrain, Inc., American
President Lines, Ltd., and APL Co. Pte Ltd. (Incorporated by reference to Exhibit No. 10.22 to the Companys Registration Statement on Form S-1 dated June 11, 2002). (Registration File No. 333-53700).



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|              |  |                                                                                                                                                                                                                                                                                                        
|------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                    
|              | 
|10.10         |  | Rail Car Lease Agreement, dated September 1, 2000, among GATX Third Aircraft Corporation and the Company. (Incorporated by reference to Exhibit 10 to the Companys Quarterly Report
on Form 10-Q for the Quarter ended September 22, 2000). (Commission File No. 333-85041).                          
|              | 
|10.11         |  | Pacer International, Inc. 1999 Stock Option Plan, including forms of stock option agreements (Incorporated by reference to Exhibit 10.29 to the Companys Registration Statement on Form
S-1 dated January 12, 2001). Registration File No. 333-53700).+                                               
|              | 
|10.12         |  | Amendment No. 1 to the Pacer International, Inc. 1999 Stock Option Plan (Incorporated by reference to Exhibit 10.38 to the Companys Registration Statement on Form S-1 dated May 15,
2002). (Registration File No. 333-53700).+                                                                       
|              | 
|10.13         |  | Amendment No. 2 to the Pacer International, Inc. 1999 Stock Option Plan (Incorporated by reference to Exhibit 10.50 to the Companys Registration Statement on Form S-1 dated May 15,
2002).(Registration File No. 333-53700).+                                                                        
|              | 
|10.14         |  | Amendment to the Pacer International, Inc. 1999 Stock Option Plan and the Stock Option Agreements Evidencing Outstanding Options Granted Thereunder (Incorporated by reference to Exhibit 10.1
to the Companys Current Report on Form 8-K dated August 8, 2006). (Commission File No. 0-49828).+      
|              | 
|10.15         |  | Pacer International, Inc. 2002 Stock Option Plan (Incorporated by reference to Exhibit 10.51 to the Companys Registration Statement on Form S-1 dated May 15, 2002).(Registration File No. 333-53700).+                                                                                               
|              | 
|10.16         |  | Amendment to the Stock Option Agreements Evidencing Outstanding Options Granted Under the Pacer International, Inc. 2002 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K dated August 8, 2006). (Commission File No. 0-49828).+               
|              | 
|10.17         |  | Pacer International, Inc. 2002 Stock Option Plan Form of Stock Option Agreement  Employee (Incorporated by reference to Exhibit 10.17 to the Companys Annual Report on Form 10-K
for the fiscal year ended December 28, 2007). (Commission File No. 0-49828).+                                       
|              | 
|10.18         |  | Pacer International, Inc. 2002 Stock Option Plan Form of Stock Option Agreement  Non-Employee Director (Incorporated by reference to Exhibit 10.18 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2007). (Commission File No. 0-49828).+                          
|              | 
|10.19         |  | Equipment Use Agreement, dated May 28, 1999, between PAMC LLC and Pacer International, Inc. (Incorporated by reference to Exhibit No. 10.35 to the Companys Registration Statement
on Form S-1 dated January 12, 2001). (Registration File No. 333-53700).                                            
|              | 
|10.20         |  | Amendment No. 1 to Domestic Incentive Agreement, dated January 1, 2001, between CSX Intermodal, Inc. and Pacer International, Inc. (Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q for the Quarter ended April 6, 2001). (Registration File No. 333-53700).  
|              | 
|10.21         |  | Rail Car Lease Agreement, dated September 25, 2001 by and between General Electric Railcar Services Corporation and the Company. (Incorporated by reference to Exhibit 10.39 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2001). (Commission File No. 333-85041).



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|              |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                                                                                                              
|              | 
|10.22         |  | Rail Car Lease Agreement, dated January 2001, between LaSalle National Leasing Corporation and the Company. (Incorporated by reference to Exhibit 10.40 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2001). (Commission File No. 333-85041).                                                                                                                                                                               
|              | 
|10.23         |  | Rail Car Lease Agreement, dated February 14, 2001, between Greenbrier Leasing Corporation and the Company. (Incorporated by reference to Exhibit 10.41 to the Companys Annual Report
on Form 10-K for the fiscal year ended December 28, 2001). (Commission File No. 333-85041).                                                                                                                                                                                
|              | 
|10.24         |  | License Agreement, dated as of September 30, 2007, by and between SAP America, Inc. and Pacer International, as amended by Amendment No. 1 thereto effective as of October 1, 2007.
The Securities and Exchange Commission has granted confidential treatment for a portion of this exhibit. (Incorporated by reference to Exhibit 10.24 to the Companys Annual Report on Form 10-K for the fiscal year ended December 28,
2007). (Commission File No. 0-49828).
|              | 
|10.25         |  | Amended and Restated Employment Agreement, dated March 1, 2003, between Pacer Transportation Solutions, Inc. and Jeffrey R. Brashares. (Incorporated by reference to Exhibit 10.37 to the
Companys Annual Report on Form 10-K for the fiscal year ended December 27, 2002). (Commission File No. 333-85041).+                                                                                                                                                   
|              | 
|10.26         |  | Pacer International, Inc. 2006 Long-Term Incentive Plan (Incorporated by reference to Appendix A of the Companys definitive proxy statement on Schedule 14A filed with the Securities and
Exchange Commission on March 9, 2007). (Commission File No. 0-49828).+                                                                                                                                                                                                
|              | 
|10.27         |  | Form of Restricted Stock Award Agreement pursuant to the Pacer International, Inc. 2006 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q for the fiscal quarter ended April 6, 2007). (Commission File No. 0-49828).+                                                                                                                                                                          
|              | 
|10.28         |  | Pacer International, Inc. 2008 Performance Bonus Plan (Incorporated by reference to Exhibit 10.28 to the Companys Annual Report on Form 10-K for the year ended December 28, 2007).
(Commission File No. 0-49828).+                                                                                                                                                                                                                                             
|              | 
|10.29         |  | Employment Agreement, dated December 1, 1998, between Pacer International, Inc. and Lawrence C. Yarberry, (Incorporated by reference to Exhibit 10.36 to the Companys Annual Report
on Form 10-K for the year ended December 29, 2000). (Commission File No. 333-85041).+                                                                                                                                                                                       
|              | 
|10.30         |  | Employment Agreement, dated August 22, 2001, between Pacer International, Inc. and Michael Killea. (Incorporated by reference to Exhibit 10.36 to the Companys Annual Report on Form
10-K for the year ended December 28, 2001). (Commission File No. 333-85041).+                                                                                                                                                                                              
|              | 
|10.31         |  | Master Lease Agreement, dated April 16, 2003, between LaSalle National Leasing Corporation and Pacer International, Inc. for 53 foot steel containers. (Incorporated by reference to
Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended June 27, 2003). (Commission File No. 0-49828).                                                                                                                                     
|              | 
|10.32         |  | Master Equipment Lease Agreement, dated December 1, 2003, between Fleet Capital Corporation and Pacer International, Inc. for 53 foot steel containers. (Incorporated by reference to
Exhibit 10.39 to the Companys Annual Report on Form 10-K/A for the year ended December 26, 2003). (Commission File No. 0-49828).                                                                                                                                          



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|              |  |                                                                                                                                                                                                                                                                                                                                                                      
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                                                                                                                                                                                                                                  
|              | 
|10.33         |  | Employment Agreement, dated October 1, 2003, between Pacer International, Inc. and Michael Uremovich. (Incorporated by reference to Exhibit 10.41 to the Companys Annual Report on
Form 10-K/A for the year ended December 26, 2003). (Commission File No. 0-49828).+                                                                                               
|              | 
|10.34         |  | Amendment dated June 30, 2004 to Master Lease Agreement, dated April 16, 2003, between LaSalle National Leasing Corporation and Pacer International, Inc. for 53 foot steel
containers. (Incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q for the fiscal quarter ended September 17, 2004). (Commission File No. 0-49828).   
|              | 
|10.35         |  | Employment Agreement, dated May 1, 2007, between Pacer International, Inc. and James Ward (Incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
dated April 6, 2007). (Commission File No. 0-49828).+                                                                                                                            
|              | 
|10.36         |  | Amendment dated February 19, 2007 to Employment Agreement, dated August 22, 2001 between Pacer International, Inc. and Michael F. Killea (Incorporated by reference to Exhibit 10.36
to the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2007). (Commission File No. 0-49828).+                                                       
|              | 
|10.37         |  | Form of Stock Option Award Agreement pursuant to the Pacer International, Inc. 2006 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.39 to the Companys Annual Report on
Form 10-K for the fiscal year ended December 28, 2007). (Commission File No. 0-49828).+                                                                                   
|              | 
|10.38         |  | Form of Supplemental Severance Benefit Letter dated February 14, 2008 from the Company to Michael E. Uremovich, Lawrence E. Yarberry, Michael F. Killea, Jeffrey R. Brashares and Brian C.
Kane (Incorporated by reference to Exhibit 10.41 to the Companys Annual Report on Form 10-K for the fiscal year ended December 28, 2007). (Commission File No. 0-49828).+
|              | 
|10.39         |  | Form of Amendment to Employment Agreement, dated as of December 31, 2008, signed with executive officers and other key personnel subject to Employment Agreements.+                                                                                                                                                                                                  
|              | 
|10.40         |  | Employment Agreement, dated March 1, 2008, between Pacer International, Inc. and Marc L. Jensen.+                                                                                                                                                                                                                                                                    
|              | 
|10.41         |  | Employment Agreement, dated July 15, 2008, between Pacer International, Inc. and Karen S. Rice.+                                                                                                                                                                                                                                                                     
|              | 
|10.42         |  | Amended and Restated Employment Agreement dated as of February 16, 2009 between Pacer International, Inc. and Brian C. Kane.+                                                                                                                                                                                                                                        
|              | 
|10.43         |  | Amendment dated February 16, 2009 to Employment Agreement dated as of October 1, 2003 as amended by amendments dated November 1, 2006 and December 31, 2008 between Pacer
International, Inc. and Michael E. Uremovich.+                                                                                                                                             
|              | 
|10.44         |  | Amendment dated February 16, 2009 to Employment Agreement dated as of August 22, 2001 as amended by amendments dated February 19, 2007 and December 31, 2008 between Pacer
International, Inc. and Michael F. Killea.+                                                                                                                                               
|              | 
|14            |  | Code of Ethics                                                                                                                                                                                                                                                                                                                                                       
|              | 
|21            |  | Subsidiaries of the Pacer International, Inc.                                                                                                                                                                                                                                                                                                                        



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|              |  |                                                                                                                                                                  
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Exhibit Description                                                                                                                                              
|              | 
|23            |  | Consent of Independent Registered Public Accounting Firm                                                                                                         
|              | 
|31.1          |  | Certification of Michael E. Uremovich pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                           
|              | 
|31.2          |  | Certification of Brian C. Kane pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                  
|              | 
|32            |  | Certification of Michael E. Uremovich and Brian C. Kane pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*





* Furnished herewith, but not deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended,
or otherwise subject to liability under that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate it by
reference.



+ Management contract or
compensatory plan or arrangement.



70



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SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                        |  |  |  |                           |  |                      |  |                                                                                              
|----------------------- |  |  |  | ------------------------- |  | -------------------- |  | ---------------------------------------------------------------------------------------------
|                        |  |  |  | PACER INTERNATIONAL, INC.
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By:                       |  | /s/    Brian C. Kane
|                        |  |  |  |                           |  |                      |  | Brian C. KaneExecutive Vice President andChief Financial Officer(Principal Financial Officer)



Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.



|                        |  |  |  |     |  |                             |  |                                                                                                  
|----------------------- |  |  |  | --- |  | --------------------------- |  | -------------------------------------------------------------------------------------------------
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Michael E. Uremovich
|                        |  |  |  |     |  |                             |  | Michael E. Uremovich Chairman, Chief Executive Officer and Director (Principal Executive Officer)
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Marc L. Jensen      
|                        |  |  |  |     |  |                             |  | Marc L. Jensen Vice President and Controller (Principal Accounting Officer)                      
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Donald C. Orris     
|                        |  |  |  |     |  |                             |  | Donald C. Orris Director                                                                         
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Robert F. Starzel   
|                        |  |  |  |     |  |                             |  | Robert F. Starzel Director                                                                       
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Andrew C. Clarke    
|                        |  |  |  |     |  |                             |  | Andrew C. Clarke Director                                                                        
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    Robert S. Rennard   
|                        |  |  |  |     |  |                             |  | Robert S. Rennard Director                                                                       
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    P. Michael Giftos   
|                        |  |  |  |     |  |                             |  | P. Michael Giftos Director                                                                       
|                        |  |  | 
|Date: February 17, 2009 |  |  |  | By: |  | /s/    J. Douglass Coates  
|                        |  |  |  |     |  |                             |  | J. Douglass CoatesDirector                                                                       



71



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES



|                                                                                                                                       |  |     
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                                       |  | Page
|Report of Independent Registered Public Accounting Firm                                                                                |  | F-2 
|                                                                                                                                       | 
|Consolidated Balance Sheets as of December 26, 2008 and December 28, 2007                                                              |  | F-3 
|                                                                                                                                       | 
|Consolidated Statements of Operations for the fiscal years ended December 26, 2008, 
December 28, 2007 and December 29, 2006           |  | F-4 
|                                                                                                                                       | 
|Consolidated Statements of Stockholders Equity for the fiscal years ended December 26, 2008, 
December 28, 2007 and December 29, 2006 |  | F-5 
|                                                                                                                                       | 
|Consolidated Statements of Cash Flows for the fiscal years ended December 26, 2008, December 
28, 2007 and December 29, 2006           |  | F-6 
|                                                                                                                                       | 
|Notes to Consolidated Financial Statements                                                                                             |  | F-7 
|                                                                                                                                       | 
|Schedule II  Valuation and Qualifying Accounts                                                                                        |  | S-1 



All other schedules
are omitted because they are not applicable or because the required information is shown in the consolidated financial statements or the notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable.



