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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2004

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)

2300 Clayton Road, Suite 1200

Concord, CA 94520

Telephone Number (887) 917-2237

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

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

Common Stock (Par Value $0.01 per share)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.             

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yes    x    No            

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $573,771,901 at June 25, 2004 (using the NASDAQ National Market closing price).

On March 1, 2005 the Registrant had 37,351,472 outstanding shares of Common Stock, par value $.01 per share.

Documents Incorporated by Reference – Portions of the registrant’s definitive Proxy Statement for the annual meeting of shareholders has been incorporated by reference into Part III of this Form 10-K. See pages 57 to 61 for the exhibit index.

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General Information

In this annual report, “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 wholesale business that provides intermodal equipment and arranges rail transportation is a division of Pacer International operating under the name Pacer Stacktrain and is referred to as “Stacktrain” in this annual report. References to our wholesale operations include our Stacktrain operations and our local cartage operations, and references to our retail operations include our intermodal marketing (also referred to as rail brokerage), truck brokerage, truck services, international freight forwarding, supply chain management services and warehousing and distribution services.

This annual report may contain market data related to the transportation and logistics industries and their segments, including the third-party logistics market, and estimates regarding their size and growth. This market data has been included in reports published by organizations such as Standard & Poor’s, Cass Information Systems, the American Trucking Association, the Association of American Railroads and Armstrong & Associates. These industry publications generally indicate that they have derived these data from sources believed to be reliable, but do not guarantee the accuracy or completeness of the data. While we believe these industry publications to be reliable, we have not independently verified the data or any of the assumptions on which the estimates are based. Except as otherwise noted, statements as to our size and position relative to our competitors are based on revenues.

We file our quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K, annual report to shareholders and annual Proxy Statement with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to 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-international.com, as soon as reasonably practical after we electronically file such material with the SEC. Information contained on our website is not part of this report or of any registration statement that incorporates this report by reference.

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K contains forward looking statements, in accordance with 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 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 our completed and 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 are discussed under “Risks Related to our Business” and elsewhere in this annual report and include:

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Our actual results of operations and execution of our business strategy could differ materially from those expressed in, or implied by, the forward-looking statements. In addition, past financial and/or operating performance is not necessarily a reliable indicator of future performance and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. In evaluating our forward-looking statements, you should specifically consider the risks and uncertainties discussed under “Risk Factors” in this annual report. 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. 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.

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Part I.

ITEMS 1. AND 2. BUSINESS AND PROPERTIES

Overview

We are a leading non-asset based North American logistics provider. Within North America, we are one of the largest truck brokers, and we are one of the largest intermodal marketing companies, which facilitate the movement of freight by trailer or container using two or more modes of transportation. We focus our business on our core intermodal product, with intermodal sales representing approximately 76% of our total revenues. We believe that our competitive advantages include: the ability to pass volume rate savings and economies of scale to our customers; a significant opportunity to cross-sell services to existing customers; the flexibility to tailor services to our customers’ needs in rapidly changing freight markets; and the ability to provide more reliable and consistent services. Using our proprietary information systems, we provide logistics services to numerous Fortune 500 and multi-national companies, including Big Lots, C.H. Robinson, General Electric, Sony, Union Pacific, Wal-Mart Stores and Whirlpool, which together represented approximately 19% of our 2004 gross revenues, as well as numerous middle-market companies. We utilize a non-asset based strategy in 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 assets.

We believe our non-asset based strategy results in reduced working capital requirements, as compared to those of asset-based transportation providers. In our wholesale segment, our contractual arrangements with our underlying rail carriers and local trucking or drayage companies do not require us to pay for rail or truck transportation services that are not needed to service our customers’ shipping needs. In our retail segment, our contractual arrangements with rail and truck carriers and equipment providers also 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 intermodal marketing and rail and truck brokerage industries in which our retail segment competes. Also, our trucking services divisions utilize independent owner/operators, who own and operate their 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.

Our Service Offerings

We provide our logistics services from two operating segments, our wholesale segment which provides services principally to transportation intermediaries and international shipping companies and our retail segment which provides services principally to end-user customers. These segments have separate management teams and offer different but related products and services (see Note 10 to the Consolidated Financial Statements for the financial results by segment). We believe that the combination of our wholesale and retail products and our ability to provide our customers with a comprehensive portfolio of services presents opportunities for enhanced growth and operational synergies. For example, revenues generated by our wholesale segment and originated by our retail segment were approximately $122 million, $127 million and $128 million in 2004, 2003 and 2002, respectively.

Wholesale Services

Intermodal Services

Intermodal transportation is the movement of freight via trailer or container using two or more modes of transportation which nearly always include a rail and truck segment. Our use of the doublestack method, consisting of the movement of cargo containers stacked two high on special railcars, significantly improves the efficiency of our service by increasing capacity at low incremental cost without sacrificing quality of service. We are the largest non-railroad provider of intermodal rail service in North America. We sell intermodal service primarily to intermodal marketing companies, large automotive intermediaries and international shipping companies as well as to our own internal intermodal marketing company. We compete primarily with rail carriers offering intermodal service and indirectly with over-the-road full truckload carriers.

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Through long-term contracts and other operating arrangements with North American railroads, including Union Pacific, CSX, TFM in Mexico, and Canadian National Railroad, we have access to a 50,000-mile North American rail network serving most major population and commercial centers in the United States, Canada and Mexico. These contracts 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 doublestack railcars, containers and chassis, substantially all of which are leased. As of December 31, 2004, our equipment consisted of 1,847 doublestack railcars, 25,915 containers and 25,877 chassis, which are steel frames with rubber tires used to transport containers over the highway. We provide APL Limited and other shipping companies with equipment repositioning services 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 the shipping companies for our repositioning service and from the other customers for shipment of their freight. In 2004, 2003 and 2002, we filled 95,092, 92,356 and 76,104 repositioned containers, respectively, with freight for shipment via our rail network on behalf of our domestic customers.

The size of our leased and owned equipment fleet, the frequent departures available to us through our rail contracts and the scope of 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 the responsiveness and reliability required by our customers at a competitive price. In addition, our access to information technology enables us to continuously track cargo containers, chassis and railcars throughout our transportation network. Through our equipment fleet and arrangements with rail carriers, we can control the transportation equipment used in our wholesale operations and are able to employ full-time personnel on-site at the terminals, which allows us to ensure close coordination of the services provided at these facilities.

Local Cartage

Our local cartage operations are largely provided in and around major U.S. cities including Los Angeles, Long Beach, San Diego, Lathrop, Oakland, Sacramento and City of Industry (California), Houston and Dallas (Texas), Jacksonville (Florida), Chicago (Illinois), Columbus and Marysville (Ohio), Memphis (Tennessee), Kansas City (Kansas), Charleston (South Carolina), Seattle (Washington), Portland (Oregon) and Atlanta, Savannah and Dalton (Georgia). We contract with independent trucking contractors and maintain interchange agreements with many major steamship lines, railroads and intermodal equipment providers. This network allows us to supply the local transportation requirements of shippers, ocean carriers and freight forwarders across the country.

Retail Services

Rail Brokerage

We arrange for and optimize the movement of our customers’ freight in containers and trailers throughout North America utilizing truck and rail transportation. We arrange for a full container or trailer load shipment to be picked up at origin by truck and transported to a site for loading onto a train. The shipment is then transported via railroad (using either our wholesale 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 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. We provide the majority of these services both internally through our wholesale service and truck services divisions, and externally through third-party rail and truck carriers. Our rail brokerage operations are based in Los Angeles, Pasadena and Livermore (California), Rutherford (New Jersey), Memphis (Tennessee), Chicago (Illinois), Jacksonville (Florida), Dublin and Dayton (Ohio), and Toronto (Canada). Our experienced transportation personnel are responsible for operations, customer service, marketing, management information systems and our relationships with the rail carriers.

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Through our rail brokerage operations, we assist the railroads and our wholesale 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. We believe that the combination of our wholesale Stacktrain and local cartage operations with our rail brokerage services enables us to provide enhanced service to our customers and provides the opportunity for increased profitability and growth.

Truck Brokerage and Truck Services

Through our truck brokerage division, we arrange the movement of freight in containers or trailers by truck using a nationwide network of over 5,000 independent trucking companies. By utilizing our aggregate volumes to negotiate rates, we are able to provide high quality service at attractive prices. We provide truck brokerage services throughout North America through our customer service centers in Livermore (California), Dallas (Texas), Chicago (Illinois), Phoenix (Arizona), Conyers (Georgia), Rutherford (New Jersey), and Dublin (Ohio). We manage all aspects of these services for our customers, including selecting qualified carriers, negotiating rates, tracking shipments, billing and resolving difficulties.

Our separate truck services division provides dry van and 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 680 trucks equipped with van, flatbed and heavy-haul trailers.

We believe that our ability to provide a range of trucking services through our retail truck brokerage and truck services divisions and our wholesale local cartage operations provides a competitive advantage as companies increasingly seek to outsource their transportation and logistics needs to companies that can manage multiple transportation requirements.

International Freight Forwarding Services

As an international freight forwarder, we provide freight forwarding services that involve transportation of freight into or out of the United States. As an indirect ocean carrier or non-vessel operating common carrier and a customs broker, we manage international shipping for our customers and provide or connect 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 17 offices and over 100 agents worldwide.

As an indirect ocean carrier or non-vessel operating common carrier, we arrange 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 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; however, the aggregate amount of such damages that we have been required to pay in the past has not been material, and management does not believe that such contract terms will have a material adverse effect 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

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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 which 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.

