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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001

Commission File No. 000-24615

LANDAIR CORPORATION
(Exact name of registrant as specified in its charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Tennessee                                                      |  | 62-1743549                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer Identification No.)

|                                         |  |           
|---------------------------------------- |  | ----------
|430 Airport Road
Greeneville, Tennessee  |  | 37745     
|(Address of principal executive offices) |  | (Zip Code)

Registrants telephone number, including area code: (423) 783-1300

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

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

Common Stock, $.01 par value
(Title of class)

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  o

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.     o

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 2002 was approximately $14.3 million based on the
closing price of such stock on such date of $13.21.

The number of shares outstanding of the registrants common stock, $.01 par
value, as of February 28, 2002 was 4,942,890.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement for the 2002 Annual Meeting of
Shareholders are incorporated by reference into Part III of this report. Such
definitive proxy statement will be filed with the Securities and Exchange
Commission not later than 120 days subsequent to December 31, 2001.





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TABLE OF CONTENTS



|                                                               |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                                        
|                                                               | ITEM 1. BUSINESS                                                                             
|                                                               | ITEM 2. PROPERTIES                                                                           
|                                                               | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                                               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                               | EXECUTIVE OFFICERS OF THE REGISTRANT                                                         
|PART II                                                       
|                                                               | ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS                 
|                                                               | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                                               | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                               | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                                               | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                                               | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 
|PART III                                                      
|                                                               | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                                               | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                                               | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                                               | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                                                       
|                                                               | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                     
|SIGNATURES                                                    
|Index to Financial Statements and Financial Statement Schedule
|EXHIBIT INDEX                                                 
|LANDAIR CORPORATION SECTION 125 PLAN                          
|DEDICATED TRANSPORTATION AGREEMENT                            
|ADDENDUM TO DEDICATED TRANSPORTATION AGREEMENT                
|SECOND AMENDMENT TO TRANSITION SERVICES AGREEMENT             
|CONSENT OF ERNST & YOUNG LLP                                  



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Table of Contents

|                                                               |  |                                                                                       |   |             |    | 
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- | - | ----------- | -- | 
|                                                               |  |                                                                                       |   | Page Number
|                                                               |  |                                                                                       |   |            
|Part I                                                        
|Item 1.                                                        |  | Business                                                                              |   |             | 3  | 
|Item 2.                                                        |  | Properties                                                                            |   |             | 7  | 
|Item 3.                                                        |  | Legal Proceedings                                                                     |   |             | 8  | 
|Item 4.                                                        |  | Submission of Matters to a Vote of Security Holders                                   |   |             | 8  | 
|Executive Officers of the Registrant                           |  |                                                                                       | 9 |            
|Part II                                                        |  |                                                                                       |   |            
|Item 5.                                                        |  | Market for Registrants Common Stock and Related Shareholder Matters                  |   |             | 11 | 
|Item 6.                                                        |  | Selected Financial Data                                                               |   |             | 12 | 
|Item 7.                                                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |   |             | 13 | 
|Item 7A.                                                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |   |             | 22 | 
|Item 8.                                                        |  | Financial Statements and Supplementary Data                                           |   |             | 23 | 
|Item 9.                                                        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |   |             | 23 | 
|Part III                                                      
|Item 10.                                                       |  | Directors and Executive Officers of the Registrant                                    |   |             | 24 | 
|Item 11.                                                       |  | Executive Compensation                                                                |   |             | 24 | 
|Item 12.                                                       |  | Security Ownership of Certain Beneficial Owners and Management                        |   |             | 24 | 
|Item 13.                                                       |  | Certain Relationships and Related Transactions                                        |   |             | 24 | 
|Part IV                                                       
|Item 14.                                                       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |   |             | 25 | 
|Signatures                                                     |  | 26                                                                                    |  
|Index to Financial Statements and Financial Statement Schedule |  | F-2                                                                                   |  

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PART I




ITEM 1. BUSINESS

General

Landair Corporation, through its operating subsidiaries (the Company),
is a truckload carrier that transports a wide range of commodities in both
intrastate and interstate commerce. The Company provides dry van common
carrier and dedicated contract carriage for shippers of a variety of products
in the medium- and short-haul markets. These products include, among others,
paper products, building products, textiles, retail and other consumer goods,
air freight, automotive parts and supplies, electronics and metal products. The
preponderance of the Companys business involves providing high-quality,
specialized services to service-sensitive shippers on both a dedicated and ad
hoc basis. To improve service to the differing requirements of customers at
numerous shipping locations, the Company has terminals where over-the-road
tractors are based and drivers are domiciled.

The Company utilizes a satellite-linked, computerized operations system to
monitor and facilitate the movement of freight. The Companys operating
philosophy is founded on maintaining high levels of service at market
competitive prices in the most efficient manner possible.

During 2001, management focused its efforts on a plan to enhance its
margins and increase the efficiency and returns of its operations.

Operations

The Company currently conducts its common carrier operations from two
terminals and various dedicated customer facilities. Each terminal is the base
for certain over-the-road tractors and is the domicile of the drivers who
operate those tractors. These terminals have facilities and staff to provide
driver supervision, fueling and maintenance. The Company believes this network
of facilities enhances its ability to provide responsive service to its
customers in an efficient manner.

Each customers shipment is accorded exclusive use of a trailer, with most
shipments being transported directly from customer pick-up locations to
destinations without a change of drivers, relays or circuitous routing via
terminals. The Company operates a centralized customer service and operations
center in Greeneville, Tennessee. All facilities and drivers are linked to a
satellite communication and dispatch system which provides interactive updates
to its operations.

The Companys operations consist principally of dedicated contract
carriage and common carriage:

Dedicated Contract Carriage.The Companys dedicated fleet provides
dedicated equipment and personnel on a contractual basis to each of its
customers for that customers

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exclusive use, frequently as a lower cost
alternative to private carriage. While providing shippers with a higher level
of service, the implementation of a dedicated fleet program frees for other
uses that portion of a shippers capital that would have been invested in a
private fleet. This ability to redeploy capital allows shippers to better
utilize resources in furtherance of their primary businesses. The dedicated
fleets service also includes certain on-site staffing requirements typically
associated with operating a private fleet.

Common Carriage.The Company serves as a common carrier for a broad array
of customers with a variety of shipping needs. Common carriage primary traffic
consists of medium- and short-haul routes and is concentrated primarily in the
eastern two-thirds of the United States. Common carriage customers include
Fortune 500 companies who subscribe to a core-carrier strategy as well as
smaller companies with regional shipping needs. Services include just-in-time
delivery, satellite communications and electronic data interchange, as well as
tailored services required to meet specific customer needs such as dedicated
capacity, team operations and roller bed equipment used to serve its air cargo
industry customers.

The primary focus of the Companys marketing strategy is to focus on the
growth and development of the dedicated contract business. Within the common
carriage operation, the Company continues to increase freight density within
defined market areas that are consistent with the Companys growth and profit
objectives by capitalizing on the trend of shippers to use a fewer number of
truckload carriers in pursuit of a core carrier partnership strategy and the
trend to outsource private fleet transportation requirements. The financial
and operating goal of the Company is to maximize profitability by achieving
optimal equipment utilization and yield, while meeting or exceeding customer
service requirements.

Revenue Equipment

The Company purchases high quality tractors to help attract and retain
drivers, promote safe operations and minimize maintenance and repair costs.
When purchasing new revenue equipment, the Company typically acquires
standardized tractors and trailers manufactured to the Companys
specifications. Standardization enables the Company to simplify driver
training, control the cost of spare parts inventory and enhance its preventive
maintenance program.

The Company has purchased its tractors from Freightliner Corporation and
Volvo Trucks North America, Inc. and most of its trailers from Great Dane
Corporation and Hyundai Precision America. The majority of the tractors
purchased are equipped with Series 60 Detroit Diesel electronic engines which
have contributed significantly to increased fuel efficiency. Certain of the
Companys purchase and lease agreements include a guaranteed predetermined
trade value for tractors after three or four years.

At December 31, 2001, the Company owned or leased 520 tractors and
contracted for 178 tractors from owner-operators. The average age of the
Company-owned tractor fleet was approximately 3.25 years at December 31, 2001.
At December 31, 2001, the Company owned 2,167 trailers, of which substantially
all are 53 long and 69 include specialized roller bed equipment required to
serve air cargo industry customers. By having a majority of the Companys

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trailer fleet equipped with 53 trailers, the Company is able to provide its
customers with more economy and convenience and increased driver productivity.
The average age of the trailer fleet was approximately 4.75 years at December
31, 2001.

The Company has installed Qualcomm two-way satellite communication systems
in the majority of its tractors. The Qualcomm system provides the Company with
continuous communications capability in the event a driver experiences a
service delay or disruption. The Qualcomm system also allows the Company to
track the exact location and route of any particular shipment and communicate
instantly with drivers to improve operating efficiencies.

Employees

As of December 31, 2001, the Company employed approximately 761 persons,
605 of whom were drivers.

Drivers.The Company has established programs to increase driver loyalty
and to provide a greater stake in the Company to drivers. Drivers are
compensated on the basis of miles driven, and base pay for miles driven
increases with a drivers length of employment with the Company. The Company
maintains a 401(k) benefit plan and stock purchase plan for Company drivers and
other employees.

Safety and Training.The Company conducts comprehensive training programs
to promote safety, customer relations, service standards, productivity and
positive attitudes. Driver training and safety programs are developed by the
Companys safety department. Drivers meet or exceed United States Department
of Transportation (DOT) qualifications. Driver qualification files are
updated at least annually to maintain compliance with DOT regulations.

The Companys safety department focuses on (i) recruiting and maintaining
qualified drivers; (ii) improving driver and management safety training; (iii)
implementing periodic reviews of driving records; (iv) creating incentive
bonuses for drivers with good safety records and (v) raising awareness of
safety-related issues on a Company-wide basis.

In March 1998, the DOT initiated a safety audit of the Company, and in May
1998, the Company was notified that it had retained its satisfactory rating.

Owner-Operators

The Company intends to expand its operations with owner-operator
equipment. The Company believes that the owner-operators with whom it contracts
are generally more experienced than the general driver population and that they
have a vested interest in protecting their own equipment that motivates them to
operate in a cautious manner. Typically, owner-operators are responsible for
paying all their operating expenses including fuel, maintenance, equipment
payments and all other equipment-related expenses. Owner-operators are
compensated by the Company on a rate per mile or percentage of revenue basis.
As of December 31, 2001,

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approximately 25% of the Companys tractors in service
were contracted to the Company by owner-operators.

Insurance and Claims

Claims exposure in the transportation industry consists primarily of cargo
loss and damage, vehicle liability, property damage and workers compensation. The Company
maintains a deductible for auto liability claims, for physical damage claims
and for cargo claims. The Company also is responsible for a significant
deductible for workers compensation claims. The Company maintains insurance
with independent insurance carriers that provide certain coverage for claims in
excess of deductible amounts. Management believes that the Companys insurance
coverage is reasonable.

Transportation Regulations

The interstate motor carrier operations of the Company are subject to
safety requirements prescribed by the DOT and other relevant federal and state
agencies. Such matters as weight and dimension of equipment are also subject
to federal and state regulations.

The Company is subject to various federal, state and local environmental
laws and regulations. Management believes that the Company is in substantial
compliance with applicable regulatory requirements relating to its operations.
Failure of the Company to comply with the applicable regulations could result
in substantial fines or revocation of the Companys operating permits.

Environmental Regulations

The Company has above-ground fuel storage tanks at its Indianapolis,
Indiana and Greeneville, Tennessee facilities and underground fuel storage
tanks at its Columbus, Ohio facility. Such storage tanks are subject to
various federal and state environmental laws and regulations. Management
believes that the Company is in substantial compliance with applicable
environmental laws and regulations. No material increase for expenditures for
compliance with federal, state and local environmental laws and regulations is
anticipated in 2002.

Competition and Industry Trends

The entire trucking industry is highly competitive and fragmented. The
Company competes primarily with other regional short-to-medium haul truckload
carriers, logistics providers and national carriers. Railroads and air freight
also provide competition, but to a lesser degree. Competition for the freight
transported by the Company is based on freight rates, service, efficiency, size
and technology. The Company also competes with other motor carriers for the
services of drivers, independent contractors and management employees. A
number of the Companys competitors have greater financial resources, own more
equipment, and carry a larger volume of freight than the Company. The Company
is one of several hundred truckload carriers operating in the United States.
The Companys total revenues are less than 1% of the total

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revenue of all
truckload companies operating in the United States. The Company believes that
the principal competitive factors in its business are service, pricing (rates),
and the availability and configuration of equipment that meets a variety of
customers needs. In general, increased
competition has created downward pressure on rates and increased the need to
provide higher levels of service to customers.

Seasonality

The Companys primary customers are concentrated in the paper products,
air freight, retail and other consumer goods and supplies industries and, as a
result, their supply requirements tend to be distributed with relative
uniformity throughout the year. The Companys operating results have
historically been affected adversely during the fourth quarter as a result of
reduced shipments by customers during the winter holiday season. In addition,
the Companys operating expenses historically have been higher during the
winter months due to increased operating costs in colder weather and higher
fuel consumption due to increased engine idling.

