FORM 10-Q

                   SECURITIES AND EXCHANGE COMMISSION 
                         Washington, D.C.  20549 

(Mark One)

[X]     Quarterly Report Pursuant to Section 13 or 15(d) of the
        Securities Exchange Act of 1934 

For the quarterly period ended September 30, 1998.

OR

[ ]      Transition Report Pursuant to Section 13 or 15(d) of the 
               Securities Exchange Act of 1934

For the transition period from                 to                

Commission File No. 0-10894

                    ARNOLD INDUSTRIES, INC.                      
    (Exact name of registrant as specified in its charter) 

         Pennsylvania                           23-2200465        
(State or other jurisdiction of               (IRS Employer
incorporation or organization)             Identification No.)

            625 South Fifth Avenue, Lebanon, Pennsylvania        
              (Address of principal executive offices)            

                              17042  
                           (Zip Code)

                         (717) 274-2521                          
         (Registrant's telephone number, including area code)


                           No Change                             
     (Former name, former address and former fiscal year, 
               if changed since last report)

     Indicate by check mark whether the registrant (1) has filed all reports 
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the 
registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.  

     Yes    X        No        

     Common Stock, par value $1.00 per share:  25,126,954 shares outstanding 
(which excludes 4,815,674 treasury shares) as of November 9, 1998.
<PAGE>

PART I.  FINANCIAL INFORMATION 

Item 1.     Financial Statements.  


Condensed Consolidated Balance Sheets - September 30, 1998 
     (Unaudited)                        and December 31, 1997

Condensed Consolidated Statements of 
     Income (Three and Nine Month      
     Periods - Unaudited)             - September 30, 1998
                                        and 1997

Condensed Consolidated Statements of 
     Cash Flows (Nine Month 
     Periods - Unaudited)             - September 30, 1998
                                        and 1997

Notes to Condensed Consolidated Financial Statements
<PAGE>

<TABLE>
<CAPTION>
                       ARNOLD INDUSTRIES, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                              (Unaudited)

                                                September 30,     December 31,
                                                    1998             1997    
<S>                                            <C>               <C>
 ASSETS
   Current Assets
     Cash and Cash Equivalents                     28,182,824      26,504,782
     Marketable Securities                          5,885,095       9,786,175
     Accounts Receivable, Net                      43,591,245      40,426,025
     Deferred Income Taxes                          8,796,909      10,498,070

     Prepaid Expenses and Supplies                  9,009,162       4,462,413
     Refundable Income Taxes                              -0-         577,498
        Total Current Assets                       95,465,235      92,254,963

   Property and Equipment, at Cost                356,433,172     346,003,319
   Less:  Accumulated Depreciation                146,849,819     140,441,244
        Total Property and Equipment              209,583,353     205,562,075

   Other Assets
     Goodwill, Net                                  8,374,470       8,493,581
     Investments in Limited Partnerships            9,245,931       9,616,237
     Other                                          1,143,331       1,113,560
        Total Other Assets                         18,763,732      19,223,378

        TOTAL ASSETS                              323,812,320     317,040,416

 LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities
     Notes Payable                                 15,863,399      16,280,126
     Accounts Payable                              11,884,951      10,155,475
     Income Taxes                                   1,969,756             -0-
     Estimated Liability for Claims                 9,996,336       6,452,754
     Accrued Expenses - Other                      16,298,518      13,445,250
        Total Current Liabilities                  56,012,960      46,333,605

   Long-Term Liabilities
     Estimated Liability for Claims                 7,344,000      13,733,000
     Deferred Income Taxes                         33,836,557      35,683,538
     Notes Payable                                  1,254,504       2,383,449
     Other                                          1,762,918       1,653,868
        Total Long-Term Liabilities                44,197,979      53,453,855

   Stockholders' Equity
     Common Stock                                  29,942,628      29,942,628
     Paid-In Capital                                  651,648         481,849
     Retained Earnings                            225,551,867     208,617,019
     Treasury Stock, at Cost                     (32,544,762)     (21,788,540)
        Total Stockholders' Equity                223,601,381     217,252,956