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 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 chains and the distribution of finished goods to the end user. 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 select 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 service offerings.

Warehousing and Distribution

We focus on providing customers with a fully integrated package of transportation and warehousing services that are customized to fit their specific shipping patterns and business needs. Some of the more common services we provide include: the transport of loaded ocean containers between the port and our customer’s desired location, then the return of the empty container to the port (local drayage); the pick-up of multiple small shipments from multiple locations and consolidation into full truck load shipments (consolidation); the transfer of freight from international containers to rail-based or truck containers, including sorting and separation of a single ocean container for shipment to multiple domestic destinations (transloading); and full distribution center operations. We provide these services primarily on the West Coast where the majority of United States container freight originates.

Information Technology

Our information technology systems have an expandable network architecture that provides for the exchange of data electronically between our customers and us and an internet-based platform that allows customization and integration to meet our customers’ needs. This interconnection allows us to communicate with our customers and transportation providers. Our systems monitor and track shipments through the cycle and across varying transportation modes, providing timely visibility on shipment status, location and estimated delivery times. Our exception notification system informs us of any potential delays so we can alert our customer and other supply chain participants to minimize the impact of any problems. Our systems also measure transit times, rates, availability and logistics activity of our transportation providers to enable us to plan and execute transactions and freight movements more reliably, efficiently and cost effectively. By monitoring and tracking all containers, chassis and railcars throughout our network, we can identify their location and availability and provide increased equipment utilization and balanced freight flows.

Our systems also have the capability to analyze each customer’s usage patterns and needs in an effort to resolve performance bottlenecks, determine optimal distribution locations and identify areas for cost savings throughout their supply chain. We can also prepare and distribute customized reports detailing shipping patterns, volumes, reliability, timeliness and overall transportation costs, and can generate management reports to meet federal highway authority requirements and perform accounting and billing functions. Currently, our technological efforts are primarily focused on reducing customer service response time, enhancing the customer service profile database and expanding the number of customers and service providers with which we share data using electronic data interchange applications.

We manage our wholesale services with computer systems that enable continuous tracking of cargo containers, chassis and railcars throughout the intermodal system. These systems also provide us with performance, utilization and profitability indicators for our wholesale business. In addition, for an

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annual fee of $10.2 million (of which $3.4 million is subject to a 3% compounded annual increase since May 2003), APL Limited, pursuant to a long-term information technology agreement, provides us with the computers, software and other information technology necessary for the operation of and accounting for our wholesale Stacktrain business.

Our acquisition of Rail Van, Inc. (“Rail Van”) in December 2000 and its proprietary information technology systems has allowed us to further upgrade our information technology platform by integrating a significant portion of our retail operations onto the Rail Van information technology platform. The Rail Van systems were specifically designed for, and have since been enhanced by, the Company and are not available in the marketplace.

In March 2001, we began efforts to convert from APL Limited’s computer systems to a stand-alone capability based on information technology systems available from an unrelated third party developer. As a result of the developer’s breach of its fixed-price development contract with us, we instituted arbitration during the fourth quarter of 2002 seeking damages for the developer’s failure to complete the contract and other claims. For further discussion of the arbitration and the status of the conversion project, please see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Customers

We currently provide retail services on a nationwide basis to retailers, manufacturers, 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, Wal-Mart Stores and Whirlpool, which together represented approximately 19% of our 2004 gross revenues, as well as numerous middle market companies. Other important customers include the Scotts Company, Shaw Industries, Honda, Owens Corning, and Sysco. We have served many of our customers for over 15 years.

Our sales and customer service organizations, supported by our centralized pricing and logistics management systems, market our wholesale services primarily to intermodal marketing companies. We also market our wholesale services to the automotive industry and ocean carriers. Through our sales network, and the sales networks of the intermodal marketing companies to which we sell wholesale services, we provide wholesale services to more than 5,200 shippers.

For the fiscal years ended December 31, 2004, December 26, 2003 and December 27, 2002, there was no single customer that contributed more than 10% of our total gross revenues.

Sales and Marketing

As of December 31, 2004, our wholesale services were marketed by over 40 sales and customer service representatives. These representatives operate through seven regional and district sales offices and two regional service centers, which are situated in the major shipping locations across North America. The sales representatives are directly responsible for managing the business relationship with channel partners such as intermodal marketing companies, logistics companies and steamship lines as well as supporting joint selling efforts directed at the owner of the freight. In effect, our relationship with the intermodal marketing company’s sales force enables us to market our wholesale services and directly and indirectly access shippers in major metropolitan areas throughout North America. Wholesale sales efforts support and influence the selling activities to achieve the mutually agreed upon volume and revenue goals of wholesale channel partners and customers. The customer service representatives are responsible for supporting existing customers and sales representatives by providing cargo tracking services, resolving problems, and processing customer inquiries. Our wholesale efforts include a dedicated marketing function that drives our product development, strategic and tactical pricing, yield improvement, branding efforts and marketing communications.

As of December 31, 2004, our retail marketing and sales operations included over 100 direct sales people and agents. All of our sales people are supported by regional sales offices and sales managers located in Los Angeles and Livermore (California), Chicago (Illinois), Dublin (Ohio), Memphis

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(Tennessee), Atlanta (Georgia), Dallas (Texas) and Rutherford (New Jersey). Our salaried sales representatives are deployed in major business centers throughout the country and target mid-size and large customers. Our national network of commissioned sales agents provides additional geographic coverage and contributes additional business enabling us to achieve volume discounts and balance traffic flows. Both our salaried and commissioned sales forces are compensated by overall net revenue margin contribution to the company and therefore are incentivized to cross-sell additional services to their customers. Each line of business has product specialists to support the general line sales force on specific cross-sell opportunities.

In addition to our domestic sales force, we also have an extensive international network of sales and customer service representatives located in 8 offices and 75 agencies in over 70 countries.

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 wholesale 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. from APL Limited and our redemption of a portion of the remaining shares of common stock held by APL Limited. On the date of the recapitalization, we 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 incorporated on March 5, 1997 and was 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 in the retail segment that have complemented our core retail business operations and expanded our geographic reach and service offerings for intermodal marketing, international freight forwarding and other logistics services. In 2001 we integrated our core retail business operations into our Pacer Global Logistics subsidiary.

In June 2002, we completed our initial public offering of common stock, and used the net proceeds to repay a significant amount 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 issued in connection with our recapitalization. In August 2003, we completed an underwritten secondary public offering of common stock on behalf of certain selling stockholders. There were no new shares issued and we received no proceeds from this offering. In November 2003, we completed the repricing of our senior credit facility.

On January 7, 2004, we filed with the SEC a “shelf” registration statement, providing for the issuance by the Company of up to $150 million in additional common stock, preferred stock and warrants to purchase any of such securities and for the sale by certain selling stockholders of 8,702,893 shares of common stock. The registration statement was declared effective on January 21, 2004. There are currently no arrangements in place for the Company to issue any additional securities.

On April 8, 2004 and November 10, 2004, we filed with the SEC supplements to the prospectus included in the shelf registration statement discussed in the preceding paragraph for the sale by the selling stockholders named in the shelf registration statement of all 8,702,893 shares of the Company’s common stock in underwritten public offerings. The April 8, 2004 offering was for 4,000,000 shares at $20.07 per share and the November 10, 2004 offering was for 4,702,893 shares at $17.67 per share, net to the selling shareholders. There were no new shares issued in either offering and the Company received no proceeds from the offerings. Including the January 7, 2004 registration statement, the Company paid $0.5 million of fees and expenses related to these offerings and charged the costs to the Selling, General and Administrative Expense line item on the Statement of Operations. Upon completion of the November 2004 offering, Apollo Management and its affiliates no longer owned any shares of our common stock.

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Facilities/Equipment

We lease space in an office building in Concord, California for our wholesale segment and corporate headquarters and an office building in Dublin, Ohio for our retail segment headquarters.

Our wholesale transportation network operates out of more than 65 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 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 an operations center provides, among other services, insurance, claims handling, safety compliance, credit, billing and collection and operating advances and payments to drivers and agents.

Our wholesale 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 79% of our chassis and approximately 89% of our doublestack 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 mark “BRAN.” 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 car’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 31, 2004, our wholesale Stacktrain equipment fleet consisted of the following:

During 2004, we received 4,321 primarily 53-ft. leased containers and 3,853 primarily leased chassis and returned 1,917 primarily 48-ft leased containers and 2,248 primarily leased chassis. During

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2004, three railcars were destroyed. At December 31, 2004, we had on order 4,364 53-ft. containers with an option to order an additional 2,000 containers by March 31, 2005. All containers are expected to be delivered by the end of September 2005. In addition, at December 31, 2004, we had on order 2,650 53-ft. chassis with an option to order an additional 1,400 chassis by May 31, 2005. All chassis are expected to be delivered by September 2005, and will be financed through operating leases.

During 2003, we received 3,530 primarily 53-ft. leased containers and 2,604 primarily leased chassis and returned 1,693 primarily 48-ft leased containers and 1,530 primarily leased chassis. During 2003, five railcars were destroyed.

During 2002, we received 1,156 leased containers and 1,770 leased chassis and returned 1,674 primarily 48-ft leased containers and 1,795 leased chassis as part of a program to downsize this type of equipment. Leased railcars remained unchanged in 2002.

We also own a limited amount of equipment to support our trucking operations. The majority of our trucking operations are conducted through contracts with independent trucking companies that own and operate their own equipment. We lease two warehouses in Kansas City (Kansas) and five facilities in Los Angeles (California) for dock space, warehousing and parking for tractors and trailers.

