SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM __________________ TO __________________

COMMISSION FILE NUMBER 1-10105

MATLACK SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 51-0310173
(State of incorporation) (I.R.S. Employer Identification No.)

ONE ROLLINS PLAZA, WILMINGTON, DELAWARE 19803
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (302) 426-2700
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Class Name of exchange on which registered
Common Stock, $1, Par Value None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that 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. [ ]

The aggregate market value of the voting stock held by non-affiliates
of the registrant was $4,440,000 as of December 31, 2000.

The number of shares of registrant's common stock outstanding as of
October 31, 2000 was 8,814,434.

PART I
ITEM 1. BUSINESS.

GENERAL
The Registrant, Matlack Systems, Inc., together with its subsidiaries
(herein collectively referred to as the "Company" unless the context
indicates otherwise) is a bulk transportation company that provides
transportation of bulk commodities in tank trailers and tank containers
to the nation's leading chemical and dry bulk shippers. In conjunction
with bulk transportation, the Company also provides intermodal
transportation services, tank cleaning services, intermediate bulk and
ISO container cleaning services, logistics management services and
dedicated contract carriage services to the chemical industry.

The Company, through its subsidiary, Matlack Leasing Corporation,
leases trailers, containers and intermediate bulk containers (IBCs or
"totes"), which represents the other major segment of the Company's
operations. In addition to leasing this highly specialized equipment
either on a short- or long-term basis, Matlack Leasing Corporation
provides design assistance to a wide range of customers who are
primarily in the food and chemical industries. At September 30, 2000,
a total of 693 trailers and containers were under lease contracts.

In November 2000, Matlack Leasing Corporation sold substantially all of
its assets for $12,000,000. The assets were sold to Matlack Leasing,
LLC, an unaffiliated Pennsylvania limited liability company, whose
majority owner was an officer, who resigned his position at and as of
the transaction's closing, of Matlack Leasing Corporation. As a result
of this transaction, the leasing segment has been reported in the
Company's financial statements as a discontinued operation.

The Company operates out of approximately 60 facilities located in 30
states and two Canadian provinces. Since 1994, the Company has been
certified under ISO 9002, an internationally recognized standard for
quality assurance. In order to maintain this certification, the
Company is audited bi-annually at locations randomly selected by the
American Bureau of Shipping Quality Evaluation, Inc. ("ABS"), an
independent third party. These surveillance audits verify that the
Company's operations conform to both ISO 9002 and to the Company's own
written operating guidelines and procedures. During fiscal 2000, the
Company passed its eleventh quality audit by ABS with all locations and
logistics services being ISO 9002 certified.

The Company provides transportation and logistics services as described
below. Many of the value added adjunct services provided complement the
Company's bulk transportation services. Matlack, Inc. ("Matlack"), the
Company's major operating subsidiary provides liquid and dry bulk
transportation primarily to the chemical industry throughout North
America. More than 90 percent of the cargo transported by the Company
is hazardous and non-hazardous chemicals and wastes principally
produced or generated by the chemical industry. Matlack is one of the
larger companies in the country engaged in highway transportation of
bulk commodities primarily in tank trailers.

The number of trailers available for use in the Company's continuing
operations at the end of fiscal years 2000, 1999 and 1998 were 2,197,
2,270 and 2,670, respectively. At the end of fiscal 2000 the average
age of tractors and trailers used in the Company's operations was 3.5
years and 17.1 years, respectively. Additionally, the remaining useful
life expectancy at September 30, 2000 of the Company's tractor and
trailer fleet was estimated to be 7 years and 20 years, respectively.

The age profile of the Company' trailer fleet as of September 30, 2000
was as follows:

AGE IN YEARS NUMBER OF UNITS
1 to 5 147
6 to 10 293
11 to 15 422
16 to 20 480
21 to 25 577
Over 25 278
Total 2,197

The age profile of the Company's tractor fleet as of September 30, 2000
was as follows:

MODEL YEAR NUMBER OF UNITS
2000 235
1998 2
1995 497
1994 2
1993 1
Prior 8
Total 745

The Company utilizes tank trailers in its operations. A tank trailer
typical of those used by the Company in its operations measures 43 feet
in length, 8.5 feet in width and 12 feet in height. Tank holding
capacity normally ranges between 5,000 and 7,000 gallons with a payload
capacity of up to 55,000 pounds.

The Company believes that it maintains its fleet of tractors and
trailers in excellent condition for the industry. Maintenance of
revenue equipment is performed by 116 mechanics employed by the
Company. In addition, the Company utilizes outside repair facilities
for major tank repairs and reconditioning. In fiscal 2000, the Company
expended $11,693,000 for fleet maintenance. This amount included
mechanics compensation and the costs associated with both internal and
external repairs of equipment.

Matlack is subject to regulation by the U.S. Department of
Transportation and various state regulatory agencies. In Canada, the
Company has terminals in Sarnia, Ontario and Vancouver, British
Columbia and it holds operating licenses under which it may transport
various commodities into and out of certain Canadian Provinces via
specific border entry points from the United States. To the best of its
knowledge, Matlack is in compliance with federal regulations and those
of the various state and provincial regulatory agencies where it
operates.

The business of the Company is generally not subject to significant
seasonal variations, however, highway transportation activities can be
adversely affected depending on the severity of the weather in the
various sections of the country during the winter months. Also,
companies in the chemical industry periodically may change production
streams of various products, which temporarily creates greater than
normal demand for the carriers to transport those products. Conversely,
companies in the chemical industry may shut down a plant temporarily in
order to balance inventories, which negatively affects the carriers
serving that company. No single customer accounts for more than 8.6% of
the Company's consolidated revenues.

Changes in the economic climate within the domestic chemical industry
have had a severe adverse impact upon bulk transportation companies as
competition is based primarily on rates, service and convenience.
Intense price competition among bulk transportation companies combined
with pricing pressures within the industries served, principally the
chemical industry, have resulted in revenue reductions and margin
erosion.

Matlack's largest competitors in the tank truck industry, based upon a
comparison of gross revenues, are Quality Distribution, Inc., Trimac
Transportation Ltd., Superior Carriers, Inc., Miller Transporters, Inc.
and Groendyke Transport, Inc. In addition, there are approximately 190
other recognized competitors operating in the various regions where
Matlack has operating authority.

Matlack, Inc., under the trade-name Brite-Sol Services, operates 25
commercial facilities nationwide that provide full-service cleaning,
both internal and external, of tank trucks, vans, tank containers,
intermediate bulk containers, ISO tank containers and other containers
and vehicles. Brite-Sol Services also provides hose and pump cleaning
and tank and container maintenance and repairs. The Company's tank
cleaning facilities are ISO 9002 certified and operate in compliance
with all applicable federal and state EPA and OSHA requirements.
Cleaning procedures utilize systematized work processes to assure
continued compliance with all environmental regulations. Customized
cleaning programs are frequently established to meet specific customer
requirements. After cleaning, valves are vacuum tested to reduce
chances of leaking and related possible product release. Waste water is
pre-treated to ensure environmental safety and to reduce levels of
waste. Container cleaning procedures also ensure the proper handling
and disposal of heels and effluents. Further, the Company's cleaning
network is operated by a team of experienced tank cleaning
professionals and is supported by centrally located technical staff to
ensure maintenance of the highest level of quality required by ISO 9002
standards.

REGULATION AND INSURANCE
In the normal course of its business, Matlack is subject to numerous
state and federal environmental laws and regulations and also is
exposed to the cost and risk of transporting and handling materials and
wastes characterized as hazardous by various regulatory agencies.
Matlack has received notices from the United States Environmental
Protection Agency ("EPA") or a comparable state agency indicating that
it has been named at 56 third-party sites as a potentially responsible
party ("PRP") with respect to the cleanup of hazardous wastes at such
waste disposal sites. At a majority of these sites, the Company has
resolved its liability by settling with one or more of the governmental
agencies or PRP groups involved. As is typical in such settlements,
certain claims, such as those relating to natural resource damages or
site cleanup cost overruns, could still be made in later years.

The Company maintains liability insurance coverage that includes sudden
and accidental pollution insurance coverage providing protection
against claims which may arise from accidents involving spills or
contamination. With regard to public liability and workers'
compensation claims, the Company retains a specific portion of
insurable risks. The Company maintains a $1,000,000 primary insurance
policy subject to $500,000 of retention per claim with a $6,000,000
aggregate stop-loss limit on retention. The Company's self-insured
retention under these policies was reduced to $100,000 from $500,000
effective October 1, 2000. In excess of the primary policy, the Company
maintains $120,000,000 of insurance coverage. Reserves are established
by outside claims experts for claims incurred plus an estimate for
claims incurred but not reported. Reserve requirements are evaluated
and established utilizing known and expected information on each claim.

EMPLOYEES
A total of 1,530 persons were employed by the Company at September 30,
2000. Operating personnel included 856 drivers, 116 mechanics and 187
tank cleaners. The Company's 371 support personnel included dispatchers
and individuals serving in clerical, administrative and executive
capacities. The Company believes that its relationships with its
employees are excellent.

A number of the Company's operating personnel are covered under various
collective bargaining agreements. The following table sets forth the
expiration dates and number of employees covered under those
agreements.
Number of
Expiration Date Employees Covered
October 30, 2000 13
March 31, 2003 14
June 30, 2003 145
November 14, 2003 234
December 15, 2003 3
November 14, 2004 104
Total 513

ITEM 2. PROPERTIES.
The Company maintains its headquarters in space leased from Rollins
Properties, Inc., a wholly-owned subsidiary of Rollins Truck Leasing
Corp., at 2200 Concord Pike, Wilmington, Delaware. The Company's
principal properties consist of land and buildings used in its bulk
trucking, cleaning and intermodal service business. Matlack owns or
leases approximately 60 truck terminals and rail transfer facilities in
30 states and two Canadian provinces.

ITEM 3. LEGAL PROCEEDINGS.
During the fourth quarter of fiscal 1998, a judgment of $950,000 was
entered against the Company in connection with rent allegedly owed
under an expired lease for a terminal previously operated by the
Company in Woodbridge, New Jersey. The $950,000 judgment was based on
a finding by the trial court that the Company was responsible for
double the fair market rent of the facility as a tenant willfully
holding over after the expiration of the lease term. An appellate
court has vacated this judgment and remanded the matter to the trial
level for further hearings to determine if the Company is liable for
rent as a holdover tenant and, if so, what the fair market rent should
be. The Company paid rent pursuant to the terms of the expired lease
during the period in controversy and the landlord negotiated the rent
payments. The Company believes that it has viable defenses to the
landlord's demand for additional rent and intends to vigorously contest
this matter. The Company has provided for an estimate of the liability
associated with this proceeding, which amount is included in accrued
liabilities.

There are various claims and legal actions pending against the Company
that are insured under the Company's public liability and workers'
compensation policies relating to incidents arising out of the
Company's bulk trucking, cleaning and intermodal businesses. In the
opinion of management, based on the advice of in-house counsel, the
reserves established for these claims and actions are adequate.
However, the ultimate resolution of these claims and actions may be
material.

There are various other non-insured claims and legal actions pending
against the Company relating to employment or contract issues. In the
opinion of management, based on the advice of in-house counsel, the
likelihood that the ultimate resolution of these claims and actions
will be material is remote.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE.
PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
For the fiscal years ended September 30, 2000 and 1999, the range of
share prices for the Common Stock on the New York Stock Exchange is as
follows:

2000 1999
FISCAL QUARTER HIGH LOW HIGH LOW
First $5 1/4 $3 3/16 $8 7/16 $6 5/8
Second $4 $2 9/16 $7 5/8 $5 1/2
Third $3 1/2 $1 7/16 $5 13/16 $4 7/8
Fourth $2 3/4 $ 3/4 $5 15/16 $4 13/16

On October 2, 2000, the Company was delisted from the New York Stock
Exchange as it no longer met the continued listing criteria with
respect to total market capitalization. On the same day and in
connection with the delisting, the Company began trading on the OTC
Bulletin Board under the symbol "MLKI."

No dividends have been paid since the Company became publicly held in
January of 1989. At September 30, 2000, there were 1,286 holders of
record of the Common Stock.

ITEM 6. SELECTED FINANCIAL DATA.

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FIVE-YEAR SELECTED FINANCIAL DATA

YEAR ENDED SEPTEMBER 30,
2000 1999 1998 1997 1996

Revenues $186,933 $198,175 $233,374 $229,852 $222,661
Earnings (loss) from
continuing operations $(37,241) $(17,462) $ (3,415) $ 1,540 $ (1,535)
Earnings from
discontinued operation $ 248 $ 1,395 $ 1,402 $ 346 $ 58
Net earnings (loss) $(36,993) $(16,067) $ (2,013) $ 1,886 $ (1,477)
Earnings (loss) per
share from continuing
operations
Basic $ (4.23) $ (1.98) $ (.39) $ .18 $ (.18)
Diluted $ (4.23) $ (1.98) $ (.39) $ .17 $ (.18)

Earnings per share from
discontinued operation
Basic $ .03 $ .16 $ .16 $ .04 $ .01
Diluted $ .03 $ .16 $ .16 $ .04 $ .01

Net earnings (loss)
per share
Basic $ (4.20) $ (1.82) $ (.23) $ .22 $ (.17)
Diluted $ (4.20) $ (1.82) $ (.23) $ .21 $ (.17)

AT SEPTEMBER 30,
Total assets $105,337 $139,181 $143,263 $142,262 $128,127
Net assets of
discontinued operation $ 12,388 $ 16,262 $ 13,267 $ 7,917 $ 638
Total debt $ 59,275 $ 56,498 $ 50,034 $ 49,609 $ 36,091
Shareholders' equity $ 2,608 $ 39,601 $ 55,640 $ 57,557 $ 55,676

QUARTERLY RESULTS

The following table sets forth the Company's quarterly financial
results from continuing operations for the fiscal years 2000 and
1999.