F-1



---

##### Table of Contents

Report of Independent Registered Public Accounting Firm



To Board of Directors and Stockholders of Pacer International, Inc.:



In our opinion, the consolidated
financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Pacer International, Inc. and its subsidiaries at December 26, 2008 and December 28, 2007, and the results of their
operations and their cash flows for each of the three years in the period ended December 26, 2008 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement
schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company did not maintain, in
all material respects, effective internal control over financial reporting as of December 26, 2008, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) because a material weakness in internal control over the preparation and review of certain balance sheet reconciliations existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to
above is described in Managements Report on Internal Control over Financial Reporting appearing under Item 9A. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the
December 26, 2008 consolidated financial statements, and our opinion regarding the effectiveness of the Companys internal control over financial reporting does not affect our opinion on those consolidated financial statements. The
Companys management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting included in managements report referred to above. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial
reporting based on our integrated 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 audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.



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



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



/s/ PricewaterhouseCoopers LLP

San Francisco, CA

February 16, 2009



F-2



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



|                                                                                                                         |  |                  |       |   |                  |   |       |  
|------------------------------------------------------------------------------------------------------------------------ |  | ---------------- | ----- | - | ---------------- | - | ----- | -
|                                                                                                                         |  | December 26,2008 |       |   | December 28,2007 |  
|                                                                                                                         |  | (in millions)    |      
|ASSETS                                                                                                                   |  |                  |       |   |                  |   |       |  
|Current assets                                                                                                           |  |                  |       |   |                  |   |       |  
|Cash and cash equivalents                                                                                                |  | $                | 5.0   |   |                  | $ | 6.7   |  
|Accounts receivable, net of allowances of $4.9 million and $4.6 million, respectively                                    |  |                  | 183.6 |   |                  |   | 205.3 |  
|Prepaid expenses and other                                                                                               |  |                  | 28.0  |   |                  |   | 15.1  |  
|Deferred income taxes                                                                                                    |  |                  | 3.1   |   |                  |   | 4.3   |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total current assets                                                                                                     |  |                  | 219.7 |   |                  |   | 231.4 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|                                                                                                                         |  |                 
|Property and equipment                                                                                                   |  |                  |       |   |                  |   |       |  
|Property and equipment at cost                                                                                           |  |                  | 127.2 |   |                  |   | 110.6 |  
|Accumulated depreciation                                                                                                 |  |                  | (65.6 | ) |                  |   | (69.2 | )
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Property and equipment, net                                                                                              |  |                  | 61.6  |   |                  |   | 41.4  |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|                                                                                                                         |  |                 
|Other assets                                                                                                             |  |                  |       |   |                  |   |       |  
|Goodwill                                                                                                                 |  |                  | 200.4 |   |                  |   | 288.3 |  
|Other assets                                                                                                             |  |                  | 12.9  |   |                  |   | 13.0  |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total other assets                                                                                                       |  |                  | 213.3 |   |                  |   | 301.3 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total assets                                                                                                             |  | $                | 494.6 |   |                  | $ | 574.1 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |  |                  |       |   |                  |   |       |  
|                                                                                                                         |  |                 
|Current liabilities                                                                                                      |  |                  |       |   |                  |   |       |  
|Current maturities of long-term debt and capital leases                                                                  |  | $                | 0.3   |   |                  | $ | -     |  
|Book overdraft                                                                                                           |  |                  | 14.7  |   |                  |   | 12.8  |  
|Accounts payable and other accrued liabilities                                                                           |  |                  | 158.3 |   |                  |   | 184.1 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total current liabilities                                                                                                |  |                  | 173.3 |   |                  |   | 196.9 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|                                                                                                                         |  |                 
|Long-term liabilities                                                                                                    |  |                  |       |   |                  |   |       |  
|Long-term debt and capital leases                                                                                        |  |                  | 44.3  |   |                  |   | 64.0  |  
|Deferred income taxes                                                                                                    |  |                  | 5.4   |   |                  |   | 8.4   |  
|Other                                                                                                                    |  |                  | 0.9   |   |                  |   | 2.1   |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total long-term liabilities                                                                                              |  |                  | 50.6  |   |                  |   | 74.5  |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total liabilities                                                                                                        |  |                  | 223.9 |   |                  |   | 271.4 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Commitments and contingencies (Notes 7, 9 & 11)                                                                          |  |                  |       |   |                  |   |       |  
|Stockholders equity                                                                                                     |  |                  |       |   |                  |   |       |  
|Preferred stock, par value $0.01 per share; 50,000,000 shares authorized; none issued and outstanding                    |  |                  | -     |   |                  |   | -     |  
|Common stock, par value $0.01 per share; 150,000,000 shares authorized; 34,940,620 and 34,626,794 issued and outstanding |  |                  | 0.4   |   |                  |   | 0.4   |  
|Additional paid-in capital                                                                                               |  |                  | 300.1 |   |                  |   | 294.5 |  
|Retained earnings (accumulated deficit)                                                                                  |  |                  | (29.9 | ) |                  |   | 7.9   |  
|Accumulated other comprehensive income/(loss)                                                                            |  |                  | 0.1   |   |                  |   | (0.1  | )
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total stockholders equity                                                                                               |  |                  | 270.7 |   |                  |   | 302.7 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  
|Total liabilities and stockholders equity                                                                               |  | $                | 494.6 |   |                  | $ | 574.1 |  
|                                                                                                                         |  |                  |       |   |                  |   |       |  



The accompanying notes
are an integral part of the consolidated financial statements.



F-3



---

##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|-------------------------------------------------- |  | ---------------------------------------------- | ---------- | - | ------------- | - | ---------- | ------------- |  | - | ---------- | -
|                                                   |  | Fiscal Year Ended                              |           
|                                                   |  | Dec. 26, 2008                                  |            |   | Dec. 28, 2007 |   |            | Dec. 29, 2006 | 
|                                                   |  | (in millions, except share and per share data) |           
|Revenues                                           |  | $                                              | 2,087.7    |   |               | $ | 1,969.4    |               |  | $ | 1,887.8    |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Operating expenses:                                |  |                                                |            |   |               |   |            |               |  |   |            |  
|Cost of purchased transportation and services      |  |                                                | 1,659.7    |   |               |   | 1,537.7    |               |  |   | 1,446.4    |  
|Direct operating expenses (excluding depreciation) |  |                                                | 132.2      |   |               |   | 130.5      |               |  |   | 123.1      |  
|Selling, general and administrative expenses       |  |                                                | 199.9      |   |               |   | 200.5      |               |  |   | 193.0      |  
|Goodwill impairment charge (Note 1)                |  |                                                | 87.9       |   |               |   | -          |               |  |   | -          |  
|Depreciation and amortization                      |  |                                                | 6.2        |   |               |   | 6.2        |               |  |   | 7.0        |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|Total operating expenses                           |  |                                                | 2,085.9    |   |               |   | 1,874.9    |               |  |   | 1,769.5    |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Income from operations                             |  |                                                | 1.8        |   |               |   | 94.5       |               |  |   | 118.3      |  
|                                                   |  |                                                |           
|Interest expense                                   |  |                                                | (2.5       | ) |               |   | (5.5       | )             |  |   | (7.1       | )
|Interest income                                    |  |                                                | 0.1        |   |               |   | 1.8        |               |  |   | 0.5        |  
|Loss on extinguishment of debt (Note 2)            |  |                                                | -          |   |               |   | (1.8       | )             |  |   | -          |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Income/(loss) before income taxes                  |  |                                                | (0.6       | ) |               |   | 89.0       |               |  |   | 111.7      |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Income taxes                                       |  |                                                | 16.0       |   |               |   | 34.7       |               |  |   | 43.4       |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Net income/(loss)                                  |  | $                                              | (16.6      | ) |               | $ | 54.3       |               |  | $ | 68.3       |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Earnings/(loss) per share (Note 13):               |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Basic:                                             |  |                                                |            |   |               |   |            |               |  |   |            |  
|Earnings/(loss) per share                          |  | $                                              | (0.48      | ) |               | $ | 1.53       |               |  | $ | 1.83       |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|Weighted average shares outstanding                |  |                                                | 34,616,598 |   |               |   | 35,587,755 |               |  |   | 37,354,785 |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|                                                   |  |                                                |           
|Diluted:                                           |  |                                                |            |   |               |   |            |               |  |   |            |  
|Earnings/(loss) per share                          |  | $                                              | (0.48      | ) |               | $ | 1.51       |               |  | $ | 1.80       |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  
|Weighted average shares outstanding                |  |                                                | 34,616,598 |   |               |   | 35,911,246 |               |  |   | 38,020,862 |  
|                                                   |  |                                                |            |   |               |   |            |               |  |   |            |  



The accompanying notes
are an integral part of the consolidated financial statements.



F-4



---

##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY



|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|------------------------------------------------ |  | ----------------------------------- |  | ------------ | - | ------------------------- | ---------- | --------------------- | ------ | ------------------------------------ | --- |  | ------------------------------------------- | ----- |  | ------------------------ | - |  | - | ----- | - |  | - | ---- | - |  | - | ----- | -
|                                                 |  | Preferred Stock                     |  | Common Stock |   | AdditionalPaid-in-Capital |            | UnearnedCompen-sation |        | RetainedEarnings(AccumulatedDeficit) |     |  | AccumulatedOtherCompre-hensiveIncome (Loss) |       |  | TotalStockholdersEquity |  
|                                                 |  | No. ofShares                        |  | Amount       |   | No. ofShares              |            |                       | Amount |                                      |     |  |                                             |      
|                                                 |  | (in millions, except share amounts) | 
|Balance December 30, 2005                        |  | -                                   |  | $            | - |                           | 37,463,748 |                       |        | $                                    | 0.4 |  | $                                           | 277.8 |  | $                        | - |  | $ | 28.7  |   |  | $ | (0.2 | ) |  | $ | 306.7 |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Net income                                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | 68.3  |   |  |   | -    |   |  |   | 68.3  |  
|Other comprehensive income                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | -     |   |  |   | 0.1  |   |  |   | 0.1   |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Total comprehensive income                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | 68.3  |   |  |   | 0.1  |   |  |   | 68.4  |  
|Common stock dividends; $0.60 per share          |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (22.5 | ) |  |   | -    |   |  |   | (22.5 | )
|Stock based compensation                         |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 1.5   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 1.5   |  
|Tax benefit from exercise of options             |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 5.4   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 5.4   |  
|Repurchase and retirement of Pacer common stock  |  | -                                   |  |              | - |                           | (965,818   | )                     |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (26.8 | ) |  |   | -    |   |  |   | (26.8 | )
|Issuance of common stock for exercise of options |  | -                                   |  |              | - |                           | 647,117    |                       |        |                                      | -   |  |                                             | 4.4   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 4.4   |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Balance December 29, 2006                        |  | -                                   |  | $            | - |                           | 37,145,047 |                       |        | $                                    | 0.4 |  | $                                           | 289.1 |  | $                        | - |  | $ | 47.7  |   |  | $ | (0.1 | ) |  | $ | 337.1 |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Net income                                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | 54.3  |   |  |   | -    |   |  |   | 54.3  |  
|Other comprehensive income                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | -     |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Total comprehensive income                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | 54.3  |   |  |   | -    |   |  |   | 54.3  |  
|Common stock dividends; $0.60 per share          |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (21.2 | ) |  |   | -    |   |  |   | (21.2 | )
|Stock based compensation                         |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 2.9   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 2.9   |  
|Tax benefit from stock based compensation        |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 0.7   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 0.7   |  
|Cumulative effect of adoption of FIN 48 (Note 1) |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (0.4  | ) |  |   | -    |   |  |   | (0.4  | )
|Issuance of restricted stock                     |  | -                                   |  |              | - |                           | 251,250    |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | -     |  
|Repurchase and retirement of Pacer common stock  |  | -                                   |  |              | - |                           | (2,938,635 | )                     |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (72.5 | ) |  |   | -    |   |  |   | (72.5 | )
|Issuance of common stock for exercise of options |  | -                                   |  |              | - |                           | 169,132    |                       |        |                                      | -   |  |                                             | 1.8   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 1.8   |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Balance December 28, 2007                        |  | -                                   |  | $            | - |                           | 34,626,794 |                       |        | $                                    | 0.4 |  | $                                           | 294.5 |  | $                        | - |  | $ | 7.9   |   |  | $ | (0.1 | ) |  | $ | 302.7 |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Net loss                                         |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (16.6 | ) |  |   | -    |   |  |   | (16.6 | )
|Other comprehensive income                       |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | -     |   |  |   | 0.2  |   |  |   | 0.2   |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Total comprehensive income/(loss)                |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (16.6 | ) |  |   | 0.2  |   |  |   | (16.4 | )
|Common stock dividends; $0.60 per share          |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (20.9 | ) |  |   | -    |   |  |   | (20.9 | )
|Stock based compensation                         |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 1.9   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 1.9   |  
|Tax benefit from stock based compensation        |  | -                                   |  |              | - |                           | -          |                       |        |                                      | -   |  |                                             | 0.7   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 0.7   |  
|Issuance of restricted stock                     |  | -                                   |  |              | - |                           | 58,000     |                       |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | -     |  
|Repurchase and retirement of Pacer common stock  |  | -                                   |  |              | - |                           | (19,039    | )                     |        |                                      | -   |  |                                             | -     |  |                          | - |  |   | (0.3  | ) |  |   | -    |   |  |   | (0.3  | )
|Issuance of common stock for exercise of options |  | -                                   |  |              | - |                           | 274,865    |                       |        |                                      | -   |  |                                             | 3.0   |  |                          | - |  |   | -     |   |  |   | -    |   |  |   | 3.0   |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  
|Balance December 26, 2008                        |  | -                                   |  | $            | - |                           | 34,940,620 |                       |        | $                                    | 0.4 |  | $                                           | 300.1 |  | $                        | - |  | $ | (29.9 | ) |  | $ | 0.1  |   |  | $ | 270.7 |  
|                                                 |  |                                     |  |              |   |                           |            |                       |        |                                      |     |  |                                             |       |  |                          |   |  |   |       |   |  |   |      |   |  |   |       |  