Inflation

Significant increases in fuel prices, to the extent not offset by
increases in rates, would have a material adverse effect on the profitability
of the Company. Historically, the Company has responded to periods of sharply
higher fuel prices by implementing fuel surcharge programs or base rate
increases, or both, to recover additional costs, but there can be no assurance
that the Company will be able to successfully implement such surcharges or
increases in response to increased fuel costs in the future.

Major Customer

The Company has an agreement with a customer to provide transportation
services for the customer on a dedicated basis through July 31, 2004. This
contract provides for certain minimum mileage guarantees. At December 31,
2001, the Company had 150 Company tractors in operation to provide service to
this customer.

The Company had four customers who accounted for 10% or more of revenue in
2001. Sonoco Products Company, Federal Express Corporation, Airborne Express
and DuPont accounted for approximately 20%, 19%, 15% and 12%, respectively, of
consolidated operating revenue for the year ended December 31, 2001.




ITEM 2. PROPERTIES

Management believes that the Company has adequate facilities for the
conduct of its business, including properties owned and leased. Management
further believes that in the event additional or replacement property is
needed, such property will be available on terms and at costs substantially
similar to the terms and costs experienced by other competitors within the
truckload industry.

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The Companys offices and terminal in Columbus, Ohio and terminal facility
in Greeneville, Tennessee are owned by the Company. The remaining Company
facilities are leased. The Companys headquarters are located in Greeneville,
Tennessee.

In addition to operations at various customer locations, the Company
currently operates terminals at Columbus, Ohio and Greeneville, Tennessee.




ITEM 3. LEGAL PROCEEDINGS

The Company is, from time to time, a party to litigation arising in the
normal course of its business, most of which involve claims for personal injury
and property damage incurred in connection with the transportation of freight.
Management believes that none of these actions, individually or in the
aggregate, will have a material adverse effect on the financial condition or
results of operations of the Company.




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

During the fourth quarter of the fiscal year ended December 31, 2001, no
matters were submitted to a vote of security holders through the solicitation
of proxies or otherwise.

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EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to Instruction 3 to Item 401(b) of Regulation S-K and General
Instruction G(3) to Form 10-K, the following information is included in Part I
of this report.

The following are the Companys executive officers:

|                       |  |     |    |          |  |                                                             
|---------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------
|Name                   |  | Age |    | Position
|                       |  |     |    |         
|Scott M. Niswonger (1) |  |     | 55 |          |  | Chairman of the Board and Chief Executive Officer           
|John A. Tweed          |  |     | 36 |          |  | President and Chief Operating Officer                       
|Andrew J. Mantey       |  |     | 39 |          |  | Chief Financial Officer, Senior Vice President and Treasurer
|Richard H. Roberts (1) |  |     | 47 |          |  | Senior Vice President, General Counsel and
Secretary        



---

|(1) |  | Also serves as an executive officer of Forward Air Corporation (Forward
Air).
|--- |  | -------------------------------------------------------------------------------

There are no family relationships between any of the executive officers of
the Company. All officers hold office at the pleasure of the Board of
Directors.

The following background material is provided for each executive officer
employed by the Company, including employment history for at least the last
five years.

Scott M. Niswonger has served as Chairman of the Board and Chief Executive
Officer of the Company since July 1998. Mr. Niswonger has also served as an
executive officer and director of Forward Air since 1981 and serves as a
director of Peoples Community Bank.

John A. Tweed has served as President, Chief Operating Officer and
director of the Company since December 2000. Since February 1996, he has also
served as President of Warehouse Logistics LLC (Warehouse Logistics), a
privately-held company jointly owned with Mr. Niswonger. Mr. Tweed was Vice
President, Sales, of Landair Transport, Inc. (Landair Transport) from April
1990 until February 1996.

Andrew J. Mantey has served as Chief Financial Officer, Senior Vice
President and Treasurer and as a director of the Company since June 2000.
Prior to joining the Company, Mr. Mantey was the Chief Financial Officer of May
Trucking Company from June 1994 to June 2000. From April 1990 to June 1994,
Mr. Mantey was Controller of Freymiller Trucking, Inc. Mr. Mantey was employed
with Ernst & Young LLP from July 1985 to April 1990. Mr. Mantey is a Certified
Public Accountant.

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Richard H. Roberts has served as Senior Vice President, General Counsel
and Secretary and as a director of the Company since July 1998. Since July
1994, Mr. Roberts has served as an executive officer and a director of Forward
Air. Mr. Roberts was a partner with the Baker, Worthington, Crossley &
Stansberry law firm from January 1991 until July 1994. Mr. Roberts also serves
as a director of Miller Industries, Inc.

Other Key Employees

Harry O. Crabtree has served as Vice President, Safety, of Landair
Transport since January 1998. Prior to joining Landair Transport, he served as
Vice President, Safety and Quality of Landstar Inway, Inc. from January 1997
until January 1998. Mr. Crabtree was Vice President, Risk Management, for
Landstar TLC, Inc. from March 1995 to January 1997, and was Director of Safety
for Landstar Poole, Inc. from March 1989 until March 1995. From June 1979 to
March 1989, Mr. Crabtree held various management positions at Landstar Poole,
Inc. advancing through the maintenance, operations, claims and safety
departments.

Larry W. Rader has served as Vice President, Sales and Marketing, of
Landair Transport since November 2001. From June 1997 until November 2001, he
served as Vice President of Sales and Marketing for Warehouse Logistics. Prior
to this time, Mr. Rader served as National Account Sales Director for Landair
Transport from May 1992 to May 1997.

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PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK AND RELATED SHAREHOLDER MATTERS

The Common Stock trades on The Nasdaq National Market tier of The Nasdaq
Stock Market® under the symbol LAND. The following table sets forth the high
and low sale prices for the Common Stock as reported by The Nasdaq National
Market for the last two years ending December 31, 2001:

|               |  |      |      |     |  |   |      | 
|-------------- |  | ---- | ---- | --- |  | - | ---- | 
|2000           |  | High |      | Low
|               |  |      |      |    
|First Quarter  |  | $    | 5.38 |     |  | $ | 4.00 | 
|Second Quarter |  | $    | 5.63 |     |  | $ | 3.25 | 
|Third Quarter  |  | $    | 5.13 |     |  | $ | 4.00 | 
|Fourth Quarter |  | $    | 4.56 |     |  | $ | 3.38 | 

|               |  |      |       |     |  |   |      | 
|-------------- |  | ---- | ----- | --- |  | - | ---- | 
|2001           |  | High |       | Low
|               |  |      |       |    
|First Quarter  |  | $    | 4.94  |     |  | $ | 3.75 | 
|Second Quarter |  | $    | 6.28  |     |  | $ | 3.75 | 
|Third Quarter  |  | $    | 7.92  |     |  | $ | 5.25 | 
|Fourth Quarter |  | $    | 17.40 |     |  | $ | 6.51 | 

There were approximately 800 shareholders of record (including brokerage
firms and other nominees) of the Common Stock as of December 31, 2001.

The Company has not paid cash dividends on the Common Stock and it is the
current intention of management to retain earnings to finance the growth of the
Companys business. Certain debt covenants prohibit the Company from paying
dividends. Future payment of dividends will depend upon the financial
condition, results of operations, contractual restrictions and capital
requirements of the Company, as well as other factors deemed relevant by the
Board of Directors.

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial data of the Company.
The selected financial data should be read in conjunction with the Companys
financial statements and notes thereto, included elsewhere in this report.

|                                              |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|--------------------------------------------- |  | ------------------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                              |  | Year ended December 31               
|                                              |  |                                      
|                                              |  | 2001                                  |         | 2000 |  | 1999 |         | 1998 |  | 1997
|                                              |  |                                       |         |      |  |      |         |      |  |     
|                                              |  | (In thousands, except per share data)
|Statements of Income Data:                    |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Operating revenue                             |  | $                                     | 106,906 |      |  | $    | 127,487 |      |  | $    | 131,855 |   |  | $ | 110,353 |   |  | $ | 91,398 |  
|Income (loss) from operations                 |  |                                       | 9,554   |      |  |      | (8,846  | )    |  |      | (236    | ) |  |   | 6,453   |   |  |   | 3,739  |  
|Operating ratio (1)                           |  |                                       | 91.1    | %    |  |      | 106.9   | %    |  |      | 100.2   | % |  |   | 94.2    | % |  |   | 95.9   | %
|Net income (loss)                             |  |                                       | 5,437   |      |  |      | (6,970  | )    |  |      | (1,830  | ) |  |   | 3,075   |   |  |   | 1,150  |  
|Income (loss) per share  basic (2)           |  |                                       | 1.12    |      |  |      | (1.29   | )    |  |      | (0.30   | ) |  |   | 0.49    |   |  |   | 0.18   |  
|Income (loss) per share  diluted (2), (3)    |  |                                       | 1.10    |      |  |      | (1.29   | )    |  |      | (0.30   | ) |  |   | 0.49    |   |  |   | 0.18   |  
|Cash dividends declared per
common share      |  |                                       |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |       |  
|                                             
|Balance Sheet Data (at end of period):        |  |                                       |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        |  
|Total assets                                  |  | $                                     | 64,765  |      |  | $    | 81,327  |      |  | $    | 111,369 |   |  | $ | 92,429  |   |  | $ | 97,208 |  
|Long-term obligations, net of
current portion |  |                                       | 5,885   |      |  |      | 20,223  |      |  |      | 32,970  |   |  |   | 18,058  |   |  |   | 14,151 |  
|Shareholders equity                          |  |                                       | 35,565  |      |  |      | 30,326  |      |  |      | 42,168  |   |  |   | 45,253  |   |  |   | 39,558 |  



---

|(1) |  | Operating expenses as a percentage of operating revenue.                                                                                                                                                                                                                
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Income (loss) per share is presented on a pro forma basis for 1997 and
1998 to reflect the 6.3 million share issuance of Common Stock as a result
of the spin-off of the Company in September 1998 (the Spin-off), as if
the Spin-off had occurred on January 1, 1996.
|   
|(3) |  | Diluted loss per share amounts for 2000 and 1999 have been calculated
using the same denominator as used in the basic loss per share calculation
as the inclusion of dilutive securities in the denominator would have an
anti-dilutive effect.                         

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

The following table sets forth the percentage relationship of expense
items to operating revenue for the periods indicated.

|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |      | 
|--------------------------------- | ------------------------------------- |  | ---------------------- | ---- | ---- |  | ----- | ---- |  |  | ----- | ---- | 
|                                  |                                       |  | Year Ended December 31
|                                  |                                       |  |                       
|                                  |                                       |  | 2001                   |      | 2000 |  | 1999 
|                                  |                                       |  |                        |      |      |  |      
|Operating revenue                 |                                       |  | 100.0                  | %    |      |  | 100.0 | %    |  |  | 100.0 | %   
|Operating expenses:               |                                       |  |                        |      |      |  |       |      |  |  |       |     
|                                  | Salaries, wages and employee benefits |  |                        | 33.8 |      |  |       | 32.4 |  |  |       | 34.4 | 
|                                  | Purchased transportation              |  |                        | 23.9 |      |  |       | 28.8 |  |  |       | 26.8 | 
|                                  | Fuel and fuel taxes                   |  |                        | 10.4 |      |  |       | 9.8  |  |  |       | 11.1 | 
|                                  | Depreciation and amortization         |  |                        | 8.8  |      |  |       | 11.5 |  |  |       | 11.6 | 
|                                  | Insurance and claims                  |  |                        | 2.3  |      |  |       | 4.2  |  |  |       | 4.7  | 
|                                  | Operating leases                      |  |                        | 1.9  |      |  |       | 1.6  |  |  |       | 1.3  | 
|                                  | Impairment of long-lived assets       |  |                        |     |      |  |       | 7.8  |  |  |       |     | 
|                                  | Restructuring costs                   |  |                        |     |      |  |       | 0.1  |  |  |       |     | 
|                                  | Other operating expenses              |  |                        | 10.0 |      |  |       | 10.7 |  |  |       | 10.3 | 
|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |     
|Total operating expenses          |                                       |  | 91.1                   |      |      |  | 106.9 |      |  |  | 100.2 |     
|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |     
|Income (loss) from operations     |                                       |  | 8.9                    |      |      |  | (6.9  | )    |  |  | (0.2  | )   
|Interest expense                  |                                       |  | (1.1                   | )    |      |  | (2.1  | )    |  |  | (2.2  | )   
|Other income, net                 |                                       |  | 0.8                    |      |      |  | 0.5   |      |  |  | 0.3   |     
|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |     
|Income (loss) before income taxes |                                       |  | 8.6                    |      |      |  | (8.5  | )    |  |  | (2.1  | )   
|Income taxes (benefit)            |                                       |  | 3.5                    |      |      |  | (3.0  | )    |  |  | (0.7  | )   
|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |     
|Net income (loss)                 |                                       |  | 5.1                    | %    |      |  | (5.5  | )%   |  |  | (1.4  | )%  
|                                  |                                       |  |                        |      |      |  |       |      |  |  |       |     

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Operating revenue decreased by $20.6 million, or 16.2%, to $106.9 million
for 2001 from $127.5 million in 2000. The decrease in operating revenue
resulted primarily from a 23.8% reduction in the average tractors in service in
2001 compared to 2000 offset by improved equipment utilization. Average
tractors in service were 751 during 2001 and 985 in 2000. Average revenue per
truck per week increased to $2,577 per tractor per week in 2001 from $2,426 per
tractor per week in 2000.