Suppliers

Railroads

We have long-term contracts with our primary rail carriers, Union Pacific and CSX, as well as TFM in Mexico, and from time to time we maintain other operating arrangements with the other North American railroads, including Canadian National Railroad. These contracts generally provide for access to terminals controlled by the railroads as well as support services related to our wholesale Stacktrain operations. Through these contracts, our wholesale business has established a North American transportation network. Our retail 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 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 rail contracts with Union Pacific and CSX represent the substantial majority of our wholesale Stacktrain division’s cost of purchased transportation, while business with other railroads, including the Canadian National Railroad and TFM, represented approximately 7% of our wholesale segment’s cost of purchased transportation in 2004.

Through our contracts with these rail carriers, we have access to a 50,000 mile rail network throughout North America. Our rail contracts generally provide that the rail carriers will perform point to point, commonly referred to as linehaul, 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 generally establish per container rates for Stacktrain shipments made on rail carriers’ transportation networks and typically provide that we are obligated to transport a specified percentage of our total Stacktrain shipments with each of the rail carriers (subject to the rail carrier’s achievement of certain service performance standards). The terms of our rail contracts, including rates, are generally subject to adjustment or renegotiation throughout the term of the contract, 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 Stacktrain shipments.

Agents and Independent Contractors

We rely on the services of agents, who procure business for and manage a group of trucking contractors, and independent trucking contractors in long haul and local trucking services. 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

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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 agents and independent contractors are typically long-term in practice, they are generally terminable by either party on short notice.

Agents and independent 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 they haul. Under the terms of our typical lease contracts, agents and independent contractors must pay all 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 rail brokerage 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.

Risk Management and Insurance

In our rail and truck 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 and $100,000 in cargo insurance. Many carriers provide insurance exceeding these minimums. Railroads, which are generally self-insured, provide limited common carrier liability protection, generally up to $250,000 per shipment. 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, or 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 cargo insurance for their shipments.

We also carry commercial automobile liability insurance, truckers commercial automobile liability, commercial general liability, employers liability insurance, and umbrella and excess umbrella liability policies, with a total insurance limit of $50 million. Our self-funded retention (deductible) levels may vary based on claim frequency, severity and timing factors. Our current self-retained level per incident for truckers commercial automobile liability is $1,500,000 until the aggregate value of claim payments per incident between $1,000,000 and $1,500,000 equals $500,000, at which time our per occurrence deductible reduces to $1,000,000. Our current self-retained level per incident for commercial general liability is $1,000,000. Our current workers compensation and employers liability deductible is $100,000 per incident. Our current self-funded retention (deductible) per incident for freight damage as an authorized carrier or warehouseman is $250,000.

Relationship with APL Limited

We have entered into a long-term agreement with APL Limited involving domestic transportation of APL Limited’s international freight by our wholesale 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 regions. However, domestic intermodal freight that originates in the United States moves predominantly westbound from eastern and Midwestern production centers to consumption centers on the West Coast. 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, thereby improving our bargaining position with

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the railroads regarding contract terms. In addition, we 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 wholesale customers, we receive compensation from both APL Limited for our repositioning service on a cost reimbursement basis and from the other customers for shipment of their freight.

APL Limited also supplies us with computer software and other information technology for our wholesale 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 other economic factors, many of which are beyond our control. Because we offer a variety of transportation modes and offer an economic intermodal product, we generally retain shipping volumes and benefit from increased use of our Stacktrain services at the expense of long-haul trucking competitors during down business cycles. In periods of strong economic growth, demand for limited transportation resources, as has occurred over the past 18 months, 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 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 wholesale 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. Our retail business competes primarily against other domestic non-asset-based transportation and logistics companies, asset-based transportation and logistics companies, third-party freight brokers, private shipping departments and freight forwarders. We also compete with transportation services companies for the services of independent commission agents, and with trucklines for the services of independent contractors and drivers. Competition in our wholesale and retail 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. In the wholesale business, our major competitors include Burlington Northern Santa Fe, Union Pacific, CSX Intermodal and J.B. Hunt Transport. Our major competitors in the retail business include C.H. Robinson, Expeditors International, ForwardAir, UTI Worldwide, Exel, Alliance Shippers, the supply chain solutions division of Ryder, Menlo Logistics, EGL, Inc. and Hub Group. Some of the competitors in the segments in which we operate, such as C.H. Robinson, Burlington Northern Santa Fe and Union Pacific, have significantly larger operations and revenues than we do.

Employees

As of December 31, 2004, we had a total of 1,752 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 results of operations.

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Our retail truck brokerage operations are licensed by the U.S. Department of Transportation (“DOT”) as a national freight broker in arranging for the transportation of general commodities by motor vehicle. The DOT prescribes qualifications for acting in our capacity 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 vehicle registration and licensing requirements. We and the carriers upon which we rely in arranging transportation services for our customers are also subject to a variety of federal and state safety and environmental regulations. Although compliance with regulations governing licenses in these areas has not had a materially adverse effect on our operations or financial condition in the past, there can be no assurance that these regulations or changes in these regulations will not adversely affect our operations 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 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.

Regulation of Our International Freight Forwarding Operations

We maintain licenses issued by the U.S. Federal Maritime Commission as an ocean transportation intermediary. Our ocean transportation intermediary 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 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.

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

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certain legal proceedings as discussed in “Item 3. Legal Proceedings”, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources” and “Note 9. – Commitments and Contingencies” to our consolidated financial statements. Based on currently available information and advice of counsel, we believe that we have meritorious defenses to the claims against us, and that none of these items will have a material adverse impact on the Company’s consolidated financial position, results of operations or liquidity. However, our present assessment of the claims could change 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 tanks for the storage of 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 business or financial condition 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 2005. We cannot guarantee, however, that future changes in environmental requirements or liabilities from newly discovered environmental conditions will not have a material effect on our business.

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.

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:

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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.

Risks Related to Our Business

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

We are dependent upon transportation equipment such as chassis and containers and rail, truck and ocean transportation services provided by independent third parties. We, along with competitors in our industry, have experienced equipment shortages in the past, particularly during peak shipping season in October and November. If we cannot secure sufficient transportation equipment or transportation services from these third parties to meet our customers’ needs, customers may seek to have their transportation and logistics needs met by other third parties on a temporary or permanent basis, and as a result, our business, results of operations and financial position could be materially adversely affected. In addition, the trucking industry, including the local drayage community, is facing an ongoing shortage of drivers. This shortage 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. Accordingly, driver shortages could adversely impact our profitability and limit our ability to expand our intermodal and highway service offerings.

If we have difficulty attracting and retaining agents and independent contractors, our 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 trouble 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 from which we draw is limited, and therefore competition from other transportation service companies and trucking companies has the effect of increasing the price we must pay to obtain their services. The industry is currently experiencing 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 results of operations could be adversely affected and we could experience difficulty increasing our business volume.

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Service instability in the intermodal industry could increase costs and decrease demand for our intermodal services.

We depend on the major railroads in the United States for substantially all of the intermodal transportation services we provide. In many markets, rail service is limited to a few railroads or even a single railroad. Any reduction in service by the railroads with which we have relationships is likely to increase the cost of the rail-based services we provide and reduce the reliability, timeliness and overall attractiveness of our rail-based services. For example, from 1997 to 1999, service disruptions related to consolidation and restructuring in the railroad industry interrupted intermodal service throughout the United States. During the past 18 months, high demand for rail transportation, train resource shortages, severe weather and operating inefficiencies have resulted in increased transit times, terminal congestion and decreased equipment velocity. While we believe that our customer service capabilities, extensive equipment fleet and network of personnel on-site at terminals enables us to provide comparatively better service to our intermodal customers, rail service issues increase our costs and create a challenging operating environment. To the extent that we operate on rail carriers that experience worse service performance, demand for our intermodal services may be adversely affected. In addition, customers may switch to over-the-road carriers to avoid intermodal transportation delays. Although we have not been substantially adversely affected by past service disruptions resulting from rail industry consolidation and rail network congestion, we could be substantially affected by service disruptions in the future.

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

The transportation services industry is highly competitive. Our retail businesses compete primarily against other domestic non-asset based transportation and logistics companies, asset-based transportation and logistics companies, third-party freight brokers, shipping departments of our customers and other freight forwarders. Our wholesale business competes primarily with over-the-road full truckload carriers, conventional intermodal movement of trailers on flat cars, and containerized intermodal rail services offered directly by railroads. Some of our competitors have substantially greater financial, marketing and other resources than we do, which may allow them to better withstand 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 global 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, which attempt to provide an online marketplace for buying and selling supply chain services.

Historically, competition has created downward pressure on freight rates. In the past, we have experienced downward pressure in the pricing of our wholesale and retail services that has affected our revenues and operating results. In particular, our wholesale segment, has offered lower rates to its customers to match lower rates offered by our railroad competitors in the intermodal business. Such rate reductions could adversely affect the yields of our intermodal product.

Rate increases, particularly when taken by our railroad and highway transportation suppliers, may also have an adverse impact if our brokerage operations are unable to obtain commensurate price increases from our customers. For example, during 2004, due to increased demand, all the major rail carriers instituted price increases. Although the application of rate increases to our wholesale Stacktrain business is limited by our long-term contracts with the railroads, such increases have resulted in higher costs to our retail rail brokerage operation that it has not been able to fully pass on as quickly as the increases are implemented by the rail carriers. While our wholesale 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 affecting our consolidated results of operations.