2000
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
Revenues $ 49,731 $ 47,717 $ 46,741 $ 42,744
Gross profit $ 4,635 $ (2,627) $ 1,859 $ (5,740)
Loss from
continuing operations $ (844) $ (6,847) $ (5,193) $(24,357)(a)
Earnings (loss) from
discontinued operation $ 453 $ 283 $ 195 $ (683)(b)
Net loss $ (391) $ (6,564) $ (4,998) $(25,040)
Loss per diluted share
from continuing
operations $ (.09) $ (.77) $ (.59) $ (2.78)
Earnings (loss) per
diluted share from
discontinued operation $ .05 $ .03 $ .02 $ (.07)
Loss per diluted share $ (.04) $ (.74) $ (.57) $ (2.85)

(a) Includes a $4.2 million provision for doubtful accounts and a
provision of $4.3 million to increase self-insurance reserves.

(b) Includes loss on disposal of discontinued operation of $952,000,
net of tax benefit of $641,000.

1999
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30
Revenues $ 51,083 $ 49,413 $ 48,413 $ 49,266
Gross profit $ 2,195 $ 1,262 $ 243 $ (4,827)
Loss from continuing
operations $ (2,431) $ (2,815) $ (3,432) $ (8,784)
Earnings from
discontinued operation $ 496 $ 427 $ 349 $ 123
Net loss $ (1,935) $ (2,388) $ (3,083) $ (8,661)
Loss per diluted share
from continuing
operations $ (.28) $ (.32) $ (.39) $ (.99)
Earnings per diluted
share from discontinued
operation $ .06 $ .05 $ .04 $ .01
Loss per diluted share $ (.22) $ (.27) $ (.35) $ (.98)

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

Financial Condition and Liquidity
The net loss of $37.0 million, which included $12.6 million of non-cash
depreciation and amortization as well as impairments of $2.4 million
and a provision to write down the net assets of discontinued operation
to net realizable value of $1.6 million, resulted in a deficiency in
cash flow from operations of $4.4 million. Lower net cash receipts
from reduced revenues and margins as well as higher cash payments for
interest were partially offset by the receipt of a net insurance
settlement of $6.0 million related to certain environmental claims.

The cash deficiency from operations and capital expenditures were
funded with approximately $10 million of proceeds from the sale of
property and equipment, as well as net borrowings of $2.8 million. The
source of these borrowings was the Company's revolving credit agreement
("Agreement") with a group of banks. The Agreement had a termination
date of August 19, 2000, which was extended to February 15, 2001 as a
result of an amendment to the Agreement on October 9, 2000. In
addition to several significant provisions, as discussed below, the
amendment waived all defaults from March and June of 2000 and reset
various covenants for future periods.

Due to the current default status, as discussed below, the borrowing
limit under the Agreement currently is limited to the current amount
outstanding. The Agreement is secured by substantially all unpledged
equipment, all accounts receivable and certain real estate. Interest
rates on borrowings under the Agreement were 10.5% at September 30,
2000.

In connection with the amendment, all LIBOR rate loans under the
Agreement were converted to base rate loans upon termination of their
respective applicable interest periods after August 19, 2000. The Base
rate is defined as (i) the prime rate plus 1% or, if higher, (ii) the
federal funds rate plus 1 and 1/2 of 1%.

The amendment precludes the issuance of additional standby letters of
credit and limits increases to existing standby letters of credit to
the bank's discretion.

Effective with the amendment, the Company established and must maintain
a collateral account with one of the banks. To the extent that cash
balances in other bank accounts exceed $1.9 million, they must be
deposited into the collateral account. The funds within the collateral
account are available to the Company for use in the normal course of
business, provided the use is consistent with cash flow projections and
assumptions for those projections as provided to the banks.

Certain amounts are required to be remitted to the banks as mandatory
prepayments. The amounts generally include (i) 90% of non-operational
cash flows, which are defined as, but not limited to, amounts received
outside of the normal course of business, including all tax refunds,
insurance settlement proceeds and proceeds from sales of assets,
excluding certain specific assets, and (ii) 95% of the proceeds from
the sale of Matlack Leasing Corporation (see Note to the Consolidated
Financial Statements, "Discontinued Operation") and from the sale of
certain real property. The retained portions of these amounts must be
deposited in the collateral account.

Capital expenditures subsequent to September 1, 2000 are substantially
limited, principally as follows: (i) no capital expenditures are
permitted for new or used revenue-generating equipment, (ii) capital
expenditures for technology and software are limited to $750,000 in the
aggregate and (iii) capital expenditures for maintaining the existing
fleet of revenue-generating equipment and existing facilities are
limited to $750,000 in the aggregate without prior bank approval. In
addition, the sale, lease, rent or other disposition of any equipment
or other collateral in excess of $50,000 in value, requires the consent
of the banks.

As noted above, the amendment reset certain financial covenants. The
fixed charge coverage ratio is set at not less than 0.30 increasing to
0.70 through January 31, 2001. The leverage ratio is not to exceed
3.25 to 1 at the end of each calendar month. The consolidated net
worth shall be equal to or greater than $10,000,000 at the end of each
calendar month. The amended credit agreement has been supplemented to
add an EBITDA requirement and the conformity of a ratio for certain
eligible accounts receivable to the aggregate loan commitment.
Accordingly, EBITDA is not to be less than $3,700,000 for the four-
month period ended January 31, 2001. In addition, the ratio of
eligible accounts receivable to the aggregate loan commitment shall be
equal to or greater than 0.310 to 1 as of September 30, 2000,
decreasing to 0.2775 to 1 as of January 31, 2001.

In addition to the requirements discussed above, the amendment placed
incremental administrative and reporting responsibilities upon the
Company including, among other things, the submission of a business
plan, the periodic preparation of reports and the employment of an
independent consultant to monitor operations.

The Company incurred a renegotiation and extension fee of $350,000,
$150,000 of which was paid at closing with the remainder payable on
February 15, 2001.

Subsequent to the closing of the amendment on October 9, 2000, it was
determined that the Company was in violation of several of the
covenants discussed above as well as certain of the timely reporting
requirements. Management met with the banks on December 18, 2000 and
received certain assurances that these violations would be waived
pending the receipt of certain additional information. The Company met
with the banks again on February 1, 2001 to review the previously
requested information. At that meeting, the Company proposed to its
bank lenders an amendment that waives covenant violations, defers
principal and interest payments for 60 days, requires continued
monitoring of the Company operations and increases the interest rate
accruing on the outstanding debt by an additional 1%. The bank lenders
presently are considering this proposal. As discussed below and in the
Note to the Consolidated Financial Statements, "Basis of Presentation,"
the Company cannot provide any assurance that it will be successful in
its attempts to refinance certain of its bank debt.

On November 22, 2000, Matlack Leasing Corporation, which is a wholly
owned second tier subsidiary of the Company, sold substantially all of
its assets for $12.0 million. Of this amount, approximately $2.3
million relating to an equipment financing obligation and $8.6 million
relating to the credit agreement were remitted to the banks as
mandatory prepayments as described above. An additional $.7 million
was set aside in various escrow accounts pending the resolution of
certain matters addressed in the sales agreement. The remaining $.4
million of proceeds was used to finance a portion of the Company's
operations during the first fiscal quarter of 2001.

As discussed in the Note to the Consolidated Financial Statements,
"Basis of Presentation," the Company's financial statements have been
prepared on a going concern basis, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of
business. Accordingly, the financial statements do not include any
adjustments that might be necessary should the Company be unable to
continue as a going concern. There are a number of factors and
conditions that raise substantial doubt about the Company's ability to
continue as a going concern for a reasonable period of time, including:

- The Company has incurred net losses in four of the past five years
and increasing losses and declining revenues in the last three
years.
- Net cash used in operations was $4,431,000 (including the receipt
of a $6,000,000 net insurance settlement) in 2000 and $5,525,000
in 1999.
- At September 30, 2000, retained earnings had a deficit of
$16,826,000.
- At September 30, 2000, there was a working capital deficit of
$41,532,000.
- At September 30, 2000, the Company was in default and violation of
several financial ratios and covenants of its bank credit
agreement.
- The existing bank credit agreement, of which $53,900,000 is
outstanding as of September 30, 2000, is set to expire on February
15, 2001, at which time all principal amounts, as well as accrued
interest, fees and expenses, shall be due and payable in full.
- The group of banks sponsoring the existing bank credit agreement
has not committed to and may not provide additional or alternative
funding beyond the existing expiration date.
- The Company expects negative cash flows from operations to continue
in the immediate future and will require additional sources of
funding to continue operations.
- The Company has not had any success to date with respect to
securing alternative funding from other banks or financial
institutions.

The Company's continuation as a going concern is primarily dependent
upon its ability to refinance its existing bank credit facility or
obtain an alternative source. Management currently is negotiating with
its current bank group in an effort to resolve the Company's financial
issues.

In addition, the Company is continuing its efforts to dispose of non-
core assets and streamline operations commensurate with projected
levels of demand. Where appropriate, this includes, among other
things, the termination of employees and the cancellation of, or
election not to renew, existing contracts for services and materials.

In the event the Company is unable to secure alternative financing
sources prior to the termination of the existing bank credit facility
on February 15, 2001, it is likely that any of the following
alternatives will be pursued: (1) negotiation with the existing bank
group for an additional extension of time in order to secure
alternative financing; (2) a sale of the Company as a whole or
substantially all of its assets; or (3) filing for protection under the
United States Bankruptcy Code in order to continue operations.

RESULTS OF OPERATIONS (Continuing Operations)
Fiscal Year 2000 vs. 1999
Revenues of $186.9 million for the year declined by $11.3 million or
5.7% from $198.2 million in the prior year. The decline is in large
part attributable to the Company's decision to reduce substantially its
international presence, which accounted for $9.1 million of the revenue
decline. The weak demand in the domestic chemical industry continues
to have an adverse impact on the bulk transportation industry, as
competition for the available loads remains fierce. As a result, there
is extreme pressure to maintain price stability despite higher fuel
costs.

Operating expenses decreased $10.0 million or 5.3% to $178.1 million
from $188.1 million in the prior year. Reduced demand resulted in
fewer loads carried as well as fewer miles driven. This reduction had
the most significant impact on purchased transportation, which declined
$8.7 million domestically. In addition, purchased transportation
declined $5.3 million as a result of the reduction in international
operations.

Cleaning expenses decreased $8.0 million principally due to lower
demand and program changes implemented by the Company during 1999.
Maintenance expenses decreased slightly reflecting lower demand and
efforts to contain costs to those necessary to support safe and
efficient operations.

Terminal costs, including utilities, rent, communications and
maintenance decreased approximately $1.3 million primarily as a result
of closing certain facilities and the relocation of certain equipment,
which commenced during the latter part of fiscal 1999.

Drivers' compensation decreased approximately $2.7 million as a result
of terminal closings and the overall lower level of demand for
services. However, leased operator compensation increased by
approximately $5.1 million reflecting a shift in the mix of labor
utilization. Continuing pressure in the labor markets resulting from
a shortage of qualified professional drivers coupled with lower levels
of demand for service have led to a higher reliance upon leased labor.

Fuel costs increased $3.4 million as a result of continuing increases
in the prices of all petroleum products throughout the year despite the
impact of lower demand for transportation services.

Insurance expense, including property, general liability, cargo and
workers' compensation, increased by approximately $2.1 million
primarily as a result of an increase in claims experienced by the
Company.

Depreciation and amortization decreased $.5 million to $10.7 million
from $11.2 million in 1999 reflecting the disposition of property and
equipment during the past two years and the larger portion of assets
that are fully depreciated. During the second quarter of fiscal 2000,
the Company made the decision to purchase new transportation management
software. As a result, the useful life of the existing transportation
software was reduced. This change in the useful life results in an
increase in amortization of $1.7 million, which is included in, but
more than offset by, the net decrease in depreciation and amortization
described above.

Selling and administrative expenses increased $4.1 million to $28.2
million from $24.1 million in 1999 primarily as a result of a provision
of $4.2 million recorded in the fourth quarter to increase the
allowance for doubtful accounts. Absent this charge, selling and
administrative expenses were down slightly reflecting cost containment
measures implemented to align the infrastructure with the current level
and mix of business.

Other expense (income) in 2000 includes impairment charges of $2.4
million related to the write-down of several Company-owned locations,
that were either sold in 2000 or held for sale at fiscal year-end.
Total impairment losses were $1.3 million higher than those recorded
during 1999. Net gains on the sale of equipment decreased
approximately $.4 million. Despite the significant increase in fiscal
2000 in the proceeds from the sale of property and equipment of $7.0
million, the reduced gain reflects a decline in the selling prices
realized from the sale of revenue-producing equipment. The proceeds
realized from these dispositions were used in large part to pay down
debt.

Interest expense in 2000 was $5.4 million compared with $3.8 million in
1999. The higher expense reflects higher interest rates and higher
average level of indebtedness during 2000.

The rate of income tax benefit related to the loss from continuing
operations was 1.4% compared with 37.4% in 1999. The significant
reduction in the rate of benefit during 2000 reflects the effects of
providing a 100% valuation allowance against the Company's net deferred
tax asset. The valuation reserve was deemed necessary by management
due to the high level of uncertainty surrounding the future realization
of tax benefits from the Company's net operating losses and other
deferred tax assets.

Earnings from discontinued operation reflects a $1.6 million pretax
write-down of assets to their net realizable value in connection with
the disposition of the leasing segment in November 2000. Excluding
this charge, net earnings from discontinued operation decreased $.2
million reflecting lower operating earnings and higher interest
expense.

The Company's net loss for the year was $37.0 million or $4.20 per
diluted share compared with a net loss of $16.1 million or $1.82 per
diluted share in 1999.

Fiscal Year 1999 vs. 1998
Revenues of $198.2 million for the year declined by $35.2 million or
15.1% from $233.4 million in the prior year. The number of loads
carried decreased by 36,712 loads or 19.9%, while the average miles per
load decreased slightly. Revenue per load increased by 6% over the
prior year. Overall demand in the chemical industry declined during
the year causing the number of available loads for carriers to
transport to decline also. The Company's decision to substantially
reduce its international presence and to eliminate its waste van
businesses accounted for $7.3 million of the year-to-year decrease in
revenue.