        TOTAL LIABILITIES
          AND STOCKHOLDERS' EQUITY                323,812,320     317,040,416

         The accompanying notes, herein following, are an integral part
         of these consolidated financial statements.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                            ARNOLD INDUSTRIES, INC.
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                  (Unaudited)


                           Nine Months Ended           Three Months Ended
                             September 30,                September 30,       
                           1998            1997            1998        1997
<S>                  <C>          <C>             <C>            <C>
 Operating Revenues   300,493,801   287,054,643     102,227,461    99,174,677

 Operating Expenses   259,862,263   246,168,884      87,282,983    84,887,852
 Operating Income      40,631,538    40,885,759      14,944,478    14,286,825
 Interest Expense        (838,202)     (975,794)       (291,543)     (324,595)

 Other Income             600,041       972,178         380,818       427,850

 Income Before
   Income Taxes        40,393,377    40,882,143      15,033,753    14,390,080

 Income Taxes          14,901,973    15,002,844       5,657,175     5,342,186

 Net Income            25,491,404    25,879,299       9,376,578     9,047,894

 Other Comprehensive
   Income, Net of Tax

 Comprehensive Income  25,491,404    25,879,299       9,376,578     9,047,894
     
 Net Income per
  Common Share:
   Basic                  .99           .99              .37           .35
     
   Diluted                .98           .98              .36           .35
     
 Average Common
  Shares Outstanding:
   Basic               25,874,471    26,267,854      25,672,976    25,866,908
     
   Diluted             26,024,964    26,317,190      25,741,523    26,317,190

 Dividends per
  Common Share            .33           .33             .11            .11



           The accompanying notes, herein following, are an integral part
           of these consolidated financial statements.
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
                                 ARNOLD INDUSTRIES, INC.
                     CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                      (Unaudited)

                                                         Nine Months Ended
                                                           September 30,
                                                      1998             1997    
<S>                                              <C>             <C>
 Operating Activities
  Net Income                                       25,491,404      25,879,299
  Adjustments to Reconcile Net Income to Net
    Cash Provided by Operating Activities:
      Depreciation and Amortization                23,126,444      22,004,132 
      Provision for Deferred Taxes                   (145,770)      1,193,241
      Other                                        (1,760,619)       (333,238)
      Changes in Operating Assets and Liabilities:
        (Increase) in Accounts Receivable          (3,165,220)    (10,305,175)
        (Increase) in Prepaid 
          Expenses and Supplies                    (4,546,799)       (460,615)
        Increase in Accounts Payable 
          and Accrued Expenses                      4,284,580       6,158,372
        Other                                         109,050         107,650 
        Net Cash Provided by 
          Operating Activities                     43,393,070      44,243,666

 Investing Activities
  Proceeds from Sale of Investment Securities       4,454,497      18,953,056
  Purchase of Investment Securities                  (557,466)     (6,497,462)
  Proceeds from Disposition of 
    Property and Equipment                          7,955,550       3,039,309
  Purchase of Property and Equipment              (32,861,788)    (26,080,372)
  Capital Contributions to 
    Limited Partnerships                           (1,545,672)     (1,586,963)
  Other                                               (17,171)       (149,174)
       Net Cash Used In Investing Activities      (22,572,050)    (12,321,606)

 Financing Activities
  Cash Dividends Paid                              (8,556,555)     (8,668,521)
  Purchase of Treasury Stock                      (10,964,125)    (13,064,377)
  Other                                               377,702         238,282
       Net Cash Used In Financing Activities      (19,142,978)    (21,494,616)

 Increase in Cash and Cash Equivalents              1,678,042      10,427,444

 Cash and Cash Equivalents -Beginning of Year      26,504,782      19,704,303

 Cash and Cash Equivalents - End of Period         28,182,824      30,131,747


 Supplemental Disclosures of Cash Flow Information:
  Cash paid during the period for:
    Interest                                          838,202         972,498