The accompanying notes
are an integral part of the consolidated financial statements.



F-5



---

##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|---------------------------------------------------------------------------------------------- |  | ----------------- | ----- | - | ------------- | - | ----- | ------------- |  | - | ----- | -
|                                                                                               |  | Fiscal Year Ended |      
|                                                                                               |  | Dec. 26, 2008     |       |   | Dec. 28, 2007 |   |       | Dec. 29, 2006 | 
|                                                                                               |  | (in millions)     |      
|Cash flows from operating activities                                                           |  |                   |       |   |               |   |       |               |  |   |       |  
|Net income/(loss)                                                                              |  | $                 | (16.6 | ) |               | $ | 54.3  |               |  | $ | 68.3  |  
|Adjustments to reconcile net income/(loss) to net cash provided by operating activities:       |  |                   |       |   |               |   |       |               |  |   |       |  
|Depreciation and amortization                                                                  |  |                   | 6.2   |   |               |   | 6.2   |               |  |   | 7.0   |  
|Gain on sale of property and equipment                                                         |  |                   | (1.5  | ) |               |   | (0.9  | )             |  |   | (0.2  | )
|Deferred taxes                                                                                 |  |                   | (1.8  | ) |               |   | 8.0   |               |  |   | 9.2   |  
|Loss on extinguishment of debt                                                                 |  |                   | -     |   |               |   | 1.8   |               |  |   | -     |  
|Goodwill impairment charge                                                                     |  |                   | 87.9  |   |               |   | -     |               |  |   | -     |  
|Stock based compensation expense                                                               |  |                   | 1.9   |   |               |   | 2.9   |               |  |   | 1.5   |  
|Excess tax benefit from exercise of stock options                                              |  |                   | (0.2  | ) |               |   | (0.2  | )             |  |   | (3.8  | )
|Change in operating assets and liabilities                                                     |  |                   |       |   |               |   |       |               |  |   |       |  
|Accounts receivable, net                                                                       |  |                   | 21.7  |   |               |   | 5.1   |               |  |   | 8.9   |  
|Prepaid expenses and other                                                                     |  |                   | (12.9 | ) |               |   | 0.4   |               |  |   | (4.7  | )
|Accounts payable and other accrued liabilities                                                 |  |                   | (24.5 | ) |               |   | 32.7  |               |  |   | (20.4 | )
|Other                                                                                          |  |                   | (0.6  | ) |               |   | (2.3  | )             |  |   | 0.9   |  
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|Net cash provided by operating activities                                                      |  |                   | 59.6  |   |               |   | 108.0 |               |  |   | 66.7  |  
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Cash flows used in investing activities                                                        |  |                   |       |   |               |   |       |               |  |   |       |  
|Capital expenditures                                                                           |  |                   | (24.8 | ) |               |   | (14.0 | )             |  |   | (3.7  | )
|Proceeds from sales of property and equipment                                                  |  |                   | 1.8   |   |               |   | 0.9   |               |  |   | 0.2   |  
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|Net cash used in investing activities                                                          |  |                   | (23.0 | ) |               |   | (13.1 | )             |  |   | (3.5  | )
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Cash flows used in financing activities                                                        |  |                   |       |   |               |   |       |               |  |   |       |  
|Net borrowings/repayments under revolving line of credit agreement, net of debt issuance costs |  |                   | (20.0 | ) |               |   | 63.2  |               |  |   | -     |  
|Proceeds from exercise of stock options                                                        |  |                   | 3.0   |   |               |   | 1.8   |               |  |   | 4.4   |  
|Excess tax benefit from exercise of stock options                                              |  |                   | 0.2   |   |               |   | 0.2   |               |  |   | 3.8   |  
|Dividends paid to shareholders                                                                 |  |                   | (20.8 | ) |               |   | (21.6 | )             |  |   | (22.5 | )
|Repurchase and retirement of Pacer common stock                                                |  |                   | (0.3  | ) |               |   | (72.5 | )             |  |   | (26.8 | )
|Debt and capital lease obligation repayment                                                    |  |                   | (0.2  | ) |               |   | (59.0 | )             |  |   | (31.0 | )
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Net cash used in financing activities                                                          |  |                   | (38.1 | ) |               |   | (87.9 | )             |  |   | (72.1 | )
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|Effect of exchange rate changes on cash                                                        |  |                   | (0.2  | ) |               |   | (0.3  | )             |  |   | (0.2  | )
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Net (decrease)/increase in cash and cash equivalents                                           |  |                   | (1.7  | ) |               |   | 6.7   |               |  |   | (9.1  | )
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Cash and cash equivalents at beginning of year                                                 |  |                   | 6.7   |   |               |   | -     |               |  |   | 9.1   |  
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  
|                                                                                               |  |                   |      
|Cash and cash equivalents at end of year                                                       |  | $                 | 5.0   |   |               | $ | 6.7   |               |  | $ | -     |  
|                                                                                               |  |                   |       |   |               |   |       |               |  |   |       |  



The accompanying notes
are an integral part of the consolidated financial statements.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES



Pacer International, Inc. (Pacer or the Company) is a leading asset-light North American transportation and logistics services
provider offering a broad array of services to facilitate the movement of freight from origin to destination. The Company operates in two segments, the intermodal segment and the logistics segment (see Note 8 to the consolidated financial statements
for segment information). The intermodal segment provides intermodal transportation services to transportation intermediaries, international shipping companies and beneficial cargo owners. The intermodal segments Stacktrain operations
fiscal year ends on the last Friday in December and the intermodal segments local cartage and rail brokerage operations fiscal year ends on the last day in December. The logistics segment provides services to truck highway brokerage,
truck transport (including specialized haulage), warehousing and distribution, international freight forwarding, ocean shipping and supply chain management services to a wide variety of end-user customers. Its fiscal year ends on the last day in
December.



The Company has operated as an independent,
stand-alone company since its recapitalization in May 1999. From 1984 until the recapitalization, the intermodal segments Stacktrain business was conducted by various entities owned directly or indirectly by APL Limited.



As of May 28, 1999, APL Land Transport Services, Inc.
(APLLTS) was recapitalized through the purchase of shares of its common stock from APL Limited by affiliates of Apollo Management, L.P. and two other investors and its redemption of a portion of the remaining shares of common stock held
by APL Limited. After the recapitalization, APLLTS formed a transitory subsidiary that was merged with and into Pacer Logistics, Inc., making Pacer Logistics a wholly-owned subsidiary of APLLTS. In connection with these transactions, APLLTS was
renamed Pacer International, Inc. Pacer Logistics merged into the Company in May 2003.



As part of the recapitalization, the assets and liabilities of the Company remained at their historical basis for financial reporting purposes; for income tax purposes, the transaction has been treated as a taxable
transaction such that the consolidated financial statements reflect a step-up in tax basis resulting in the establishment of a deferred tax asset.



Principles of Consolidation



The consolidated financial statements include the accounts of the Company and all entities that the Company controls. All significant intercompany
transactions and balances have been eliminated in consolidation.



Use of
Estimates



The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.



Significant estimates include recognition of revenue, costs of purchased transportation and services, allowance for doubtful accounts, valuation of
deferred income taxes and goodwill. Actual results could differ from those estimates.



Cash and Cash Equivalents



Cash and cash
equivalents include highly liquid investments with an original maturity of three months or less.



Accounts Receivable



Accounts receivable are carried at original invoice amount less allowance made for doubtful accounts. Estimates are used when determining this allowance based on the Companys historical



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



collection experience, current trends, credit policy and a percentage of the accounts receivable by aging category. At December 26, 2008 and
December 28, 2007, accounts receivable included unbilled amounts of $14.7 million and $15.3 million, respectively.



Property and Equipment



Property and equipment are recorded at cost. The Company capitalizes certain costs of internally developed software. Capitalized costs include purchased
materials and services, and payroll and payroll related costs. For assets financed under capital leases, the present value of the future minimum lease payments is recorded at the date of acquisition as property and equipment, with a corresponding
amount recorded as a capital lease obligation. In June 2006, the Companys capitalization policy was updated to reflect a change in estimated useful lives based on economic benefit. Depreciation and amortization are provided on a straight-line
basis over the estimated useful lives of the assets as follows:



|                                                 |  |                                                
|------------------------------------------------ |  | -----------------------------------------------
|Classification                                   |  | Estimated Useful Life                          
|Rail cars                                        |  | 28 Years                                       
|Containers and chassis                           |  | 15 Years                                       
|Autos/trucks and revenueequipment                |  | 5 to 7 Years                                   
|Leasehold improvements                           |  | Shorter of term of lease or life of improvement
|Other (including computer hardware and software) |  | 3 to 7 Years                                   



When assets are sold,
the applicable costs and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Expenditures, including those on leased assets, which extend an assets useful life or increase its utility are
capitalized and amortized. Expenditures for maintenance and repairs are expensed as incurred.



Deferred Financing Costs



The deferred financing costs included in other assets relate to the cost incurred in the placement of the Companys debt. The balances of $0.6 million and $0.8 million at December 26, 2008 and December 28, 2007, respectively,
relate to those costs, amortized over 5 years, associated with the revolving credit facility entered into in April 2007.



Goodwill



Goodwill represents the excess of cost over the estimated fair value of the net tangible and intangible assets acquired. The Company evaluates the carrying value of goodwill and recoverability at least annually and
otherwise should events occur or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Determination of impairment requires comparison of the reporting units fair value with
the units carrying amount, including goodwill. If this comparison indicates that the fair value is less than the carrying value, then the implied fair value of the reporting units goodwill is compared with the carrying amount of the
reporting units goodwill to determine the impairment loss to be charged to operations. The fair value of each of our reporting units is determined based upon the average value using an income approach based on the present value of estimated
future cash flows and a market approach based on market price data of stocks of corporations engaged in similar businesses.



In accordance with SFAS 142, Goodwill and Other Intangible Assets (SFAS 142), we performed an annual evaluation of our intangible assets.
Based on a combination of factors, including the current economic downturn, the steep, sustained decline in our stock price and resulting market capitalization, and the operating results of our logistics reporting unit, we concluded that the
carrying value



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



of our logistics reporting unit (including goodwill) exceeded the fair value of our logistics reporting unit. As a result, we recorded a non-cash goodwill
impairment charge of $87.9 million, $73.3 million net of tax, or $2.11 per share during 2008.



While our year-end 2008 annual goodwill impairment analysis did not result in an impairment charge to our intermodal reporting unit, t he excess of fair value over carrying value for the segment declined
substantially. The excess of fair value over carrying value for our intermodal reporting unit as of December 26, 2008, the annual testing date, was approximately $65 million, as compared to $288 million as of December 28, 2007. Should the
economic downturn in 2009 continue or worsen, growth rates in the transportation industry decline, the trading price of our common stock deteriorate further or other adverse events occur, the determination of fair value in the future could result in
a goodwill impairment with respect to one or both of the Companys reporting units, which would negatively impact the operating results and net worth of the Company.