Operating expenses for 1999 decreased by $17.9 million to $188.1
million from $206.0 million in 1998. The substantial reduction in
loads carried, which required fewer miles to be driven, caused most of
the direct expense categories including drivers' wages and fuel to be
lower in 1999 than in 1998.

Operating expenses for 1999 included a number of unusual items, many of
which arose from the decision to close certain bulk trucking terminals,
shut down Safeway Transportation, Inc., the Company's waste-hauling van
operation, substantially reduce the international container business
and streamline the Company. In connection with the decision on the
international container business, a provision of $1.6 million was
included in operating expense in the fourth quarter to repair and
return containers to lessors.

Drivers' wages, which is the Company's largest direct operating
expense, was $65.9 million in 1999 compared with $74.6 million in 1998,
a 12% decrease. Fuel expense was $11.7 million in 1999 compared with
$14.1 million in 1998. This 17% decrease was caused principally by the
volume decline offset in part by higher fuel prices in the second half
of 1999.

Insurance expense, including property, general liability, cargo and
workers' compensation, decreased in 1999 by $3.3 million to $9.7
million principally due to fewer claims resulting from lower business
volume, but also due to the implementation of a new property and
casualty program effective June 1, 1999, which provides the same level
of coverage, but outsources the claims handling function to the
insurance carrier. This decrease contrasts favorably with the increase
in insurance costs in 1998 of $5.6 million which resulted from an
overall adverse development of claims. During the fourth quarter of
1999, the Company included a charge of $1.9 million to increase its
self-insurance reserves. Overall fourth quarter 1999 insurance expense
was $1.2 million less than the fourth quarter of the prior year.
During the fourth quarter of 1998, with assistance from an outside
insurance carrier, the Company reviewed its overall self-insurance
liability in connection with the contemplated outsourcing of certain
insurance programs.

Cleaning expenses, including costs associated with cleaning the
Company's fleet of trailers as well as customers' and others' fleets,
decreased in 1999 by 20% to $12.8 million principally due to lower
volume, but also due to changes in various cleaning programs
implemented by the Company during 1999. Maintenance expense increased
in 1999 by $.8 million or 5% due to the ongoing costs of maintaining
the trailer fleet, particularly repairs to older stainless steel
trailers that are the principal asset used in the bulk trucking
business.

Terminal costs including utilities, rent, communications and
maintenance increased by $1.6 million in 1999, due in part to the
impact in the fourth quarter of closing terminals and relocating
equipment throughout the Company. A review of various other balance
sheet accounts in the fourth quarter indicated that certain accounts
required adjustments. The net impact of adjusting these other
accounts, including inventories and certain other assets, resulted in
an $.8 million increase in 1999 operating expenses.

Environmental expense was $2.3 million in 1999 compared with $.6
million in 1998. In the third quarter of 1999, a provision of $.8
million was recorded to reflect remediation costs at one of the
Company-owned sites. In the fourth quarter of 1999 a provision of $.6
million was recorded to reflect known evaluation and remediation costs
at three other Company-owned sites. Additional liability is possible
at these sites, but not presently estimatible.

For the year, depreciation and amortization expenses decreased slightly
to $11.2 million compared with $11.4 million in 1998. The impact of
purchasing new equipment and facilities during 1999 generally offset
the effect of the disposition of older fully depreciated equipment.
During the year, the Company realized proceeds from the sale of
property and equipment of $3.0 million compared with $4.8 million in
1998.

The Company reviewed all its long-lived asset categories in order to
determine if current net book values were appropriate or if any were
impaired. The tractor and trailer fleets were appraised at the end of
the year with the results indicating a substantially higher value than
the net book value. Accordingly, no adjustments were required for the
tractor or trailer fleet. The owned terminals also were reviewed and
the results indicated that the estimated realizable value of six
facilities was less that the current book value. Accordingly, an
adjustment of $.6 million, which was included in other income, was made
in the fourth quarter of 1999 to reflect the impairment in value of
these facilities. Three of these facilities were sold in the first
quarter of 2000 for $3.0 million.

In conjunction with closing Safeway Transportation, Inc., an adjustment
was made in the fourth quarter of 1999 to reduce the carrying value of
specialized trailers by $.4 million to estimated realizable value. A
portion of this fleet was sold in 1999 and the remainder is currently
for sale.

Selling and administrative expenses increased by $5.2 million in 1999
to $24.1 million. Severance of $1.9 million and a provision for bad
debts of $2.9 million were the two largest changes in selling and
administrative expense in 1999. All of the severance was recorded in
the fourth quarter. Accounts receivable balances were reviewed for
collectibility and the reserve for bad debts was reviewed for adequacy.
As a result of this review, during the fourth quarter the allowance for
doubtful accounts was increased by $1.8 million.

Other income included a net gain on sale of tractors and trailers of
$.6 million. Other income also reflected a net benefit of $1.5
million, which resulted from the settlement in the fourth quarter of an
insurance claim and subsequent receipt of insurance proceeds as
reimbursement for a building loss due to a fire.

Interest expense in 1999 was $3.8 million compared with $3.7 million in
1998. Higher debt levels later in the year were almost offset by lower
interest rates during the first half of 1999.

The rate of income tax benefit related to the loss from continuing
operations in 1999 was 37.4% compared with a 32.8% rate of income tax
benefit in 1998. The smaller impact of non-deductible expenses in 1999
caused the rate of effective income tax benefit in 1999 to be
substantially different than the rate of income tax benefit in 1998.

Earnings from discontinued operation of $1.4 million in 1999 were
essentially flat when compared with 1998.

The Company's net loss for the year was $16.1 million or $1.82 per
diluted share compared with a net loss of $2.0 million or $.23 per
diluted share in 1998.

FORWARD-LOOKING STATEMENTS
The Company may make certain forward-looking statements in this Form
10-K within the meaning of Section 21E of the Securities Exchange Act
of 1934, as amended, relating to the Company's financial condition,
profitability, liquidity, resources, business outlook, proposed
acquisitions or divestitures, market forces, corporate strategies,
consumer preferences, contractual commitments, legal matters, capital
requirements and other matters. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking
statements. To comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual
results and experience to differ substantially from the anticipated
results or other expectations expressed in the Company's forward-
looking statements. When words and expressions such as: "believes,"
"expects," "anticipates," "estimates," "plans," "intends,"
"objectives," "goals," "aims," "projects," "forecasts," "possible,"
"seeks," "may," "could," "should," "might," "likely," "enable," or
similar words or expressions are used in this Form 10-K, as well as
statements containing phrases such as: "in the Company's view," "there
can be no assurance," "although no assurance can be given," or "there
is no way to anticipate with certainty," forward-looking statements are
being made in all of these instances.

Various risks and uncertainties may affect the operations, performance,
development and results of the Company's business and could cause
future outcomes to differ materially from those set forth in forward-
looking statements, including the following factors: the Company's
ability to continue as a going concern; the Company's ability to
refinance its existing indebtedness; potential increases in interest
rates; general economic conditions; competitive factors and pricing
pressures; shifts in market demand; the performance and needs of
industries served by the Company; equipment utilization; management's
success in developing and introducing new services and lines of
business; potential increases in labor costs; potential increases in
equipment, maintenance and fuel costs; uncertainties of litigation; the
Company's ability to finance its future business requirements through
outside sources or internally generated funds; the availability of
adequate levels of insurance; success or timing of completion of
ongoing or anticipated capital or maintenance projects; management
retention and development; changes in Federal, State and local laws and
regulations, including environmental regulations; as well as the risks,
uncertainties and other factors described from time to time in the
Company's SEC filings and reports.

The Company undertakes no obligation to update publicly or revise any
forward-looking statements as a result of future developments, events
or conditions. New risk factors emerge from time to time and it is not
possible for the Company to predict all such risk factors, nor can the
Company assess the impact of all such risk factors on its business or
the extent to which any factor, or combination of factors, may cause
actual results to differ significantly from those forecast in any
forward-looking statements. Given these risks and uncertainties,
investors should not overly rely or attach undue weight to the
Company's forward-looking statements as an indication of its actual
future results.

YEAR 2000 ("Y2K") READINESS DISCLOSURE
The Company's business operations have not been materially impacted by
Y2K matters. The Company will continue to monitor its operations for
possible Y2K information technology programming issues.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's major market risk exposure is to changing interest rates.
The Company has variable-rate debt representing 95% of its total long-
term debt at September 30, 2000. If interest rates average 25 basis
points more in 2001 than they did during 2000, the Company's interest
expense would be increased by $140,000. These amounts are determined
by considering the impact of the hypothetical interest rates on the
Company's variable-rate long-term debt at September 30, 2000.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Matlack Systems, Inc.

We have audited the accompanying consolidated balance sheet of Matlack
Systems, Inc. and subsidiaries as of September 30, 2000, and the
related consolidated statements of operations and cash flows for the
year then ended. Our audit also included the financial statement
schedules as of and for the year ended September 30, 2000 listed in the
index at Item 14(a). These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on
our audit.

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

In our opinion, the 2000 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Matlack Systems, Inc. and subsidiaries as of
September 30, 2000, and the consolidated results of their operations
and their cash flows for the year ended September 30, 2000, in
conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related 2000 financial statement
schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects,
the information set forth therein.

The accompanying financial statements have been prepared assuming that
Matlack Systems, Inc. will continue as a going concern. As more fully
described in the "Basis of Presentation" note to the consolidated
financial statements, the Company has incurred recurring and increasing
operating losses and has a working capital deficiency. In addition,
the Company has not complied with certain covenants of its existing
bank credit facility and has been unable to secure alternative sources
of financing. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in the "Basis of
Presentation" note to the consolidated financial statements. The
financial statements do not include any adjustments to reflect the

possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result
from the outcome of this uncertainty.

Ernst & Young LLP

Philadelphia, Pennsylvania
January 5, 2001

Independent Auditors' Report

The Shareholders and Board of Directors
Matlack Systems, Inc.

We have audited the accompanying consolidated balance sheet of Matlack
Systems, Inc. and subsidiaries as of September 30, 1999 and the related
consolidated statements of operations and cash flows for each of the
years in the two-year period ended September 30, 1999, before the
restatement as described in the note "Discontinued Operation" to the
consolidated financial statements. In connection with our audits of
the consolidated financial statements, we have also audited the
financial statement schedules of condensed financial information as of
September 30, 1999 and for the years ended September 30, 1999 and 1998,
and of valuation and qualifying accounts for the years ended September
30, 1999 and 1998 (before the restatement). The consolidated financial
statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements and financial statement
schedules based on our audits.

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

In our opinion, the consolidated financial statements (before the
restatement) referred to above present fairly, in all material
respects, the financial position of Matlack Systems, Inc. and
subsidiaries as of September 30, 1999, and the results of their
operations and their cash flows for each of the years in the two-year
period ended September 30, 1999, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedules (before the restatement) referred to above, when
considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the
information set forth therein.

KPMG LLP

Wilmington, Delaware
January 13, 2000

CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Revenues $186,933 $198,175 $233,374

Expenses
Operating 178,136 188,118 206,024
Depreciation and amortization 10,670 11,184 11,378
Selling and administrative 28,199 24,064 18,850
Other expense (income), net 2,247 (1,077) (1,518)

219,252 222,289 234,734

Operating loss (32,319) (24,114) (1,360)
Interest expense 5,447 3,800 3,721

Loss from continuing operations
before income tax benefit (37,766) (27,914) (5,081)
Income tax benefit (525) (10,452) (1,666)

Loss from continuing operations (37,241) (17,462) (3,415)
Earnings from discontinued operation 248 1,395 1,402

Net loss $(36,993) $(16,067) $ (2,013)

Basic and diluted loss per share
from continuing operations $ (4.23) $ (1.98) $ (.39)

Basic and diluted earnings per share
from discontinued operation $ .03 $ .16 $ .16

Basic and diluted net loss per share $ (4.20) $ (1.82) $ (.23)

Basic and diluted shares outstanding 8,814 8,814 8,790

The Notes to the Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)

SEPTEMBER 30,
2000 1999

ASSETS
Current assets
Cash $ 4,060 $ 2,837
Accounts receivable, net 24,328 32,653
Inventories 4,035 5,700
Other current assets 1,658 1,590
Refundable income taxes 86 2,631
Net realizable value of discontinued
operation 12,388 -
Deferred income taxes - 3,752
Total current assets 46,555 49,163

Property and equipment, net 53,900 66,433
Property held for sale 3,355 5,403
Net assets of discontinued operation - 16,262
Other assets 1,527 1,920

Total assets $105,337 $139,181

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,600 $ 11,035
Accrued liabilities 19,515 18,668
Current maturities of long-term debt 56,972 5,309
Total current liabilities 88,087 35,012

Long-term debt 2,303 51,189
Self-insurance reserves 5,390 5,265
Environmental reserves 6,253 915
Other liabilities 696 2,429
Deferred income taxes - 4,770
Commitments and contingencies (see Notes to
the Consolidated Financial Statements)
Shareholders' equity:
Common stock, $1.00 par value
Outstanding: 2000-8,814,434 shares;
1999-8,814,434 shares 8,814 8,814
Additional paid-in capital 10,620 10,620
Retained earnings (deficit) (16,826) 20,167

Total shareholders' equity 2,608 39,601

Total liabilities and shareholders' equity $105,337 $139,181

The Notes to the Consolidated Financial Statements are an integral
part of these statements.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)

YEAR ENDED SEPTEMBER 30,
2000 1999 1998
Cash flows from operating activities
Net loss $(36,993) $(16,067) $ (2,013)
Adjustments to reconcile net loss
to net cash (used in) provided
by operating activities:
Impairment loss 2,359 1,093 -
Provision to write-down net assets
of discontinued operation to net
realizable value 1,593 - -
Depreciation and amortization 12,582 12,515 12,320
Provision for doubtful accounts 5,537 2,937 687
Net gain on sale of equipment (769) (638) (1,749)
Changes in assets and liabilities:
Accounts receivable 3,719 (7,436) (101)
Inventories and other assets 785 2,782 (2,097)
Accounts payable and accrued
liabilities 6,751 8,236 2,526
Current and deferred income taxes 1,527 (10,361) (1,784)
Other, net (1,522) 1,414 1,245

Net cash (used in) provided by
operating activities (4,431) (5,525) 9,034

Cash flows from investing activities
Purchase of property and equipment (7,080) (7,133) (11,448)
Proceeds from the sale of property
and equipment 9,957 2,957 4,846
Business combination, net of cash
acquired - 569 -

Net cash provided by (used in)
investing activities 2,877 (3,607) (6,602)

Cash flows from financing activities
Proceeds of long-term debt 26,500 66,400 91,731
Repayment of long-term debt (23,723) (59,936) (91,306)
Exercise of stock options and other - 28 96

Net cash provided by financing
activities 2,777 6,492 521

Net increase (decrease) in cash 1,223 (2,640) 2,953
Cash at beginning of year 2,837 5,477 2,524

Cash at end of year $ 4,060 $ 2,837 $ 5,477

Supplemental information
Interest paid $ 5,444 $ 4,040 $ 3,978
Income taxes paid (recovered) $ (1,877) $ 817 $ 1,036

Non-cash investing activities
Business combination
Fair value of assets acquired $ - $ 2,073 $ -
Less: Liabilities assumed - (2,022) -
Cash acquired - (620) -
Business combination, net of
cash acquired $ - $ (569) $ -

The Notes to the Consolidated Financial Statements are an integral
part of these statements.