    Income Taxes                                   12,526,455      14,619,874

         The accompanying notes, herein following, are an integral part
         of these consolidated financial statements.
</TABLE>
<PAGE>

                          ARNOLD INDUSTRIES, INC. 
            NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                (UNAUDITED)                   

Note I:     Basis of Presentation

     The financial information included herein is unaudited; however, such 
information reflects all adjustments (consisting solely of normal adjustments) 
which are, in the opinion of management, necessary for a fair statement of 
results for the interim period.  This financial information should be read in 
conjunction with the Financial Statements, Notes and information included in 
the Company's latest annual report on Form 10-K and any intervening reports.

     The results of operations for the three and nine-month periods ending 
September 30, 1998 and 1997 are not necessarily indicative of the results to 
be expected for the full year.


NOTE II:  Pending Adoption of SFAS Amendments

     In June 1997, the Financial Accounting Standards Board issued SFAS 
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131), which is effective for fiscal years beginning after December 15, 
1997.  This statement establishes standards for the disclosure of segment 
results.  It requires that segments be determined using the "management 
approach," which means the way management organizes the segments within the 
enterprise for making operating decisions and assessing performance. The 
Company will adopt SFAS 131 in the fourth quarter of 1998, and is still 
evaluating its impact on the Company's financial statement disclosures.

     In January 1998, the Financial Accounting Standards Board issued SFAS 
No. 132, "Employers' Disclosures about Pensions and Other Postretirement 
Benefits" (SFAS 132), which is effective for fiscal years beginning after 
December 15, 1997.  This statement revises current footnote disclosure 
requirements for employers' pensions and other retiree benefits.  It does 
not address recognition or measurement issues.  The adoption of SFAS 132 will 
not have a material effect on the Company's financial condition or results 
of operation.

     In June 1998, the Financial Accounting Standards Board also issued SFAS 
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which is effective for all fiscal quarters for all fiscal years 
beginning after June 15, 1999.  This statement requires that all derivative 
instruments be recorded on the balance sheet at their fair value.  Changes in 
the fair value of derivatives are recorded each period in current earnings or 
<PAGE>

other comprehensive income, depending on whether a derivative is designated as 
part of a hedge transaction and, if it is, the type of hedge transaction.  It 
is not anticipated that the adoption of SFAS 133 will have a significant 
effect on the Company's results of operations or its financial position.
<PAGE>

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

     Operating Revenues on a consolidated basis for the third quarter of 1998 
were $102,227,461, an increase of $3,052,784 or 3.1% over Operating Revenues 
for 1997's third quarter.  For the same period, Operating Expenses increased 
$2,395,131, or 2.8%; Income before Income Taxes increased $643,673, an 
increase of 4.5%; and Net Income increased $328,684, or 3.6%.  Earnings Per 
Share-Basic for the third quarter of 1998 increased as compared to the third 
quarter of 1997 from $.35 per share to $.37 per share, an increase of 5.7%.

     As indicated above, the Company's revenues for the third quarter of 1998 
exceeded revenues generated during the comparable period in 1997, 
notwithstanding the substantial increase in 1997 third quarter revenues 
resulting from the UPS strike.  Revenues at the Company's subsidiary New Penn 
Motor Express, Inc. ("New Penn") fell somewhat to more realistic levels absent 
a UPS strike, down from roughly $53,506,000 in the third quarter of 1997 to 
$51,805,000 during the third quarter of 1998.  At the same time, revenues at 
the Company's subsidiary Arnold Transportation Services, Inc. ("Arnold 
Transportation"), which includes the Arnold Logistics Division, increased 
during the third quarter of 1998 over the comparable period of 1997 by some 
$4,754,000, or 10.4%.  More importantly, Arnold Transportation's Operating 
Ratio improved from 96.6 for the third quarter of 1997 to 92.4 for third 
quarter of 1998, meaning that more of the subsidiary's revenues are dropping 
to the bottom line.  New Penn's performance was strong despite the loss of 
some shipping traffic that returned to UPS, and Arnold Transportation's 
performance was similarly strong, reflecting on-going efforts to improve the 
truckload segment of the Company's business.