The operating ratio for 2001 was 91.1% compared to 106.9% for 2000. The
decrease in the operating ratio was primarily a result of the charges relating
to impairment of long-lived assets and other restructuring costs of $10.0
million in the fourth quarter of 2000. In 2000, the Company recorded an
impairment charge of $6.6 million to write down equipment which the Company
disposed of in 2001 to its estimated realizable value, net of costs to sell.
In the fourth quarter of 2000, the Company recorded an additional $3.3 million
charge related to impairment of the goodwill associated with the acquisition of
Laker Express, Inc. (Laker) in 1999. An additional $112,000 was recorded as
restructuring costs incurred in connection with the closure of four terminal
facilities and the termination of certain employees in 2000. Additionally,
lower

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purchased transportation, depreciation and amortization, insurance and
claims and other operating expenses all had a positive effect on the Companys
operating ratio in 2001 compared to 2000.

Salaries, wages and employee benefits were 33.8% of operating revenue in
2001 compared to 32.4% in 2000. The increase in salaries, wages and employee
benefits as a percentage of operating revenue was due primarily to an increase
in the ratio of Company-operated tractors to owner-operator tractors between
periods. During 2001, Company-operated tractors in service represented
approximately 73% of the total average tractors in service including
owner-operators. In 2000, Company-operated tractors in service represented
approximately 65% of the total average tractors in service.

Purchased transportation was 23.9% of operating revenue in 2001 compared
to 28.8% in 2000. The decrease in purchased transportation as a percentage of
operating revenue was primarily attributable to a lower ratio of owner-operator
to Company equipment during 2001 as compared to 2000. During 2001 and 2000,
approximately 27% and 35%, respectively, of average tractors in service were
contracted through owner-operators.

Fuel and fuel taxes were 10.4% of operating revenue in 2001 compared to
9.8% in 2000. The increase in fuel and fuel taxes as a percentage of operating
revenue during 2001 resulted from an increase in the ratio of Company drivers
to owner-operators. The average percentage of owner-operators in the fleet
averaged 27% in 2001 and 35% in 2000. Owner-operators are responsible for
purchasing their own fuel.

Depreciation and amortization expense as a percentage of operating revenue
was 8.8% in 2001 compared to 11.5% in 2000. The decrease in depreciation and
amortization as a percentage of operating revenue is attributable to a decrease
in the average number of tractors and trailers in service in 2001 compared to
2000. The average number of Company tractors in service decreased to 543 in
2001 from 637 in 2000. The average number of trailers in service decreased to
approximately 2,050 in 2001 from approximately 3,100 in 2000. Additionally,
depreciation and amortization expense in 2000 included approximately $430,000
of goodwill amortization expense associated with the acquisition of Laker in
1999. In the fourth quarter of 2000, the Company determined that the goodwill
associated with the acquisition of Laker was fully impaired. As a result, the
Company recorded an impairment charge in the fourth quarter of 2000 for the
unamortized portion of the goodwill. Accordingly, the operating results for
the year ended December 31, 2001 do not include goodwill amortization expense
associated with the purchase of Laker.

Insurance and claims were 2.3% of operating revenue in 2001 compared to
4.2% in 2000. The decrease in insurance and claims expense during 2001 as
compared to 2000 resulted from a decrease in the frequency and severity of
accidents between years and by improvements in claims development trends.

Operating leases were 1.9% of operating revenue in 2001 compared to 1.6%
in 2000. The increase in operating leases as a percentage of operating revenue
was attributable to a lower revenue base. Operating leases are generally a
fixed cost and do not fluctuate with revenue.

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Other operating expenses, a large component of which relates to equipment
maintenance, were 10.0% of operating revenue in 2001 compared to 10.7% in 2000.
Lower administrative costs, agent costs and bad debt expense offset, somewhat,
by higher maintenance costs as a percentage of operating revenue were
responsible for the decrease in other expenses as a percentage of operating
revenue. The Company focused efforts in reducing administrative and bad debt
expenses in 2001 compared to 2000. During 2001, the Company recorded net bad
debt recoveries equaling 0.2% of operating revenue. This contrasted with bad
debt expense of 1.3% of operating revenue in 2000. The 2001 results are
explained by better than anticipated collections of accounts that were
specifically identified as potentially doubtful in 2000. In 2001, the Company
adopted tighter credit policies which had a positive effect on bad debt
expense. Administrative costs represented 0.8% of operating revenue in 2001
versus 1.2% of operating revenue in 2000. In 2001, the Company also terminated
all agency agreements with the exception of one. Agent expense was 0.2% of
operating revenue in 2001 and 0.5% in 2000. Higher maintenance costs
associated with an older average fleet age in 2001 versus 2000 resulted in
higher maintenance costs as a percentage of operating revenue in 2001 versus
2000. Maintenance costs were 4.0% of operating revenue in 2001 as compared to
3.1% of operating revenue in 2000.

Interest expense was $1.2 million, or 1.1% of operating revenue, in 2001
compared to $2.7 million, or 2.1%, in 2000. The decrease was a result of lower
average net borrowings during 2001 primarily resulting from the Companys
commitment to pay down long-term debt and a lower effective interest rate in
2001 as compared to 2000.

The combined federal and state effective tax rate for 2001 was 41.0%
compared to an effective tax benefit of 35.4% for 2000. For information
concerning income taxes, as well as information regarding differences between
effective tax rates and statutory rates, see Note 7 of the Notes to
Consolidated Financial Statements.

As a result of the foregoing factors, the Company reported net income of
$5.4 million for 2001 compared to a net loss of $7.0 million in 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

Operating revenue decreased by $4.4 million, or 3.3%, to $127.5 million
for 2000 from $131.9 million in 1999. The decrease in operating revenue
resulted primarily from a 9.0% reduction in the average tractors in service in
2000 compared to 1999. Average tractors in service were 985 during 2000 and
1,082 in 1999.

The operating ratio for 2000 was 106.9% compared to 100.2% for 1999. The
increase in the operating ratio was primarily a result of the charges relating
to impairment of long-lived assets and other restructuring costs of $10.0
million in the fourth quarter of 2000. The Company recorded an impairment
charge of $6.6 million to write down equipment which the Company plans to
dispose of in 2001 to its estimated realizable value, net of costs to sell. In
the fourth quarter of 2000, the Company recorded an additional $3.3 million
charge related to impairment of the goodwill associated with the acquisition of
Laker in 1999. The impairment was based upon the determination that the core
business from Laker no longer existed. An additional $112,000

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was recorded as
restructuring costs incurred in connection with the closure of four terminal
facilities and the termination of certain employees.

Salaries, wages and employee benefits were 32.4% of operating revenue in
2000 compared to 34.4% in 1999. The decrease in salaries, wages and employee
benefits as a percentage of operating revenue was due primarily to a decrease
in the ratio of Company-operated tractors to owner-operator tractors between
periods. The average number of Company-operated tractors in service was 637 in
2000 and 746 in 1999.

Purchased transportation was 28.8% of operating revenue in 2000 compared
to 26.8% in 1999. The increase in purchased transportation as a percentage of
operating revenue was primarily attributable to a higher ratio of
owner-operator to Company equipment during 2000 as compared to 1999. During
2000 and 1999, approximately 35.3% and 30.9%, respectively, of average tractors
in service were contracted through owner-operators.

Fuel and fuel taxes were 9.8% of operating revenue in 2000 compared to
11.1% in 1999. The decrease in fuel and fuel taxes as a percentage of
operating revenue during 2000 resulted from a decrease in the ratio of Company
drivers to owner-operators. The average percentage of owner-operators in the
fleet averaged 35.3% in 2000 and 30.9% in 1999.

Depreciation and amortization expense as a percentage of operating revenue
was 11.5% in 2000 compared to 11.6% in 1999.

Insurance and claims were 4.2% of operating revenue in 2000 compared to
4.7% in 1999. The decrease in insurance and claims expense during 2000 as
compared to 1999 resulted from a decrease in the frequency and severity of
accidents between years and by improvements in claims development trends, which
were partially offset by higher premium costs.

Operating leases were 1.6% of operating revenue in 2000 compared to 1.3%
in 1999. The increase in operating leases as a percentage of operating revenue
was attributable to an increase in the number of Company tractors accounted for
as operating leases between periods.

Other operating expenses, a large component of which relates to equipment
maintenance, were 10.7% of operating revenue in 2000 compared to 10.3% in 1999.

Interest expense was $2.7 million, or 2.1% of operating revenue, in 2000
compared to $2.9 million, or 2.2%, in 1999. The decrease was a result of lower
average net borrowings during 2000 primarily resulting from the Companys
commitment to pay down long-term debt. The lower average net borrowings during
the year were partially offset by higher interest rates.

The combined federal and state effective tax benefit for 2000 was 35.4%
compared to an effective tax benefit of 34.2% for 1999. For information
concerning income taxes, as well as information regarding differences between
effective tax rates and statutory rates, see Note 7 of the Notes to
Consolidated Financial Statements.

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As a result of the foregoing factors, net loss increased by $5.2 million
resulting in a net loss of $7.0 million for 2000 compared to a net loss of $1.8
million in 1999.

Critical Accounting Policies

Allowance for Doubtful Accounts

The Company evaluates the collectibility of its accounts receivable based
on a combination of factors. In circumstances where management is aware of a
specific customers inability to meet its financial obligations to the Company
(e.g., bankruptcy filings, accounts turned over for litigation), the Company
records a specific reserve for bad debts against receivables to reduce the net
recognized receivable to the amount management reasonably believes will be
collected. For all other customers, the Company recognizes reserves for bad
debts based on the length of time the receivables are past due. Specifically,
amounts that are ninety days or more past due are reserved at 100%. If
circumstances change (i.e., higher than expected defaults or an unexpected
material adverse change in a major customers ability to meet its financial
obligations to the Company), our estimates of the recoverability of amounts due
to the Company could be reduced by a material amount.

Insurance Loss Reserves

Given the nature of the Companys operating environment, the Company has,
and in the future may, become subject to vehicle, workers compensation and
health insurance claims. To mitigate a portion of these risks, the Company
maintains insurance for individual vehicle and workers compensation claims
exceeding $250,000 and health insurance claims exceeding $100,000. The amount
of loss reserve and loss adjustment expenses is determined based on an
estimation process that uses information obtained from both Company specific
and industry data, as well as general economic information. The estimation
process requires management to continuously monitor and evaluate the life cycle
of claims. Using data obtained from this monitoring and managements
assumptions about the emerging trends, management develops information about
the size of ultimate claims based on the Companys historical experience and
other available market information. The most significant assumptions used in
the estimation process include determining the trend in loss costs, the
expected consistency in the frequency and severity of claims incurred but not
yet reported to prior year claims, changes in the timing of the reporting of
losses from the loss date to the notification date, and expected costs to
settle unpaid claims. Management also monitors the reasonableness of the
judgments made in the prior year estimation process (referred to as a hindsight
analysis) and adjusts current year assumptions based on the hindsight analysis.

Long Lived Assets

Property and equipment are stated at the lower of cost or fair value.
Depreciation of property and equipment is calculated based upon the cots of the
asset, reduced by its estimated salvage value using the straight-line method
over the estimated useful lives of the assets as follows:

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|                       |  |             |  | 
|---------------------- |  | ----------- |  | 
|Buildings              |  | 3040 years | 
|Revenue equipment      |  | 37 years   | 
|Other equipment        |  | 310 years  | 
|Leasehold improvements |  | 115 years  | 

Salvage values are determined based upon certain agreements with revenue
equipment manufacturers and managements estimates of salvage values based on
current and historical values of revenue equipment and non-revenue equipment
assets at the end of their estimated useful lives. The useful lives of assets
are also determined based upon certain trade agreements with revenue equipment
manufacturers and managements estimates of the length of time assets will be
placed in service before such assets require replacement.

The Company reviews its long-lived assets, including goodwill and other
intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. The measurement of
possible impairment is based upon determining whether projected undiscounted
future cash flows from the use of the asset over the remaining depreciation or
amortization period is less than the carrying value of the
asset. For assets that will be disposed of, the measurement of possible
impairment is based on estimates of sales proceeds less costs to sell.

In the fourth quarter of 2000, as part of its periodic review of
long-lived assets, the Company evaluated its fleet of tractors and trailers and
determined that much of the equipment was underutilized. This determination
resulted from the slowdown in the United States economy setting off an
industry-wide decline in the demand for trucking services.

Consequently, in the fourth quarter of 2000, the Company recorded an
impairment charge of approximately $6.6 million associated with the planned
disposal of these assets. The impairment charge included approximately $3.0
million for tractors and trailers held for sale, $2.0 for tractors and trailers
held for use and expected to be sold within one year, $1.1 million for lost
trailers and $480,000 for other operating assets.