MATLACK SYSTEMS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

ORGANIZATION AND ACCOUNTING POLICIES

Organization -- Matlack Systems, Inc., together with its subsidiaries,
is a bulk transportation company that provides transportation of bulk
commodities in tank trailers and tank containers, intermodal
transportation services, tank cleaning services and logistics
management services to the nation's leading chemical and dry bulk
shippers. All of the Company's operations currently are conducted
within the United States and Canada.

In addition to specialized trucking, the Company provides trailer,
container and intermediate bulk container leasing on a short- or long-
term basis to customers in the food and chemical industries. In
November 2000, this segment of the Company's business was sold (see
Note for "Discontinued Operation"). Accordingly, the results of
operations of the leasing segment have been reported as a discontinued
operation and previously reported financial statements have been
restated.

Consolidation -- The consolidated financial statements include the
accounts of all subsidiaries. Intercompany transactions and balances
have been eliminated.

Concentration of labor -- Approximately one-third of the Company's
labor force is covered under various collective bargaining agreements,
which expire at various dates through 2004. These employees are
covered by multi-employer pension plans as required under the
agreements (see Note "Pension Plans").

Revenue recognition -- The Company recognizes revenue when shipments
are delivered.

Earnings per share -- The number of weighted average shares used in
computing basic and diluted earnings (loss) per share (EPS) are as
follows:
2000 1999 1998
Basic EPS 8,814,000 8,814,000 8,790,000
Effect of options - (1) - (1) - (1)
Diluted EPS 8,814,000 8,814,000 8,790,000

(1) The effect of options was not considered as it would have been
anti-dilutive.

No adjustments to net loss available to common shareholders were
required during the periods presented.

Inventories -- Inventories of transportation equipment parts and
supplies are valued at the lower of first-in, first-out cost or market.
Tires on vehicles, including new or recapped replacement tires, are
valued at cost and are written off over the expected aggregate useful
life which approximates two to three years.

Property and equipment -- Property and equipment are recorded at cost.
Depreciation is provided on a straight-line basis net of salvage or
residual values. Gain or loss on the sale or retirement of property and
equipment is included in other income in the Consolidated Statement of
Operations. Repairs and maintenance are expensed as incurred.
Improvements that extend the original life of the assets are
capitalized and depreciated over the remaining lives of the assets.

Claims and insurance reserves -- The Company retains a specific portion
of insurable risks with regard to public liability and workers'
compensation claims. The Company maintains a $1,000,000 primary
insurance policy subject to $500,000 of retention per claim with a
$6,000,000 aggregate stop-loss limit on retention. In excess of the
primary policy, the Company maintains $120,000,000 of insurance
coverage. Reserves are established for claims incurred plus an estimate
for claims incurred but not reported. Reserve requirements are
evaluated and established utilizing known and expected information on
each claim, historical payment trends, claim severity and other
factors. In addition, loss development trends on closed claims are also
used to determine claim reserves. The Company is not aware of any
trends, uncertainties, or pending claims that would have an adverse
impact upon its insurance reserves. Claims estimated to be paid within
one year have been classified in accrued liabilities with the balance
reflected as non-current insurance reserves.

During 1998, the Company's insurance expense was reduced by the
application of $2,016,000 resulting from a premium refund in connection
with an environmental impairment liability insurance policy that
expired on September 30, 1997. Between 1994 and 1997, premiums of
$2,000,000 relating to this policy were paid and expensed by the
Company. During 1998 and in conjunction with this policy, the Company
received a net reimbursement of $222,000 from a reinsurance company,
resulting in a net premium refund of $1,794,000 which was included in
accounts receivable at September 30, 1998.

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

Fair values of financial instruments -- The carrying amounts reported
in the balance sheet for current assets and current liabilities
approximate their fair value at September 30, 2000.

Stock-based compensation -- SFAS No. 123, "Accounting for Stock-Based
Compensation," defines a fair-value based method of accounting for
stock-based compensation plans, however, it allows the continued use of
the intrinsic value method under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees." The Company
has elected to continue to use the intrinsic value method. Pro forma
results of operations, as if SFAS No. 123 had been used to account for
stock-based compensation plans, are presented in the footnote for Stock
Option Plans.

Environmental remediation -- The Company accrues for environmental
expenses resulting from existing conditions that relate to past
operations when the costs are probable and estimable. In estimating the
Company's liability with respect to environmental matters,
consideration is given to the total cost to remediate a site, the
Company's contribution of waste at the site, the participation of other
responsible parties and all other relevant circumstances of the claim.
Liabilities, when established, are not discounted. Recoverable
insurance amounts are not considered unless the recovery is deemed
probable. Environmental liabilities are reviewed periodically as
assessment and remediation progresses. If required, based on additional
technical and legal information, liabilities are adjusted. Given the
uncertainties inherent in evaluating environmental exposure, actual
future costs incurred at identified sites may vary from current
estimates.

Recent accounting pronouncements -- The Company does not expect the
adoption of recently issued accounting pronouncements to have a
significant impact on its results of operations, financial position or
cash flows.

Reclassification -- Certain prior year amounts have been reclassified
to conform with the current year presentation.

BASIS OF PRESENTATION
The Company's financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.
Accordingly, the financial statements do not include any adjustments
that might be necessary should the Company be unable to continue as a
going concern. There are a number of factors and conditions that raise
substantial doubt about the Company's ability to continue as a going
concern for a reasonable period of time, including:

- The Company has incurred net losses in four of the past five
years and increasing losses and declining revenues in the last
three years.
- Net cash used in operations was $4,431,000 (including the receipt
of a $6,000,000 net insurance settlement) in 2000 and $5,525,000
in 1999.
- At September 30, 2000, retained earnings had a deficit of
$16,826,000.
- At September 30, 2000, there was a working capital deficit of
$41,532,000.
- At September 30, 2000, the Company was in default and violation
of several financial ratios and covenants of its bank credit
agreement.
- The existing bank credit agreement, of which $53,900,000 is
outstanding as of September 30, 2000, is set to expire on
February 15, 2001, at which time all principal amounts, as well
as accrued interest, fees and expenses, shall be due and payable
in full.
- The group of banks sponsoring the existing bank credit agreement
has not committed to and may not provide additional or
alternative funding beyond the existing expiration date.
- The Company expects negative cash flows from operations to
continue in the immediate future and will require additional
sources of funding to continue operations.
- The Company has not had any success to date with respect to
securing alternative funding from other banks or financial
institutions.

The Company's continuation as a going concern is primarily dependent
upon its ability to refinance its existing bank credit facility or
obtain an alternative source. Management is currently negotiating with
its current bank group in an effort to resolve the Company's financial
issues.

In addition, the Company is continuing its efforts to dispose of non-
core assets and streamline operations commensurate with projected
levels of demand. Where appropriate, this includes, among other
things, the termination of employees and the cancellation of, or
election to not renew, existing contracts for services and materials.

ACQUISITION
In September 1999, a subsidiary of the Company completed the
acquisition of American Transportation Service, Inc. (ATS), a provider
of truck driver services, by acquiring for a cash purchase price of
$51,000 the remaining 51 percent of the ATS shares outstanding not
already owned by the Company. In 1997, the Company acquired a 49
percent interest in ATS.

The ATS acquisition has been accounted for by the purchase method and
the assets acquired and liabilities assumed have been recorded at their
estimated fair values. The excess of cost over the estimated fair
value of net assets acquired of $757,000 is being amortized on a
straight-line basis over five years. The results of operations of ATS
have been included in the consolidated financial statements from the
date of acquisition. Pro forma results of operations would differ from
reported results by immaterial amounts for all periods presented.

The Company paid ATS $39,421,000 and $34,325,000 for drivers' services
in 1998 and 1999, respectively.

ACCOUNTS RECEIVABLE, NET
2000 1999

Customers $30,133,000 $32,422,000
Insurance claims - 1,538,000
30,133,000 33,960,000
Less allowance for doubtful accounts (5,805,000) (1,307,000)
$24,328,000 $32,653,000

PROPERTY AND EQUIPMENT
The Company's property and equipment accounts are as follows:

SEPTEMBER 30,
2000 1999 USEFUL LIVES

Land $ 6,941,000 $ 7,934,000
Transportation equipment 104,606,000 113,690,000 4 to 12 years
Transportation service
facilities 56,306,000 64,775,000 5 to 40 years
Less accumulated
depreciation (113,953,000) (119,966,000)
$ 53,900,000 $ 66,433,000

As of September 30, 2000, the Company had no open commitments for the
purchase of property and equipment.

PROPERTY HELD FOR SALE
Property held for sale of $3,355,000 and $5,403,000 for 2000 and 1999,
respectively, relates to facilities that the Company has closed and
ceased ongoing operations. The Company is actively marketing these
facilities. In order to reflect the estimated fair value of these
facilities, the Company recorded impairment losses of $156,000 and
$680,000 for 2000 and 1999, respectively. (See Note "Other Expense
(Income), Net.") The fair value has been determined to be the amount
a willing buyer would pay a willing seller for such assets in a
transaction that is other than a forced or liquidation sale. The
determination of estimated fair value is inherently uncertain, since it
requires estimates of market value as well as future events and
conditions. The Company considered, among other things, the range of
preliminary purchase prices being discussed with potential buyers. At
the time that these facilities were taken out of service, depreciation
was terminated.

LONG-TERM DEBT
Long-term debt is as follows:
SEPTEMBER 30,
2000 1999

Bank credit agreement $ 53,900,000 $ 49,400,000
Equipment financing obligations
due banks with equipment pledged
as security at interest rates
ranging from 7.42% to 8.09%, payable
in installments to 2005 5,315,000 6,840,000
Promissory note payable, at interest
rate of 8% 60,000 120,000
Real estate mortgage obligations, at
interest rates of 5.95%, with land
and buildings pledged as collateral,
payable in installments over various
periods to 2001 - 138,000
Less amounts due within one year (56,972,000) (5,309,000)
$ 2,303,000 $ 51,189,000

The Company maintains a revolving credit agreement ("Agreement") with
a group of banks. The Agreement had a termination date of August 19,
2000, which was extended to February 15, 2001 as a result of an
amendment to the Agreement on October 9, 2000. In addition to several
significant provisions, as discussed below, the amendment waived all
defaults from March and June of 2000 and reset various covenants for
future periods.

In connection with the amendment, all LIBOR rate loans under the
Agreement were converted to Base rate loans upon termination of their
respective applicable interest periods after August 19, 2000. The Base
rate is defined as (i) the prime rate plus 1% or, if higher, (ii) the
federal funds rate plus 1 and 1/2 of 1%.

The amendment precludes the issuance of additional standby letters of
credit and limits increases to existing standby letters of credit to
the banks' discretion.

Certain amounts are required to be remitted to the banks as mandatory
prepayments. These amounts generally include (i) 90% of non-operational
cash flows, which are defined as, but not limited to, amounts received
outside of the normal course of business, including all tax refunds,
insurance settlement proceeds and proceeds from sales of assets,
excluding certain specific assets, and (ii) 95% of the proceeds from
the sale of Matlack Leasing Corporation (see note for Discontinued
Operation) and from the sale of certain real property. The retained
portions of these amounts must be deposited in the collateral account.

The Company incurred a renegotiation and extension fee of $350,000,
$150,000 of which was paid at closing with the remainder payable on
February 15, 2001.

The aggregate amounts of maturities for all indebtedness during the
next five fiscal years are as follows: 2001 -- $56,972,000, 2002 --
$1,112,000, 2003 -- $575,000, 2004 -- $450,000 and 2005 -- $166,000.

Based upon borrowing rates available to the Company for long-term debt
with similar terms and maturities, the carrying amounts approximate the
fair value of such financial instruments.

ACCRUED LIABILITIES
Accrued liabilities are as follows:
SEPTEMBER 30,
2000 1999

Employee compensation $ 5,183,000 $ 6,627,000
Self-insurance reserves 7,600,000 5,319,000
Taxes other than income 1,831,000 1,584,000
Provision for container returns and repairs 228,000 1,566,000
Environmental reserves 1,500,000 1,250,000
Professional fees 1,291,000 540,000
Other 1,882,000 1,782,000
$19,515,000 $18,668,000

SHAREHOLDERS' EQUITY
Changes in the components of shareholders' equity are as follows (in
thousands):

$1 Par
Value Additional Retained Total
Common Paid-In Earnings Shareholders'
Stock Capital (Deficit) Equity
Balance at
October 1, 1997 $8,778 $10,532 $ 38,247 $57,557
Net loss (2,013) (2,013)
Exercise of stock options 31 65 96

Balance at
September 30, 1998 8,809 10,597 36,234 55,640
Net loss (16,067) (16,067)
Exercise of stock options 5 7 12
Other 16 16

Balance at
September 30, 1999 8,814 10,620 20,167 39,601
Net loss (36,993) (36,993)

Balance at
September 30, 2000 $8,814 $10,620 $(16,826) $ 2,608

The Company is authorized to issue 24,000,000 shares of $1 Par Value
Common Stock and 1,000,000 shares of $1 Par Value Preferred Stock. The
terms and conditions of each issue of preferred shares will be
determined by the Board of Directors. No preferred shares have been
issued.