     Operating Income on a consolidated basis also increased during the third 
quarter of 1998 relative to the comparable period of 1997.  Consolidated 
Operating Income rose by $657,653 from $14,286,825 to $14,944,478, an increase 
of 4.6%.  Operating Income on a consolidated basis rose at a greater rate 
during the third quarter than Operating Revenues, reflecting greater 
efficiencies within the Company.

     The Company's combined Operating Revenues for the nine months ended 
September 30, 1998, were $300,493,801, an increase of $13,439,158, or 4.7% 
over the comparable nine-month period in 1997.  For the same period, Operating 
Expenses increased $13,693,379, or 5.6%; Income Before Income Taxes declined 
marginally by $488,766, a decrease of 1.2%; and Net Income also declined 
marginally by $387,895, a decrease of 1.5%.  Earnings Per Share-Basic stayed 
consistent at $.99 for both nine-month periods.  The Company's ability to 
maintain and increase its market share during the nine-month period ended 
<PAGE>

September 30, 1998, is significant in light of the competitive pressures to 
which all motor carriers are subject.

     Set forth below is a schedule of the Unaudited Operating Revenues, 
Expenses and Operating Income of the LTL and TL companies for the third 
quarters of 1998 and 1997 and for the nine (9) month periods ended 
September 30, 1998, and September 30, 1997:

<TABLE>
<CAPTION>
                                       (Dollars in Thousands)
                                    Third Quarter Ended September 30,
                                     1998                    1997     
                                  Amount        %       Amount        %
<S>                            <C>          <C>        <C>        <C>
 NEW PENN MOTOR EXPRESS
  AND RELATED COMPANIES (LTL)
     Operating Revenues           51,805      100.0      53,506     100.0
     Operating Expenses           40,669       78.5      40,788      76.2 
       Operating Income           11,136       21.5      12,718      23.8

 ARNOLD TRANSPORTATION 
 SERVICES (TL)
     Operating Revenues           50,423      100.0      45,669     100.0
     Operating Expenses           46,614       92.4      44,100      96.6
       Operating Income            3,809        7.6       1,569       3.4
</TABLE>
<TABLE>
<CAPTION>
                                       (Dollars in Thousands)
                                    Nine Months Ended September 30,
                                        1998                    1997
<S>                            <C>          <C>       <C>         <C>
 NEW PENN MOTOR EXPRESS
  AND RELATED COMPANIES (LTL)
     Operating Revenues          152,395      100.0     153,816     100.0
     Operating Expenses          120,593       79.1     120,010      78.0
       Operating Income           31,802       20.9      33,806      22.0

 ARNOLD TRANSPORTATION 
 SERVICES (TL)
     Operating Revenues          148,099      100.0     133,238     100.0
     Operating Expenses          139,269       94.0     126,158      94.7
       Operating Income            8,830        6.0       7,080       5.3

</TABLE>

     The Company's working capital at the end of the third quarter of 1998 was 
$39,452,275.  This represents a decrease of $12,876,375 or 24.6% from the 
working capital at the end of the previous quarter in 1998.  The decrease in 
working capital reflects the Company's use of funds to acquire capital assets 
in connection with the on-going capital expansion program and re-purchase of 
outstanding shares.

       The Company's investment in Property and Equipment (Less Accumulated 
Depreciation) as of the end of the third quarter of 1998 stood at 
$209,583,353.  This figure represents an increase from June 30, 1998, of 
$2,042,187, or 1.0%, and reflects the on-going results of the Company's 
<PAGE>

capital expansion program.  Future funding for the Company's capital expansion 
program will likely be accomplished through the use of cash generated from 
current operating and investment activities, supplemented, when necessary, by 
short or long-term financing.  Management continues to seek opportunities for 
profitable expansion of the Company.

     On November 2, 1998, the Company announced its quarterly cash dividend of 
$.11 per share.  