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Our customers who are also competitors could transfer their business to their non-competitors which would decrease our profitability.

As a result of our company operating in two distinct but related intermodal segments, we buy and sell transportation services from and to many companies with which we compete. For example, Hub Group, GST Corp and Alliance Shippers, three of the 10 largest customers of our wholesale operations, who accounted for 21% of the 2004 revenues of our wholesale operations, are also competitors of our retail operations. 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 wholesale 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.

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 2004, Union Pacific accounted for approximately 7.5% of our gross revenues and our 10 largest customers accounted for approximately 43.3% of our gross 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.

Work stoppages 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 fluidity of the entire network. In addition, because the railroads’ workforce is generally subject to collective bargaining agreements, our business could be adversely affected by labor disputes between the railroads and their union employees. Our business could also be adversely affected by a work stoppage at one or more railroads or affecting providers of local trucking services from rail terminals. For instance, during late April and early May 2004, independent owner operators providing drayage services in Lathrop, Oakland and other Northern California areas refused to transport shipments to and from the rail facilities. This led to congestion at the rail facilities, which caused the Union Pacific Railroad to issue an embargo on shipments to Northern California destinations. Also on April 30, 2004, owner operators in the Los Angeles area refused to haul shipments. Our local cartage operations in Northern California and the Los Angeles were directly and adversely impacted by their owner operators’ refusal to haul freight, and the cartage service interruption has also aggravated rail service issues in Northern California where a substantial number of Stacktrain’s shipments originate or terminate. Although the work stoppage was ended quickly and our relations with our owner operators appear to have stabilized, the work disruption did adversely affect our results of operations in the second quarter of 2004. We have also experienced service disruptions due to other conditions, such as adverse weather or an act of terrorism or war, that hinder the railroads’ and local trucking companies’ ability to provide transportation services. During 2004 and early 2005, hurricanes in Florida and Alabama and severe storms in Nevada and California have resulted in the railroads’ embargoing shipments to geographic areas and rail lines affected by these weather events.

Work stoppages affecting seaports and railroads may also adversely impact our operations. On September 29, 2002 (during our fiscal fourth quarter), West Coast ports were shut down as a result of a labor dispute with the longshoremen who offload freight that we subsequently transport. On October 9, 2002, the ports were reopened as a result of a court order implementing provisions of the Taft-Hartley Act. Third party international loadings and repositioning revenue from our wholesale segment were adversely impacted during the shutdown of the ports. In addition, railcar utilization declined during the shutdown impacting railcar revenues. The shutdown also impacted our local cartage and harbor drayage on the West Coast with lower volumes and our retail segment international freight forwarding operations were impacted due to reduced ship sailings. This service disruption ended in January 2003 when a new six-year contract was agreed to by the International Longshore and Warehouse Union and the Pacific Maritime Association. Work stoppages, slowdowns or other disruptions, such as resulting from an act of terrorism or war in the future, are beyond our reasonable control and such events, particularly if they have a material effect on

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major railroad interchange facilities or areas through which significant amounts of our rail shipments pass, such as the Los Angeles and Chicago gateways, could adversely affect our operating income and cash flows in both our wholesale and retail segments.

If we fail to develop, integrate, upgrade or replace our information technology systems, we may lose orders and customers or incur costs beyond our expectations.

Increasingly, we compete for customers based upon the flexibility and sophistication of our technologies supporting our services. 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, 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 that could seriously harm our business.

During 2004, we settled our arbitration with an unrelated third-party developer seeking damages for the developer’s failure to complete a contract to develop a stand-alone information technology system to replace APL Limited’s computer system used by our Stacktrain operations. While the arbitration was pending, the developer ceased doing business and made a general assignment of its assets for the benefit of its creditors under California law. Under the settlement agreement, we took delivery from the assignee and a third party escrow agent of all of the partially completed software code that had been developed by the developer under the original contract. With the assistance of independent consultants, we are evaluating the extent of the software development work that had been performed by the developer and the feasibility of completing the development of the software and placing it into service. We have capitalized an aggregate of $11.3 million for the acquisition and development of software in connection with this conversion project, including $6.9 million paid to the third party developer involved in the arbitration. While we believe that it is probable that software being developed for internal use will be completed and placed in service, if facts and circumstances change which would indicate that it is no longer probable that the computer software under development will be completed and placed in service, we may need to recognize an impairment of the previously capitalized software.

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 risen significantly, reflective of the insurance environment in our industry and our claim experience. To offset, in part, the significant cost increases we have experienced, we have elected to increase our self-insured retention (deductible) levels for our public liability risk exposures. Our current deductible per incident for truckers commercial automobile liability is $1,500,000 until the aggregate value of claim payments per incident between $1,000,000 and $1,500,000 equals $500,000, at which time our per occurrence deductible reduces to $1,000,000. Our current deductible level per incident for commercial general liability is $1,000,000. Our current workers compensation and employers liability deductible is $100,000 per incident. Our current deductible per incident for freight damage as an authorized carrier or warehouseman is $250,000. We also are responsible for legal expenses within our deductible retentions for liability and workers’ compensation claims. We currently reserve for anticipated losses and expenses and regularly evaluate and adjust our claim reserves to reflect actual experience. If the ultimate results differ from our estimates, we could suffer losses above reserved amounts. To cover losses in excess of our self-insured retention, we maintain insurance with insurance carriers 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 for which we are self-insured increases, or 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.

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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 10% of our gross revenues in 2004 compared to 9% in 2003 and 2002. 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 in foreign countries will expose us to increased risk of loss from 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.

We have an extensive relationship with our former parent, APL Limited, and we depend on APL Limited for essential services. Our business and 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, APL Limited, the former owner of our wholesale 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 the chassis and equipment supplied by APL Limited. The additional wholesale 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 necessary for the operation of our wholesale Stacktrain business. 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, our business, results of operations and financial position could be materially adversely affected.

If we lose key personnel and qualified technical staff, our ability to manage the day-to-day aspects of our business will be weakened.

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 weakened. 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, particularly Donald C. Orris, our chairman, president and chief executive officer, could have a material adverse effect on our business, financial condition and results of operation. We face significant competition in the attracting and retaining personnel who possess the skill sets that we seek. Because our senior management team, particularly Mr. Orris, 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. Such relationships are especially important in a non-asset based company such as ours. Loss of these relationships could have a material adverse effect on our profitability.

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 retail truck brokerage operation is 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

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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 and/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 in which 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 results of operations, financial condition and liquidity.

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

The transportation industry is subject to legislative or 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 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. These revised regulations reduced the amount of time that drivers can spend driving, if shippers are unwilling to assist in managing the drivers’ non-driving activities, such as loading, unloading, and waiting. They may also affect the ability to make timely deliveries. In response to the new regulations, our trucking operations, among other responsive actions, began efforts to obtain reduced free times and higher accessorial charges from customers for driver waiting services. In July 2004, the United States Court of Appeals for the District of Columbia issued a decision rejecting the revised hours of service rules based on concerns regarding driver health as well as other issues such as driving time, rest periods and monitoring compliance. On September 30, 2004, Congress passed a law that allowed the new regulations to remain in effect until the DOT issues new regulations or September 30, 2005, whichever is earlier. Since the new regulations have gone into effect, we have endeavored to make appropriate pricing, operational and training adjustments to address the new regulations and mitigate their impact on our results of operations. While difficult to quantify, we believe that the new rules have negatively impacted our operating results due to the slight productivity decreases experienced by our drivers. As the industry continues to implement the new regulations and in connection with the issuance of additional new rules in 2005, we will endeavor to make appropriate adjustments in response. However, if these changes increase the amounts charged by the trucking companies and independent contractors we engage to provide transportation to our customers and we cannot pass the additional costs through to our customers, our operating results could continue to be adversely affected.

Future laws and regulations may be more stringent and require changes in operating practices, influence the demand for transportation services or require the outlay of significant additional costs. For instance, regulations imposing heightened security measures on transportation providers beyond those imposed since 2001 could slow the movement of freight through U.S. and foreign ports, across borders or within North America and thus could adversely affect our business. Additional expenditures incurred by us, or by our suppliers, who would pass the costs onto us through higher prices, would adversely affect our results of operation. In addition, we have a substantial number of wholesale customers who provide ocean carriage of intermodal shipments. These wholesale customers as well as our international freight forwarding operations are subject to regulation by the Federal Maritime Commission, U.S. Customs and by other international, foreign, federal and state authorities. Regulatory changes in the ocean shipping or international freight forwarding industries could affect our freight forwarding operations or have a material impact on the competitiveness and/or efficiency of operations of our various ocean carrier customers, which could adversely affect our business.

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In addition, as a publicly-traded company, we are also affected by changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002, new SEC regulations and NASDAQ National Market rules. Our efforts to comply with these 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. In particular, our efforts to comply with Section 404 of the Sarbanes-Oxley Act of 2002 and the related regulations requiring that we present our management’s assessment of our internal control over financial reporting and our independent auditors’ audit of that assessment has required the commitment of significant financial and managerial resources. During 2004, we paid auditors and consultants approximately $4.1 million pre-tax ($0.07 per diluted share after tax) related to this effort. In addition to the time and expense, these changing laws, regulations and standards impose other risks. For instance, while we have been able to determine in 2004 that our internal controls are effective, failure to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, may prevent us and our auditors from concluding in the future that our internal controls are effective. Such a conclusion that our internal controls are not effective could adversely impact our reputation with investors and our stock price.

Our operating results are subject to cyclical fluctuations and our quarterly revenues may also fluctuate, potentially affecting our stock price.