Each share of common stock includes one common stock purchase right
("Right") which is non-exercisable until certain defined events occur,
including tender offers or the acquisition by a person or group of
affiliated or associated persons of 20% of the Company's common stock.
Upon the occurrence of certain defined events, the Right entitles the
holder to purchase additional stock of the Company or stock of an
acquiring company at a 50% discount. The Right expires on June 30, 2009
unless earlier redeemed by the Company at a price of $.01 per Right.

On December 14, 1998, the Company granted an exemption from its Rights
Agreement to Alpine Capital, L.P. ("Alpine") and the Anne T. and Robert
M. Bass Foundation (the "Foundation"), acting as a group, with respect
to purchases of the Company's common stock up to 23% of the amount
outstanding. Prior to granting the exemption, Alpine and the Foundation
collectively owned 19.7% of the outstanding common stock. The current
threshold for a triggering event under the Rights Agreement is 20%. The
exemption was granted due to a request made by representatives of
Alpine and the Foundation, who reaffirmed at that time that their
acquisitions of the Company's common stock were for investment purposes
only.

Under the terms of the credit agreement, the Company's subsidiaries may
not make equity distributions to the Company of their net earnings.

OTHER EXPENSE (INCOME), NET
Other expense (income), net at September 30 consisted of the following:

2000 1999 1998

Gain on sale of equipment, net $ (135,000) $ (562,000) $(1,518,000)
Impairment losses 2,359,000 1,093,000 -
Insurance recovery related to
terminal fire - (1,455,000) -
Miscellaneous 23,000 (153,000) -
$2,247,000 $(1,077,000) $(1,518,000)

Other expense (income), net for 2000 includes an impairment charge of
$2,203,000 related to the write-down to their respective fair values of
two Company-owned locations that were sold during the year. Also
included in 2000 is an impairment charge of $156,000 related to the
write-down to its estimated fair value of an additional Company-owned
property that is being held for sale as of September 30, 2000 (see Note
"Property Held for Sale"). In addition, 1999 includes $680,000 of
impairment charges related to Company-owned facilities that were held
for sale at September 30, 1999 and subsequently sold in 2000, as well
as $413,000 related to the write-down of certain van trailers that are
no longer used in the business of the Company.

STOCK OPTION PLANS
Under the Company's stock option plans, options to purchase common
stock of the Company may be granted to officers and key employees at
not less than 100% of the fair market value at the date of grant.
Generally, options granted vest ratably over a six-year period and have
a maximum life of eight years.

The Company accounts for these plans under APB No. 25. Accordingly, no
compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS No. 123, the Company's pro
forma net loss for 2000, 1999 and 1998 would have been increased to
$37,563,000 ($4.26 loss per diluted share), $16,684,000 ($1.89 loss per
diluted share) and $2,583,000 ($.29 loss per diluted share),
respectively. Because the SFAS 123 method of accounting has not been
applied to options granted prior to October 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be
expected in future years.

As of September 30, stock option activity under the Company's plans is
as follows:

2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
beginning
of year 889,678 $7.58 934,278 $7.61 805,594 $7.10
Granted 477,000 3.83 25,000 5.50 177,000 8.88
Exercised - - (4,800) 2.42 (31,485) 3.05
Expired or
canceled (243,899) 6.76 (64,800) 7.72 (16,831) 4.60

Outstanding at
September 30 1,122,779 $6.16 889,678 $7.58 934,278 $7.61

Exercisable at
September 30 492,295 $7.43 505,459 $7.50 387,773 $7.40

The weighted average fair value of options granted during 2000, 1999
and 1998 was $2.08, $2.48 and $2.60, respectively. The fair value for
these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions
for 2000, 1999 and 1998, respectively: risk-free interest rates of
5.9%, 6.2% and 4.4%; dividend yields of 0% for all years; expected
volatility of .43, .28 and .30 and a weighted average expected life of
seven years for each of the three years.

The following table summarizes information regarding stock options
outstanding and exercisable at September 30, 2000:

Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price

$1.94 12,000 7.6 yrs. $1.94 - -
$3.88 - $5.50 437,500 7.2 yrs. $3.97 22,166 $4.18
$6.38 - $8.88 673,279 3.1 yrs. $7.66 470,129 $7.58

At September 30, 2000, a total of 212,500 shares of common stock was
available for future grants.

LEASE COMMITMENTS
The Company leases certain of its transportation service and
administrative facilities, office space and transportation equipment.
These leases are classified as operating leases and expire on various
dates during the next seven years. Minimum future payments required
under operating leases having non-cancelable terms in excess of one
year as of September 30 are considered in the lease commitments.

Total rent expense incurred under operating leases for the fiscal years
ended September 30, 2000, 1999 and 1998 amounted to $14,337,000,
$12,686,000 and $16,306,000, respectively.

Minimum future payments are as follows:

YEAR ENDING SEPTEMBER 30,
2001 $ 6,199,000
2002 4,452,000
2003 3,751,000
2004 2,400,000
2005 1,133,000
Later years 50,000
Total minimum payments required $17,985,000

INCOME TAXES
The tax benefits for the three years are comprised as follows:

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Current: Federal $ - $ (1,978,000) $ 1,501,000
State - (863,000) 413,000
Deferred: Federal (803,000) (6,717,000) (3,002,000)
State 278,000 (894,000) (578,000)
Total income tax benefit $(525,000) $(10,452,000) $(1,666,000)

A reconciliation of the tax benefits for the three years with amounts
calculated by applying the statutory federal income tax rate for those
years to loss from continuing operations before income tax benefit is
as follows:

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Federal benefit $(13,219,000) $ (9,770,000) $(1,778,000)
State tax benefit, net
of federal benefit (2,044,000) (1,143,000) (107,000)
Non-deductible business
expenses 264,000 330,000 305,000
Other 26,000 131,000 (86,000)
Valuation allowance 14,448,000 - -
Total income tax benefit $ (525,000) $(10,452,000) $(1,666,000)

The tax effect of temporary differences which comprise the current and
non-current deferred income tax amounts shown on the balance sheet are
as follows:
SEPTEMBER 30,
2000 1999

Depreciation $(12,424,000) $(11,843,000)
Expenses deductible when paid,
primarily insurance reserves 12,102,000 6,749,000
Net operating loss carryforward 14,675,000 4,123,000
Other 95,000 (47,000)
Valuation allowance (14,448,000) -
Deferred income taxes, net $ - $ (1,018,000)

At September 30, 2000, the Company had a net operating loss
carryforward of $35,144,000 for federal income tax purposes which
expires through 2020. Management believes that it is more likely than
not that the results of future operations will not generate sufficient
taxable income to realize the deferred tax assets; therefore, a
valuation allowance of $14,448,000 has been recorded.

PENSION PLANS
The Company maintains a noncontributory pension plan for eligible
employees not covered by pension plans under collective bargaining
agreements. Pension costs are funded in accordance with the provisions
of the Internal Revenue Code. The Company also maintains a
nonqualified, noncontributory defined benefit pension plan for certain
employees to restore pension benefits reduced by federal income tax
regulations. The cost associated with the plan is determined using the
same actuarial methods and assumptions as those used for the Company's
qualified pension plan.

The following table sets forth the funded status and the amount
recognized in the Company's balance sheet for the plans:

SEPTEMBER 30,
2000 1999
Change in benefit obligation:
Benefit obligation at beginning of year $17,434,000 $12,595,000
Service cost 1,322,000 667,000
Interest cost 1,440,000 921,000
Amendments 895,000 -
Actuarial (gain) loss (1,141,000) (2,021,000)
Acquisition - 5,597,000
Benefits paid (448,000) (325,000)
Benefit obligation at end of year 19,502,000 17,434,000

Change in plan assets:
Fair value of plan assets at
beginning of year 26,851,000 13,419,000
Actual return on plan assets 13,326,000 8,037,000
Acquisition - 5,720,000
Benefits paid (448,000) (325,000)
Fair value of plan assets at end of year 39,729,000 26,851,000

Funded status 20,227,000 9,417,000
Unrecognized net gain (21,761,000) (10,994,000)
Unrecognized prior service cost 898,000 76,000
Unrecognized overfunding at adoption - (16,000)
Accrued pension cost $ (636,000) $(1,517,000)

Discount rate 8.5% 8.5%
Assumed rate of compensation increase 5.0% 5.0%
Expected long-term rate of return 9.5% 9.5%

The amendments made to the plans in 2000 reflect changes in benefits
payable upon early retirement.

At September 30, 2000, the assets of the pension plans were invested
70% in equity securities and 25% in fixed income securities and the
balance in other short-term interest bearing accounts.

The components of net periodic pension cost are as follows:

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Service cost $ 1,322,000 $ 667,000 $ 575,000
Interest cost 1,440,000 921,000 783,000
Expected return on plan assets (2,527,000) (1,258,000) (1,057,000)
Net amortization and deferral (1,115,000) (16,000) (160,000)
Net periodic pension cost $ (880,000) $ 314,000 $ 141,000

The Company expensed payments to multi-employer pension plans
required by collective bargaining agreements of $3,455,000 in 2000,
$3,615,000 in 1999 and $3,859,000 in 1998. The actuarial present
value of accumulated plan benefits and net assets available for
benefits to employees under these plans are not available.

The Company also maintains a defined contribution 401(k) plan which
permits participation by substantially all employees not represented
under a collective bargaining agreement. In connection with the plan,
the Company's matching contribution charged to expense was $17,000 in
2000, $11,000 in 1999 and $12,000 in 1998.

TRANSACTIONS WITH RELATED PARTIES
Certain directors and officers of the Company are also directors and
officers of Rollins Truck Leasing Corp.

The Company purchased materials, administrative services and rented
office space from Rollins Truck Leasing Corp., its subsidiaries and
affiliates. The aggregate cost of these materials, services and
rents, which have been included in operating expenses or selling and
administrative expenses, as appropriate, in the Consolidated
Statement of Operations, was $3,517,000 in 2000, $4,093,000 in 1999
and $4,401,000 in 1998.

The Company paid insurance premiums of $360,000, $975,000 and
$791,000 in 2000, 1999 and 1998, respectively, to Transrisk Limited,
a wholly owned subsidiary of Rollins Truck Leasing Corp., for various
insurable risks. A substantial portion of these risks were ceded to a
non-affiliated reinsurance company.

An officer of the Company is the trustee of an employee benefits
trust, which provided certain insurance and health care benefits to
employees of the Company. Contributions to the trust, which were
charged to operating or selling and administrative expenses, as
appropriate, were $1,184,000 in 1999 and $2,302,000 in 1998.
Effective for dates of service on or after January 1, 1999, the
Company replaced the benefit program formerly provided by the
employee benefits trust with a third-party administrator that now
provides healthcare benefits and certain insurance coverage.

During fiscal year 2000, Matlack received warrants to purchase up to
10% of the stock of Bulklogix, Inc. In conjunction with the start-up
of this e-commerce supply chain initiative marketed to Matlack's
customer base, Matlack incurred expenses of approximately $45,000.
The President and CEO of the Company is the majority shareholder of
Bulklogix, Inc. The Avicon Group is a shareholder in Bulklogix, Inc.
and provided consulting services of $437,000 to Matlack in connection
with the implementation of transportation management and equipment
maintenance systems during fiscal year 2000.

Matlack paid Technology Solutions Company ("TSC") a total of
$1,014,000 for consulting services to evaluate the Company's
information systems, develop a plan to replace those systems and
assist in the implementation of financial information systems during
fiscal year 2000. A former principal of TSC is the brother of the
President and CEO.

In the opinion of management of the Company, the foregoing
transactions were effected at rates that approximate those the
Company would have realized or incurred had such transactions been
effected with independent third parties.

COMMITMENTS AND CONTINGENCIES
Environmental Matters
In the normal course of its business, Matlack is subject to numerous
state and federal environmental laws and regulations and also is
exposed to the cost and risk of transporting and handling materials
and wastes characterized as hazardous by various regulatory agencies.
Matlack has received notices from the United States Environmental
Protection Agency ("EPA") and others indicating that it is a
potentially responsible party ("PRP") with respect to the cleanup of
hazardous wastes at several waste disposal sites. Matlack has been
named as a defendant in several lawsuits brought under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") for recovery of costs associated with the cleanup of waste
disposal sites. Matlack is not the owner or lessor of any of these
sites, many of which have several hundred PRPs. Because Matlack is
only one of many smaller or deminimis PRPs or defendants at these
sites, it is not actively involved in considering alternative methods
of remediation as it relates to cleanup or preventive measures at
such sites and is unable to quantify the total estimated recovery
costs. In addition, Matlack has responded to various governmental
requests, principally those of the EPA pursuant to CERCLA, for
information with respect to possible disposition of waste materials
attributable to it at various waste disposal sites. The Company is
unable to conclude that its ultimate liability at these sites will
not be material.

Where losses are probable, provision has been made based on available
information with respect to the estimated cost of all such claims. In
determining the Company's liability with respect to such claims,
consideration is given to the total cost to remediate the site, the
Company's contribution of waste at the site, the participation of
other responsible parties and all other relevant circumstances of the
claim. All claims and litigations are reviewed to determine the
likelihood that their ultimate resolution would have a material
adverse effect upon the Company.

For the four owned sites at which the Company currently is
investigating and remediating environmental contamination, as of
September 30, 2000 it had expended a total of $4,216,000 since
inception. During fiscal 2000, the Company entered into settlement
agreements with several insurance companies in which the Company
sought coverage for environmental costs associated with certain
Company-owned sites and received gross proceeds of $10,100,000. In
connection with the environmental settlement negotiations, the
Company incurred legal fees of $2,300,000 and assigned $1,800,000 of
the proceeds to the purchasers of one of the sites included in the
settlement.