At December 31, 2000, the Company had approximately $1.7 million of net
assets held for sale that were included in other current assets. Of this
balance, approximately $600,000 related to a sales agreement with a trailer
dealership to purchase specific trailers from the Company during the first and
second quarters of 2001. These trailers were sold and the related proceeds
were collected in 2001. The remaining $1.1 million related to tractors that
the Company believed it would sell and collect the associated proceeds within
one year at December 31, 2000. The Company did not dispose of these assets
during 2001 because of worse than expected conditions in the used equipment
market. The remaining assets were transferred to revenue equipment during the
fourth quarter of 2001. Such assets are being held and used in operations at
December 31, 2001 and are not expected to be sold. Impairment charges taken in
the fourth quarter of 2000 related to the remaining assets were approximately
$700,000.

At December 31, 2000, the Company had approximately $3.5 million of
trailers in net assets held for sale non-current. During 2001, these trailers
were traded to a trailer manufacturer.

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The remaining tractors and trailers identified for disposal during the
fourth quarter of 2000 included in revenue equipment at December 31, 2000 were
used in operations until replacement assets could be obtained. Such assets
were impaired and written down to fair value less costs to sell (inclusive of
the intervening depreciation). Assets used in operations expected to be sold
within one year continued to be depreciated until their disposal date. Assets
with an impaired carrying value of approximately $1.5 million are classified as
revenue equipment at December 31, 2001 and are not expected to be sold. The
Company did not dispose of these assets during 2001 because market conditions
for selling equipment were worse than anticipated. Impairment charges taken in
the fourth quarter of 2000 related to these remaining assets were approximately
$1.4 million.

Liquidity and Capital Resources

The Companys credit facilities include a working capital line of credit.
Subject to maintenance of financial covenants and ratios, this credit facility
permits the Company to borrow up to $15.0 million under the working capital
line of credit. Interest rates for advances under the facilities vary based on
covenants related to total indebtedness, cash flows, results of operations and
other ratios. The facilities bear interest at LIBOR plus 1.00% to 1.75% and is
secured by accounts receivable and certain revenue equipment. The Companys
working capital line of credit expires in May 2003. Availability under the
line of credit is reduced by the amount of outstanding letters of credit. Among
other restrictions, the terms of the line of credit require maintenance of
certain levels of net worth and other financial ratios. As of December 31,
2001, the Company had $3.5 million of borrowings and approximately $3.2 million
of letters of credit outstanding under the working capital line of credit
facility and borrowings outstanding under the equipment financing facility. As
of December 31, 2001, the Company had $5.7 million of additional borrowing
capacity under the working capital line of credit.

The Company also has a mortgage of $2.6 million outstanding on the
Companys Columbus, Ohio facility. The Columbus facility secures the debt
attributable to the facility acquisition. Interest rates for the mortgage vary
based on covenants related to total indebtedness, cash flows, results of
operations and other ratios. The facility bears interest at LIBOR plus 1.00%to
1.75%.

With respect to its credit facilities, the Company is required to be in
compliance with certain covenants on a quarterly and annual basis, which
include debt to worth ratio, cash flow coverage ratio, net worth, and a limit
on capital expenditures and acquisitions during the year. At December 31,
2001, the Company was in compliance with all covenants.

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The following table summarizes the Companys contractual payments and
obligations by period (amounts in thousands):

|                                           |  |                    |       |                  |  |       |       |           |  |         |       |  |  |   |    |       |  |   |   | 
|------------------------------------------ |  | ------------------ | ----- | ---------------- |  | ----- | ----- | --------- |  | ------- | ----- |  |  | - | -- | ----- |  | - | - | 
|Contractual Obligations                    |  | Payment Due Period
|                                           |  |                   
|                                           |  |                    |       |                  |  |       |       |           |  | 1-3     |       |  |  |   |    | After
|                                           |  | Total              |       | Less Than 1 Year |  | Years |       | 4-5 Years |  | 5 Years
|                                           |  |                    |       |                  |  |       |       |           |  |        
|Long-term debt (including lines of
credit) |  | $                  | 6,127 |                  |  | $     | 242   |           |  | $       | 5,885 |  |  | $ |   |       |  | $ |  | 
|Capital lease obligations                  |  |                    |      |                  |  |       |      |           |  |         |      |  |  |   |   |       |  |   |  | 
|Operating leases                           |  |                    | 1,718 |                  |  |       | 1,051 |           |  |         | 648   |  |  |   | 19 |       |  |   |  | 
|Unconditional purchase obligations         |  |                    |      |                  |  |       |      |           |  |         |      |  |  |   |   |       |  |   |  | 
|Other long-term obligations                |  |                    |      |                  |  |       |      |           |  |         |      |  |  |   |   |       |  |   |  | 
|                                           |  |                    |       |                  |  |       |       |           |  |         |       |  |  |   |    |       |  |   |   | 
|Total contractual cash obligations         |  | $                  | 7,845 |                  |  | $     | 1,293 |           |  | $       | 6,533 |  |  | $ | 19 |       |  | $ |  | 

The following table summarizes the Companys other commercial commitments
and expiration by period (amounts in thousands):

|                               |  |               |       |                  |  |                                            |       |           |  |         |     |  |  |       |   |  |  |   |   | 
|------------------------------ |  | ------------- | ----- | ---------------- |  | ------------------------------------------ | ----- | --------- |  | ------- | --- |  |  | ----- | - |  |  | - | - | 
|                               |  |               |       |                  |  | Amount of Commitment Expiration Per Period
|                               |  |               |       |                  |  |                                           
|                               |  | Total Amounts |       |                  |  |                                            |       | 1-3       |  |         |     |  |  | After
|Other Commercial Commitments   |  | Committed     |       | Less Than 1 Year |  | Years                                      |       | 4-5 Years |  | 5 Years
|                               |  |               |       |                  |  |                                            |       |           |  |        
|Standby letters of credit      |  | $             | 3,200 |                  |  | $                                          | 2,800 |           |  | $       | 400 |  |  | $     |  |  |  | $ |  | 
|Guarantees                     |  |               |      |                  |  |                                            |      |           |  |         |    |  |  |       |  |  |  |   |  | 
|Standby repurchase obligations |  |               |      |                  |  |                                            |      |           |  |         |    |  |  |       |  |  |  |   |  | 
|Other commercial commitments   |  |               |      |                  |  |                                            |      |           |  |         |    |  |  |       |  |  |  |   |  | 
|                               |  |               |       |                  |  |                                            |       |           |  |         |     |  |  |       |   |  |  |   |   | 
|Total commercial commitments   |  | $             | 3,200 |                  |  | $                                          | 2,800 |           |  | $       | 400 |  |  | $     |  |  |  | $ |  | 

The Company has historically financed revenue equipment purchases with
cash flows from operations, through borrowing under credit agreements with
financial institutions and through manufacturer financing. During 2001,
working capital needs were met with cash flows from operations. Net cash
provided by operating activities of the Company totaled approximately $22.0
million, $17.4 million and $10.4 million in 2001, 2000 and 1999, respectively.

Net cash provided by investing activities was approximately $791,000 in
2001 and $1.5 million in 2000. Cash provided by investing activities resulted
from a significant decrease in new equipment purchases combined
with the sale of old equipment, both of which occurred in an effort to reduce
the size of the fleet and thereby improve utilization. Net cash used in
investing activities was approximately $32.1 million in 1999. Investing
expenditures consisted primarily of the acquisition of revenue equipment and
enhanced management information systems during 2001, 2000 and 1999, the
acquisition of assets from Laker and the purchase of a terminal facility during
1999.

Net cash used in financing activities was $22.8 million in 2001. The 2001
financing activities included the repayment of approximately $22.6 million of
the Companys long-term debt and the repurchase of approximately $514,000 of
the Companys Common Stock. Net cash used

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in financing activities was $18.9
million in 2000. The 2000 financing included the repayment of approximately
$17.9 million of the Companys long-term debt, offset by borrowings of $3.9
million and the repurchase of $4.9 million of the Companys Common Stock.

Net cash provided by financing activities was $20.0 million in 1999.
These financing activities included the financing of revenue equipment coupled
with repayment of long-term debt and capital leases. In addition, 1999
included the financing related to the acquisition of assets from Laker, the
$1.3 million repurchase of Common Stock of the Company and $64,000 in proceeds
from the exercise of stock options and Common Stock issued under an employee
stock purchase plan.

The Company expects to make approximately $7.0 million in capital
expenditures for equipment in 2002. The Company expects to finance its capital
expenditures and normal operating requirements through available borrowing
capacity under existing lines of credit and cash generated by operations. In
the future, the Company will continue to have significant capital requirements,
which may require the Company to seek additional borrowings or to access
capital markets. The availability of debt financing or equity capital will
depend upon the Companys financial condition and results of operations as well
as prevailing market conditions and other factors over which the Company has
little or no control.

Transactions with Related Parties

On July 9, 1998, the Board of Directors of Forward Air authorized the
Spin-off to separate Forward Air into two publicly-held corporations, one
owning and operating the deferred air freight operations and the other owning
and operating the truckload operations.

The Spin-off was effected on September 23, 1998 through the distribution
to shareholders of Forward Air of all the outstanding stock of a new truckload
holding company, the Company. Pursuant to the Spin-off, the common stock of
the Company was distributed on a pro rata basis of one share of Company common
stock for every one share of Forward Air common stock held. Effective with the
Spin-off, the Company is the legal entity that owns and operates the truckload
operations through its operating subsidiaries, and Forward Air is the legal
entity that continues to own and operate the deferred air freight operations
through its operating subsidiaries.

In connection with the Spin-off, the Company entered into a Transition
Services Agreement (TSA) with Forward Air which was effective upon the actual
separation of the two companies.

In accordance with the terms included in the TSA, subsequent to the
Spin-off in 1998, the Company provided safety, licensing, permitting and fuel
tax, insurance and claims services, recruiting and retention services, and
driver training center services to Forward Air. The Company charged Forward
Air $104,000, $230,000 and $455,000, respectively, during the years ended
December 31, 2001, 2000 and 1999 for these services. These charges have been
included in salaries, wages and employee benefits in the accompanying
statements of operations. In addition, Forward Air provided accounts payable,
payroll, human resources, employee benefit

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plan administration, owner-operator
settlement, central purchasing, accounting and legal, general administrative,
and information technology services to the Company. Forward Air charged the
Company $662,000, $1.5 million and $2.4 million, respectively, during the years
ended December 31, 2001, 2000 and 1999 for these services. These charges have
been included in salaries, wages and employee benefits in the accompanying
statements of operations.

Forward Air purchased $1.7 million, $2.2 million and $3.3 million of
truckload transportation services from the Company in 2001, 2000 and 1999,
respectively.

The Companys Chairman of the Board and Chief Executive Officer and its
Senior Vice-President, General Counsel and Secretary also serve as executive
officers and directors of Forward Air.

Impact of Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Account (SFAS) No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133, as amended, was required to be adopted by
the Company in January 2001. The adoption of this Statement did not have a
significant effect on the financial position or results of operations of the
Company.

Forward-Looking Statements

The Company, or its officers and directors on behalf of the Company, may
from time to time make written or oral forward-looking statements. Written
forward-looking statements may appear in documents filed with the Securities
and Exchange Commission (the Commission), in press releases and in reports to
shareholders. Oral forward-looking statements may be made by the Companys
officers and directors on behalf of the Company to the press, potential
investors, securities analysts and others. The Private Securities Litigation
Reform Act of 1995 contains a safe harbor for forward-looking statements. The
Company relies on this safe harbor in making such disclosures. In connection
with this safe harbor provision, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statement made by or on behalf of the Company.
Without limitation, factors that might cause such a difference include
economic factors such as recessions, inflation, higher interest rates,
downturns in customer business cycles, competition, surplus inventories, loss
of a major customer, fuel price increases, the ability of the Companys
information systems to handle increased volume of freight, and the availability
and compensation of qualified drivers and independent owner-operators. The
Company disclaims any intent or obligation to update these forward-looking
statements.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from changes in interest rates and
commodity prices. To reduce such risks, the Company selectively uses forward
purchase contracts for fuel.

22



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##### Table of Contents



All such forward purchase transactions are
authorized and executed pursuant to clearly defined procedures. There are no
commitments to purchase fuel contracts.

Interest Rates

At December 31, 2001 and 2000, the fair value of the Companys total
variable rate debt was estimated to be approximately $6.1 million and $17.2
million, respectively, which approximated carrying value based on the Companys
current incremental borrowing rates for similar types of borrowing
arrangements. At this borrowing level, a hypothetical 10% adverse change in
interest rates on the debt would increase interest expense and decrease income
before income taxes by approximately $20,000 and $133,000 in 2001 and 2000,
respectively. This amount was determined by considering the impact of the
hypothetical interest rate increase on the Companys borrowing cost at the
December 31, 2001 and 2000 borrowing levels.

Commodities

The availability and price of fuel are subject to fluctuations due to
factors such as seasonality, weather, government programs and policies, and
changes in global production. To reduce price sensitivity caused by market
fluctuations, the Company from time to time will enter into forward purchase
contracts.