Historically, sectors of the transportation industry have been cyclical as a result of economic recession, customers’ business cycles, increases in prices charged by third-party carriers, interest rate fluctuations and other economic factors such as changes in fuel costs over which we have no control. Increased operating expenses incurred by third-party carriers can be expected to result in higher costs to us, and our net revenues and income from operations could be materially adversely affected if we were unable to pass through to our customers the full amount of increased transportation costs. We have a large number of customers in the automotive and consumer goods industries. If these customers experience cyclical movements in their business activity, due to an economic downturn, work stoppages or other factors over which we have no control, the volume of freight shipped by those customers may decrease and our operating results could be adversely affected. Any unexpected reduction in revenues 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.

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.

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.

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

As of December 31, 2004, we have significantly reduced our long-term debt to $154.1 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:

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We may not have sufficient cash to service our indebtedness.

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

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 and/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 effect any of these remedies on satisfactory terms, or at all.

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 our ability to: (1) declare dividends, 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.

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 substantially all of our assets.

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

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.

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

Identifying, acquiring and integrating businesses requires 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, financial condition and results of operation. These risks include:

We have acquired a number of businesses in the past and, although we are not presently considering any significant acquisitions, we may consider acquiring businesses in the future that provide complementary services to those we currently provide or expand our geographic presence. We cannot predict whether we will be able to identify suitable acquisition candidates or be able 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 relationship may depart. Further, logistics businesses we have acquired and may acquire in the future compete with many customers of our wholesale Stacktrain operations, and these customers may shift their business elsewhere if they believe our retail operations receive favorable treatment from our wholesale Stacktrain operations. If we are unable to successfully integrate business that we have acquired in the past or 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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ITEM 3. LEGAL PROCEEDINGS

The Company is party to various legal proceedings, claims and assessments arising in the normal course of its business activities. However, management believes none of these items will have a material adverse impact on the Company’s consolidated financial position, results of operations or liquidity.

Two of our subsidiaries engaged in local cartage and harbor drayage operations, Interstate Consolidation, Inc., which was subsequently merged into Pacer Cartage, Inc., and Intermodal Container Service, Inc., were named defendants in a class action filed in July 1997 in the State of California, Los Angeles Superior Court, Central District (the “Albillo” case), alleging, among other things, breach of fiduciary duty, unfair business practices, conversion and money had and received in connection with monies (including insurance premium costs) allegedly wrongfully deducted from truck drivers’ earnings. The plaintiffs and defendants entered into a Judge Pro Tempore Submission Agreement in October 1998, pursuant to which they waived their rights to a jury trial, stipulated to a certified class, and agreed to a minimum judgment of $250,000 and a maximum judgment of $1.75 million. In August 2000, the trial court ruled in our favor on all issues except one, namely that in 1998 our subsidiaries failed to issue to the owner-operators new certificates of insurance disclosing a change in our subsidiaries’ liability insurance retention amount, and ordered that restitution of $488,978 be paid for this omission. Plaintiffs’ counsel then appealed all issues except one (the independent contractor status of the drivers), and our subsidiaries appealed the insurance retention disclosure issue. In December 2003, the appellate court affirmed the trial court’s decision as to all but one issue, reversed the trial court’s decision that the owner-operators could be charged for the workers compensation insurance coverage that they elected to obtain through our subsidiaries, and remanded back to the trial court the question of whether the collection of workers compensation insurance charges from the owner-operators violated California’s Business and Professions Code and, if so, to determine an appropriate remedy. We sought review at the California Supreme Court of this workers compensation issue, and the plaintiffs sought review only of whether our subsidiaries’ providing insurance for the owner-operators constituted engaging in the insurance business without a license under California law. In March 2004, the Supreme Court of California denied both parties’ petitions for appeal, thus ending all further appellate review. As a result, the only remaining issue is whether our subsidiaries’ collection of workers compensation insurance charges from the owner-operators violated California’s Business and Professions Code and, if so, what restitution, if any, should be paid to the owner-operator class. The schedule for this new trial, which will be litigated in the same trial court that heard the original case, was set in the fourth quarter of 2004. At the court’s request, the parties will submit the evidence in the form of briefs, affidavits and other documents on a specific briefing schedule the court has established, as opposed to convening a full evidentiary trial. We expect the court will issue its holding sometime in the first half of 2005.

The same law firm prosecuting the Albillo case has filed a separate class action lawsuit in the same jurisdiction on behalf of a putative class of owner-operators (the “Renteria” class action) who are purportedly not included in the Albillo class. The claims in the Renteria case, which is being stayed pending full and final disposition of the remaining issue in Albillo, mirror those in Albillo, specifically, that our subsidiaries’ providing insurance for their owner-operators constitutes engaging in the insurance business without a license in violation of California law and that charging the putative class of owner-operators in Renteria for workers compensation insurance that they elected to obtain through our subsidiaries violated California’s Business and Professions Code. We believe that the final disposition of the insurance issue in Albillo in the Company’s favor precludes the plaintiffs from re-litigating this issue in Renteria. Based on the final ruling in Albillo on the insurance issue and other information presently available, and in light of our legal and other defenses on the insurance issue and the workers compensation related claim, management does not expect these legal proceedings to have a material adverse impact on our consolidated financial position, results of operations or liquidity.

Our wholly owned subsidiary, Pacific Motor Transport Company d/b/a Pacer Transport, was a defendant in a personal injury action in Upshur County, East Texas, Dicks v. Pacific Motor Transport Company, which arose out of a 1996 motor vehicle incident. The jury found Pacer Transport liable and awarded damages to the plaintiff in the amount of $607,000. Including pre- and post-judgment interest and court costs, the total amount of the judgment is approximately $1,250,000 at present.

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At trial, the jury did not find any negligence on the part of the plaintiff, who was riding in an elevated position in the back of a speeding pickup truck and was thrown from the bed when the pick-up truck allegedly swerved to avoid Pacer Transport’s truck as it pulled out into the roadway. The trial judge refused to set aside the jury’s finding that the plaintiff himself was not negligent in any way. We contend that this finding was incorrect under well-settled law in Texas in circumstances where a plaintiff’s own conduct contributes to or causes his own accident and injuries. We appealed to the Texas Court of Appeals which earlier this year refused to reverse the trial court. We then appealed to the Texas Supreme Court. The Supreme Court has ordered a full briefing of the appeal. We expect the briefing to be completed during the first quarter of 2005. Following the submission of briefs, the Supreme Court may either accept the appeal and hold oral arguments or deny the appeal in its entirety. If the Supreme Court denies our appeal, the full amount of the Dicks judgment, plus interest and costs, will become due and payable. Currently the unreserved portion of this possible loss is approximately $1,000,000.

We instituted a related case, Pacific Motor Transport Company v. Lockton Companies, Inc., Lockton Risk Services, Inc., and Cambridge Integrated Services Group, Inc., in which we seek to hold an insurance broker, the insurer’s managing general agent, and a claims administrator responsible for our losses in the Dicks case due to their mishandling of our claim for insurance coverage. At the time of the incident, we maintained a comprehensive insurance program consisting of primary insurance and excess insurance. The primary insurance policy applicable to the Dicks claim was subject to a $250,000 deductible. We provided all required notices of the Dicks claim and litigation to the insurer through its authorized representatives. Nevertheless, at the conclusion of the Dicks trial, the insurer’s agent “reserved rights” and refused to acknowledge any responsibility for losses above $250,000.

We then sued the insurer, the various Lockton entities and Cambridge. The insurer was then placed into receivership in Pennsylvania and has since gone out of business, and therefore has been removed from the case. We are still pursuing the case against the Lockton entities and Cambridge for violations of the Texas Insurance Code, negligent misrepresentation, and other claims, in which we seek to recover all of the losses, costs and damages arising out of the Lockton entities’ and Cambridge’s conduct in mishandling our insurance claim for the Dicks incident. The Lockton case is currently scheduled to go to trial in July 2005.

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 2004.

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding our executive officers.

Donald C. Orris has served as our Chairman, President and Chief Executive Officer since May 1999. Mr. Orris serves as Chairman of many of our subsidiaries, including Pacer Cartage, Inc. from its inception in April 1998, Ocean World Lines and RF International, Inc. since December 2000 and Pacer Transport from May 1997 to December 2004. In addition, he currently serves as Chairman of Pacer Global Logistics, Inc. Mr. Orris is also a director of Quality Distribution, Inc., a provider of bulk transportation services.

Gerry Angeli has served as an Executive Vice President of our company since May 1999. From March 1997 until June 2004, Mr. Angeli served as President and as a director of our subsidiary, Pacific Motor Transport Company. Since June 2004, he has served as Vice Chairman and a director of Pacific Motor Transport Company. Since October 2003, Mr. Angeli has served as Chairman of the Board of our indirect subsidiaries, S&H Transport, Inc. and S&H Leasing, Inc.

Jeffrey R. Brashares has served as Vice Chairman of Commercial Sales of our subsidiary, Pacer Global Logistics, Inc. since January 2005. From December 2000 to December 2004, he served as President of Transportation Services of Pacer Global Logistics. From 1984 until its acquisition by the company in December 2000, Mr. Brashares was an owner and served as President of Rail Van since 1984. Mr. Brashares joined Rail Van as Regional Sales Manager in 1976.