At September 30, 2000, the Company had a total environmental reserve
of $7,753,000. Management believes that this reserve is adequate to
cover all known environmental exposures based on current information
available. However, since the investigations are at relatively early
stages, it is not possible at this time to predict what the ultimate
potential additional environmental-related costs may aggregate over
the next several years, however, such amounts could be material.

Litigation
During the fourth quarter of fiscal 1998, a judgment of $950,000 was
entered against the Company in connection with rent allegedly owed
under an expired lease for a terminal previously operated by the
Company in Woodbridge, New Jersey. The $950,000 judgment was based
on a finding by the trial court that the Company was responsible for
double the fair market rent of the facility as a tenant willfully
holding over after the expiration of the lease term. An appellate
court has vacated this judgment and remanded the matter to the trial
level for further hearings to determine if the Company is liable for
rent as a holdover tenant and, if so, what the fair market rent
should be. The Company paid rent pursuant to the terms of the
expired lease during the period in controversy and the landlord
negotiated the rent payments. The Company believes that it has
viable defenses to the landlord's demand for additional rent and
intends to vigorously contest this matter. The Company has provided
for an estimate of the liability associated with this proceeding,
which amount is included in accrued liabilities.

There are various claims and legal actions pending against the
Company that are insured under the Company's public liability and
workers' compensation policies relating to incidents arising out of
the Company's bulk trucking, cleaning and intermodal businesses. In
the opinion of management, based on the advice of in-house counsel,
the reserves established for these claims and actions are adequate.
However, the ultimate resolution of these claims and actions may be
material.

INVOLUNTARY CONVERSION OF ASSETS
On March 6, 1998, the Company experienced a fire at its Toledo, Ohio
terminal that destroyed the Company's truck cleaning facility. The
Company carries both property damage and business interruption
insurance to provide protection in such situations. On August 25,
1999, the Company settled with its insurance carrier and agreed that
the aggregate loss which included business interruption coverage
amounted to $1,859,000. Accordingly, the Company included $301,000
in operating earnings with the balance of $1,455,000, net of a
deductible and the carrying value of the damaged property, being
recorded in other income. At September 30, 1999, a receivable of
$301,000, representing the final payment due under the settlement,
was included in accounts receivable. This amount was subsequently
collected in November 1999.

DISCONTINUED OPERATION
In November 2000, Matlack Leasing Corporation sold substantially all
of its assets for $12,000,000 and realized a loss on disposal of
$1,593,000. These assets consisted principally of International
Standards Organization (ISO) tank containers, tank trailers, customer
leases and a container lease management agreement. The assets were
sold to Matlack Leasing, LLC, an unaffiliated Pennsylvania limited
liability company, whose majority owner was an officer, who resigned
his position at and as of the transaction closing, of Matlack Leasing
Corporation prior to the transaction. Of the total proceeds
received, $2,256,000 relating to an equipment financing obligation
and $8,616,000 relating to the bank credit agreement were remitted to
the banks as mandatory prepayments as described in the Note "Long-
Term Debt." An additional $675,000 was set aside in various escrow
accounts pending resolution of certain matters addressed in the sales
agreement. The remaining $453,000 of proceeds was used to finance a
portion of the Company's operations during the first fiscal quarter
of 2001. As a result of this transaction, the leasing segment has
been reported as a discontinued operation and previously reported
financial statements have been restated. A portion of consolidated
interest expense has been allocated to the discontinued operation
based on the ratio of revenues discontinued to the sum of total
revenues. This amount does not exceed the amount that would be
determined if the allocation were based on the ratio of net assets
discontinued to the sum of total net assets of the consolidated
enterprise plus consolidated debt. Income taxes have been calculated
based on the statutory rates in effect. Summarized financial
information for the discontinued operation is as follows:

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Revenues $7,588,000 $8,021,000 $6,371,000

Operating earnings (a) 2,442,000 2,617,000 2,643,000
Interest expense 433,000 314,000 323,000
Income taxes 809,000 908,000 918,000
Earnings from discontinued
operation before loss on
disposal of segment assets 1,200,000 1,395,000 1,402,000
Loss on disposal of segment
assets (net of tax benefit
of $641,000) 952,000 - -
Earnings from discontinued
operation $ 248,000 $1,395,000 $1,402,000

(a) Includes depreciation expense of $1,912,000, $1,331,000 and
$891,000, provisions for doubtful accounts of $385,000, $8,000
and $6,000, as well as net gains on the sale of equipment of
$634,000, $76,000 and $231,000 for 2000, 1999 and 1998,
respectively.

AS OF SEPTEMBER 30,
2000 1999

Current assets $ 1,382,000 $ 1,986,000
Property and equipment 12,571,000 14,238,000
Other assets 28,000 38,000
Net assets of discontinued operation
before provision to reduce to net
realizable value 13,981,000 $16,262,000
Net realizable value provision (1,593,000)
Net realizable value of discontinued
operation $12,388,000

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

On June 8, 2000, the Company filed with the Securities and Exchange
Commission a report on Form 8-K wherein, under Item 4, a change in
the Company's certifying accountant was reported substantially as
follows:

A. On June 1, 2000, KPMG LLP resigned as the Company's independent
auditor. During the fiscal years ended September 30, 1999 and
1998 and the subsequent interim period ended June 1, 2000 that
KPMG LLP served as independent auditor, there have been no
disagreements on any matter of accounting principles or
practices, financial statement disclosures, or auditing scope or
procedure, except as noted herein.

B. KPMG LLP's report on the financial statements of the Company for
the years ending September 30, 1998 and 1999 did not contain an
adverse opinion or disclaimer of opinion, nor was it qualified or
modified as to uncertainty, scope of audit, or accounting
principles.

C. KPMG LLP had a disagreement with the Company regarding its
decision to record an impairment charge of $3,115,000 in the
second fiscal quarter of 2000 related to the Company's existing
transportation management software system, as reported in the
Company's unaudited interim financial statement on Form 10-Q for
the three- and six-month periods ended March 31, 2000. KPMG LLP
discussed this matter with the Company's Audit Committee during
two separate audit committee meetings.

KPMG LLP set forth its position in a letter dated May 26, 2000 as
follows:

"In our discussions during the review of the unaudited quarterly
data for the 2nd quarter, management represented that the ongoing
operational needs of the Company do not require continued use of
this asset. However, management also represented that the
software will continue to be used until the replacement software
is implemented in the 1st or 2nd quarter of fiscal 2001. Based
on these representations, it is our opinion that the TSA software
constitutes an asset held in use, as defined by SFAS No. 121, and
that until the TSA software ceases to be used, the Company should
continue to re-evaluate the asset's future useful life and
amortize the unamortized cost of the asset over such periods.
Further, KPMG is of the opinion that under generally accepted
accounting principles the Company's determination that the TSA
software system no longer supports the Company's operational
needs and, therefore, has no future useful service potential is
insufficient to support the write-off of the asset in the March
31, 2000 quarter."

As reported in the Company's Form 10-Q for the three- and
six-month periods ending March 31, 2000, the Company determined
that this system no longer supports the Company's operational
needs and, therefore, has no future useful service potential.
The ongoing operational needs of the Company do not require
continued use of this asset. A substantial portion of this
system has never been implemented and used operationally. As a
consequence, for accounting purposes, the Company determined in
the second fiscal quarter to treat the entire system as if it has
been abandoned and that the fair value of the asset is zero.
During the second fiscal quarter, the small portion of this
transportation system that had been implemented was determined to
be unstable and, therefore, unreliable. Information and data
generated by this system initially required and continues to
require complete manual verification. As a result of this
situation, the Company has purchased new transportation
management software, which currently is being implemented with
completion expected during the first or second quarter of fiscal
2001.

D. The Company requested KPMG LLP to furnish it a letter addressed
to the Commission stating whether it agreed with the above
statements. A copy of that letter, dated June 8, 2000, was filed
as Exhibit 16 to the Form 8-K and also is filed as Exhibit 16 to
this Form 10-K.

E. In connection with the audit of fiscal year 1998, KPMG LLP
communicated with the Company's Audit Committee on January 28,
1999 that there were material weaknesses in connection with the
Company's internal controls. In connection with the audit of
fiscal year 1999, KPMG LLP communicated with the Company's Audit
Committee on December 22, 1999 that there were material
weaknesses in connection with the Company's internal controls.
The above weaknesses related principally to turnover of
experienced and qualified accounting personnel and inadequate
documentation of certain transactions.

F. The Audit Committee of the Company then commenced a search for
new independent accountants. The Company authorized KPMG LLP to
respond fully to any inquiries which may be made by the successor
accountant concerning the subject matter of this filing.

On June 29, 2000, the firm of Ernst & Young LLP was engaged as the
principal accountant to audit the Company's consolidated financial
statements for the fiscal year ended September 30, 2000.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

Directors and Executive Officers of the Registrant. As of October 31,
2000, the Directors and Executive Officers of the registrant were:

NAME POSITION AGE TERM OF
OFFICE
Patrick J. Bagley Vice President-Finance 53 7/88 to date
and Treasurer

Klaus M. Belohoubek Vice President- 41 7/99 to 1/01
General Counsel and
Secretary

Michael B. Kinnard President and 42 7/99 to date
Chief Executive Officer 1/00 to date

John W. Rollins, Jr Chairman of the Board 58 7/88 to date

Henry B. Tippie Chairman of the 73 1988 to date
Executive Committee

William B. Philipbar, Jr. Director 75 1993 to date

William L. Medford, Jr. Director 58 2000 to date

Klaus M. Belohoubek was Vice President-General Counsel and Secretary
to the Company since 1999 and was Assistant General Counsel from 1990
to 1999. Mr. Belohoubek also serves as Vice President-General
Counsel and Secretary to Rollins Truck Leasing Corp. and Vice
President-General Counsel to Dover Downs Entertainment, Inc.

Effective January 22, 2001, Mr. Belohoubek resigned his position as
Vice President-General Counsel and Secretary to the Company.

The Company's Executive Officers are elected for the ensuing year and
until their successors are elected.

BOARD OF DIRECTORS AND BOARD COMMITTEES
The Board of Directors held four regularly scheduled meetings and one
special meeting during fiscal year 2000. All members of the Board
attended all of the meetings held.

Audit Committee. The Audit Committee consists of William B. Philipbar,
Jr., Chairman, Henry B. Tippie and William L. Medford, Jr. The Audit
Committee held seven meetings during the last fiscal year. The
Committee's functions are described under the caption "Report of the
Audit Committee."

Executive Committee. The Executive Committee consists of Henry B.
Tippie, Chairman, and John W. Rollins, Jr. The Executive Committee held
seven meetings during the last fiscal year. The Executive Committee has
the power to exercise all of the powers and authority of the Board of
Directors in the management of the business and affairs of the Company
in accordance with the provisions of the by-laws of the Company.

Compensation and Stock Option Committee. The Compensation and Stock
Option Committee consists of two non-employee directors: Henry B.
Tippie, Chairman, and William B. Philipbar, Jr. Neither participates
in any Company stock option plan. The Compensation and Stock Option
Committee held two meetings during the last fiscal year. The
Committee establishes compensation and benefits for the Company's
directors, officers and key employees and administers the Company's
outstanding Stock Option Plans including the granting of options to
various employees of the Company and its subsidiaries.

The Company does not have a nominating committee of the Board of
Directors.

REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is established pursuant
to the Company's By-laws revised on July 17, 2000 and the Audit
Committee Charter adopted by the Board of Directors on April 27, 2000.
A copy of the Audit Committee Charter is attached to this Form 10-K as
Exhibit 99.

Management is responsible for the Company's internal controls and the
financial reporting process. The Company's independent auditors are
responsible for performing an independent audit of the Company's
consolidated financial statements in accordance with auditing standards
generally accepted in the United States of America and for issuing a
report thereon. The Audit Committee's responsibility is generally to
monitor and oversee these processes, as described in the Audit
Committee Charter.

Each member of the Audit Committee is independent in the judgment of
the Company's Board of Directors.

With respect to the year ended September 30, 2000, in addition to its
other work, the Audit Committee:

- Reviewed and discussed with the Company's management and the
independent auditors the audited financial statements of the
Company as of September 30, 2000 and for the year then ended;

- Discussed with the independent auditors the matters required to
be discussed by auditing standards generally accepted in the
United States of America; and

- Received from the independent auditors written affirmation of
their independence required by Independence Standards Board
Standard No. 1 and discussed with the auditors the firm's
independence.
Based upon the review and discussions referred to above, the Committee
recommended to the Board of Directors that the audited financial
statements of the Company, as of September 30, 2000 and for the year
then ended, be included in the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 2000 for filing with the Securities
and Exchange Commission.

Audit Committee
William B. Philipbar, Jr., Chairman
Henry B. Tippie
William L. Medford, Jr.

COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors and persons who own more than ten
percent of a registered class of the Company's equity securities to
file reports of ownership and changes in ownership with the Securities
and Exchange Commission ("SEC"). Officers, directors and greater than
ten percent shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.

Based on its review of the copies of such forms received by it, the
Company believes that during its fiscal year ended 2000 all filing
requirements applicable to its officers, directors and greater than ten
percent beneficial owners were complied with, except as follows:
Michael B. Kinnard filed a late Form 4 regarding a purchase of Common
Stock.

ITEM 11. EXECUTIVE COMPENSATION.
REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE OF
THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION

During fiscal year 2000, the members of the Compensation and Stock
Option Committee of the Board of Directors held primary responsibility
for determining executive compensation levels.

The Company is engaged in a highly competitive industry. As a
consequence, the Company views its ability to attract and retain
qualified executives as the cornerstone of its future success. In
order to accomplish this objective, the Company has endeavored to
structure its executive compensation in a fashion that takes into
account the Company's operating performance and the individual
performance of the executive.

Of necessity, this analysis is subjective in nature and not based upon
a structured formula. The factors referred to above are not weighted
in an exact fashion.