The above market risk discussion and the estimated amounts presented are
forward-looking statements of market risk based on the assumed occurrence of
certain adverse market conditions. Actual results in the future may differ
materially from those projected due to actual developments in the market.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The response to this item is submitted as a separate section of this
report.




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

None.

23



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##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item with respect to directors of the
Company is incorporated herein by reference to the Companys definitive proxy
statement for its 2002 Annual Meeting of Shareholders (the 2002 Proxy
Statement). The 2002 Proxy Statement will be filed with the Commission not
later than 120 days subsequent to December 31, 2001.

Pursuant to Item 401(b) of Regulation S-K, the information required by
this item with respect to executive officers of the Company is set forth in
Part I of this report.




ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference
to the 2002 Proxy Statement, which will be filed with the Commission not later
than 120 days subsequent to December 31, 2001.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated herein by reference
to the 2002 Proxy Statement, which will be filed with the Commission not later
than 120 days subsequent to December 31, 2001.




ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated herein by reference
to the 2002 Proxy Statement, which will be filed with the Commission not later
than 120 days subsequent to December 31, 2001.

24



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##### Table of Contents






PART IV




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

|               |  |                                                                                           
|-------------- |  | ------------------------------------------------------------------------------------------
|(a)(1) and (2) |  | List of Financial Statements and Financial Statement Schedules.                           
|              
|               |  | The response to this portion of Item 14 is submitted as a
separate section of this report.
|              
|(a)(3)         |  | List of Exhibits.                                                                         
|              
|               |  | The response to this portion of Item 14 is submitted as a
separate section of this report.
|              
|(b)            |  | Reports on Form 8-K.                                                                      
|              
|               |  | There were no reports on Form 8-K filed during the fourth
quarter of 2001.                
|              
|(c)            |  | Exhibits.                                                                                 
|              
|               |  | The response to this portion of Item 14 is submitted as a
separate section of this report.
|              
|(d)            |  | Financial Statement Schedules.                                                            
|              
|               |  | The response to this portion of Item 14 is submitted as a
separate section of this report.

25



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##### Table of Contents






SIGNATURES

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

| |  |                                                         
| |  | --------------------------------------------------------
| |  | LANDAIR CORPORATION                                     
|
| |  | By: /s/ Scott M. Niswonger                              
| |  |                                                         
| |  | Scott M. Niswonger, Chairman
and Chief Executive Officer
|
| |  | Date:  March 14, 2002                                   

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.

|                         |  |                                                       |  |               
|------------------------ |  | ----------------------------------------------------- |  | --------------
|Name                     |  | Capacity                                              |  | Date          
|                         |  |                                                       |  |               
|/s/ Scott M. Niswonger   |  | Chairman and Chief Executive Officer                  |  | March 14, 2002
|                         |  | (Principal Executive Officer)                         |  |               
|Scott M. Niswonger       |  |                                                       |  |               
|                        
|/s/ John A. Tweed        |  | President, Chief Operating Officer and Director       |  | March 14, 2002
|                         |  |                                                       |  |               
|John A. Tweed            |  |                                                       |  |               
|                        
|/s/ Andrew J. Mantey     |  | Chief Financial Officer,                              |  | March 14, 2002
|                         |  | Senior Vice President and Treasurer                   |  |               
|Andrew J. Mantey         |  | (Principal Financial and Accounting Officer)          |  |               
|                        
|/s/ Richard H. Roberts   |  | Senior Vice President, General Counsel, Secretary and |  | March 14, 2002
|                         |  | Director                                              |  |               
|Richard H. Roberts       |  |                                                       |  |               
|                        
|/s/ Jerry T. Armstrong   |  | Director                                              |  | March 14, 2002
|                         |  |                                                       |  |               
|Jerry T. Armstrong       |  |                                                       |  |               
|                        
|/s/ C. John Langley, Jr. |  | Director                                              |  | March 14, 2002
|                         |  |                                                       |  |               
|C. John Langley, Jr.     |  |                                                       |  |               
|                        
|/s/ Courtney J. Munson   |  | Director                                              |  | March 14, 2002
|                         |  |                                                       |  |               
|Courtney J. Munson       |  |                                                       |  |               

26



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Annual Report on Form 10-K

Item 8, Item 14(a)(1) and (2), (c) and (d)

List of Financial Statements and Financial Statement Schedule

Financial Statements and Supplementary Data

Certain Exhibits

Financial Statement Schedule

Year Ended December 31, 2001

Landair Corporation

Greeneville, Tennessee





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Landair Corporation

Form 10-K  Item 8 and Item 14(a)(1) and (2)




Index to Financial Statements and Financial Statement Schedule

The following consolidated financial statements of Landair Corporation are included as a separate
section of this report:

|                                                                                               |  |          |     | 
|---------------------------------------------------------------------------------------------- |  | -------- | --- | 
|                                                                                               |  | Page No.
|                                                                                               |  |         
|Report of Ernst & Young LLP, Independent Auditors                                              |  |          | F-3 | 
|Consolidated Balance Sheets  December 31, 2001 and 2000                                       |  |          | F-4 | 
|Consolidated Statements of Operations  Years Ended December 31, 2001,
2000 and 1999           |  |          | F-6 | 
|Consolidated Statements of Shareholders Equity  Years Ended
December 31, 2001, 2000 and 1999 |  |          | F-7 | 
|Consolidated Statements of Cash Flows  Years Ended December 31, 2001,
2000 and 1999           |  |          | F-8 | 
|Notes to Consolidated Financial Statements  December 31, 2001                                 |  |          | F-9 | 

The following financial statement schedule of Landair Corporation is included as a separate section of this
report.

|                                                |  |     |  | 
|----------------------------------------------- |  | --- |  | 
|Schedule II  Valuation and Qualifying Accounts |  | S-1

All other schedules for which provision is made in the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have
been omitted.

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Report of Independent Auditors

The Board of Directors and Shareholders

Landair Corporation

We have audited the accompanying consolidated balance sheets of Landair Corporation as of December
31, 2001 and 2000, and the related consolidated statements of operations, shareholders equity, and cash
flows for each of the three years in the period ended December 31, 2001. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are
the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits 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 audits provide a reasonable
basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Landair Corporation at December 31, 2001 and 2000, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted in the United States.
Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

| |                  
| | -----------------
| | Ernst & Young LLP

Nashville, Tennessee
February 1, 2002

F-3



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Landair Corporation

Consolidated Balance Sheets

|                         |                                                                         |   |                |        |      |   |        |        | 
|------------------------ | ----------------------------------------------------------------------- | - | -------------- | ------ | ---- | - | ------ | ------ | 
|                         |                                                                         |   | December 31   
|                         |                                                                         |   |               
|                         |                                                                         |   | 2001           |        | 2000
|                         |                                                                         |   |                |        |     
|                         |                                                                         |   | (In thousands)
|Assets                   |                                                                         |   |                |        |      |   |        |       
|Current assets:          |                                                                         |   |                |        |      |   |        |       
|                         | Cash and cash equivalents                                               |   | $              | 6      |      |   | $      | 9      | 
|                         | Accounts receivable, less allowances of $317 in
2001 and $1,267 in 2000 |   |                | 7,554  |      |   |        | 12,923 | 
|                         | Inventories                                                             |   |                | 399    |      |   |        | 817    | 
|                         | Prepaid expenses                                                        |   |                | 1,231  |      |   |        | 1,368  | 
|                         | Income taxes receivable                                                 |   |                |       |      |   |        | 442    | 
|                         | Deferred income taxes                                                   |   |                | 1,469  |      |   |        | 1,942  | 
|                         | Net assets held for sale                                                |   |                |       |      |   |        | 1,733  | 
|                         |                                                                         |   |                |        |      |   |        |       
|Total current assets     |                                                                         |   | 10,659         |        |      |   | 19,234 |       
|Property and equipment:  |                                                                         |   |                |        |      |   |        |       
|                         | Land                                                                    |   |                | 1,094  |      |   |        | 1,094  | 
|                         | Buildings                                                               |   |                | 4,745  |      |   |        | 4,693  | 
|                         | Revenue equipment                                                       |   |                | 69,597 |      |   |        | 73,425 | 
|                         | Other equipment                                                         |   |                | 4,125  |      |   |        | 7,494  | 
|                         | Leasehold improvements                                                  |   |                | 1,089  |      |   |        | 1,234  | 
|                         |                                                                         |   |                |        |      |   |        |       
|                         |                                                                         |   | 80,650         |        |      |   | 87,940 |       
|                         | Accumulated depreciation and amortization                               |   |                | 26,578 |      |   |        | 29,783 | 
|                         |                                                                         |   |                |        |      |   |        |       
|                         |                                                                         |   | 54,072         |        |      |   | 58,157 |       
|Net assets held for sale |                                                                         |   |               |        |      |   | 3,535  |       
|Other assets             |                                                                         |   | 34             |        |      |   | 401    |       
|                         |                                                                         |   |                |        |      |   |        |       
|Total assets             |                                                                         | $ | 64,765         |        |      | $ | 81,327 |       
|                         |                                                                         |   |                |        |      |   |        |       

F-4



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##### Table of Contents



|                                           |                                  |                                   |                                                                         |        |                |    |        |        |       |    | 
|------------------------------------------ | -------------------------------- | --------------------------------- | ----------------------------------------------------------------------- | ------ | -------------- | -- | ------ | ------ | ----- | -- | 
|                                           |                                  |                                   |                                                                         |        | December 31   
|                                           |                                  |                                   |                                                                         |        |               
|                                           |                                  |                                   |                                                                         |        | 2001           |    | 2000  
|                                           |                                  |                                   |                                                                         |        |                |    |       
|                                           |                                  |                                   |                                                                         |        | (In thousands)
|Liabilities and Shareholders equity       |                                  |                                   |                                                                         |        |                |    |        |       
|Current liabilities:                       |                                  |                                   |                                                                         |        |                |    |        |       
|                                           |                                  | Accounts payable                  |                                                                         | $      | 1,835          |    |        | $      | 3,072 |   
|                                           |                                  | Accrued payroll and related items |                                                                         |        | 1,288          |    |        |        | 1,319 |   
|                                           |                                  | Insurance and claims accruals     |                                                                         |        | 3,387          |    |        |        | 4,297 |   
|                                           |                                  | Other accrued expenses            |                                                                         |        | 2,830          |    |        |        | 3,341 |   
|                                           |                                  | Income taxes payable              |                                                                         |        | 168            |    |        |        |      |   
|                                           |                                  | Current portion of long-term debt |                                                                         |        | 242            |    |        |        | 8,495 |   
|                                           |                                  |                                   |                                                                         |        |                |    |        |        |       |   
|Total current liabilities                  |                                  |                                   | 9,750                                                                   |        |                |    | 20,524 |       
|Long-term debt, less current portion       |                                  |                                   | 5,885                                                                   |        |                |    | 20,223 |       
|Deferred income taxes                      |                                  |                                   | 13,565                                                                  |        |                |    | 10,254 |       
|Commitments and contingencies              |                                  |                                   |                                                                        |        |                |    |       |       
|Shareholders equity:                      |                                  |                                   |                                                                         |        |                |    |        |       
|                                           | Preferred stock, $.01 par value: |                                   |                                                                         |        |                |    |        |        |      
|                                           |                                  |                                   | Authorized shares - 5,000,000                                           |        |                |    |        |        |       |    | 
|                                           |                                  |                                   | No shares issued                                                        |        |                |   |        |        |       |   | 
|                                           | Common stock, $.01 par value:    |                                   |                                                                         |        |                |    |        |        |      
|                                           |                                  |                                   | Authorized shares - 45,000,000                                          |        |                |    |        |        |       |    | 
|                                           |                                  |                                   | Issued and outstanding shares - 4,861,643
in 2001 and 4,886,136 in 2000 |        |                | 49 |        |        |       | 49 | 
|                                           | Additional paid-in capital       |                                   |                                                                         | 37,880 |                |    |        | 38,078 |      
|                                           | Accumulated deficit              |                                   |                                                                         | (2,364 | )              |    |        | (7,801 | )    
|                                           |                                  |                                   |                                                                         |        |                |    |        |       
|Total shareholders equity                 |                                  |                                   | 35,565                                                                  |        |                |    | 30,326 |       
|                                           |                                  |                                   |                                                                         |        |                |    |        |       
|Total liabilities and shareholders equity |                                  | $                                 | 64,765                                                                  |        |                | $  | 81,327 |       
|                                           |                                  |                                   |                                                                         |        |                |    |        |       

See accompanying notes.