The Company has allocated goodwill to the reporting units as shown in the table below as of December 26, 2008 and December 28,
2007 (in millions):



|                             |  |                  |       |   |                   |   |       |  |   |       |  
|---------------------------- |  | ---------------- | ----- | - | ----------------- | - | ----- |  | - | ----- | -
|                             |  | LogisticsSegment |       |   | IntermodalSegment |   | Total | 
|Balance at December 29, 2006 |  | $                | 119.3 |   |                   | $ | 169.0 |  | $ | 288.3 |  
|Activity                     |  |                  | -     |   |                   |   | -     |  |   | -     |  
|                             |  |                  |       |   |                   |   |       |  |   |       |  
|Balance at December 28, 2007 |  | $                | 119.3 |   |                   | $ | 169.0 |  | $ | 288.3 |  
|Goodwill Impairment          |  |                  | (87.9 | ) |                   |   | -     |  |   | (87.9 | )
|                             |  |                  |       |   |                   |   |       |  |   |       |  
|Balance at December 26, 2008 |  | $                | 31.4  |   |                   | $ | 169.0 |  | $ | 200.4 |  
|                             |  |                  |       |   |                   |   |       |  |   |       |  



Revenue Recognition



The Companys intermodal segment Stacktrain operation recognizes
revenue and rail linehaul expenses on a percentage-of-completion basis and remaining expenses as incurred. The intermodal segment local cartage and rail brokerage operations recognize revenues when delivery requirements are met. Revenues from the
logistics segment transportation activities, including highway brokerage, truck services and international freight forwarding, are recorded when delivery requirements are met. Logistics segment revenues from warehousing activities are recorded upon
receipt at the warehouse and storage revenues are recorded as earned. Logistics segment supply chain management/consulting services net revenues are recorded as earned. Revenues are reported net of volume discounts provided to customers.



Income Taxes



The Company recognizes income tax expense using the liability method of accounting for deferred income taxes. A deferred tax
asset or liability is recorded based upon the tax effect of temporary differences between the tax bases of assets and liabilities and their carrying value for financial reporting purposes. Deferred tax expense or benefit is the result of changes in
the deferred tax assets and liabilities during the year.



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



Accumulated Other Comprehensive Income (Loss)



Other comprehensive income (loss) includes foreign currency translation adjustments, net of related tax. Other comprehensive
income (loss) consists of the following (in millions):



|                                                |  |                                        |      |   |                                            |   |      |  
|----------------------------------------------- |  | -------------------------------------- | ---- | - | ------------------------------------------ | - | ---- | -
|                                                |  | Foreign CurrencyTranslation Adjustment |      |   | AccumulatedOtherComprehensiveIncome (Loss) |  
|Balance at December 30, 2005                    |  | $                                      | (0.2 | ) |                                            | $ | (0.2 | )
|Activity during 2006 (net of $0.02 million tax) |  |                                        | 0.1  |   |                                            |   | 0.1  |  
|                                                |  |                                       
|                                                |  |                                        |      |   |                                            |   |      |  
|Balance at December 29, 2006                    |  | $                                      | (0.1 | ) |                                            | $ | (0.1 | )
|                                                |  |                                       
|                                                |  |                                        |      |   |                                            |   |      |  
|Activity during 2007 (net of $- million tax)    |  |                                        | -    |   |                                            |   | -    |  
|                                                |  |                                       
|                                                |  |                                        |      |   |                                            |   |      |  
|Balance at December 28, 2007                    |  | $                                      | (0.1 | ) |                                            | $ | (0.1 | )
|                                                |  |                                       
|                                                |  |                                        |      |   |                                            |   |      |  
|Activity during 2008 (net of $0.1 million tax)  |  |                                        | 0.2  |   |                                            |   | 0.2  |  
|                                                |  |                                       
|                                                |  |                                        |      |   |                                            |   |      |  
|Balance at December 26, 2008                    |  | $                                      | 0.1  |   |                                            | $ | 0.1  |  
|                                                |  |                                        |      |   |                                            |   |      |  



The assets and
liabilities of the Companys foreign operations have been translated at rates of exchange at the balance sheet date, and related revenues and expenses have been translated at average rates of exchange in effect during the year.



Common Stock Repurchases



On June 12, 2006, the Company announced that its Board of Directors had authorized the purchase of up to $60 million of
its common stock, and, on April 3, 2007, the Company announced that its Board of Directors had authorized the purchase of an additional $100 million of its common stock. Both authorizations expire on June 15, 2009. The Company repurchased
a total of 2,938,635 shares at an average price of $24.64 per share for 2007 and repurchased a total of 19,039 shares at an average price of $21.54 per share for the year 2008. At December 26, 2008, $61.1 million remains available for the
purchase of common stock under the current Board authorizations; the Company intends to make further share repurchases from time to time as market conditions warrant.



Stock-Based Compensation



Effective December 31, 2005, the Company adopted Financial Accounting Standards Board Statement of Financial Accounting Standard (SFAS)
No. 123(R), Share-Based Payments, or SFAS No. 123(R), which establishes the accounting for employee stock-based awards. Under the provisions of SFAS No. 123(R), stock-based compensation is measured at the grant date, based
on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company adopted SFAS No. 123(R) using the modified prospective method and, as
a result, periods prior to December 31, 2005 have not been restated. The Company recognized stock-based compensation for awards issued under the Companys long-term incentive plans in the Selling, General and Administrative line item of
the Consolidated Statement of Operations. Additionally, no modifications were made to outstanding stock options prior to the adoption of SFAS No. 123(R), and no cumulative adjustments were recorded in the Companys financial statements.



The fair value of each option grant is estimated using the
Black-Scholes valuation model and the assumptions noted in the following table. No stock option grants were made in 2008. The expected term of stock options is based on an analysis of historical exercise behavior. The expected volatility is based on
the change in weekly prices of the Companys stock over a 104-week period preceding each grant date. The



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



risk free interest rate is based on the implied yield on U.S. Treasury issues with a term equal to the expected term of the option. The dividend yield
reflects an estimated annual dividend of $0.60 per share divided by the market price at date of grant.



|                                                |  |                   |           |   |                  |   |           |  
|----------------------------------------------- |  | ----------------- | --------- | - | ---------------- | - | --------- | -
|                                                |  | Fiscal Year Ended |          
|                                                |  | December 28,2007  |           |   | December 29,2006 |  
|Black-Scholes option-pricing model assumptions: |  |                   |           |   |                  |   |           |  
|                                                |  |                  
|Weighted average risk-free interest rate        |  |                   | 4.1       | % |                  |   | 4.8       | %
|Weighted average volatility                     |  |                   | 33        | % |                  |   | 32        | %
|Weighted average dividend yield                 |  |                   | 3.0       | % |                  |   | 2.0       | %
|Weighted average expected option term           |  |                   | 5.0 years |   |                  |   | 5.9 years |  
|Weighted average fair value of options granted  |  | $                 | 5.26      |   |                  | $ | 9.53      |  



The Company granted
65,000 shares of restricted stock to certain employees during 2008 with a weighted average market price at date of grant of $20.98, and 282,000 shares of restricted stock to certain employees during 2007 (including a 2006 grant of 195,000 shares
which was subject to approval by shareholders of the 2006 Plan which occurred in May 2007) with a weighted average market price at date of grant of $25.93.



Earnings per Share



The computation of earnings per share-basic is based on net income available to common shareholders and the weighted-average number of outstanding common
shares. The computation of earnings per share-diluted is based on net income available to common shareholders and the weighted-average number of outstanding common shares including the effect of dilutive stock based compensation awards.



Financial Instruments



The carrying amounts for cash, accounts receivables and accounts payable approximate fair value due to the short-term nature
of these instruments. The carrying value of long-term debt approximates fair value due to the floating nature of the interest rates.



Concentration of Credit Risk



Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. The Company sells
primarily on net 30-day terms, performs credit evaluation procedures on its customers and generally does not require collateral on its accounts receivable. The Company maintains an allowance for doubtful accounts.



During 2008, the Company had one customer representing 10.5% of total
revenues generated primarily in the intermodal segment. During 2007, the Company had one customer representing 10.4% of total revenues. During 2006, the Company had one customer representing 10.3% of total revenues. Approximately 20% of our 2008
total revenues were related to the automotive industry.



Recently Issued
Accounting Pronouncements



In June 2008, the Financial
Accounting Standards Board (FASB) issued Staff Position No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (FSP 03-6-1). Under FSP 03-6-1,
unvested share-based payment awards that



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



contain rights to receive non-forfeitable dividends or dividend equivalents (whether paid or unpaid) are participating securities, and thus should be
included in the two-class method of computing earnings per share. The FSP is effective for fiscal years beginning after December 15, 2008 and requires that all prior period earnings per share data be adjusted retroactively. The Company adopted
FSP 03-6-1 on December 27, 2008 (the first day of our 2009 fiscal year). The 2009 fiscal year adoption and retroactive application is not expected to have a material impact on our disclosure of earnings per share.



In May 2008, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial
statements that are presented in conformity with generally accepted accounting principles in the United States for nongovernmental entities. The hierarchy within SFAS No. 162 is consistent with that previously defined in the AICPA Statement on
Auditing Standards No. 69, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. SFAS No. 162 is effective 60 days following the September 16, 2008 United States Securities and Exchange
Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of SFAS No. 162
is not expected to have a material impact on the Companys results of operations or financial condition.



In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities  an amendment of SFAS
No. 133. SFAS No. 161 is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entitys
financial position, financial performance, and cash flows. The provisions of SFAS No. 161 are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Due to the Companys
limited use of derivative instruments, the adoption of SFAS No. 161 is not expected to have a material impact on its results of operations or financial condition.



In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations, which establishes principles and
requirements for how an acquirer recognizes and measures assets acquired, liabilities assumed including any noncontrolling interest, and goodwill or gain from a bargain purchase. It also establishes the information to disclose regarding the nature
and financial effects of a business combination. SFAS No. 141 (revised 2007) was effective for the Company on December 27, 2008 (the first day of the Companys 2009 fiscal year). The adoption of SFAS No. 141 (revised 2007) is not
expected to have a material impact on the Companys results of operations or financial condition.



In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB
No. 51, which establishes accounting and reporting standards that require: ownership interests held by parties other than the parent to be clearly identified and presented in the consolidated statement of financial position within equity,
but separate from the parents equity; consolidated net income attributable to the parent and to the noncontrolling interest be identified and presented on the face of the consolidated statement of income; and that changes in ownership interest
while the parent retains its controlling interest be accounted for consistently and disclosed. SFAS No. 160 was effective for the Company on December 27, 2008 (the first day of the Companys 2009 fiscal year). The adoption of SFAS
No. 160 is not expected to have a material impact on the Companys results of operations or financial condition.



In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring
fair value under generally accepted accounting principles in the United States of America and expands disclosures about fair value measurements. The financial asset portion of SFAS No. 157 was adopted by the Company on December 29, 2007
(the first day of the Companys 2008 fiscal year) with no impact on results of operations and financial condition. The remaining portion of SFAS No. 157 related to nonfinancial assets and nonfinancial liabilities that are recognized or
disclosed at fair value in the financial statements on a nonrecurring basis was applicable on



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



December 27, 2008 (the first day of the Companys 2009 fiscal year). The adoption of SFAS No. 157 is not expected to have a material impact on
the Companys results of operations or financial condition, with the exception of the step two analyses under SFAS No. 142 for goodwill impairment which is still being assessed. Beginning in 2009, the Company will measure any identified
goodwill impairment using the principles in SFAS No. 157 and SFAS No. 141 (revised 2007). These principles differ from the methods used to measure goodwill impairment in prior years and could result in a different amount of impairment than
would have been measured under the previous methodology.



NOTE 2. LONG-TERM
DEBT AND CAPITAL LEASES



Long-term debt and capital leases
are summarized as follows (in millions):



|                                                  |  |                  |      |                  |   |     
|------------------------------------------------- |  | ---------------- | ---- | ---------------- | - | ----
|                                                  |  | December 26,2008 |      | December 28,2007
|2007 Credit Agreement (2.9 %; due April 5, 2012)  |  | $                | 44.0 |                  | $ | 64.0
|Capital lease obligations (see Note 11)           |  |                  | 0.6  |                  |   | -   
|                                                  |  |                  |      |                  |   |     
|Total                                             |  |                  | 44.6 |                  |   | 64.0
|Less current portion of capital lease obligations |  |                  | 0.3  |                  |   | -   
|                                                  |  |                  |      |                  |   |     
|Long-term portion                                 |  | $                | 44.3 |                  | $ | 64.0
|                                                  |  |                  |      |                  |   |     



At December 26,
2008, the Company had $184.6 million available under the 2007 Credit Agreement, net of $44.0 million outstanding and $21.4 million of outstanding letters of credit. At December 26, 2008, borrowings under the 2007 Credit Agreement bore a
weighted average interest rate of 2.9% per annum. The Company repaid a net $20.0 million in 2008, borrowed a net $5.0 million in 2007 in addition to the refinancing discussed below, and repaid $31.0 million in 2006. Operating cash flows funded
the repayment of the debt.