Pursuant to the above compensation philosophy, the total annual
compensation of executive officers of the Company is made up of one or
more of three elements. The three elements are salary, an annual
incentive and, in some years, grants of stock options.

The salary of each executive officer is determined by the Compensation
and Stock Option Committee. As previously stated, in making its
determinations the Committee gives consideration to the Company's
operating performance for the prior fiscal year and the individual
executive's performance.

The annual incentive compensation package for executive officers is
developed by the Chief Executive Officer of the Company prior to the
end of each fiscal year. It is based upon a performance formula for
the ensuing fiscal year. That performance formula and incentive
package is then reviewed by the Committee and is either accepted,
amended or modified. None of the members of the Board of Directors or
the Committee participate in the incentive program.

Awards under the Company's Stock Option Plans are purely discretionary,
are not based upon any specific formula, and may or may not be granted
in any given fiscal year. When considering the grant of stock options,
the Committee gives consideration to the overall performance of the
Company and the performance of individual employees.

CEO COMPENSATION
The CEO's compensation is determined by the Compensation and Stock
Option Committee. As is the case with respect to the Named Executives,
the CEO's compensation is based upon the Company's operating
performance and his individual performance. The CEO's compensation
consists of the same three elements identified above with respect to
executive officers: salary; an annual incentive; and, in some years,
grants of stock options. The determination of salary and the award of
stock options, if any, are subjective and not based upon any specific
formula or guidelines. The determination of an annual incentive is
based on the amount by which the Company's pre-tax earnings exceed a
target established by the Compensation and Stock Option Committee prior
to the beginning of the fiscal year. The target is revised annually.
The CEO is not a member of the Committee and does not participate in
the deliberations of the Committee when his salary or incentive is
determined.

Compensation and Stock Option Committee
Henry B. Tippie, Chairman
William B. Philipbar, Jr.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors serve on the Company's Compensation and Stock
Option Committee: Henry B. Tippie and William B. Philipbar, Jr. Henry
B. Tippie is Chairman of the Board of Dover Downs Entertainment, Inc.
and serves on its Compensation and Stock Option Committee. Mr. Tippie
is also Chairman of the Board of Rollins Truck Leasing Corp. Patrick
J. Bagley serves on the Compensation and Stock Option Committee of
Dover Downs Entertainment, Inc. John W. Rollins, Jr. and Patrick J.
Bagley are directors of Dover Downs Entertainment, Inc. and executive
officers of Rollins Truck Leasing Corp.

EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for services in all capacities to
the Company for the fiscal years ended September 30, 1998, 1999 and 2000, of those persons who
were, at September 30, 2000, (i) the Chief Executive Officer and (ii) the other most highly
compensated executive officers of the Company whose total annual salary exceeded $100,000 (the
"Named Executives"):

SUMMARY COMPENSATION TABLE

Long Term Compensation
Annual Compensation Awards Payouts

Other Restricted Stock
Annual Stock Options LTIP Compen-
Name and Salary Bonus Comp. (2) Awards SARs Payouts sation
Principal Position Year (1) ($) ($) ($) ($) # $ $

Michael B. Kinnard 2000 260,950 45,000 - -0- 18,000 -0- -0-
President and Chief
Executive Officer (4)

John W. Rollins, Jr. 2000 60,000 -0- - -0- 18,000 -0- -0-
Chairman and Former 1999 60,000 -0- - -0- -0- -0- -0-
Chief Executive
Officer (5)

(1) Fiscal years ending September 30.
(2) The only type of Other Annual Compensation for each of the named officers was in the form
of perquisites and was less than the level required for reporting.
(3) No awards have ever been made.
(4) Elected President on July 29, 1999 and Chief Executive Officer on January 27, 2000.
(5) Chairman of the Board since 1989; Chief Executive Officer from July 29, 1999 to January 27,
2000.

OPTION AND STOCK APPRECIATION RIGHTS GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted in the fiscal year ending September 30, 2000
to each of the Company's Named Executives. Employees of the Company and its subsidiaries are
eligible for stock option grants based on individual performance. The Company did not issue any
stock appreciation rights. The table also sets forth the hypothetical gains that would exist for
the options at the end of their eight-year terms, assuming compound rates of stock appreciation
of 0%, 5% and 10%. The actual future value of the options will depend on the market value of the
Company's Common Stock. All option exercise prices are based on the market price on the grant
date.

Individual Grants (1)

% of Total
Options Potential Realizable Value
Granted to at Assumed Annual Rates of
Options Employees Exercise Stock Price Appreciation for
Granted in Fiscal Price Expiration Option Term (2)
Name (#) Year ($/Sh) Date 0% 5% 10%

Michael B. Kinnard 18,000 3.77% $3.875 12/2/07 - $ 33,303 $ 79,765
John W. Rollins, Jr. 18,000 3.77% $3.875 12/2/07 - $ 33,303 $ 79,765
All employees as
a group (3) 477,000 100.00% $3.875 12/2/07 - $871,426 $2,087,193
to to
$1.9375 4/25/08

(1) Options for the Named Executive were granted on December 3, 1999.
(2) These amounts, based on assumed appreciation rates of 0% and the 5% and 10% rates prescribed
by the Securities and Exchange Commission rules, are not intended to forecast possible
future appreciation, if any, of the Company's stock price. These numbers do not take into
account certain provisions of options providing for termination of the option following
termination of employment, nontransferability or phased-in vesting.
(3) Based on 465,000 options granted on December 3, 1999 at an exercise price of $3.875 per
share and 12,000 options granted on April 26, 2000 at an exercise price of $1.9375 per
share.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
There were no Option Exercises by the Named Executives during Fiscal Year 2000. The following
table summarizes the value of the options held by the Company's Named Executives as of September
30, 2000. The Company has not granted and does not have any Stock Appreciation Rights
outstanding.
Value of Unexercised
Shares Value Number of Unexercised In-the-Money
Acquired on Realized Options at FY-End (#) Options at FY-End (#)
Name (1) Exercise # $ (2) Exercisable/Unexercisable Exercisable/Unexercisable

Michael B. Kinnard - 0 - - 0 - 23,298 / 48,117 - 0 - / - 0 -
John W. Rollins, Jr. - 0 - - 0 - 69,000 / - 0 - - 0 - / - 0 -

(1) Fair market value of underlying security at exercise date less the exercise price.

(2) The value of the Company's common stock on September 29, 2000 was $1.25 per share.

LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
There were no Long-Term Incentive Plan awards to the Named Executives
during fiscal year 2000.

DEFINED BENEFIT PLANS
Pension Plans
The Company's Pension Plan is a non-contributory qualified employee
defined benefit plan. All full-time employees of the Company (except
certain employees covered by collective bargaining agreements) are
eligible to participate in the Pension Plan. Retirement benefits are
equal to the sum of 1.35% of earnings up to covered compensation, as
that term is defined in the Plan, and 1.7% of earnings above covered
compensation. Pensionable earnings includes regular salaries or wages,
commissions, bonuses, overtime earnings and short-term disability
income protection benefits.

Retirement benefits are not subject to any reduction for Social
Security benefits or other offset amounts. An employee's benefits may
be paid in certain alternative forms having actuarially equivalent
values. Retirement benefits are fully vested at the completion of five
years of credited service or, if earlier, upon reaching age 55. The
maximum annual benefit under a qualified pension plan is currently
$135,000 beginning at the Social Security retirement age (currently age
65).

The Company maintains a non-qualified, defined benefit plan, called the
Excess Benefit Plan, which covers those participants of the Pension
Plan whose benefits are limited by the Internal Revenue Code. A
participant in the Excess Benefit Plan is entitled to a benefit
equaling the difference between the amount of the benefit payable
without limitation and the amount of the benefit payable under the
Pension Plan.

Annual pension benefit projections for the Named Executives assume: (a)
that the participant remains in the service of the Company until age 65
unless otherwise noted; (b) that the participant's earnings continue at
the same rate as paid in the fiscal year ended September 30, 2000
during the remainder of his service until age 65; and (c) that the
Plans continue without substantial modification.

The estimated annual benefit at retirement for each of the Named
Executives of the Company is: John W. Rollins, Jr., $14,416 and Michael
B. Kinnard, $113,168.

401(k) Retirement Plan
The Company has a deferred compensation plan pursuant to section 401(k)
of the Internal Revenue Code for all its full time employees who have
completed ninety (90) days of service. Covered employees may
contribute up to 9% of their compensation for each calendar year. In
addition, the Company contributes up to an additional 5% of the first
3% of compensation contributed by any covered employee to the plan. An
employee's maximum annual contribution to the plan is $10,500. All
contributions are funded currently.

DIRECTOR'S COMPENSATION
Directors who are not full-time employees of the Company or any of its
subsidiaries are paid an attendance fee of $1,000 for each Board of
Directors or committee meeting attended. In addition, the Chairman of
the Audit Committee receives $1,000 per fiscal quarter.

COMMON STOCK PERFORMANCE
The following graph reflects a comparison of the cumulative total
shareholder return on the Company's common stock with the S&P Composite
500 Index and the S & P Truckers Index, respectively, for the five year
period commencing October 1, 1995 through September 30, 2000. The
graph assumes that the value of the investment in the Company's common
stock and each index was 100 at September 30, 1995 and all dividends
were reinvested. The comparisons in this table are required by the
Securities and Exchange Commission and, therefore, are not intended to
forecast or be necessarily indicative of any future return on the
Company's common stock.

[CHART OMITTED]

1995 1996 1997 1998 1999 2000

Matlack Systems, Inc. 100 76 82 71 52 13
S&P Truckers Index 100 77 128 91 77 72
S&P Composite 500 Index 100 120 169 184 236 267
Assumes $100 invested on
October 1, 1995

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
As of October 31, 2000, four persons were known to the Company to own
beneficially more than five percent (5%) of the outstanding shares of
Common Stock of the Company. The name and address of each such person
together with the number of shares so owned and the percentage of
outstanding shares that ownership represents and information as to
Common Stock ownership of the Named Executives identified in the
Summary Compensation Table and the officers and directors of the
Company as a group (according to information received by the Company)
are set forth below:

Number of Shares Percent
Title of Names and Addresses and Nature of of
Class of Beneficial Owners Beneficial Ownership(1) Class

Common Alpine Capital, L.P., et al
201 Main Street, Suite 3100
Fort Worth, TX 76102 2,024,150 (2) 23.0%

Common Estate of John W. Rollins
One Rollins Plaza
Wilmington, DE 19803 1,003,684 11.4%

Common Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, Suite 1100
Santa Monica, CA 90401 688,917 (3) 7.8%

Common Rollins Properties, Inc.
One Rollins Plaza
Wilmington, DE 19803 600,000 6.8%

Common John W. Rollins, Jr.
One Rollins Plaza
Wilmington, DE 19803 181,325 (4) 2.1%

Common Michael B. Kinnard
One Rollins Plaza
Wilmington, DE 19803 5,000 (5) 0.1%

Common All Directors and Officers
as a Group (7 persons) 411,096 4.7%

(1) As to officers and directors, owned directly and of record. The
above numbers exclude the following shares of Common Stock
subject to options granted under the Company's 1988 and 1995
Stock Option Plans which the listed beneficial owner has the
right to acquire beneficial ownership as specified in Rule 13d of
the Securities Exchange Act of 1934: John W. Rollins, Jr.,
69,000; Michael B. Kinnard, 23,297; and all directors and
officers as a group, 123,197 shares.

(2) Includes 1,903,994 shares held by Alpine Capital, L.P., a Texas
limited partnership ("Alpine") and 120,156 shares held by The
Anne T. and Robert M. Bass Foundation, a Texas non-profit
corporation ("Foundation"). The two general partners of Alpine
are Robert W. Bruce III and Algenpar, Inc. Algenpar, Inc. is a
Texas corporation controlled by J. Taylor Crandall. Mr. Bruce,
through The Robert Bruce Management Co., Inc., shares investment
discretion over the shares held by the Foundation with Mr.
Crandall, Anne T. Bass and Robert M. Bass, who serve as directors
of the Foundation.

(3) Dimensional Fund Advisors Inc. ("Dimensional"), an investment
advisor registered under Section 203 of the Investment Advisors
Act of 1940, furnishes investment advice to four investment
companies registered under the Investment Company Act of 1940,
and serves as investment manager to certain other investment
vehicles, including commingled group trusts. (These investment
companies and investment vehicles are the "Portfolios"). In its
role as investment advisor and investment manager, Dimensional
possessed both voting and investment power over 688,917 shares of
Matlack Systems stock as of September 30, 2000. The Portfolios
own all securities reported in this statement, and Dimensional
disclaims beneficial ownership of such securities.

(4) Does not include 44,571* shares held as Co-Trustee and 3,000*
shares held by his wife.

(5) Does not include 600* shares held by his wife as custodian for
minor children.
________

* The Messrs. Rollins and Kinnard disclaim any beneficial interest in
these holdings.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

During the year ended September 30, 2000, the following officers and/or
directors of the Company were also officers and/or directors of Rollins
Truck Leasing Corp.; Patrick J. Bagley, Klaus M. Belohoubek, William B.
Philipbar, Jr., William L. Medford, Jr., John W. Rollins, Jr. and Henry
B. Tippie. The Estate of John W. Rollins owns directly and of record
12.4% of the outstanding shares of Common Stock of Rollins Truck
Leasing Corp. at October 31, 2000. Henry B. Tippie is the executor of
the Estate.

The description of transactions between the Company and Rollins Truck
Leasing Corp. appears under the caption "Transactions with Related
Parties" of this 2000 Annual Report on Form 10-K. There were no
situations encountered by the Company during fiscal 2000 which required
resolution as conflicts of interest.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.