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Landair Corporation

Consolidated Statements of Operations

|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |         |  
|--------------------------------- | ------------------------------------- | - | ------------------------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                  |                                       |   | Year ended December 31               
|                                  |                                       |   |                                      
|                                  |                                       |   | 2001                                  |         | 2000 |   | 1999   
|                                  |                                       |   |                                       |         |      |   |        
|                                  |                                       |   | (In thousands, except per share data)
|Operating revenue:                |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  | Trade                                 |   | $                                     | 105,164 |      |   | $       | 125,313 |   |   | $       | 128,579 |  
|                                  | Forward Air                           |   |                                       | 1,742   |      |   |         | 2,174   |   |   |         | 3,276   |  
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  |                                       |   | 106,906                               |         |      |   | 127,487 |         |   |   | 131,855 |        
|Operating expenses:               |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  | Salaries, wages and employee benefits |   |                                       | 36,147  |      |   |         | 41,311  |   |   |         | 45,353  |  
|                                  | Purchased transportation              |   |                                       | 25,516  |      |   |         | 36,778  |   |   |         | 35,354  |  
|                                  | Fuel and fuel taxes                   |   |                                       | 11,161  |      |   |         | 12,501  |   |   |         | 14,587  |  
|                                  | Depreciation and amortization         |   |                                       | 9,411   |      |   |         | 14,639  |   |   |         | 15,257  |  
|                                  | Insurance and claims                  |   |                                       | 2,482   |      |   |         | 5,412   |   |   |         | 6,145   |  
|                                  | Operating leases                      |   |                                       | 1,994   |      |   |         | 2,056   |   |   |         | 1,774   |  
|                                  | Impairment of long-lived assets       |   |                                       |        |      |   |         | 9,906   |   |   |         |        |  
|                                  | Restructuring costs                   |   |                                       |        |      |   |         | 112     |   |   |         |        |  
|                                  | Other operating expenses              |   |                                       | 10,641  |      |   |         | 13,618  |   |   |         | 13,621  |  
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  |                                       |   | 97,352                                |         |      |   | 136,333 |         |   |   | 132,091 |        
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|Income (loss) from operations     |                                       |   | 9,554                                 |         |      |   | (8,846  | )       |   |   | (236    | )      
|Other income (expense):           |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  | Interest expense                      |   |                                       | (1,152  | )    |   |         | (2,720  | ) |   |         | (2,918  | )
|                                  | Other, net                            |   |                                       | 819     |      |   |         | 780     |   |   |         | 373     |  
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  |                                       |   | (333                                  | )       |      |   | (1,940  | )       |   |   | (2,545  | )      
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|Income (loss) before income taxes |                                       |   | 9,221                                 |         |      |   | (10,786 | )       |   |   | (2,781  | )      
|Income tax (expense) benefit      |                                       |   | (3,784                                | )       |      |   | 3,816   |         |   |   | 951     |        
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|Net income (loss)                 |                                       | $ | 5,437                                 |         |      | $ | (6,970  | )       |   | $ | (1,830  | )      
|                                  |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|Income (loss) per share:          |                                       |   |                                       |         |      |   |         |         |   |   |         |        
|                                  | Basic                                 |   | $                                     | 1.12    |      |   | $       | (1.29   | ) |   | $       | (0.30   | )
|                                  | Diluted                               |   | $                                     | 1.10    |      |   | $       | (1.29   | ) |   | $       | (0.30   | )

See accompanying notes.

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Landair Corporation

Consolidated Statements of Shareholders Equity

|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   |          |        |   |   |        |        |  
|---------------------------- | ------------------------------------------------------ |  | -------------- | ------ | ---------- | - | ------------ | --- | ------------- | - | ------ | ------ | - | - | -------- | ------ | - | - | ------ | ------ | -
|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   | Retained |        |   |   |       
|                             |                                                        |  | Common Stock   |        | Additional |   | Earnings     |     | Total        
|                             |                                                        |  |                |        | Paid-in    |   | (Accumulated |     | Shareholders'
|                             |                                                        |  | Shares         |        | Amount     |   | Capital      |     | Deficit)      |   | Equity
|                             |                                                        |  |                |        |            |   |              |     |               |   |       
|                             |                                                        |  | (In thousands)
|Balance at December 31, 1998 |                                                        |  | 6,293          |        |            | $ | 63           |     |               | $ | 44,191 |        |   | $ | 999      |        |   | $ | 45,253 |       
|                             | Net loss for 1999                                      |  |                |       |            |   |              |    |               |   |        |       |   |   |          | (1,830 | ) |   |        | (1,830 | )
|                             | Exercise of stock options                              |  |                | 3      |            |   |              |    |               |   |        | 12     |   |   |          |       |   |   |        | 12     |  
|                             | Common stock issued under
employee stock purchase plan |  |                | 15     |            |   |              |    |               |   |        | 52     |   |   |          |       |   |   |        | 52     |  
|                             | Common stock repurchased                               |  |                | (269   | )          |   |              | (3  | )             |   |        | (1,316 | ) |   |          |       |   |   |        | (1,319 | )
|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   |          |        |   |   |        |       
|Balance at December 31, 1999 |                                                        |  | 6,042          |        |            |   | 60           |     |               |   | 42,939 |        |   |   | (831     | )      |   |   | 42,168 |       
|                             | Net loss for 2000                                      |  |                |       |            |   |              |    |               |   |        |       |   |   |          | (6,970 | ) |   |        | (6,970 | )
|                             | Common stock issued under
employee stock purchase plan |  |                | 18     |            |   |              |    |               |   |        | 57     |   |   |          |       |   |   |        | 57     |  
|                             | Common stock repurchased                               |  |                | (1,174 | )          |   |              | (11 | )             |   |        | (4,918 | ) |   |          |       |   |   |        | (4,929 | )
|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   |          |        |   |   |        |       
|Balance at December 31, 2000 |                                                        |  | 4,886          |        |            |   | 49           |     |               |   | 38,078 |        |   |   | (7,801   | )      |   |   | 30,326 |       
|                             | Net income for 2001                                    |  |                |       |            |   |              |    |               |   |        |       |   |   |          | 5,437  |   |   |        | 5,437  |  
|                             | Exercise of stock options                              |  |                | 56     |            |   |              | 1   |               |   |        | 244    |   |   |          |       |   |   |        | 245    |  
|                             | Common stock issued under
employee stock purchase plan |  |                | 18     |            |   |              |    |               |   |        | 71     |   |   |          |       |   |   |        | 71     |  
|                             | Common stock repurchased                               |  |                | (98    | )          |   |              | (1  | )             |   |        | (513   | ) |   |          |       |   |   |        | (514   | )
|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   |          |        |   |   |        |       
|Balance at December 31, 2001 |                                                        |  | 4,862          |        |            | $ | 49           |     |               | $ | 37,880 |        |   | $ | (2,364   | )      |   | $ | 35,565 |       
|                             |                                                        |  |                |        |            |   |              |     |               |   |        |        |   |   |          |        |   |   |        |       

See accompanying notes.

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##### Table of Contents



Landair Corporation

Consolidated Statements of Cash Flows

|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |        |        |  
|-------------------------------------------------------------------------------------------- | -------------------------------------------- | ------------------------------------- | ------- | ---------------------- | ------ | ---- | ------- | ------ | ------ | - | ------- | ------ | ------ | -
|                                                                                             |                                              |                                       |         | Year ended December 31
|                                                                                             |                                              |                                       |         |                       
|                                                                                             |                                              |                                       |         | 2001                   |        | 2000 |         | 1999  
|                                                                                             |                                              |                                       |         |                        |        |      |         |       
|                                                                                             |                                              |                                       |         | (In thousands)        
|Operating activities                                                                         |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Net income (loss)                                                                            |                                              | $                                     | 5,437   |                        |        | $    | (6,970  | )      |        | $ | (1,830  | )     
|Adjustments to reconcile net income (loss) to
net cash provided by operating activities:     |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|                                                                                             | Depreciation                                 |                                       |         | 9,411                  |        |      |         | 14,209 |        |   |         | 14,862 |       
|                                                                                             | Amortization                                 |                                       |         |                       |        |      |         | 430    |        |   |         | 395    |       
|                                                                                             | Impairment of long-lived assets              |                                       |         |                       |        |      |         | 9,906  |        |   |         |       |       
|                                                                                             | Gain on sale of property and
equipment       |                                       |         | (522                   | )      |      |         | (530   | )      |   |         | (172   | )     
|                                                                                             | Provision for losses on receivables          |                                       |         | (182                   | )      |      |         | 1,128  |        |   |         | 233    |       
|                                                                                             | Provision for revenue adjustments            |                                       |         | 116                    |        |      |         | 600    |        |   |         | 1,066  |       
|                                                                                             | Deferred income taxes                        |                                       |         | 3,784                  |        |      |         | (3,073 | )      |   |         | (459   | )     
|                                                                                             | Changes in operating assets and liabilities: |                                       |         |                        |        |      |         |        |        |   |         |        |       
|                                                                                             |                                              | Accounts receivable                   |         |                        | 5,435  |      |         |        | 1,678  |   |         |        | (1,823 | )
|                                                                                             |                                              | Inventories                           |         |                        | 418    |      |         |        | (163   | ) |         |        | 350    |  
|                                                                                             |                                              | Other assets                          |         |                        | 40     |      |         |        | 150    |   |         |        |       |  
|                                                                                             |                                              | Prepaid expenses                      |         |                        | 137    |      |         |        | 1,189  |   |         |        | (2,832 | )
|                                                                                             |                                              | Accounts payable and accrued expenses |         |                        | (2,689 | )    |         |        | (1,212 | ) |         |        | 677    |  
|                                                                                             |                                              | Income taxes                          |         |                        | 610    |      |         |        | 24     |   |         |        | (116   | )
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Net cash provided by operating activities                                                    |                                              |                                       | 21,995  |                        |        |      | 17,366  |        |        |   | 10,351  |       
|Investing
activities                                                                         |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Purchases of property and equipment                                                          |                                              |                                       | (1,238  | )                      |        |      | (2,901  | )      |        |   | (27,467 | )     
|Proceeds from disposal of property and equipment                                             |                                              |                                       | 2,029   |                        |        |      | 4,391   |        |        |   | 10,332  |       
|Acquisition of Laker Express, Inc.                                                           |                                              |                                       |        |                        |        |      |        |        |        |   | (14,754 | )     
|Other                                                                                        |                                              |                                       |        |                        |        |      |        |        |        |   | (216    | )     
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Net cash provided by (used in) investing activities                                          |                                              |                                       | 791     |                        |        |      | 1,490   |        |        |   | (32,105 | )     
|Financing
activities                                                                         |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Proceeds from long-term debt                                                                 |                                              |                                       |        |                        |        |      | 3,921   |        |        |   | 35,151  |       
|Payments of long-term debt                                                                   |                                              |                                       | (22,591 | )                      |        |      | (17,905 | )      |        |   | (13,916 | )     
|Repurchase of common stock                                                                   |                                              |                                       | (514    | )                      |        |      | (4,929  | )      |        |   | (1,319  | )     
|Common stock issued under employee stock
purchase plan                                       |                                              |                                       | 71      |                        |        |      | 57      |        |        |   | 52      |       
|Proceeds from exercise of stock options                                                      |                                              |                                       | 245     |                        |        |      |        |        |        |   | 12      |       
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Net cash provided by (used in) financing activities                                          |                                              |                                       | (22,789 | )                      |        |      | (18,856 | )      |        |   | 19,980  |       
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Net decrease in cash and cash equivalents                                                    |                                              |                                       | (3      | )                      |        |      |        |        |        |   | (1,774  | )     
|Cash and cash equivalents at beginning of year                                               |                                              |                                       | 9       |                        |        |      | 9       |        |        |   | 1,783   |       
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Cash and cash equivalents at end of year                                                     |                                              | $                                     | 6       |                        |        | $    | 9       |        |        | $ | 9       |       
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       
|Non-cash transaction  Issuance of note payable to
Laker Express, Inc. for asset acquisition |                                              | $                                     |        |                        |        | $    |        |        |        | $ | 400     |       
|                                                                                             |                                              |                                       |         |                        |        |      |         |        |        |   |         |       

See accompanying notes.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements

December 31, 2001

1. Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements of the Company include Landair Corporation and its
subsidiaries. Significant intercompany accounts have been eliminated in consolidation.

The Company is an irregular route, high-service truckload carrier that transports a wide range of
commodities in both intrastate and interstate commerce. The Company provides dry van common carrier
and dedicated contract carriage for shippers of a variety of products in the medium- and short-haul
markets. These activities constitute a single business segment as defined by the Financial Accounting
Standards Board Statement of Financial Account Standards
(SFAS) No. 131, Disclosure About Segments of an Enterprise and Related Information.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. Actual results could differ from those estimates.

Operating Revenue

Operating revenue and related costs are recognized as of the date shipments are completed.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents.

Inventories

Inventories include tires and replacement parts that are expensed when taken out of inventory and placed
into service. The cost of tires and replacement parts are reflected in other operating expenses in the
Companys statement of operations. The Company accounts for inventories using FIFO.

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Landair Corporation

Notes to Consolidated Financial Statements (continued)

1. Accounting Policies (continued)

Property and Equipment

Property and equipment are stated at the lower of cost or fair value. Depreciation of property and
equipment is calculated based upon the cost of the asset, reduced by its estimated salvage value, using the
straight-line method over the estimated useful lives as follows:

|                       |  |            
|---------------------- |  | -----------
|Buildings              |  | 30-40 years
|Revenue equipment      |  | 3-7 years  
|Other equipment        |  | 3-10 years 
|Leasehold improvements |  | 1-15 years 

The Company reviews its long-lived assets, including goodwill and other intangibles, for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
The measurement of possible impairment is based upon determining whether projected undiscounted future
cash flows from the use of the asset over the remaining depreciation or amortization period is less than the
carrying value of the asset. (See Note 4.)