Charles C. Hoffman has served as Executive Vice President of Pacer Global Logistics and President of its Highway Services division since May 2003. He has been a director of our subsidiary, Pacific Motor Transport Company since June 2003. From February 2002 to May 2003, Mr. Hoffman was Director of Automotive Business Development with UPS. Mr. Hoffman also served as Vice President of Fritz Surface Transportation from June 2000 to February 2002, as Managing Director of Ryder Carrier Management Europe from 1996 to 2000; and as Chief Operating Officer of Logicorp, a non-asset based third-party logistics firm from 1989 to 1995.

Brian C. Kane has served as Vice President and Corporate Controller of our company since November 2003. 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.

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Prior to joining our company, Mr. Kane was Vice President 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 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.

Ronald Maillette has served as Chief Information Officer of our company since February 2005. From January 2004 until January 2005, Mr. Maillette served as our company’s Chief Information Security and Compliance Officer. From January 2003 to December 2003, Mr. Maillette was an independent consultant providing services to marketing enterprises and software companies. From 1997 to December 2002, he served as IT Director and then later as Chief Information Officer of the Fountain Division of The Coca-Cola Company.

Alex M. Munn has served as Executive Vice President and Chief Operating Officer of our company since February 2005. From August 2002 until January 2005, Mr. Munn served as Executive Vice President and Chief Information Officer of our company. Mr. Munn joined the company in May 2002 as the Chief Information Officer of Pacer Global Logistics. Prior to joining our company, Mr. Munn was the Vice President of Business Systems for The Coca-Cola Company’s North American Division from 2000 to 2002 and Director of Business Information and Planning, Global Procurement & Trading of The Coca-Cola Company, Inc. from 1996 to 2000.

Peter M. Ruotsi has served as Chief Commercial Officer at Pacer Global Logistics, Inc. since March 2004. From March 2001 to February 2004, Mr. Ruotsi served as Executive Vice President of Business Development at our division Pacer Stacktrain. From October 1999 until February 2001, he served as Executive Vice President, Sales and Marketing of our company.

Charles T. Shurstad has served as President of Pacer Stacktrain since January 2002. Prior to joining our company, Mr. Shurstad was the President of The Belt Railway Company of Chicago from 1998. From 1997 to 1998, Mr. Shurstad was the Chief Operating Officer of the Malayan Railway, and from 1995 to 1997 he was the President of the Terminal Railroad of St. Louis.

C. William Smith has served as Executive Vice President, Human Resources of our company since August 2002. Mr. Smith also served as Executive Vice President and Chief Operating Officer for Pacer Global Logistics from December 2000 to August 2002. Mr. Smith was Vice President and Chief Operating Officer for Rail Van from February 1992 until its sale to Pacer in December 2000.

Randall T. Strutz has served as President of the Rail Brokerage Division of Pacer Global Logistics, Inc. since January 2005. From July 2004 through December 2004, he served as General Manager of the Rail Brokerage Division. From October 2002 until June 2004, he served as Vice President, Operations of the Rail Brokerage Division. He joined Pacer Global Logistics in December 2001 as Vice President, focused on the accounting and finance areas. Mr. Strutz joined Thomson, Inc. in 1988 and held various escalating leadership positions in Finance, Logistics, and Production Management in Indiana, Pennsylvania and Ohio, culminating in role as Plant Manager for Thomson’s Television Glass Manufacturing Factory in Circleville, Ohio from 1998 to 2001.

Michael E. Uremovich has served as Vice Chairman of our company since October 2003. Mr. Uremovich served as a consultant to the 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.

Lawrence C. Yarberry has served as an Executive Vice President and the Chief Financial Officer of our company since May 1999. Mr. Yarberry served as Executive Vice President, Chief Financial Officer and Treasurer of a predecessor company from May 1998 until May 1999 and as a consultant to that predecessor company from February 1998 until April 1998. From April 1990 until December 1997, Mr. Yarberry served as a Vice President of Finance of Southern Pacific Transportation Company and was Vice President of Finance and Chief Financial Officer of Southern Pacific Rail Corporation.

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Part II.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed and traded on The NASDAQ Stock Market’s National Market (“NASDAQ”) under the symbol “PACR”.

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

As of March 1, 2005, there were approximately 38 record holders of our common stock.

Dividend Policy

The Company has not declared cash dividends on its common stock for the periods presented above and has no present intention of doing so. We currently intend to retain our future earnings, if any, to repay debt or to finance the further expansion and continued growth of our business. In addition, our ability to pay cash dividends is currently restricted under the terms of our credit agreement. Future dividends, if any, will be determined by our board of directors.

Equity Compensation Plan Information

Information concerning our equity compensation plan is shown under Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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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 the Company as discussed below. The selected historical information at December 31, 2004 and December 26, 2003 and for the fiscal years ended December 31, 2004, December 26, 2003 and, December 27, 2002 have been derived from, and should be read in conjunction with, our audited financial statements and related notes appearing elsewhere in this annual report. The selected historical information at December 27, 2002, December 28, 2001 and December 29, 2000 and for the fiscal years ended December 28, 2001 and December 29, 2000 have been derived from our audited financial statements which are not included in this annual report.

The following table should also be read in conjunction with our audited financial statements and the related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report.

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1/ Includes the effects of our initial public offering of common stock on June 18, 2002 including our 2 for 1 stock split which has been reflected in all periods presented above, the conversion of preferred stock to common stock and the repayment of debt. See Note 2 to the consolidated financial statements. In addition, we adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” effective December 29, 2001 and ceased to amortize goodwill on that date.

2/ Includes the results of Conex Global Logistics Services, Inc., GTS Transportation Services, Inc., RFI Group, Inc. and Rail Van Inc. since their dates of acquisition by us on January 13, 2000, August 31, 2000, October 31, 2000 and December 22, 2000, respectively.

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

Overview

We are a leading non-asset based 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 wholesale segment and the retail segment (see Note 10 to the consolidated financial statements for segment information). Our wholesale segment provides intermodal rail transportation and local cartage services primarily to intermodal marketing companies, large automotive intermediaries and international shipping companies. Our retail segment provides truck brokerage and truck services, intermodal marketing services, warehousing and distribution, international freight forwarding and supply chain management services primarily to shippers.

Executive Summary

This year proved to be a very challenging year for Pacer. We have been through rail service problems, temporary embargoes, ramp closures and severe weather during 2004 and have still been able to improve overall operating results. Our results for 2004 improved over 2003 and 2002, primarily as a result of strength in our wholesale segment operations. Since our IPO on June 12, 2002, we have been able to increase gross revenues, income from operations, net income and earnings per share each year as shown in the table below. In addition, since December 29, 2000, we have reduced our long-term debt by $251.3 million to a total of $154.1 million at December 31, 2004 using a combination of stock offering proceeds and cash flows from operations. We reduced our long-term debt by $60 million in 2004 alone, and plan to continue to repay debt with our future operating cash flows. Our interest expense has declined dramatically over the last few years, as shown in the table below, and is expected to be approximately $8.5 million in 2005, assuming no significant increases in interest rates.

For 2004, our wholesale Stacktrain operations continued to be the strength of the company, contributing $95.3 million of income from operations for the year. That strength came from all wholesale lines of business; domestic volumes, up 4.0% in 2004 compared to 2003, automotive volumes, up 6.4% in 2004 compared to 2003, and international volumes, up 4.4% in 2004 compared to 2003. Our cartage operations contributed $3.8 million of income from operations for 2004 with positive results from almost all operating locations. Overall, our retail segment did not improve results in 2004 compared to 2003 due to the performance of our rail brokerage and warehousing and distribution units. However, four of the six units that comprise our retail segment did improve revenues and income from operations by a combined $67.5 million and $3.0 million, respectively in 2004 compared to 2003. Revenues and income from operations for our rail brokerage and warehousing and distribution units decreased in 2004 compared to 2003. We believe we have solved the warehousing and distribution situation primarily by eliminating the temporary warehousing facilities and reducing our freight handling costs through improved warehouse management. Our rail brokerage unit lost approximately $19 million of revenue and almost $4 million of margin due to two large retailers changing shipping patterns in 2004. We have initiated and continue to implement a number of efforts to improve rail brokerage performance, including reengineering financial and operational processes to drive cost reductions and improve service, hiring an experienced sales management team, reorganizing the retail sales group to seven regions from four, giving more proximity to customers, and enhancing our business development, yield and pricing functions. While the results of our rail brokerage operation have not achieved management’s desired goals, it still provides significant traffic volumes to our wholesale Stacktrain and cartage operations.

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Our tax loss carryforwards for federal income tax purposes were fully used in 2004, and resulted in our tax payments increasing in 2004 to $12.7 million from $1.1 million in each of the prior two years. We expect tax payments to be approximately $23 million in 2005.

Compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires this report to include management’s assessment of our internal control over financial reporting and our independent auditor’s report on that assessment and on the effectiveness of our internal control, was a major focus for the company during 2004. In order to effectively document and test our controls over financial reporting we engaged the services of outside consultants to assist our employees in accomplishing that task. In addition, our external auditors have spent significant time in reviewing and testing our control structure over financial reporting. We paid to auditors and consultants in 2004 approximately $4.1 million pre-tax ($0.07 per diluted share after tax) related to this effort. We expect that external costs for continued compliance will be approximately $0.5 million annually.

On January 4, 2004 the U.S. Department of Transportation implemented new hours of service rules that limit the amount of time truck drivers can spend driving before a rest is required. In response to a court decision questioning the new rules, U.S. Department of Transportation may further adjust the hours of service rules in 2005. While difficult to quantify, we believe that the new rules have negatively impacted our operating results due to the slight productivity decreases experienced by our drivers.