(a) (1) Financial Statements - The following financial statements
are included under the caption "Financial Statements and
Supplementary Data" in Part II, Item 8 hereof and are incorporated
herein by reference:

PAGE(S)

Report of Independent Auditors (Ernst & Young LLP) 19

Independent Auditors' Report (KPMG LLP) 21

Consolidated Statement of Operations for the years ended
September 30, 2000, 1999 and 1998 22

Consolidated Balance Sheet at September 30, 2000 and 1999 23

Consolidated Statement of Cash Flows for the years ended
September 30, 2000, 1999 and 1998 24

Notes to the Consolidated Financial Statements 26-44

(2) Financial Statement Schedules

Schedule I - Condensed Financial Information -
Matlack Systems. Inc. (Parent)

Balance Sheet at September 30, 2000 and 1999 60

Statement of Operations for the years ended September 30,
2000, 1999 and 1998 61

Statement of Cash Flows for the years ended September 30,
2000, 1999 and 1998 62

Note to the Financial Statements 63

Schedule II - Valuation and Qualifying Accounts for the
years ended September 30, 2000, 1999 and 1998 64

Any financial statement schedules otherwise required have been omitted
because they are not applicable or the required information is shown in
the financial statements or notes thereto.

(3) Exhibits:
(3) (a) Articles of Incorporation and By-Laws of Matlack Systems, Inc.
as filed with Registration Statement No. 33-23524 dated August 5, 1988
are incorporated herein by reference.

(3) (b) By-Laws of Matlack Systems, Inc. as last amended on July 17,
2000.

(4) (a) Credit Agreement, see Exhibit 10.

(b) Rights Agreement dated as of June 1, 1999 as filed as an
Exhibit to Registration Statement on Form 8-A filed by the Company on
June 30, 1999 is incorporated herein by reference.

(10) (a) Credit Agreement dated as of August 19, 1998 between Matlack
(DE), Inc. et al and certain banking institutions named therein with
First Union National Bank as agent as filed with the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1998 is
incorporated herein by reference.

(b) Amendment No. 1 dated February 12, 1999 to Credit Agreement
dated as of August 19, 1998 between Matlack (DE), Inc. et al and
certain banking institutions named therein with First Union National
Bank as agent as filed with the Company's annual report on Form 10-K
for the fiscal year ended September 30, 1999 is incorporated herein by
reference.

(c) Amendment No. 2 dated August 10, 1999 to Credit Agreement
dated as of August 19, 1998 between Matlack (DE), Inc. et al and
certain banking institutions named therein with First Union National
Bank as agent as filed with the Company's annual report on Form 10-K
for the fiscal year ended September 30, 1999 is incorporated herein by
reference.

(d) Amendment No. 3 dated December 20, 1999 to Credit Agreement
dated as of August 19, 1998 between Matlack (DE), Inc. et al and
certain banking institutions named therein with First Union National
Bank as agent as filed with the Company's annual report on Form 10-K
for the fiscal year ended September 30, 1999 is incorporated herein by
reference.

(e) Fourth Amendment dated October 9, 2000 between Matlack (DE),
Inc. et al and certain banking institutions named therein with First
Union National Bank as agent.

(f) Security Agreement-Accounts dated August 3, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein
with First Union National Bank as agent as filed with the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1999
is incorporated herein by reference.

(g) Security Agreement-Assigned Vehicles dated August 3, 1999
between Matlack (DE), Inc. et al and certain banking institutions named
therein with First Union National Bank as agent as filed with the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1999 is incorporated herein by reference.

(h) Security Agreement-Accounts dated September 8, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein
with First Union National Bank as agent as filed with the Company's
annual report on Form 10-K for the fiscal year ended September 30, 1999
is incorporated herein by reference.

(i) Security Agreement-Assigned Vehicles dated September 8, 1999
between Matlack (DE), Inc. et al and certain banking institutions named
therein with First Union National Bank as agent as filed with the
Company's annual report on Form 10-K for the fiscal year ended
September 30, 1999 is incorporated herein by reference.

(j) Matlack Systems, Inc. 1988 Stock Option Plan as filed with
Registration Statement No. 33-23524 dated August 5, 1988 is
incorporated herein by reference.

(k) Matlack Systems, Inc. 1995 Stock Option Plan, as filed with
the Company's Proxy Statement for the Annual Meeting of Shareholders
held on January 25, 1996, is incorporated herein by reference.

(l) Matlack Systems, Inc. 1999 Stock Option Plan, as filed with
the Company's Proxy Statement for the Annual Meeting of Shareholders
held on February 10, 2000, is incorporated herein by reference.

(16) Letter from KPMG LLP dated June 8, 2000 regarding change in
certifying accountant.

(21) Matlack Systems, Inc. Subsidiaries at September 30, 2000.

(27) Matlack Systems, Inc. Financial Data Schedule at September 30,
2000

(99) Audit Committee Charter adopted by the Board of Directors on April
27, 2000.

(b) Reports on Form 8-K.
None.

SIGNATURES

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

DATED: February 8, 200l MATLACK SYSTEMS, INC.
(Registrant)

By: /s/ Michael B. Kinnard
Michael B. Kinnard
President and
Chief Executive Officer

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

SIGNATURE TITLE DATE

/s/Patrick J. Bagley Director, February 8, 2001
PATRICK J. BAGLEY Vice President-Finance
and Treasurer,
Chief Financial Officer,
Chief Accounting Officer

/s/John W. Rollins, Jr. Director and
JOHN W. ROLLINS, JR. Chairman of the Board

/s/Henry B. Tippie Chairman of the February 8, 2001
HENRY B. TIPPIE Executive Committee
and Director

/s/William B. Philipbar, Jr. Director February 8, 2001
WILLIAM B. PHILIPBAR, JR.

/s/William L. Medford, Jr. Director February 8, 2001
WILLIAM L. MEDFORD, JR.

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION

MATLACK SYSTEMS, INC.
BALANCE SHEET
($000 OMITTED)

SEPTEMBER 30,

2000 1999

ASSETS
Current assets
Cash $ 2,212 $ 75
Accounts receivable from subsidiaries 203 -
Other current assets 6 -
Deferred income taxes - 171

Total current assets 2,421 246
Investments in subsidiaries, at equity* 5,514 42,079

Total assets $ 7,935 $ 42,325

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 68 $ 30
Accrued liabilities 268 591

Total current liabilities 336 621
Advance from subsidiary* 4,655 1,520
Other liabilities 140 583
Deferred income taxes 196 -
Shareholders' equity
Common stock $1 par value,
24,000,000 shares authorized;
issued and outstanding:
2000: 8,814,434; 1999: 8,814,434 8,814 8,814
Additional paid-in capital 10,620 10,620
Retained earnings (deficit) (16,826) 20,167

Total shareholders' equity 2,608 39,601

Total liabilities and shareholders' equity $ 7,935 $ 42,325

* Eliminated in consolidation

The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)

MATLACK SYSTEMS, INC.
STATEMENT OF OPERATIONS
($000 OMITTED)

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Revenues:
Dividends from subsidiaries $ - $ 504 $ 504
Administrative expenses 104 1,378 412

Earnings before income taxes
(benefit) (104) (874) 92
Income taxes (benefit) 324 (246) (194)

Net earnings (loss) of Matlack
Systems, Inc. (428) (628) 286
Equity in undistributed net loss of
subsidiaries (36,565) (15,439) (2,299)

Net loss $(36,993) $(16,067) $(2,013)

The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)

MATLACK SYSTEMS, INC.
STATEMENT OF CASH FLOWS
($000 OMITTED)

YEAR ENDED SEPTEMBER 30,
2000 1999 1998

Cash flows from operating activities:
Earnings (loss) prior to equity
in subsidiaries' undistributed
earnings (loss) $ (428) $(628) $ 286
Adjustments to reconcile earnings
to net cash provided by
operating activities:
Changes in assets and liabilities:
Accounts receivable (203) 1 (1)
Accounts payable and accrued
liabilities (285) 326 (137)
Current and deferred income taxes 367 101 (334)
Other, net (449) 614 (50)

Net cash (used in) provided by
operating activities (998) 414 (236)

Cash flows from investing activities - - -

Cash flows from financing activities:
Exercise of stock options and other - 28 96
Capital contribution to subsidiary - - (429)
Advance from (to) subsidiary 3,135 (476) 100

Net cash provided by (used in)
financing activities 3,135 (448) (233)

Net increase (decrease) in cash 2,137 (34) (469)
Cash at beginning of year 75 109 578

Cash at end of year $2,212 $ 75 $ 109

Supplemental information:
Income taxes paid (recovered) $ (42) $(324) $ 140

The Note to the Financial Statements is an integral part of these
statements.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION
(CONTINUED)

MATLACK SYSTEMS, INC.
NOTE TO THE FINANCIAL STATEMENTS

ACCOUNTING POLICIES

The accounting policies of the Company and its subsidiaries are set
forth in the Organization and Accounting Policies note in the
consolidated financial statements of this 2000 Annual Report on Form
10-K.

The Company's principal source of earnings is dividends paid by its
subsidiaries. A credit agreement, to which the Company is a party,
restricts payments among the subsidiaries and to the Company. The
Company also realizes cash receipts by assessing subsidiaries for
federal taxes on income and expends cash in payment of such taxes on a
consolidated basis. Tax assessments are based on the amount of federal
income taxes which would be payable (recoverable) by each subsidiary
company based on its current year's earnings (loss) reduced by that
subsidiary's applicable portion of any consolidated credits utilized
currently in the consolidated federal income tax return.

MATLACK SYSTEMS, INC. AND SUBSIDIARIES

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
($000 OMITTED)

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
Balance Charged Balance
at to Costs at
Description Beginning and to Charged End
of Other to Other of
YEAR ENDED SEPTEMBER 30, Period Expenses Accounts Deductions Period

2000: Allowance for doubtful accounts $ 1,307 $ 5,152 $ 48 (1) $ 702 (2) $ 5,805

1999: Allowance for doubtful accounts $ 660 $ 2,929 $ 16 (1) $2,298 (2) $ 1,307

1998: Allowance for doubtful accounts $ 576 $ 681 $ 91 (1) $ 688 (2) $ 660

2000: Self-insurance reserves $10,584 $10,145 - $7,739 (3) $12,990
Less: portion classified
as current (4) (5,319) (7,600)
Non-current insurance reserves $ 5,265 $ 5,390

1999: Self-insurance reserves $ 9,311 $ 9,723 - $8,450 (3) $10,584
Less: portion classified
as current (4) (4,296) (5,319)
Non-current insurance reserves $ 5,015 $ 5,265

1998: Self-insurance reserves $ 4,399 $13,019 - $8,107 (3) $ 9,311
Less: portion classified
as current (4) (1,223) (4,296)
Non-current insurance reserves $ 3,176 $ 5,015

(1) Recoveries.
(2) Bad debt write-offs.
(3) Payments.
(4) Included in accrued liabilities.
MATLACK SYSTEMS, INC.

Exhibits to Form 10-K

For Fiscal Year Ended September 30, 2000

Index to Exhibits
(3) Exhibits:
(3) (a) Articles of Incorporation and By-Laws of Matlack Systems, Inc.
as filed with Registration Statement No. 33-23524 dated August 5, 1988
are incorporated herein by reference.

(3) (b) By-Laws of Matlack Systems, Inc. as last amended on July 17,
2000.

(4) (a) Credit Agreement, see Exhibit 10.

(b) Rights Agreement dated as of June 1, 1999 as filed as an Exhibit
to Registration Statement on Form 8-A filed by the Company on June 30,
1999 is incorporated herein by reference.

(10)(a) Credit Agreement dated as of August 19, 1998 between Matlack
(DE), Inc. et al and certain banking institutions named therein with
First Union National Bank as agent as filed with the Company's annual
report on Form 10-K for the fiscal year ended September 30, 1998 is
incorporated herein by reference.

(e) Fourth Amendment dated October 9, 2000 between Matlack (DE),
Inc. et al and certain banking institutions named therein with First
Union National Bank as agent.

(f) Security Agreement-Accounts dated August 3, 1999 between Matlack
(DE), Inc. et al and certain banking institutions named therein with
First Union National Bank as agent.

(g) Security Agreement-Assigned Vehicles dated August 3, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein
with First Union National Bank as agent.

(h) Security Agreement-Accounts dated September 8, 1999 between
Matlack (DE), Inc. et al and certain banking institutions named therein
with First Union National Bank as agent.

(i) Security Agreement-Assigned Vehicles dated September 8, 1999
between Matlack (DE), Inc. et al and certain banking institutions named
therein with First Union National Bank as agent.

(j) Matlack Systems, Inc. 1988 Stock Option Plan as filed with
Registration Statement No. 33-23524 dated August 5, 1988 is
incorporated herein by reference.

(k) Matlack Systems, Inc. 1995 Stock Option Plan, as filed with the
Company's Proxy Statement for the Annual Meeting of Shareholders held
on January 25, 1996, is incorporated herein by reference.

(l) Matlack Systems, Inc. 1999 Stock Option Plan, as filed with the
Company's Proxy Statement for the Annual Meeting of Shareholders to be
held on February 10, 2000, is incorporated herein by reference.

(16) Letter from KPMG LLP dated June 8, 2000 regarding change in
certifying accountant.

(21) Matlack Systems, Inc. Subsidiaries at September 30, 2000.

(27) Matlack Systems, Inc. Financial Data Schedule at September 30,
2000.

(99) Audit Committee Charter adopted by the Board of Directors on April
27, 2000.

Exhibit 16

June 8, 2000

Securities and Exchange Commission
Washington, D.C. 20549

Ladies and Gentlemen:

We were previously principal accountants for Matlack Systems, Inc. and,
under the date of January 13, 2000, we reported on the consolidated
financial statements of Matlack Systems, Inc. and subsidiaries as of
and for the years ended September 30, 1999 and 1998. On June 1, 2000,
we resigned. We have read Matlack Systems, Inc.'s statements included
under Item 4 of its Form 8-K dated June 8, 2000, and we agree with such
statements, except that we are not in a position to agree or disagree
with Matlack Systems, Inc.'s statements included in the last paragraph
of Item 4C and Item 4F.

Very truly yours,

KPMG LLP

Exhibit 21

MATLACK SYSTEMS, INC.

Subsidiaries at September 30, 2000

Jurisdiction of
Name Incorporation

Matlack (DE), Inc. Delaware
Bayonne Terminals, Inc. Pennsylvania
Matlack International, Inc. Delaware

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