Risk Management

The Company is self-insured for certain of its workers compensation, property damage, auto liability and
medical benefit claims. The Company has entered into agreements with independent insurance companies
to limit its losses with respect to these claims. The amount of loss reserve and loss adjustment expenses
is determined based on an estimation process that uses information obtained from both Company specific
and industry data, as well as general economic information. The estimation process requires management
to continuously monitor and evaluate the life cycle of claims.

Income Per Share

The Company calculates income per share in accordance with SFAS No. 128,
Earnings Per Share.
Under SFAS No. 128, basic earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted income per share includes any dilutive effects of options, warrants and
convertible securities, and uses the treasury stock method in calculating dilution.

Comprehensive Income

The Company had no items of other comprehensive income in 2001, 2000 or 1999 and, accordingly,
comprehensive income is equivalent to net income (loss).

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

1. Accounting Policies (continued)

Employee Stock Options

The Company grants options for a fixed number of shares to employees with an exercise price generally
equal to the fair value of the shares at the grant date. The Company accounts for employee stock option
grants in accordance with Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to
Employees, and, accordingly, recognizes no compensation expense for the stock option grants.

Major Customers

Federal Express Corporation accounted for 19%, 18% and 21% of consolidated operating revenue for
the years ended December 31, 2001, 2000 and 1999, respectively. During 2001 and 2000, the Company
had two other customers who accounted for 10% or more of revenue. Sonoco Products Company
accounted for 20% and 16% of consolidated operating revenue for the year ended December 31, 2001
and 2000, respectively. DuPont accounted for 12% and 10% of consolidated operating revenue for the
year ended December 31, 2001 and 2000, respectively. Airborne Express accounted for 15% of
consolidated operating revenue for the year ended December 31, 2001.

Recently-Issued Accounting Pronouncements

In June 1998, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities, was
issued and was required to be adopted in years beginning after June 15, 1999. In June 1999, SFAS No.
137 was issued, deferring the effective date of SFAS No. 133 for one year. This Statement requires all
derivatives to be recorded on the balance sheet at fair value. This results in the offsetting changes in fair
values or cash flows of both the hedge and the hedged item being recognized in earnings or other
comprehensive income, as appropriate, in the same period.

Changes in fair value of derivatives not meeting the Statements hedge criteria would be included in income.
The Company adopted the new Statement as of January 1, 2001. This Statement did not have a significant
effect on its results of operations or financial position.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to the 2001
presentation. These reclassifications had no effect on net loss as previously reported.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

1. Accounting Policies (continued)

Spin-Off of the Company by Forward Air Corporation

On July 9, 1998, the Board of Directors of Forward Air Corporation (Forward Air) authorized the
separation of Forward Air into two publicly-held corporations, one owning and operating the deferred air
freight operations and the other owning and operating the truckload operations (the Spin-off).

The Spin-off was effected on September 23, 1998 through the distribution to shareholders of Forward Air
of all of the outstanding shares of common stock of the Company, a new truckload holding company
(formerly the Truckload Business). Pursuant to the Spin-off, the common stock of the Company was
distributed on a pro rata basis of one share of the Company common stock for every one share of Forward
Air common stock held as of the record date. Subsequent to the Spin-off, Forward Air has continued as
the legal entity that owns and operates the deferred air freight operations through its operating subsidiaries
and the Company is the legal entity that owns and operates the truckload operations.

As used in the accompanying consolidated financial statements, the term Forward Air Business refers
to the deferred air freight operations; Landair Corporation, or the term Truckload Business, refers to the
truckload operations; and Forward Air refers to the entity which, prior
to the Spin-off, through its subsidiaries operated both the Forward Air Business and the Truckload
Business and which, after the Spin-off, continues to operate the Forward Air Business.

2. Agreements Related to Spin-Off

The Company and Forward Air routinely engage in transactions where the Company hauls deferred air
freight shipments for Forward Air which are in excess of Forward Airs scheduled capacity. Forward
Air regularly purchases truckload transportation from various trucking
companies. The pricing of truckload services purchased by Forward Air from
the Company is determined based on similar rates for shipments made by
unrelated parties. The Companys operating revenue from these shipments is shown separately in
the accompanying statements of operations.

As discussed in Note 8, the Company subleases a portion of certain facilities from Forward Air.

Transition Services Agreement

The Company and Forward Air are parties to a Transition Services Agreement, as amended (the TSA).
The TSA describes the services which the Company and Forward Air provide to each

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Landair Corporation

Notes to Consolidated Financial Statements (continued)

2. Agreements Related to Spin-Off (continued)

other. Services performed under the TSA are negotiated and paid for on an arms-length basis. The
Company or Forward Air, as recipients of the services, may terminate any or all such services
at any time on thirty days irrevocable written notice, and the Company or Forward Air, as providers of
the services, may terminate any or all of the services.

The charges for services pursuant to the TSA are based on the actual cost of
such services and are apportioned based on managements estimate of the
approximate amount of time and resources that are expended by any employees
that provide services under the TSA. The Company also allocates a portion of
the other expenses incurred by departments providing shared services. The
amounts billed to Forward Air and the amounts billed to the Company by
Forward Air are determined based on an allocation of actual costs incurred in
the respective departments of the shared services. The actual costs are
allocated based on managements estimate of time spent on certain
administrative functions, or where determinable, by number of items
processed, number of employees, and/or independent contractors for which the
services are provided. Management considers the allocations to be reasonable.

Prior to December 31, 2001, the Company provided safety, licensing, permitting and fuel tax, insurance
and claims services, recruiting and retention services, and driver training center services to Forward Air.
The Company charged Forward Air $104,000, $230,000 and $455,000, respectively, during the years
ended December 31, 2001, 2000 and 1999 for these services. These charges have been included in
salaries, wages and employee benefits in the accompanying statements of operations. In addition, Forward
Air provided accounts payable, payroll, human resources, employee benefit plan administration, owner-operator settlement, central purchasing, accounting and legal, general administrative, and information
technology services to the Company. Forward Air charged the Company $662,000, $1.5 million and $2.4
million, respectively, during the years ended December 31, 2001, 2000 and 1999 for these services. These
charges have been included in salaries, wages and employee benefits in the accompanying statements of
operations.

At December 31, 2001 and 2000, accounts payable included $93,000 and $315,000, respectively, due
to Forward Air related to services covered under the TSA and various other transactions between both
entities.

The Companys Chairman of the Board and Chief Executive Officer and its Senior Vice-President, General
Counsel and Secretary serve as executive officers and directors of Forward Air.

Tax Sharing Agreement

The Tax Sharing Agreement describes the responsibilities of the Company and Forward Air with respect
to all tax matters occurring prior to and after the Spin-off. The Tax Sharing Agreement

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Landair Corporation

Notes to Consolidated Financial Statements (continued)

2. Agreements Related to Spin-Off (continued)

provides for the
allocation of tax expense, assessments, refunds and other tax benefits. The Agreement also sets forth the
responsibility for filing tax returns and provides for reasonable cooperation in the event of any audit,
litigation or other proceeding with respect to any federal, state or local tax.

3. Acquisition of Business

The Company acquired substantially all of the assets of Laker Express, Inc.
(Laker) for $15.2 million in January of 1999. The purchase price for Laker
consisted of approximately $14.8 million in cash and the issuance of a note
payable for $400,000. The acquisition was accounted for using the purchase
method of accounting, which requires the allocation of the purchase price
to net assets acquired on the basis of estimated fair values. Goodwill and other
intangible assets resulting from the acquisition totaled approximately $4.1
million. Goodwill was being amortized over a 20 year life, and identified
intangible assets were being amortized over a five year life.

As a result of the Laker acquisition, the Company recognized identified
intangibles of $1.5 million, that principally consisted of customer lists and
drivers. A five-year amortization period was deemed appropriate as this was
the period the Company expected to retain these customers and drivers of
Laker.

As a result of the deterioration of the Laker business, the slowdown of the U.S.
economy and the decline in the demand for trucking services, the Company
closely examined the underlying value of the unamortized goodwill associated
with the 1999 purchase of Laker during the fourth quarter of 2000. As a result
of the evaluation, the Company determined the goodwill was impaired (see
Note 4).

4. Impairment of Long-Lived Assets

In accordance with the provisions of SFAS
No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, the Company
performs a periodic review of its long-lived assets, including goodwill and
other intangibles, for impairment whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable. During
the fourth quarter of 2000, as part of its periodic review of long-lived assets,
the Company evaluated its fleet of tractors and trailers and determined that
much of the equipment was underutilized. This determination resulted from the
slowdown in the United States economy setting off an industry-wide decline in
the demand for trucking services.

The Company performed an impairment analysis that identified certain tractors and trailers whose carrying
value exceeded fair value, less estimated cost to dispose. As a result, the Company committed to a plan
during December 2000 to dispose of the impaired equipment. The fair value

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

4. Impairment of Long-Lived Assets (continued)

of assets to be disposed of was determined by a sales agreement with a willing buyer and managements
recent experience with disposals of revenue equipment.

In the fourth quarter of 2000, the Company recorded an impairment charge of approximately $6.6 million
associated with the planned disposal of these assets. This charge is included in impairment of long-lived
assets in the Companys statement of operations. The impairment charge included approximately $3.0
million for tractors and trailers held for sale, $2.0 million for tractors and trailers held for use and expected
to be sold within one year, $1.1 million for lost trailers and $480,000 for other operating assets.

This impairment analysis resulted in an impairment charge that was recognized in
the fourth quarter of 2000. The Company believes that the assets impaired and
held for disposal qualified for impairment accounting under the provisions of
SFAS No. 121. The assets identified for impairment and disposal were for
immediate sale on normal delivery terms. An estimate had been made of the sale
proceeds expected to result from the sale of the assets that was reasonable in
relation to its current fair value. Additionally, an estimate had been made of
the probable timing of the sale of the asset, a buyer had been identified, the
sale of the assets was to occur within one year and the plan developed to
dispose of the trailers and an agreement with a buyer indicated that it was
unlikely that significant changes to the plan or the withdrawal of the plan
would occur.

At December 31, 2000, the Company had approximately $1.7 million of net assets
held for sale that were included in other current assets. Of this balance,
approximately $600,000 related to a sales agreement with a trailer dealership to
purchase specific trailers from the Company during the first and second quarters
of 2001. These trailers were sold and the related proceeds were collected in
2001. The remaining $1.1 million related to tractors that the Company believed
it would sell and collect the associated proceeds within one year at December
31, 2000. The Company did not dispose of these assets in 2001 because of worse
than expected conditions in the used equipment market. The remaining assets were
transferred to revenue equipment during the fourth quarter of 2001. Such assets
are being held and used in operations at December 31, 2001. Impairment charges
taken in the fourth quarter of 2001 related to the remaining assets were
approximately $700,000.

At December 31, 2000, the Company had approximately $3.5 million of trailers in
net assets held for sale non-current. During 2001, these trailers were traded to
a trailer manufacturer. Under the provisions of SFAS No. 121, depreciation was
not recorded during the period in which assets were held for sale.

The remaining tractors and trailers identified for disposal during the fourth
quarter of 2000 included in revenue equipment at December 31, 2000 were used in
operations until replacement assets could be obtained. Such assets were impaired
and written down to fair value less costs to

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

4. Impairment of Long-Lived Assets (continued)

sell (inclusive of the intervening depreciation). Assets used in operations
expected to be sold within one year continued to be depreciated until their
disposal date. Assets with impaired carrying values totaling approximately $1.5
million are classified as revenue equipment at December 31, 2001 and are not
expected to be sold. The Company did not dispose of these assets during fiscal
2001 because market conditions for selling equipment were worse than
anticipated. Impairment charges taken in the fourth quarter of 2000 related to
these remaining assets were approximately $1.4 million.

In the fourth quarter of 2000, the Company also reviewed for impairment in
accordance with SFAS No. 121 the goodwill associated with the purchase of Laker
in 1999 (see Note 3). As a result of the impairment review during the fourth
quarter of 2000, the Company determined that the goodwill associated with the
acquisition of Laker was fully impaired. The acquired Laker business consisted
principally of revenue equipment, a driver base, freight lanes and a customer
base. At December 31, 2000, the Company concluded that none of the significant
customers acquired as part of the original customer base were existing customers
of the Company (and no new customers were gained as a result of the
acquisition). In addition, the Company determined that fewer than 25% of the
drivers from the original Laker driver base were still employed with the Company
and that the purchase of Laker had not resulted in the development of any
additional traffic lanes. As a result of these factors, the Company recorded an
impairment charge of approximately $3.3 million in 2000. The impairment charge
is included in impairment of long-lived assets in the 2000 statement of
operations.