In 2005, we plan to continue our focused sales and marketing programs to take advantage of the continually increasing intermodal volumes industrywide, and look forward to improved retail segment results, especially from our rail brokerage and warehousing and distribution units. Due to customer turnover in these two retail segment units, most of the 2005 improvement will occur in the second half of the year. For our wholesale segment, we have seen some customers and ocean carriers shift import traffic to other West Coast ports in an effort to avoid congestion in the Los Angeles basin. We expect to take advantage of this in 2005 through our facilities in Oakland and Seattle. During 2004, our Stacktrain division increased our container fleet by 10.2% from 2003, and we will continue to increase our equipment fleet during 2005 as necessary to handle intermodal volumes.

On the information technology front, we have outsourced the technical support function (help desk) for our system users to an independent third-party and look for improved service and reduced costs in 2005. We plan on implementing a new operating system in 2005 (started in 2004) for our cartage operation that will support future growth and ensure better service to customers. Our Stacktrain operation expects to implement a new container reservation system in 2005 to ensure that customers have access to the equipment needed.

Overall gross margins in 2005 are expected to remain flat at approximately 22%. The gross margin for our Stacktrain operations is expected to decline slightly due primarily to changes in business mix. We plan to continue to take selective rate increases where feasible. Our retail segment gross margin is expected to increase due to margin improvement initiatives and business mix.

Our base line capital budget in 2005 is approximately $4.2 million and includes projects for growth and capacity, business improvement, security and business protection and replacement. Capital expenditures in 2005 will be funded by operating cash flows.

Actual results may differ materially from the estimates, expectations and projections described above. Some of the factors that could affect these estimates and expectations are described above under the caption “Risks Related to Our Business” and “Special Note Regarding Forward-Looking Statements.”

Key Objectives

In addition to the traditional financial measures for managing our operations, we also use a key objective management process designed to improve execution of objectives deemed to be substantive to our financial results. These key objectives are aimed at focusing management attention at specific problem areas or opportunities for improvement. For the critical key objectives, the defined objective, along with

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the activity completed, problems encountered, and future action steps to be taken, are reviewed by top management on a monthly basis.

For 2004, we managed a total of 41 key objectives covering both operating segments and have planned approximately 33 key objectives for 2005. The 2004 key objectives were aimed at increasing business growth, improving margins and profitability and improving or maintaining safety in our transportation businesses. A few of the 2004 key objectives are described below.

A key objective of our rail brokerage unit in 2004 was to minimize the cost of purchased transportation. This was to be achieved through rate reductions or rate increase avoidance from underlying carriers and taking advantage of quick pay discounts. Activities for this objective include reviewing drayage costs for selected origin-destination pairs and finding a lower cost vendor and identifying and investigating opportunities for quick pay discounts. The goal for 2004 was to save $10.6 million in purchased transportation cost. The rail brokerage unit achieved a measured savings/cost avoidance in 2004 of $13.4 million.

Our rail brokerage unit also had a related price improvement key objective aimed at increasing margins by either selected rate increases or reduction of transportation costs. Activities accomplished for this objective during 2004 included reviewing linehaul rates for customers with low or negative margins, reviewing customer accounts that have cost increases without corresponding rate increases and identifying customer routings with low returns. The goal of the program was to increase the overall rail brokerage margin by $1 million for 2004. The unit achieved measured increases in margin of $1.5 million during the year.

Billing and collection of accessorial charges has been a problem area because many customers frequently do not recognize that they have received the service, become frustrated with the separate billing for these items, and therefore refuse to pay. Accessorial charges are additional charges from the underlying equipment/transportation providers for work outside the primary scope of moving freight. These charges include fuel surcharges and per diem charges for holding equipment for longer than an agreed upon term, among others. A key objective for our rail brokerage unit was to convert the billing of accessorial charges to one of four preferred methods that would simplify the multiple billings to a customer for each accessorial activity and improve bill collections. The target for 2004 was to bill 50% of all accessorial charges through one of the four preferred methods to simplify the process and to increase the net accessorial margin by $1 million. For 2004, 53% of accessorial billings were issued using one of the preferred methods of billing and the net accessorial margin improved by $0.8 million.

Improving contribution margin was a key objective for our truck brokerage unit in 2004. The focus of this objective was to identify low margin traffic lanes or customers in order to find alternatives to increase rates and/or reduce transportation costs. Activities for this objective included the development of margin reports by customer, identifying low margin customers and high cost vendors and coordinating with transportation purchasing or sales personnel to rectify. A total of $6.1 million in improved margin was achieved by the truck brokerage unit in 2004 through this objective versus a goal of $7.1 million.

Our cartage unit implemented during 2004 enhancements to its safety program by terminal to reduce the number of accidents and related expense as measured by a reduction in an accident ratio per driver (accidents/drivers) and a driver-at-fault accident ratio per driver. Activities during the year for this objective included driver training classes conducted at 4 locations to increase the level of awareness and training of our owner/operators to prevent accidents, injuries and related costs, providing security kits for trucks, auditing driver logs, inspecting trucks for safety and implementation of a driver safety award program. The accident ratio achieved in 2004 exceeded the 2004 key objective goal of improving the accident ratio in 2003. During 2004 we also achieved our goal of maintaining the same driver-at-fault ratio achieved for 2003.

Our truck services unit also has a related safety performance improvement objective focused on reducing accidents and related expense. Many of the same safety activities described above for our cartage unit were also accomplished by truck services. While our ultimate objective is to have no recordable accidents, the goal for the truck services unit under our 2004 key objective process was to achieve a

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Department of Transportation SafeStat score of less than 300 and a recordable accident frequency of less than 0.70 accidents per million miles. The unit significantly exceeded both of these goals.

Critical Accounting Policies

The preparation of financial statements in conformity with generally accepted accounting principles 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 accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements.

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Use of Non-GAAP Financial Measures

From time to time in press releases regarding quarterly earnings, presentations and other communications, we may provide information about the Company’s EBITDA or other financial information determined by methods other than in accordance with GAAP. EBITDA represents income before income taxes, interest expense, depreciation and amortization. EBITDA is presented because it is commonly used by investors to analyze and compare operating performance. However, EBITDA should not be considered in isolation or as a substitute for net income, cash flows or other income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company’s profitability.

Other non-GAAP financial measures may exclude the costs of our debt refinancing, senior subordinated note redemption and secondary offering in 2003, the costs of our IPO in 2002 or other costs. Management uses these non-GAAP measures in its analysis of the company’s performance. Management believes that presentations of financial measures excluding the impact of these items provide useful supplemental information that is essential to a proper understanding of the operating results of our core businesses and allows investors to more easily compare operating results from period to period.

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Background

Our wholesale segment’s Stacktrain operations’ fiscal year ends on the last Friday in December and the wholesale segment’s local cartage operations’ fiscal year and our retail 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 Operation”.

Gross Revenues

The wholesale segment’s gross 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 long-term and other operating agreements with North American railroads. The growth of these revenues is primarily driven by increases in volume of freight shipped, as overall rates (other than fuel surcharges) have historically remained relatively constant. However, the recent surge in demand for rail transportation has led the rail carriers and our Stacktrain operation to increase rates for certain services. The average rate is impacted by product mix, rail routes utilized, fuel surcharge and market conditions. Also included in gross 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 loads. Gross revenues are reported net of volume discounts provided to customers. Our wholesale Stacktrain operation generally 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 third party domestic (shipments tendered by intermodal marketing companies for shippers within North America). Growth in the wholesale segment’s gross 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 rate per mile charged to the customer.

The retail segment’s gross revenues are generated through rates and other fees charged for our portfolio of freight transportation services, including truck brokerage and truck services, intermodal marketing services, warehousing and distribution, international freight forwarding and supply chain management services. Overall growth in gross revenues for the retail 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 gross revenues from truck brokerage is driven primarily through increased volume and outsourcing by companies of their transportation and logistics needs. Growth in gross 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. Intermodal marketing involves arranging the movement of freight in containers and trailers utilizing truck and rail transportation. Increases in gross revenues from intermodal marketing are generated primarily from increased volumes, as rates are dependent upon product mix and route, which tend to remain relatively constant as customers’ shipments tend to remain in similar routes. Increases in gross 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 increased use of third-party containers, rather than their own, by shipping lines 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 gross revenues for international freight forwarding are driven by the globalization of trade.

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Cost of Purchased Transportation and Services

The wholesale 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 contracts with these carriers. 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.

The retail segment’s cost of purchased transportation and related services consists of amounts paid to third parties under our contracts with them to provide such services, such as railroads, independent contractor truck drivers, freight terminal operators and dock workers. Third-party rail costs are charged through contracts with the railroads and are dependent upon product mix and traffic lanes. 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 wholesale segment’s selling, general and administrative expenses consist of costs of customer acquisition, billing, customer service, salaries and related expenses of the executive and administrative staff, office expenses and professional fees and includes the $10.2 million annual fee currently paid to APL Limited for information technology services under a long-term agreement (of which $3.4 million is subject to a 3% compounded annual increase since May 2003).

The retail 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. The retail segment anticipates that it will incur increased overall selling related costs as it grows its operations, but that such costs will remain relatively consistent as a percentage of net revenues.

The costs related to corporate functions, such as administration, finance, legal, human resources and facilities will likely increase as the business grows, but will likely decrease as a percentage of net revenues as the business grows.

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Results of Operations

Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 26, 2003

The following table sets forth our historical financial data for the fiscal years ended December 31, 2004 and December 26, 2003.