     The Company continues its on-going program to assure the Company's 
readiness with respect to Year 2000 issues.  The Company completed its 
assessment of internal Year 2000 compliance issues; it has not yet completed 
its correction and replacement program relative to software identified to be 
defective during the assessment.  The Company also continues to monitor and 
assess the progress of outside vendors upon whom the Company relies for such 
items as fuel, parts, etc. and the progress of significant customers upon 
whose continued business the Company relies for revenues.

     The Company's internal program to correct and/or replace software used by 
the Company is approximately 95% complete as of November 1, 1998, and is 
likely to be 100% complete by March 1999.  The Company's major business units 
are either complete or near completion at this time.  Arnold Transportation 
has fully completed its correction and/or replacement program.  New Penn is 
near completion and will be completed by the end of December 1998.  The Arnold 
Logistics Division of Arnold Transportation is 75% completed and will be fully 
completed by March 1999.  Earlier predictions of completion by all of the 
Company's business units by the end of December 1998 proved to be overly 
optimistic, with mid to late March being more realistic in light of the work 
yet to be completed.  Reasons for the delay include turnover of programming 
personnel and development of a revised implementation plan which calls for a 
more gradual installation process.  The cost to complete the internal program 
is currently estimated to be $150,000 as of November 1, 1998, down from 
$250,000 on August 13, 1998.  The cost of completion could be higher or lower 
depending upon availability of programming personnel, as well as such other 
factors as the ability to complete the work within the targeted time frame.  
The cost of monitoring and assessing the compliance programs of third parties 
is expected to be minimal, in that it will be accomplished by the Company's 
internal MIS personnel.  The Company has expended approximately $1,500,000 to 
date in its internal and external assessment program and in correction and 
replacement activities.

     The Company faces the risk of disruptions to service if either it or its 
significant suppliers do not become Year 2000 compliant in a timely manner.  
Although the Company fully anticipates becoming Year 2000 compliant in a 
timely manner, failure to become compliant would result in the loss of systems 
<PAGE>

controlling dispatch, billing and payroll, among other essential functions of 
the Company.  The Company does not believe that these risks will come to 
fruition because of the efforts to date to become Year 2000 compliant.

     The Company has developed contingency plans to purchase electricity, fuel 
and essential parts from other vendors in the event of a Year 2000 malfunction 
by a prime supplier.  The Company has no contingency plans for loss of revenue 
from shippers who are not Year 2000 compliant.


Cautionary Remarks as to Forward-Looking Statements:

     The nature of the Company's operations subject it to changing economic, 
competitive, regulatory and technological conditions, risks and uncertain-
ties.  In accordance with the "safe harbor" provisions of the Private 
Securities Litigation Reform Act of 1995, the Company cautions that there
are important factors which, among others, could cause future results to
differ materially from the forward-looking statements about our management
confidence and strategies for performance; expectations for new and existing
technologies and opportunities; and expectations for market segment and 
industry growth.  These factors include, but are not limited to:  (1) changes
in the business environment in which the Company operates, including
licensing restrictions, interest rates and capital costs; (2) changes in
governmental law and regulations, including taxes; (3) market and competitive
changes, including market demand and acceptance for new services and
technologies; and (5) other risk factors specifically identified from time
to time in Company releases and disclosure documents, including SEC reports
and the annual proxy solicitation and report to stockholders.  The Company
will update forward-looking statements as required by law, such as the
obligation to provide quarterly up-dates as to progress toward Year 2000
readiness.
<PAGE>

                             PART II.  OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K.

         (a)  Exhibit 27 - Financial Data Schedule

         (b)  None.

<PAGE>
                                   SIGNATURES

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


                                       ARNOLD INDUSTRIES, INC.
                                              (Registrant)


Date:  November 13, 1998               By    /s/ Heath L. Allen
                                         Heath L. Allen, Secretary


Date:  November 13, 1998               By   /s/ Ronald E. Walborn
                                         Ronald E. Walborn, Treasurer