On April 5, 2007, the Company
entered into a new $250 million, five-year revolving credit agreement (the 2007 Credit Agreement). The Company utilized $59.0 million of the 2007 Credit Agreement to repay the principal balance due under the term loan portion of the
Companys prior bank credit facility, which was terminated. In connection with the refinancing, the Company paid $0.8 million of fees and expenses ($0.6 million to lenders and $0.2 million to other third parties) and $0.5 million of interest
due at closing under the prior facility. The Company also charged to expense $1.8 million for the write-off of existing deferred loan fees related to the prior credit facility.



Borrowings under the 2007 Credit Agreement bear interest, at the
Companys option, at a base rate plus a margin between 0.0% and 0.5% per annum, or at a Eurodollar rate plus a margin between 0.625% and 1.75% per annum, in each case depending on the Companys leverage ratio. The base rate is
the higher of the prime lending rate of the administrative agent or the federal funds rate plus 1/2of 1%. The Companys
obligations under the 2007 Credit Agreement are guaranteed by all of its direct and indirect domestic subsidiaries and are secured by a pledge of all of the stock or other equity interests of its domestic subsidiaries and a portion of the stock or
other equity interest of certain of its foreign subsidiaries.



The 2007 Credit Agreement also provides for letter of credit fees between 0.625% and 1.75%, and a commitment fee payable on the unused portion of the facility, which accrues at a rate per annum ranging from 0.125% to 0.350%, in each case
depending on the Companys leverage ratio.



The 2007
Credit Agreement contains affirmative, negative and financial covenants customary for such financings, including, among other things, limits on the incurrence of debt, the incurrence of liens, and mergers and consolidations and leverage and interest
coverage ratios. It also contains customary representations and warranties. Breaches of the covenants, representations or warranties may give rise to



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



an event of default. Other events of default include the Companys failure to pay certain debt, the acceleration of certain debt, certain insolvency and
bankruptcy proceedings, certain ERISA events or unpaid judgments over a specified amount, or a change in control of the Company as defined in the 2007 Credit Agreement. As of December 26, 2008, we were in compliance with all covenants of the
2007 Credit Agreement.



The Company acquired $0.8 million of
computer equipment under a capital lease related to the implementation of the SAP software project and repaid $0.2 million of capital leases during 2008. In addition, the Company capitalized $0.7 million of interest related to the SAP software
project. The net book value of equipment under capital lease was $0.6 million at December 26, 2008.



Contractual maturities of long-term debt and capital lease obligations during each of the four years subsequent to 2008 are as follows (in millions):



|      |  |   |     
|----- |  | - | ----
|2009  |  | $ | 0.3 
|2010  |  |   | 0.3 
|2011  |  |   | -   
|2012  |  |   | 44.0
|      |  |   |     
|Total |  | $ | 44.6
|      |  |   |     



NOTE 3. FACILITY CLOSINGS AND OTHER
SEVERANCE COSTS



In March 2007, the Company began a
facility rationalization and other severance program to close facilities and reduce employment in order to improve efficiency and profitability. The program included exit activities as well as ongoing employment reduction initiatives. Through
December 26, 2008, a total of $6.1 million has been expensed for the severance of 134 employees and the closure of four facilities. The table below shows activity for the fiscal years ended December 26, 2008 and December 28, 2007 (in
millions).



|                 |  |                            |     |      |                          |      |  |       |         |   |      |   |      |  |   |         |  |      |      |      |  |   |     |  |   |     |  |   |      |  
|---------------- |  | -------------------------- | --- | ---- | ------------------------ | ---- |  | ----- | ------- | - | ---- | - | ---- |  | - | ------- |  | ---- | ---- | ---- |  | - | --- |  | - | --- |  | - | ---- | -
|                 |  | Costs of Facility Closings |     |      | Costs of Other Severance |      |  | Total |        
|                 |  | Accrued                    |     | Paid |                          | Bal. |  |       | Accrued |   | Paid |   | Bal. |  |   | Accrued |  | Paid |      | Bal. | 
|Bal. at 12/29/06 |  | $                          | -   |      | $                        | -    |  | $     | -       |   |      | $ | -    |  | $ | -       |  | $    | -    |      |  | $ | -   |  | $ | -   |  | $ | -    |  
|Activity         |  |                            | 0.7 |      |                          | 0.6  |  |       | 0.1     |   |      |   | 5.3  |  |   | 3.1     |  |      | 2.2  |      |  |   | 6.0 |  |   | 3.7 |  |   | 2.3  |  
|                 |  |                            |     |      |                          |      |  |       |         |   |      |   |      |  |   |         |  |      |      |      |  |   |     |  |   |     |  |   |      |  
|Bal. at 12/28/07 |  |                            | 0.7 |      |                          | 0.6  |  |       | 0.1     |   |      |   | 5.3  |  |   | 3.1     |  |      | 2.2  |      |  |   | 6.0 |  |   | 3.7 |  |   | 2.3  |  
|Activity         |  |                            | -   |      |                          | 0.1  |  |       | (0.1    | ) |      |   | 0.1  |  |   | 1.9     |  |      | (1.8 | )    |  |   | 0.1 |  |   | 2.0 |  |   | (1.9 | )
|                 |  |                            |     |      |                          |      |  |       |         |   |      |   |      |  |   |         |  |      |      |      |  |   |     |  |   |     |  |   |      |  
|Bal. at 12/26/08 |  | $                          | 0.7 |      | $                        | 0.7  |  | $     | -       |   |      | $ | 5.4  |  | $ | 5.0     |  | $    | 0.4  |      |  | $ | 6.1 |  | $ | 5.7 |  | $ | 0.4  |  
|                 |  |                            |     |      |                          |      |  |       |         |   |      |   |      |  |   |         |  |      |      |      |  |   |     |  |   |     |  |   |      |  



All of these costs are
included in the Selling, General and Administrative line item of the Consolidated Statement of Operations for 2008 and 2007.



NOTE 4. INCOME TAXES



For federal and state income tax purposes, the 1999 recapitalization of the Company was a taxable business combination and a qualified stock purchase. The
buyer and seller jointly agreed to treat the transaction as an asset acquisition in accordance with Section 338(h)(10) of the Internal Revenue Code and such election has been made. An allocation of the purchase price to the tax basis of assets
and liabilities based on their respective fair value at May 28, 1999 was finalized for income tax purposes during 1999.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The provision for income taxes is as follows (in millions):



|                |  |                   |      |   |               |   |               |  |   |     
|--------------- |  | ----------------- | ---- | - | ------------- | - | ------------- |  | - | ----
|                |  | Fiscal Year Ended
|                |  | Dec. 26, 2008     |      |   | Dec. 28, 2007 |   | Dec. 29, 2006
|Current:        |  |                   |      |   |               |   |               |  |   |     
|Federal         |  | $                 | 15.3 |   |               | $ | 23.6          |  | $ | 29.7
|State           |  |                   | 2.7  |   |               |   | 3.1           |  |   | 4.4 
|                |  |                   |      |   |               |   |               |  |   |     
|Total current   |  |                   | 18.0 |   |               |   | 26.7          |  |   | 34.1
|Deferred:       |  |                   |      |   |               |   |               |  |   |     
|Federal         |  |                   | (1.8 | ) |               |   | 7.2           |  |   | 7.9 
|State           |  |                   | (0.2 | ) |               |   | 0.8           |  |   | 1.4 
|                |  |                   |      |   |               |   |               |  |   |     
|Total deferred  |  |                   | (2.0 | ) |               |   | 8.0           |  |   | 9.3 
|                |  |                   |      |   |               |   |               |  |   |     
|Total provision |  | $                 | 16.0 |   |               | $ | 34.7          |  | $ | 43.4
|                |  |                   |      |   |               |   |               |  |   |     



The reconciliation of
the net effective income tax rate to the U.S. federal statutory income tax rate is as follows:



|                                     |  |                   |    |  |               |   |  |               |  
|------------------------------------ |  | ----------------- | -- |  | ------------- | - |  | ------------- | -
|                                     |  | Fiscal Year Ended |   
|                                     |  | Dec. 26, 2008     |    |  | Dec. 28, 2007 |   |  | Dec. 29, 2006 |  
|U.S. federal statutory rate          |  | 35.0              | %  |  | 35.0          | % |  | 35.0          | %
|                                     |  |                   |   
|Increases in rate resulting from:    |  |                   |    |  |               |   |  |               |  
|State tax, net of federal benefit    |  | (232.5            | )% |  | 3.4           | % |  | 3.5           | %
|FIN 48 liability release             |  | 555.6             | %  |  | -             |   |  | -             |  
|Goodwill impairment                  |  | (2,744.3          | )% |  | -             |   |  | -             |  
|State NOL valuation allowance        |  | (29.6             | )% |  | -             |   |  | -             |  
|Other permanent book/tax Differences |  | (250.9            | )% |  | 0.6           | % |  | 0.3           | %
|                                     |  |                   |    |  |               |   |  |               |  
|                                     |  |                   |   
|Net effective tax rate               |  | (2,666.7          | )% |  | 39.0          | % |  | 38.8          | %
|                                     |  |                   |    |  |               |   |  |               |  



All federal income tax
returns of Pacer International, Inc. are closed through 2003 and filed through 2007.



The following table shows the tax effects of the Companys cumulative temporary differences included in the consolidated balance sheets at December 26, 2008 and December 28, 2007 (in millions):



|                                               |  |                  |       |   |                  |   |       |  
|---------------------------------------------- |  | ---------------- | ----- | - | ---------------- | - | ----- | -
|                                               |  | December 26,2008 |       |   | December 28,2007 |  
|Tax loss carry-forwards                        |  | $                | 0.6   |   |                  | $ | 0.6   |  
|Property and equipment                         |  |                  | (13.7 | ) |                  |   | (9.6  | )
|Allowance for doubtful accounts                |  |                  | 1.9   |   |                  |   | 1.8   |  
|Accrued liabilities                            |  |                  | 1.7   |   |                  |   | 1.4   |  
|Tax basis in excess of book  recapitalization |  |                  | (5.2  | ) |                  |   | 3.7   |  
|Goodwill impairment                            |  |                  | 14.9  |   |                  |   | -     |  
|State NOL valuation allowance                  |  |                  | (0.2  | ) |                  |   | -     |  
|Other                                          |  |                  | (2.3  | ) |                  |   | (2.0  | )
|                                               |  |                  |       |   |                  |   |       |  
|Total net deferred tax asset                   |  | $                | (2.3  | ) |                  | $ | (4.1  | )
|                                               |  |                  |       |   |                  |   |       |  
|                                               |  |                 
|Current deferred tax asset                     |  | $                | 6.2   |   |                  | $ | 7.6   |  
|Non-current deferred tax asset                 |  |                  | 12.1  |   |                  |   | 5.8   |  
|Current deferred tax liability                 |  |                  | (3.1  | ) |                  |   | (3.3  | )
|Non-current deferred tax liability             |  |                  | (17.5 | ) |                  |   | (14.2 | )
|                                               |  |                  |       |   |                  |   |       |  
|Total net deferred tax asset                   |  | $                | (2.3  | ) |                  | $ | (4.1  | )
|                                               |  |                  |       |   |                  |   |       |  



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



In connection with the recapitalization, the Company recorded a deferred tax asset of approximately
$81.2 million at May 28, 1999 related to future tax deductions for the net excess of the tax basis of the assets and liabilities over the financial statement carrying amounts with a corresponding credit to Stockholders Equity.



In June 2006, FASB issued FASB Interpretation No. (FIN) 48,
Accounting for Uncertainty in Income Taxes, which clarifies the accounting for uncertainty in income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FIN 48 requires that the Company recognize in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the
technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. FIN 48 was effective for the Company as of December 30, 2006. As a result of
this implementation, the Company recognized a $0.4 million tax reserve increase for uncertain tax positions. The increase was accounted for as an adjustment to the beginning balance of retained earnings. Including the cumulative effect increase, at
the beginning of 2007, the Company had a liability of approximately $3.9 million of total reserves relating to uncertain tax positions and a total of $4.1 million and $0.6 million at December 28, 2007 and December 26, 2008, respectively,
including accrued interest. The Company reduced its unrecognized tax benefits by $3.5 million as a result of certain expirations of federal statutes of limitations in the third quarter of 2008. During the next twelve months, the Company expects to
reduce its unrecognized tax benefits by approximately $0.6 million as a result of further expirations of federal and state statutes of limitations. Below is a rollforward of the FIN 48 reserve (in millions).



|                                    |  |        |      |   |                    |   |      |       |  |   |      |  
|----------------------------------- |  | ------ | ---- | - | ------------------ | - | ---- | ----- |  | - | ---- | -
|                                    |  | FIN 48 |      |   | Interest/Penalties |   |      | Total | 
|FIN 48 Reserve at December 30, 2006 |  | $      | (2.5 | ) |                    | $ | (1.4 | )     |  | $ | (3.9 | )
|Accrued Interest                    |  |        | -    |   |                    |   | (0.2 | )     |  |   | (0.2 | )
|                                    |  |        |      |   |                    |   |      |       |  |   |      |  
|FIN 48 Reserve at December 28, 2007 |  | $      | (2.5 | ) |                    | $ | (1.6 | )     |  | $ | (4.1 | )
|FIN 48 Liability Release            |  |        | 2.0  |   |                    |   | 1.5  |       |  |   | 3.5  |  
|                                    |  |        |      |   |                    |   |      |       |  |   |      |  
|FIN 48 Reserve at December 26, 2008 |  | $      | (0.5 | ) |                    | $ | (0.1 | )     |  | $ | (0.6 | )
|                                    |  |        |      |   |                    |   |      |       |  |   |      |  



The total amount of
unrecognized tax benefits, if recognized, that would affect the effective tax rate is $0.6 million.