Financial Data Comparison by Reportable Segment

Fiscal Years Ended December 31, 2004 and December 26, 2003

(in millions)

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Gross Revenues.  Gross revenues increased $139.5 million, or 8.4%, for the fiscal year ended December 31, 2004 compared to the fiscal year ended December 26, 2003. Gross revenues in our retail segment increased $58.1 million reflecting increases in our truck services, international and truck brokerage businesses. This was partially offset by year-over-year revenue decreases in our warehousing and distribution and rail brokerage units. The truck services year-over-year increase in revenues of 25.3% was due primarily to the addition of two new agents and also an increase in the amount of freight brokered due to high demand for transportation. Our international unit’s revenues increased 21.2% due primarily to increased import business with the Far East. The truck brokerage increase of 13.5% was due primarily to increases in the lower margin automotive business. Our warehousing and distribution unit experienced a 22.6% decrease in year-over-year revenues due to customer turnover as well as to the strategic elimination of temporary warehousing facilities. Revenues in our rail brokerage unit decreased 0.4% reflecting changed shipping patterns for two large retailers that we could not overcome with added business. In addition, our rail brokerage unit was impacted by capacity-related service issues with our core rail carriers during the year.

Wholesale segment gross revenues increased $76.1 million, reflecting a $59.7 million increase in Stacktrain revenues as well as a $16.4 million increase in cartage revenues, from almost all cartage locations. Stacktrain results reflected increases in all wholesale lines of business including domestic, international and automotive even though 2004 saw service issues with our core rail carriers and short-term embargoes and ramp closures at selected locations due to inclement weather. The increase in wholesale domestic operations was a result of increased freight revenues from several intermodal marketing companies. Domestic containers handled increased 4.0% over 2003 and the average revenue per container increased 4.7% due primarily to the increase in the fuel surcharge that was between 3.8% and 12.5% during 2004 compared to between 2.9% and 5.5% during 2003. The increase in fuel surcharge reflects the increase in fuel costs as discussed below under the heading “Cost of Purchased Transportation and Services.” The wholesale international operations increase in freight revenues was primarily the result of increased business from two international shipping companies. International container volumes were 4.4% above 2003. Wholesale automotive volumes were 6.4% above 2003 with increases from DaimlerChrysler and General Motors. Contributing to the overall increase in Stacktrain gross revenues were higher repositioning revenue associated with higher domestic volumes and increased container per diem revenue that resulted from more containers in service during 2004 and to improved billing and collection efforts. Overall containers handled increased 4.6% from the prior year. It should be noted that approximately $14.5 million of the wholesale segment increase in revenues for 2004 compared to 2003 was due to an extra week in our fiscal year 2004 compared to 2003.

Our retail segment’s usage of our wholesale segment for rail transportation decreased by $5.3 million, or 4.2%, in 2004 compared to 2003 reflecting reduced rail brokerage shipments including the shifting of some shipments to maximize certain rail incentives. Cross-selling activities within the retail segment increased by $1.3 million in 2004 compared to 2003, and activities within the wholesale segment increased by $2.0 million during 2004. Our program to increase inter- and intra-segment generated revenues is continuing and is focused on coordinating capacity within and between segments so that future growth can occur without degrading our ability to satisfy customer requirements.

Cost of Purchased Transportation and Services.  Cost of purchased transportation and services increased $119.4 million, or 9.2%, for 2004 compared to 2003. The cost of purchased transportation and services in our retail segment increased $63.6 million due primarily to the increased business discussed above. Much of the increase in business discussed above is lower margin business. The overall gross margin percentage on our retail business has declined from 13.9% in 2003 to 12.4% in 2004. Our rail brokerage division has not been able to pass all rail transportation cost increases on to customers due to the competitive situation, which reduces the margin on retained business. Our warehousing and distribution division lost a large profitable customer in late 2003 which has impacted margins negatively in this division, and also incurred costs related to vacating temporary warehousing facilities which added to the decline in retail segment gross margin. The increased revenue for our truck brokerage division was due primarily to low margin automotive shipments, and the increase in the international unit’s import business also contributed to the overall decline in retail segment gross margin.

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The wholesale segment’s cost of purchased transportation and services increased $50.5 million for 2004 compared to 2003 reflecting increases in both Stacktrain and cartage costs. The Stacktrain increase was related to the increased shipments noted above combined with a slight increase in the cost per container due primarily to increased fuel costs and changes in business mix. Approximately $10.3 million of the Stacktrain increase was due to the extra week in the 2004 fiscal year. The cartage increase was also due primarily to increased shipments noted above coupled with the newer cartage locations added in late 2002 or early 2003. The overall gross margin for the wholesale segment has increased to 28.0% in 2004 from 27.5% in 2003.

Direct Operating Expenses.  Direct operating expenses, which are only incurred by our wholesale Stacktrain operations, increased $3.8 million, or 3.6%, in 2004 compared to 2003 due primarily to increased container and chassis lease costs attributable to the higher fleet size during 2004. Partially offsetting the increase were reduced equipment maintenance expenditures. At December 31, 2004, we had 10.2% or 2,404 more containers and 6.6% or 1,598 more chassis than at December 26, 2003. Approximately $2.1 million of the increase was due to the extra week in Stacktrain’s fiscal year 2004.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased $9.7 million, or 5.4%, in 2004 compared to 2003 primarily as the result of increased compensation expense associated with an overall average increase of 121 people employed during 2004 compared to 2003 and an increase in professional fees compared to 2003. This was partially offset by reduced temporary warehouse rental expense in our retail segment. The headcount increase was associated primarily with additional trucking locations added since 2003 as well as additional sales personnel. The increase in corporate costs (primarily professional fees) related to general increases in audit and tax fees, costs associated with complying with the Sarbanes-Oxley Act of 2002, and costs related to the preparation of a shelf registration statement filed with the SEC on January 7, 2004 and two supplements to the shelf registration statement prospectus filed with the SEC on April 8, 2004 and November 10, 2004. During 2003, $1.2 million was incurred related to secondary stock offering costs. In addition, corporate costs included increased legal fees associated with certain litigation.

Depreciation and Amortization.  Depreciation and amortization expenses decreased $0.7 million, or 8.9%, for 2004 compared to 2003 as a result of property retirements in both the wholesale and retail segments and property becoming fully depreciated.

Income From Operations.  Income from operations increased $7.3 million, or 9.2%, from $79.2 million in 2003 to $86.5 million in 2004. Wholesale segment income from operations increased $19.7 million reflecting a $17.0 million increase in Stacktrain income from operations (approximately $1.7 million from the extra week in fiscal 2004) and a $2.7 million increase in cartage income from operations. The Stacktrain increase was due to strength in all three wholesale lines of business as well as increased container per diem charges related to more containers in service during 2004 and to improved per diem charge billing and collection procedures. The cartage increase was due to increased business at almost all locations. The wholesale segment increase in income from operations was partially offset by a $7.5 million decrease in income from operations in 2004 compared to 2003 in our retail segment. The retail segment decrease reflected reduced business in our rail brokerage and warehousing and distribution divisions due to customer turnover. Rail brokerage operations were also adversely impacted by capacity-related rail service issues with our core rail carriers during 2004 and the inability to pass through cost increases from underlying service providers. Income from operations was adversely impacted by corporate costs related to audit and tax fees, costs associated with complying with the Sarbanes-Oxley Act of 2002, preparation of the shelf registration statement and two supplements to the shelf registration statement prospectus and legal fees.

Interest Expense.  Interest expense decreased by $8.4 million, or 46.7%, for 2004 compared to 2003 due primarily to a lower level of outstanding debt during 2004. At December 31, 2004, total long-term debt was $154.1 million, $60.0 million less than the balance of $214.1 million at December 26, 2003.

Loss on Extinguishment of Debt.  On June 10, 2003, we completed the refinancing of our existing term loan and revolving credit facility, and on July 10, 2003 we completed the redemption of our $150 million 11.75% senior subordinated notes, all with funds provided by a new senior credit facility (see

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discussion under “Liquidity and Capital Resources” below). Charges totaling $12.1 million were incurred during 2003 related to the refinancing and note redemption including an $8.8 million note redemption premium, $3.1 million for the write-off of loan fees on the prior term loan, revolving credit facility and notes, and $0.2 million for breakage and commitment fees.

Income Tax Expense.  Income tax expense increased $11.9 million in 2004 compared to 2003 due to higher pre-tax income in 2004 and to a higher effective tax rate related to a $1.2 million tax expense reduction taken in 2003 associated with costs incurred in our IPO in June 2002. The effective tax rate was 38.6% in 2004 compared to 36.3% in 2003. The effective tax rate going forward is expected to be approximately 39%.

Net Income.  Net income increased $15.9 million from $31.3 million in 2003 to $47.2 million in 2004 due primarily to higher income from operations during 2004 (up $7.3 million), lower interest costs (down $8.4 million) associated with the lower level of outstanding debt during 2004 and to debt extinguishment costs ($12.1 million) incurred in 2003, partially offset by higher income tax expense related to the higher pre-tax income for 2004. Excluding the costs associated with the 2003 debt refinancing and secondary offering transactions, adjusted net income for 2003 would have been $39.3 million. See the reconciliation of 2003 adjusted results to actual results for 2003 on page 48.

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Fiscal Year Ended December 26, 2003 Compared to Fiscal Year Ended December 27, 2002

The following table sets forth our historical financial data for the fiscal years ended December 26, 2003 and December 27, 2002.

Financial Data Comparison by Reportable Segment

Fiscal Years Ended December 26, 2003 and December 27, 2002

(in millions)