The Company recognized $19 thousand, $0.2 million and $0.1 million of accrued interest and no penalties related to unrecognized tax benefits in its income
tax expense for the years ending December 26, 2008, December 28, 2007 and December 29, 2006, respectively.



NOTE 5. 401(K) PLAN AND LONG-TERM INCENTIVE PLANS



Under the Pacer International, Inc. 401(k) plan, the Company matches 50% of the first 6% of base salary contributed by the employee. Matching
contributions by the Company to the plan in 2008, 2007 and 2006 were $1.7 million, $1.6 million and $1.7 million, respectively.



On May 3, 2007, the shareholders of the Company approved the 2006 Long-Term Incentive Plan (the 2006 Plan) which had been adopted by the
Board of Directors in August 2006 subject to shareholder approval. The 2006 Plan expands the range of equity-based incentive awards that may be issued to attract, retain, incentivize, and reward directors, officers, employees and consultants. The
2006 Plan gives the Company the ability to provide incentives through issuance of stock options, stock appreciation rights, restricted stock or restricted stock units, performance or performance unit awards and other stock-based awards.



Prior to May 3, 2007, the Company had two stock option plans, the
1999 Stock Option Plan (the 1999 Plan) and the 2002 Stock Option Plan (the 2002 Plan). Upon adoption of the 2002 Plan, no



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



further awards were able to be made under the 1999 Plan, although outstanding awards under that plan were not affected. As of May 3, 2007, with the
adoption of the 2006 Plan, no further awards may be made under the 2002 Plan, although outstanding awards under the 2002 Plan were not affected.



A total of 2.5 million shares of common stock have been reserved for issuance under the 2006 Plan. If an award, other than a Substitute Award
(defined below), is forfeited or otherwise terminates without the issuance or delivery of some or all of the shares underlying the award to the grantee, or becomes unexercisable without having been exercised in full, the remaining shares that were
subject to the award will become available for future awards under the 2006 Plan (unless the 2006 Plan has terminated). The grant of a stock appreciation right (SAR) will not reduce the number of shares that may be subject to awards, but
the number of shares issued upon the exercise of a SAR will so reduce the available number of shares.



Substitute Awards will not reduce the number of shares available for issuance under the 2006 Plan. Substitute Awards are awards granted in assumption of
or in substitution for outstanding awards previously granted by a company acquired by or merged into the Company or any of its subsidiaries or with which the Company or any of its subsidiaries combines.



Subject to any required action by the Companys shareholders, the number
of shares reserved for issuance under the 2006 Plan, the maximum award limitations set forth in the 2006 Plan, the number of shares underlying an outstanding award, as well as the price per share (or exercise, base or purchase price) of the
underlying shares, will be proportionately adjusted for any increase or decrease in the number of issued shares resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the shares, or any other similar
transaction (but not the issuance or conversion of convertible securities). Subject to any required action by the Companys shareholders, the 2006 Plan administrator (presently the Compensation Committee of the Board of Directors), in its sole
discretion, may make similar adjustments to reflect a change in the capitalization of the Company, including a recapitalization, repurchase, rights offering, reorganization, merger, consolidation, combination, exchange of shares, spin-off, spin-out
or other distribution of assets to shareholders or other similar corporate transaction or event.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The following table summarizes the stock option transactions under the 1999 Plan, the 2002 Plan and
the 2006 Plan as of December 26, 2008.



|                                  |  |           |   |  |                           |       |                         |   |  
|--------------------------------- |  | --------- | - |  | ------------------------- | ----- | ----------------------- | - | -
|                                  |  | Options   |   |  | WeightedAvg.ExercisePrice |       | AggregateIntrinsicValue
|                                  |  |           |   |  |                           |       | ($ millions)           
|Balance at December 30, 2005      |  | 1,805,730 |   |  | $                         | 11.18 |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Options exercisable, end of year  |  | 681,305   |   |  | $                         | 8.27  |                         |   |  
|                                  |  |           |  
|Granted                           |  | 178,000   |   |  | $                         | 29.83 |                         |   |  
|Canceled or expired               |  | (119,366  | ) |  | $                         | 22.36 |                         |   |  
|Exercised                         |  | (647,117  | ) |  | $                         | 6.76  |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Balance at December 29, 2006      |  | 1,217,247 |   |  | $                         | 15.16 |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Granted                           |  | 12,000    |   |  | $                         | 19.99 |                         |   |  
|Canceled or expired               |  | (192,200  | ) |  | $                         | 19.25 |                         |   |  
|Exercised                         |  | (169,132  | ) |  | $                         | 10.78 |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Balance at December 28, 2007      |  | 867,915   |   |  | $                         | 15.28 |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Granted                           |  | -         |   |  | $                         | -     |                         |   |  
|Canceled or expired               |  | (31,000   | ) |  | $                         | 16.89 |                         |   |  
|Exercised                         |  | (274,865  | ) |  | $                         | 19.37 |                         |   |  
|                                  |  |           |   |  |                           |       |                         |   |  
|Balance at December 26, 2008      |  | 562,050   |   |  | $                         | 17.18 |                         | $ | -
|                                  |  |           |   |  |                           |       |                         |   |  
|Options exercisable, end of year  |  | 447,850   |   |  | $                         | 15.47 |                         | $ | -
|                                  |  |           |   |  |                           |       |                         |   |  
|Shares available for future grant |  | 2,178,750 |   |  |                           |       |                         |   |  



The following table
summarizes information about stock options outstanding at December 26, 2008:



|                        |  |                     |  |                                      |  |                              |       |                   |         |                              |   |      
|----------------------- |  | ------------------- |  | ------------------------------------ |  | ---------------------------- | ----- | ----------------- | ------- | ---------------------------- | - | -----
|                        |  | Options Outstanding |  | Options Exercisable                 
|Range of ExercisePrices |  | NumberOutstanding   |  | WeightedAverageRemainingLife (Years) |  | WeightedAverageExercisePrice |       | NumberExercisable |         | WeightedAverageExercisePrice
|Common Stock            |  |                     |  |                                      |  |                              |       |                   |         |                             
|$      5.00             |  | 50,250              |  | 0.4                                  |  | $                            | 5.00  |                   | 50,250  |                              | $ | 5.00 
|$    10.00              |  | 15,900              |  | 0.9                                  |  | $                            | 10.00 |                   | 15,900  |                              | $ | 10.00
|$    12.64              |  | 183,300             |  | 2.5                                  |  | $                            | 12.64 |                   | 183,300 |                              | $ | 12.64
|$ 12.65 - $15.91        |  | 46,900              |  | 4.7                                  |  | $                            | 15.82 |                   | 31,500  |                              | $ | 15.91
|$ 15.92 - $19.60        |  | 156,200             |  | 5.6                                  |  | $                            | 19.60 |                   | 115,900 |                              | $ | 19.56
|$ 19.61 - $26.69        |  | 69,500              |  | 6.9                                  |  | $                            | 26.69 |                   | 35,000  |                              | $ | 26.51
|$26.70 - $29.41         |  | 24,000              |  | 7.8                                  |  | $                            | 29.41 |                   | 9,600   |                              | $ | 29.41
|$29.42 - $35.17         |  | 16,000              |  | 7.4                                  |  | $                            | 35.17 |                   | 6,400   |                              | $ | 35.17
|                        |  |                     |  |                                      |  |                              |       |                   |         |                              |   |      
|Total                   |  | 562,050             |  | 4.2                                  |  | $                            | 17.18 |                   | 447,850 |                              | $ | 15.47



The compensation cost
that has been charged against income for the share-based compensation plans was $1.9 million, $2.9 million and $1.5 million for 2008, 2007 and 2006, respectively. The excess tax benefit realized for the tax deductions from the share-based
compensation plans totaled $1.4 million, $1.2 million and $5.4 million for 2008, 2007 and 2006, respectively. The tax benefit for stock compensation expense included in the provision for income taxes totaled $1.4 million and $1.2 million for 2008
and 2007, respectively. The total intrinsic value of options exercised was $2.3 million, $1.9 million and $14.3 million for 2008, 2007 and 2006, respectively. As of December 26, 2008, there was $0.5 million of total



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



unrecognized compensation costs related to stock options assuming no new grants or forfeitures. These costs are expected to be recognized over a
weighted-average period of approximately 1.6 years.



The
Company has also issued time-based restricted stock under the 2006 Plan to certain employees with an initial grant in 2006 subject to shareholder approval of the 2006 Plan which occurred in May 2007. For reporting purposes, the initial grant is
deemed to have occurred in 2007 upon shareholder approval of the 2006 Plan. Restricted stock is subject to restrictions and cannot be sold, transferred or disposed of during the restriction period. The holders of restricted stock generally have the
same rights as a stockholder of the Company with respect to such shares, including the right to vote and receive dividends with respect to the shares. Restricted stock awards vest in 25% increments, on June 1 of each year over a four year
period. Restricted stock is not considered issued and outstanding until it vests. A summary of restricted stock activity for the year ended December 26, 2008 is presented below:



|                               |  |         |   |  |                                   |      
|------------------------------ |  | ------- | - |  | --------------------------------- | -----
|                               |  | Shares  |   |  | Weighted Avg.Grant-DateFair Value
|Nonvested at December 30, 2006 |  | -       |   |  | $                                 | -    
|Granted                        |  | 282,000 |   |  | $                                 | 25.93
|Vested                         |  | (48,750 | ) |  | $                                 | 27.64
|Forfeited                      |  | (30,750 | ) |  | $                                 | 27.64
|                               |  |         |   |  |                                   |      
|Nonvested at December 28, 2007 |  | 202,500 |   |  | $                                 | 25.25
|                               |  |        
|Granted                        |  | 65,000  |   |  | $                                 | 20.98
|Vested                         |  | (59,625 | ) |  | $                                 | 25.57
|Forfeited                      |  | (7,000  | ) |  | $                                 | 22.41
|                               |  |         |   |  |                                   |      
|Nonvested at December 26, 2008 |  | 200,875 |   |  | $                                 | 23.84



The total fair value
of restricted shares vested during 2008 and 2007 were $1.5 and $1.3 million, respectively, based on the market price at the grant date. As of December 26, 2008, there was $2.7 million of total unrecognized compensation cost related to
restricted stock, which is expected to be recognized over a weighted-average period of approximately 1.7 years.



NOTE 6. RELATED PARTY TRANSACTIONS



The following table summarizes related party transactions recorded in the consolidated statements of operations (in millions).



|                                               |  |                      |     |                                  |     |                                  |   |                                  |     |   |    
|---------------------------------------------- |  | -------------------- | --- | -------------------------------- | --- | -------------------------------- | - | -------------------------------- | --- | - | ---
|Related Party                                  |  | Type                 |     | Fiscal YearEndedDecember 26,2008 |     | Fiscal YearEndedDecember 28,2007 |   | Fiscal YearEndedDecember 29,2006
|Cost of purchased transportation and services: |  |                      |     |                                  |     |                                  |   |                                  |    
|Panther Expedited                              |  | Truck transportation |     | $                                | 4.6 |                                  | $ | 4.5                              |     | $ | 0.7
|                                               |  |                      |    
|Selling, general and administrative expenses:  |  |                      |     |                                  |     |                                  |   |                                  |    
|Perimeter West                                 |  | Facility lease       |     |                                  | -   |                                  |   | -                                |     |   | 1.8
|                                               |  |                      |     |                                  |     |                                  |   |                                  |     |   |    
|Total related party SG&A expenses              |  | $                    | -   |                                  | $   | -                                |   | $                                | 1.8
|                                               |  |                      |     |                                  |     |                                  |   |                                  |     |   |    
|Total related party expenses                   |  | $                    | 4.6 |                                  | $   | 4.5                              |   | $                                | 2.5
|                                               |  |                      |     |                                  |     |                                  |   |                                  |     |   |    



The Company engages,
in the ordinary course of its business, Panther Expedited Services, Inc. as a transportation broker to provide transportation services from time to time. Andrew C. Clarke, a member of the Companys Board of Directors, is President of Panther
Expedited Services, Inc. The Company paid Panther Expedited Services, Inc. $4.6 million, $4.5 million and $0.7 million in 2008, 2007 and 2006, respectively.



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PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



In connection with the acquisition of Rail Van, the Company assumed a lease of a building that had
been entered into by Rail Van with Perimeter West LLC, an entity associated with Mr. Brashares, an executive officer of the Company, and certain former shareholders of Rail Van. This lease commenced in April 2001, with an initial annual base
rental payment of approximately $1.3 million. Lease payments were $1.8 million for the year ended December 29, 2006. In November 2006, Perimeter West LLC sold the land and building to an unaffiliated entity.



Management believes that the terms of the related party transactions listed
above were at fair market rates.



NOTE 7. COMMITMENTS AND CONTINGENCIES



The Company is subject to routine litigation arising in the
ordinary course of business, and, except as discussed below, none of which is expected to have a material adverse effect on the Companys business, consolidated results of operations, financial condition or cash flows. Most of the lawsuits to
which the Company is a party are covered by insurance and are being defended in cooperation with insurance carriers.



The Union Pacific Railroad has asserted two claims against us for retroactive and prospective rate adjustments for containers shipped on their railroad.
Both claims are in an early stage of development. One claim is in the early stage of arbitration before the American Arbitration Association (AAA). If we are unable to resolve the second claim, it may be submitted for arbitration before the AAA as
well. The information available to us at this time does not indicate that it is probable that a liability has been incurred as of the year ended December 26, 2008, and we cannot make an estimate of the amount, or range of amounts, of any
liability that would be incurred if one or both claims were resolved against our favor. Accordingly, we have not accrued any liability for these claims in our financial statements at and for the year ended December 26, 2008. Union
Pacifics calculation of the dollar amount of retroactive rate adjustments that it claims from us, which covers the period from January 1, 2005, through October 31, 2008, is approximately $90 million. We dispute these claims in their
entirety and believe that we have meritorious defenses to them and that the Union Pacific Railroad is not entitled to any of the claimed rate adjustments. We intend to vigorously defend against these claims and pursue our other related rights and
remedies. If these claims were to be adversely determined against us, the amount we could be required to pay could have a material adverse effect on our results of operations and cash flows in the quarter in which such loss is incurred.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



NOTE 8. SEGMENT INFORMATION



The intermodal segment provides intermodal rail transportation, intermodal marketing and local trucking services. The
logistics segment provides highway brokerage, truck services, warehousing and distribution, international freight forwarding and supply chain management services.



The following table presents revenues generated by country or geographical area for the fiscal years ended December 26,
2008, December 28, 2007 and December 29, 2006 (in millions).



|                       |  |                   |         |              |   |              |  |   |        
|---------------------- |  | ----------------- | ------- | ------------ | - | ------------ |  | - | -------
|                       |  | Fiscal Year Ended
|                       |  | Dec. 26,2008      |         | Dec. 28,2007 |   | Dec. 29,2006
|United States          |  | $                 | 1,861.3 |              | $ | 1,730.7      |  | $ | 1,674.2
|                       |  |                   |        
|Foreign revenues       |  |                   |         |              |   |              |  |   |        
|                       |  |                   |        
|Europe                 |  |                   | 54.0    |              |   | 44.0         |  |   | 31.6   
|Russia/China           |  |                   | 43.9    |              |   | 31.7         |  |   | 33.6   
|Far East               |  |                   | 34.5    |              |   | 26.8         |  |   | 19.3   
|Canada                 |  |                   | 19.2    |              |   | 18.8         |  |   | 19.2   
|Australia/New Zealand  |  |                   | 12.5    |              |   | 7.9          |  |   | 7.8    
|Mexico                 |  |                   | 11.6    |              |   | 68.2         |  |   | 58.3   
|Mideast                |  |                   | 11.5    |              |   | 7.8          |  |   | 7.4    
|South America          |  |                   | 9.9     |              |   | 6.7          |  |   | 4.5    
|Africa                 |  |                   | 2.8     |              |   | 2.3          |  |   | 1.7    
|All other              |  |                   | 26.5    |              |   | 24.5         |  |   | 30.2   
|                       |  |                   |         |              |   |              |  |   |        
|                       |  |                   |        
|Total foreign revenues |  | $                 | 226.4   |              | $ | 238.7        |  | $ | 213.6  
|                       |  |                   |         |              |   |              |  |   |        
|Total                  |  | $                 | 2,087.7 |              | $ | 1,969.4      |  | $ | 1,887.8
|                       |  |                   |         |              |   |              |  |   |        



All of the foreign revenues are
generated by the logistics segment with the exception of Mexico, where the majority of such Mexican revenues are generated by the Companys intermodal segment Stacktrain operation. All material assets are located in the United States of
America. The decline in revenues generated in Mexico was due to the cessation of our rail purchasing activities in Mexico (all of which are now conducted by our U.S. company through direct contracts with the Mexican rail carriers), beginning
December 29, 2007 (the end of the 2007 fiscal year). Beginning December 30, 2007, our Mexican revenues consist of agency commissions generated by our new Mexican subsidiary.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



The following table presents reportable segment information for the fiscal years ended
December 26, 2008, December 28, 2007 and December 29, 2006 (in millions):



|                                    |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|----------------------------------- |  | ---------- | ------- | - | --------- | - | ----- | ----------- |  | - | ------------ | - |  | - | ------- | -
|                                    |  | Intermodal |         |   | Logistics |   |       | Corp./Other |  |   | Consolidated |  
|Fiscal year ended December 26, 2008 |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Revenues                            |  | $          | 1,633.4 |   |           | $ | 455.9 |             |  | $ | -            |   |  | $ | 2,089.3 |  
|Intersegment elimination            |  |            | (0.6    | ) |           |   | (1.0  | )           |  |   | -            |   |  |   | (1.6    | )
|                                    |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Subtotal                            |  |            | 1,632.8 |   |           |   | 454.9 |             |  |   | -            |   |  |   | 2,087.7 |  
|Income/(loss) from operations       |  |            | 113.3   |   |           |   | (88.1 | )1/         |  |   | (23.4        | ) |  |   | 1.8     |  
|Depreciation and amortization       |  |            | 4.5     |   |           |   | 1.5   |             |  |   | 0.2          |   |  |   | 6.2     |  
|Capital expenditures 3/             |  |            | 21.7    |   |           |   | 2.7   |             |  |   | 0.4          |   |  |   | 24.8    |  
|                                    |  |            |         |  
|Fiscal year ended December 28, 2007 |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Revenues                            |  | $          | 1,567.9 |   |           | $ | 402.1 |             |  | $ | -            |   |  | $ | 1,970.0 |  
|Intersegment elimination            |  |            | (0.1    | ) |           |   | (0.5  | )           |  |   | -            |   |  |   | (0.6    | )
|                                    |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Subtotal                            |  |            | 1,567.8 |   |           |   | 401.6 |             |  |   | -            |   |  |   | 1,969.4 |  
|Income from operations 2/           |  |            | 112.0   |   |           |   | 4.1   |             |  |   | (21.6        | ) |  |   | 94.5    |  
|Depreciation and amortization       |  |            | 5.3     |   |           |   | 0.8   |             |  |   | 0.1          |   |  |   | 6.2     |  
|Capital expenditures 3/             |  |            | 11.6    |   |           |   | 2.1   |             |  |   | 0.3          |   |  |   | 14.0    |  
|                                    |  |            |         |  
|Fiscal year ended December 29, 2006 |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Revenues                            |  | $          | 1,491.7 |   |           | $ | 397.0 |             |  | $ | -            |   |  | $ | 1,888.7 |  
|Intersegment elimination            |  |            | (0.2    | ) |           |   | (0.7  | )           |  |   | -            |   |  |   | (0.9    | )
|                                    |  |            |         |   |           |   |       |             |  |   |              |   |  |   |         |  
|Subtotal                            |  |            | 1,491.5 |   |           |   | 396.3 |             |  |   | -            |   |  |   | 1,887.8 |  
|Income from operations              |  |            | 132.6   |   |           |   | 1.6   |             |  |   | (15.9        | ) |  |   | 118.3   |  
|Depreciation and amortization       |  |            | 5.8     |   |           |   | 1.1   |             |  |   | 0.1          |   |  |   | 7.0     |  
|Capital expenditures                |  |            | 2.2     |   |           |   | 1.5   |             |  |   | -            |   |  |   | 3.7     |  



Data
in the Corp./Other column includes corporate amounts (primarily compensation, tax and overhead costs unrelated to a specific segment) and elimination of intercompany balances and subsidiary investment. The Chief Operating Decision Maker
does not review assets by segment for purposes of allocating resources and as such they are not disclosed here.



1/ Included in income/(loss) from operations for the logistics segment is a goodwill impairment charge of $87.9 million.



2/ Intermodal segment, logistics segment, corporate and
consolidated income from operations for the year ended December 28, 2007 included $1.8 million, $2.1 million, $2.1 million and $6.0 million, respectively, of costs associated with facility closings and other severance activities.



3/ Included in the capital expenditures for 2008 and 2007, is
$16.6 million and $10.6 million, respectively, related to the licensing and implementation of the SAP software project ($14.9 million and $9.6 million intermodal segment, respectively, and $1.3 million and $0.7 million logistics segment,
respectively, and $0.4 million and $0.3 million corporate, respectively). See Note 9. All other capital expenditure amounts relate to normal computer replacement items.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



NOTE 9. PROPERTY AND EQUIPMENT



Property and equipment consist of the following at December 26, 2008 and December 28, 2007 (in millions):



|                                                                            |  |      |       |   |      |   |       |  
|--------------------------------------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | -
|                                                                            |  | 2008 |       |   | 2007 |  
|Railcars                                                                    |  | $    | 26.0  |   |      | $ | 26.0  |  
|Containers and chassis (in use)                                             |  |      | 19.6  |   |      |   | 24.4  |  
|Leasehold improvements and other (including computer hardware and software) |  |      | 55.4  |   |      |   | 48.8  |  
|Software under development                                                  |  |      | 26.2  |   |      |   | 11.4  |  
|                                                                            |  |      |       |   |      |   |       |  
|Total                                                                       |  |      | 127.2 |   |      |   | 110.6 |  
|Less: accumulated depreciation                                              |  |      | (65.6 | ) |      |   | (69.2 | )
|                                                                            |  |      |       |   |      |   |       |  
|Property and equipment, net                                                 |  | $    | 61.6  |   |      | $ | 41.4  |  
|                                                                            |  |      |       |   |      |   |       |  



Depreciation and
amortization of property and equipment was $6.2 million, $6.2 million and $7.0 million for the years ended December 26, 2008, December 28, 2007 and December 29, 2006, respectively. The Company retired $9.7 million, $1.7 million
and $0.7 million of accumulated depreciation associated with the sale of containers and chassis in 2008, 2007 and 2006, respectively. Equipment under capital lease is included above with a cost of $0.8 million and accumulated amortization of $0.2
million at December 26, 2008.



During 2008, the Company
had cash capital expenditures of $24.8 million. Cash capital expenditures in 2008 for the SAP software project totaled $16.6 million, with an additional $0.9 million accrued in work-in-progress. The Company capitalized $0.7 million of interest
related to the SAP software project during 2008. The Company will continue to avail itself of the services and support under its existing long-term technology services agreement with APL Limited, until such time as the SAP project is complete. Of
the remaining $8.2 million of cash capital expenditures in 2008, $4.6 million was for the purchase of 450 53-foot chassis and $3.6 million was for normal computer replacement items. The Company received $1.8 million from the sale of containers and
chassis and retired $9.9 million of property during the year.



During 2007, the Company had cash capital expenditures of $14.0 million. Cash capital expenditures for the SAP software project totaled $10.6 million for 2007, with an additional $0.8 million accrued in work-in-progress. The remaining $3.4
million of capital expenditures in 2007 was for normal computer replacement items. The Company received $0.9 million from the sale of containers and other equipment and retired $1.7 million of property during the year.



During 2006, the Company had capital expenditures of $3.7 million primarily
for normal computer replacement items. The Company received $0.2 million from the sale of containers and other equipment and retired $0.8 million of property during the year.



As part of the recapitalization of the Company and its acquisition of Pacer Logistics in May 1999, the Company received
$39.6 million in net proceeds from the sale and leaseback of 199 railcars originally purchased in 1998. A deferred gain of $1.6 million was recorded upon sale and is being amortized over the 13-year life of the lease.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



NOTE 10. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES



Accounts payable and other accrued liabilities at December 26, 2008 and
December 28, 2007 were as follows (in millions):



|                                                     |  |      |       |      |   |      
|---------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                     |  | 2008 |       | 2007
|Accounts payable                                     |  | $    | 65.7  |      | $ | 67.3 
|Accrued rail liability                               |  |      | 44.3  |      |   | 52.2 
|Accrued compensation and benefits                    |  |      | 12.3  |      |   | 9.0  
|Accrued freight payable                              |  |      | 6.4   |      |   | 6.4  
|Accrued equipment maintenance and lease              |  |      | 5.6   |      |   | 6.5  
|Accrued dividends payable                            |  |      | 5.2   |      |   | 5.2  
|Accrued volume rebates payable                       |  |      | 3.2   |      |   | 13.3 
|Uncertain tax positions                              |  |      | 0.6   |      |   | 4.1  
|Severance and facility exit liability                |  |      | 0.4   |      |   | 2.3  
|Accrued interest payable                             |  |      | 0.3   |      |   | 0.5  
|Accrued administrative costs                         |  |      | 0.2   |      |   | 0.6  
|Accrued litigation liability                         |  |      | -     |      |   | 3.3  
|Accrued income taxes payable                         |  |      | -     |      |   | 0.3  
|Other accrued liabilities                            |  |      | 14.1  |      |   | 13.1 
|                                                     |  |      |       |      |   |      
|Total accounts payable and other accrued liabilities |  | $    | 158.3 |      | $ | 184.1
|                                                     |  |      |       |      |   |      



NOTE 11. LEASES



The Company leases doublestack railcars, containers, chassis, tractors, data
processing equipment and real and other property. Future minimum lease payments under noncancelable leases at December 26, 2008 for the five years subsequent to 2008 and thereafter are summarized as follows (in millions):



|                                                                 |  |               |     |                 |   |      
|---------------------------------------------------------------- |  | ------------- | --- | --------------- | - | -----
|                                                                 |  | CapitalLeases |     | OperatingLeases
|2009                                                             |  | $             | 0.3 |                 | $ | 87.8 
|2010                                                             |  |               | 0.3 |                 |   | 80.4 
|2011                                                             |  |               | -   |                 |   | 69.0 
|2012                                                             |  |               | -   |                 |   | 56.2 
|2013                                                             |  |               | -   |                 |   | 44.5 
|Thereafter                                                       |  |               | -   |                 |   | 60.4 
|                                                                 |  |               |     |                 |   |      
|Total minimum payments                                           |  | $             | 0.6 |                 | $ | 398.3
|                                                                 |  |               |     |                 |   |      
|Less amount representing interest (at an effective rate of 5.6%) |  |               | -   |                 |   |      
|                                                                 |  |               |     |                 |   |      
|                                                                 |  |              
|Present value of minimum lease payments                          |  | $             | 0.6 |                 |   |      
|                                                                 |  |               |     |                 |   |      



Rental expense was
$114.5 million, $109.5 million and $103.6 million for the fiscal years ended December 26, 2008, December 28, 2007 and December 29, 2006, respectively.



During 2008, the Company received 3,079 primarily 53-ft. leased containers and 3,038 53-ft., 48-ft. and 40-ft. primarily leased chassis,
and returned 2,423 primarily 48-ft. leased containers, 2,275 primarily 48-ft. and 40-ft. leased chassis, and sold 1,282 48-ft. owned chassis in an effort to more closely align our container and chassis fleets. During 2008, one railcar was destroyed.



During 2007, the Company received 1,658 primarily 53-ft.
leased containers and 1,072 53-ft., 48-ft. and 40-ft. leased chassis, and returned 2,191 primarily 48-ft. leased containers, 1,596 primarily 48-ft.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



and 40-ft. leased chassis, and sold 618 48-ft. owned chassis in an effort to more closely align our container and chassis fleets. During 2007, four railcars
were destroyed.



The Company receives income from others for
the use of its doublestack railcars and containers. These income amounts are included in revenues. Rental income was $60.9 million, $66.2 million and $69.5 million for the fiscal years ended December 26, 2008, December 28, 2007 and
December 29, 2006, respectively.



NOTE 12. SUPPLEMENTAL CASH FLOW
INFORMATION



Supplemental cash flow information is as
follows (in millions):



|               |  |                   |      |                  |   |                  |  |   |     
|-------------- |  | ----------------- | ---- | ---------------- | - | ---------------- |  | - | ----
|               |  | Fiscal Year Ended
|               |  | December 26,2008  |      | December 28,2007 |   | December 29,2006
|Cash payments: |  |                   |      |                  |   |                  |  |   |     
|Interest       |  | $                 | 3.2  |                  | $ | 4.7              |  | $ | 6.7 
|Income taxes   |  | $                 | 32.6 |                  | $ | 24.1             |  | $ | 37.4



NOTE 13. EARNINGS/(LOSS) PER SHARE



The following table sets forth the computation of
earnings/(loss) per share-basic and diluted (in millions, except share and per share amounts):



|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|--------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------------- |  | - | ----------
|                                                                            |  | Fiscal Year Ended
|                                                                            |  | December 26,2008  |            |   | December 28,2007 |   | December 29,2006
|Numerator:                                                                  |  |                   |            |   |                  |   |                  |  |   |           
|Net income/(loss)  basic                                                   |  | $                 | (16.6      | ) |                  | $ | 54.3             |  | $ | 68.3      
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|Numerator for earnings/(loss) per share  diluted                           |  | $                 | (16.6      | ) |                  | $ | 54.3             |  | $ | 68.3      
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|                                                                            |  |                   |           
|Denominator:                                                                |  |                   |            |   |                  |   |                  |  |   |           
|Denominator for earnings/(loss) per share-basic  Common shares outstanding |  |                   | 34,616,598 |   |                  |   | 35,587,755       |  |   | 37,354,785
|                                                                            |  |                   |           
|Effect of dilutive securities:                                              |  |                   |            |   |                  |   |                  |  |   |           
|Stock options/Restricted stock                                              |  |                   | -          |   |                  |   | 323,491          |  |   | 666,077   
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|                                                                            |  |                   |           
|Denominator for earnings/(loss) per share  diluted                         |  |                   | 34,616,598 |   |                  |   | 35,911,246       |  |   | 38,020,862
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|                                                                            |  |                   |           
|Earnings/(loss) per share  basic                                           |  | $                 | (0.48      | ) |                  | $ | 1.53             |  | $ | 1.83      
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           
|                                                                            |  |                   |           
|Earnings/(loss) per share  diluted                                         |  | $                 | (0.48      | ) |                  | $ | 1.51             |  | $ | 1.80      
|                                                                            |  |                   |            |   |                  |   |                  |  |   |           



Anti-dilutive shares
attributable to outstanding stock options and restricted stock were excluded from the calculation of diluted net income per share. For the years ended December 26, 2008, December 28, 2007 and December 29, 2006, the weighted
average shares outstanding that were anti-dilutive were 577,576 shares, 353,618 shares and 171,994 shares, respectively.



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##### Table of Contents

PACER INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)



NOTE 14. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)



The following table sets forth selected quarterly financial data for each of
the quarters in 2008 and 2007 (in millions, except per share amounts):



|                                    |  |          |       |        |   |       |  |        |       |  |   |       |  
|----------------------------------- |  | -------- | ----- | ------ | - | ----- |  | ------ | ----- |  | - | ----- | -
|                                    |  | Quarters |      
|                                    |  | First    |       | Second |   | Third |  | Fourth |      
|Fiscal year ended December 26, 2008 |  |          |       |        |   |       |  |        |       |  |   |       |  
|                                    |  |          |       |       
|Revenues                            |  | $        | 509.4 |        | $ | 518.4 |  | $      | 556.2 |  | $ | 503.7 |  
|Gross profit 1/                     |  |          | 75.3  |        |   | 75.1  |  |        | 81.9  |  |   | 61.3  |  
|Income/(loss) from operations 2/    |  |          | 24.6  |        |   | 23.5  |  |        | 28.7  |  |   | (75.0 | )
|Net income/(loss) 2/                |  |          | 14.3  |        |   | 13.8  |  |        | 20.4  |  |   | (65.1 | )
|Basic earnings/(loss) per share     |  | $        | 0.41  |        | $ | 0.40  |  | $      | 0.59  |  | $ | (1.87 | )
|Diluted earnings/(loss) per share   |  | $        | 0.41  |        | $ | 0.40  |  | $      | 0.59  |  | $ | (1.87 | )
|                                    |  |          |       |       
|Fiscal year ended December 28, 2007 |  |          |       |        |   |       |  |        |       |  |   |       |  
|                                    |  |          |       |       
|Revenues                            |  | $        | 465.1 |        | $ | 474.9 |  | $      | 489.3 |  | $ | 540.2 |  
|Gross profit 1/                     |  |          | 66.4  |        |   | 70.4  |  |        | 73.4  |  |   | 88.8  |  
|Income from operations              |  |          | 14.4  |        |   | 21.5  |  |        | 23.3  |  |   | 35.2  |  
|Net income                          |  |          | 7.8   |        |   | 12.5  |  |        | 13.4  |  |   | 20.6  |  
|Basic earnings per share            |  | $        | 0.21  |        | $ | 0.34  |  | $      | 0.39  |  | $ | 0.59  |  
|Diluted earnings per share          |  | $        | 0.21  |        | $ | 0.34  |  | $      | 0.38  |  | $ | 0.59  |  





1/ Gross profit is calculated as revenues less cost of purchased transportation and services and less direct operating expenses including
depreciation.



2/ The fourth quarter of 2008
includes a pre-tax goodwill impairment charge of $87.9 million ($73.3 million after-tax or $2.11 per diluted share) related to the Companys logistics segment.



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##### Table of Contents

Schedule II



Pacer International, Inc. and Subsidiaries



Valuation and Qualifying Accounts

(in millions)



|                                |  |                                     |      |   |                                      |   |      |                |  |           |          |  |                               |      |   |  |   |      |  
|------------------------------- |  | ----------------------------------- | ---- | - | ------------------------------------ | - | ---- | -------------- |  | --------- | -------- |  | ----------------------------- | ---- | - |  | - | ---- | -
|Column A                        |  | Column B                            |      |   | Column C                             |   |      | Column D       |  |           | Column E | 
|Description                     |  | Balances atBeginningof FiscalPeriod |      |   | Additions(Charged)/Credited toIncome |   |      | Deductions (1) |  | Other (2) |          |  | Balancesat End ofFiscalPeriod |     
|                                |  |                                     |      |   |                                     
|December 26, 2008               |  |                                     |      |   |                                      |   |      |                |  |           |          |  |                               |      |   |  |   |      |  
|Allowance for doubtful accounts |  | $                                   | (4.6 | ) |                                      | $ | (3.3 | )              |  | $         | 3.0      |  | $                             | -    |   |  | $ | (4.9 | )
|                                |  |                                     |      |   |                                     
|December 28, 2007               |  |                                     |      |   |                                      |   |      |                |  |           |          |  |                               |      |   |  |   |      |  
|Allowance for doubtful accounts |  | $                                   | (5.3 | ) |                                      | $ | (1.9 | )              |  | $         | 2.6      |  | $                             | -    |   |  | $ | (4.6 | )
|                                |  |                                     |      |   |                                     
|December 29, 2006               |  |                                     |      |   |                                      |   |      |                |  |           |          |  |                               |      |   |  |   |      |  
|Allowance for doubtful accounts |  | $                                   | (6.4 | ) |                                      | $ | (2.0 | )              |  | $         | 3.4      |  | $                             | (0.3 | ) |  | $ | (5.3 | )





|(1) |  | Represents write-off of amounts.
|--- |  | --------------------------------



|(2) |  | Represents recovery of amounts.
|--- |  | -------------------------------



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##### Table of Contents

EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                        
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Document Description                                                                                                                                                                                                   
|        | 
|10.39   |  | Form of Amendment to Employment Agreement, dated as of December 31, 2008, signed with executive officers and other key personnel subject to Employment Agreements.                                                     
|        | 
|10.40   |  | Employment Agreement, dated March 1, 2008, between Pacer International, Inc. and Marc L. Jensen.                                                                                                                       
|        | 
|10.41   |  | Employment Agreement, dated July 15, 2008, between Pacer International, Inc. and Karen S. Rice.                                                                                                                        
|        | 
|10.42   |  | Amended and Restated Employment Agreement dated as of February 16, 2009 between Pacer International, Inc. and Brian C. Kane.                                                                                           
|        | 
|10.43   |  | Amendment dated February 16, 2009 to Employment Agreement dated as of October 1, 2003 as amended by amendments dated November 1, 2006 and December 31, 2008 between Pacer
International, Inc. and Michael E. Uremovich.
|        | 
|10.44   |  | Amendment dated February 16, 2009 to Employment Agreement dated as of August 22, 2001 as amended by amendments dated February 19, 2007 and December 31, 2008 between Pacer
International, Inc. and Michael F. Killea.  
|        | 
|14      |  | Code of Ethics                                                                                                                                                                                                         
|        | 
|21      |  | Subsidiaries of Pacer International, Inc.                                                                                                                                                                              
|        | 
|23      |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                               
|        | 
|31.1    |  | Certification of Michael E. Uremovich pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                        
|        | 
|31.2    |  | Certification of Brian C. Kane pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                               
|        | 
|32      |  | Certification of Michael E. Uremovich and Brian C. Kane pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002