5. Long-Term Debt

Long-term debt consists of the following:

|                          |  |                |       |      |  |   |        | 
|------------------------- |  | -------------- | ----- | ---- |  | - | ------ | 
|                          |  | December 31   
|                          |  |               
|                          |  | 2001           |       | 2000
|                          |  |                |       |     
|                          |  | (In thousands)
|Line of credit            |  | $              | 3,477 |      |  | $ | 4,333  | 
|Equipment loan agreements |  |                |      |      |  |   | 12,876 | 
|Installment notes payable |  |                |      |      |  |   | 8,690  | 
|Other notes payable       |  |                | 2,650 |      |  |   | 2,819  | 
|                          |  |                |       |      |  |   |        | 
|                          |  |                | 6,127 |      |  |   | 28,718 | 
|Less current portion      |  |                | 242   |      |  |   | 8,495  | 
|                          |  |                |       |      |  |   |        | 
|                          |  | $              | 5,885 |      |  | $ | 20,223 | 
|                          |  |                |       |      |  |   |        | 

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

5. Long-Term Debt (continued)

The Company has a $15.0 million line of credit with a Tennessee bank which
expires in May 2003. Interest rates for advances under the facility vary from
LIBOR plus 1.00% to 1.75% based on covenants related to total indebtedness, cash
flows, results of operations and other ratios. Advances are collateralized
primarily by accounts receivable. The agreement contains, among other things,
restrictions that do not allow the payment of dividends, and requires the
maintenance of certain levels of net worth and other financial ratios. At
December 31, 2001, the Company had $3.5 million outstanding on this facility and
had utilized $3.2 million of availability for outstanding letters of credit. At
December 31, 2001, the interest rate for the line of credit was 3.29%.

With respect to its credit facilities, the Company is required to be in
compliance with certain covenants on a quarterly and annual basis, which include
debt to worth ratio, cash flow coverage ratio, net worth, and a limit on capital
expenditures and acquisitions during the year. At December 31, 2001, the Company
was in compliance with all covenants.

The Company also has a note payable to a Tennessee bank secured by real property
which bears interest at a variable rate from LIBOR plus 1.00% to 1.75%. The
interest rate was 3.29% at December 31, 2001. The Company is required to make
monthly payments on this note through March 2004, at which time a balloon
payment will be due.

Revenue equipment collateralizing all of the credit facilities agreements had a
carrying value of approximately $3.3 million at December 31, 2001.

The Company also had an equipment loan facility with another Tennessee bank
which permitted the Company to borrow up to $15.0 million for the purchase of
revenue equipment. The equipment loan expired in December 2001. Interest rates
for advances under the facility varied from LIBOR plus 0.75% to 2.00% based upon
covenants related to total indebtedness, cash flows, results of operations and
other ratios. The advances were collateralized by revenue equipment purchased
with the proceeds from the equipment loan agreement, which contains restrictions
and covenants similar to the line of credit agreement described above. The
Company had no amounts outstanding under this facility at December 31, 2001. At
December 31, 2000, the Company had $10.9 million outstanding and additional
borrowing capacity of $4.1 million under this loan agreement.

At December 31, 2000, the Company also had installment notes payable with a
finance company. The notes bore interest at fixed rates ranging from 6.4% to
7.7%. The notes were collateralized by the related revenue equipment purchased
with the proceeds of the notes. At December 31, 2001, no amounts were
outstanding on these installment notes.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

5. Long-Term Debt (continued)

Maturities of long-term debt are as follows (in thousands):

|           |  |   |       | 
|---------- |  | - | ----- | 
|2002       |  | $ | 242   | 
|2003       |  |   | 3,727 | 
|2004       |  |   | 2,158 | 
|Thereafter |  |   |      | 
|           |  |   |       | 
|           |  | $ | 6,127 | 
|           |  |   |       | 

Interest payments during 2001, 2000 and 1999 were $1.3 million, $2.8 million and
$2.8 million, respectively. The Company did not capitalize any interest costs
during 2001, 2000 or 1999.

6. Shareholders Equity and Stock Options

Preferred Stock  The Board of Directors is authorized to issue, at its
discretion, up to 5.0 million shares of preferred stock, par value $.01. The
terms and conditions of the preferred shares are to be determined by the Board
of Directors. No shares have been issued to date.

Repurchase of Common Stock  In February 1999, the Board of Directors
authorized the repurchase of up to 500,000 shares of the Companys common stock
in open market purchases. Additionally, during the year ended December 31, 2000,
the Board of Directors approved the repurchase of two blocks of the Companys
common stock totaling 1,130,281 shares for a total consideration of
approximately $4.7 million. The amount and timing of any repurchases are to be
at such prices as management of the Company from time to time approves. During
the year ended December 31, 2001, 2000 and 1999, the Company repurchased 98,000,
43,700 and 269,000 shares, respectively, under this plan.

Employee Stock Option and Incentive Plan  The Company follows Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related Interpretations in accounting for its employee stock options. Under
Opinion No. 25, when the exercise price of the Companys employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

The Company reserved 1.0 million shares of common stock under a Stock Option and
Incentive Plan. Options issued under the Plan have a ten year term and vest over
a four year period.

Pro forma information regarding net income and earnings per share is required by
Statement No. 123, Accounting for Stock-Based Compensation, which also requires
that the information be determined as if the Company has accounted for its
employee stock options granted under the fair value method of that Statement.
The fair value for these options was estimated at the date of grant in 2001,
2000 and 1999, respectively, using a Black-Scholes option pricing model with the

F-18



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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

6. Shareholders Equity and Stock Options (continued)

following weighted-average assumptions: risk-free interest rates of 5.3%, 6.5%
and 5.8%; dividend ratio of zero; volatility factors of the expected market
price of the common stock of 0.7, 0.7 and 0.6; and a weighted-average expected
life of the option of seven years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Companys stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in managements opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.

For purposes of pro forma disclosures, the estimated fair value of the stock
options is amortized to expense over the options vesting period. The Companys
pro forma information follows (in thousands, except per share data):

|                                       |             |   |       |      |      |   |        |       |   |   |        |       |  
|-------------------------------------- | ----------- | - | ----- | ---- | ---- | - | ------ | ----- | - | - | ------ | ----- | -
|                                       |             |   | 2001  |      | 2000 |   | 1999  
|                                       |             |   |       |      |      |   |       
|Pro forma net income (loss)            |             | $ | 4,994 |      |      | $ | (7,715 | )     |   | $ | (2,028 | )    
|Pro forma net income (loss) per share: |             |   |       |      |      |   |        |       |   |   |        |      
|                                       | Basic       |   | $     | 1.03 |      |   | $      | (1.43 | ) |   | $      | (0.33 | )
|                                       | Diluted (1) |   | $     | 1.01 |      |   | $      | (1.43 | ) |   | $      | (0.33 | )



---

|(1) |  | Diluted loss per share amounts for 2000 and 1999 have been calculated using the same denominator as used in the
basic loss per share calculation as the inclusion of dilutive securities in the denominator would have an anti-dilutive
effect.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-19



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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

6. Shareholders Equity and Stock Options (continued)

A summary of the Companys employee stock option activity and related information for the years ended
December 31 follows:

|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |   | 
|-------------------------------------------------------------- | ----------------- | - | ------- | ---- | -------- | - | --------- | - | -------- | - | ------- | --- | --------- | - | - | - |  | - | --------- | ---- | - | - | - | - | 
|                                                               |                   |   | 2001    |      | 2000     |   | 1999     
|                                                               |                   |   |         |      |          |   |          
|                                                               |                   |   |         |      |          |   | Weighted- |   |          |   |         |     | Weighted- |   |   |   |  |   | Weighted-
|                                                               |                   |   |         |      |          |   | Average   |   |          |   |         |     | Average   |   |   |   |  |   | Average  
|                                                               |                   |   | Options |      | Exercise |   | Options   |   | Exercise |   | Options |     | Exercise 
|                                                               |                   |   | (000)   |      | Price    |   | (000)     |   | Price    |   | (000)   |     | Price    
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |          
|Outstanding  beginning of year                                |                   |   | 481     |      |          | $ | 5         |   |          |   | 404     |     |           | $ | 4 |   |  |   | 321       |      |   | $ | 4 |  
|                                                               | Granted/Converted |   |         |     |          |   |           |  |          |   |         | 146 |           |   |   | 5 |  |   |           | 208  |   |   |   | 5 | 
|                                                               | Exercised         |   |         | (56  | )        |   |           | 4 |          |   |         | (1  | )         |   |   | 4 |  |   |           | (3   | ) |   |   | 4 | 
|                                                               | Forfeited         |   |         | (208 | )        |   |           | 5 |          |   |         | (68 | )         |   |   | 5 |  |   |           | (122 | ) |   |   | 4 | 
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |  
|Outstanding  end of year                                      |                   |   | 217     |      |          |   | 5         |   |          |   | 481     |     |           |   | 5 |   |  |   | 404       |      |   |   | 5 |  
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |  
|Exercisable at end of year                                     |                   |   | 129     |      |          | $ | 4         |   |          |   | 173     |     |           | $ | 4 |   |  |   | 83        |      |   | $ | 4 |  
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |  
|Options available for grant                                    |                   |   | 723     |      |          |   |           |   |          |   | 515     |     |           |   |   |   |  |   | 593       |      |   |   |   |  
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |  
|Weighted-average fair value of
options granted during the
year |                   | $ | 3.80    |      |          |   |           |   |          | $ | 3.54    |     |           |   |   |   |  | $ | 3.26      |      |   |   |   |  
|                                                               |                   |   |         |      |          |   |           |   |          |   |         |     |           |   |   |   |  |   |           |      |   |   |   |  

Exercise prices for options outstanding as of December 31, 2001 ranged from
$3.01 to $6.75.

Non-Employee Director Options  In May 2001, 2000 and 1999, options to purchase
22,500 shares of common stock were granted each year to the non-employee
directors of the Company at an option price of $5.94, $4.47 and $4.88,
respectively. The options have terms of ten years and are exercisable in
installments which vest over two-year periods from the date of grant. At
December 31, 2001, 82,500 options are outstanding and will expire in October
2008 through May 2011, unless a non-employee director resigns or is not
re-elected, in which event the options expire 90 days after the option holder is
no longer a non-employee director. In 2001, 30,000 shares issued to a
non-employee director were cancelled following a directors resignation.

Employee Stock Purchase Plan  The Company implemented an employee stock
purchase plan effective January 1, 1999 at which time participating employees
became entitled to purchase common stock through payroll deduction of up to 10%
of the employees annual compensation. The issue price of the common stock is
equal to the lesser of (1) 85% of market price on the first trading day of the
semi-annual option period or (2) 85% of market price on the last trading day of
the semi-annual option period. The Company has reserved 300,000 shares of common
stock for issuance pursuant to the plan. At December 31, 2001, approximately
51,000 shares had been issued under the plan.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

6. Shareholders Equity and Stock Options (continued)

Earnings (Loss) Per Share  The following table sets forth the computation of
basic and diluted earnings (loss) per share (in thousands, except per share
data):

|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |        |  
|--------------------------------------- | ------------------------------------------------------------------------------------- | - | ---- | ----- | ---- | - | ----- | ------ | - | - | ----- | ------ | -
|                                        |                                                                                       |   | 2001 |       | 2000 |   | 1999 
|                                        |                                                                                       |   |      |       |      |   |      
|Numerator:                              |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|                                        | Numerator for basic and diluted
earnings per share  net income (loss)                |   | $    | 5,437 |      |   | $     | (6,970 | ) |   | $     | (1,830 | )
|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|Denominator:                            |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|                                        | Denominator for basic earnings per share

weighted-average shares                    |   |      | 4,840 |      |   |       | 5,400  |   |   |       | 6,146  |  
|                                        | Effect of dilutive stock options                                                      |   |      | 113   |      |   |       | 40     |   |   |       | 79     |  
|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|                                        | Denominator
for diluted earnings per share 
        adjusted weighted-average shares |   |      | 4,953 |      |   |       | 5,440  |   |   |       | 6,225  |  
|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|Basic net income (loss) per share       |                                                                                       | $ | 1.12 |       |      | $ | (1.29 | )      |   | $ | (0.30 | )     
|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |       
|Diluted net income (loss) per share (1) |                                                                                       | $ | 1.10 |       |      | $ | (1.29 | )      |   | $ | (0.30 | )     
|                                        |                                                                                       |   |      |       |      |   |       |        |   |   |       |       



---

|(1) |  | Diluted loss per share amounts for 2000 and 1999 have been calculated using the same denominator as used in the
basic loss per share calculation as the inclusion of dilutive securities in the denominator would have an anti-dilutive
effect. At December 31, 2001, 2000 and 1999, there were 38,000, 233,243 and 75,412 antidilutive effect options outstanding,
respectively.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

7. Income Taxes

The provision (benefit) for income taxes consists of the following:

|          |         |   |                |       |      |   |        |        |   |   |      |      |  
|--------- | ------- | - | -------------- | ----- | ---- | - | ------ | ------ | - | - | ---- | ---- | -
|          |         |   | 2001           |       | 2000 |   | 1999  
|          |         |   |                |       |      |   |       
|          |         |   | (In thousands)
|Current:  |         |   |                |       |      |   |        |        |   |   |      |     
|          | Federal |   | $              |      |      |   | $      | (743   | ) |   | $    | (471 | )
|          | State   |   |                |      |      |   |        |       |   |   |      | (21  | )
|          |         |   |                |       |      |   |        |        |   |   |      |     
|          |         |   |               |       |      |   | (743   | )      |   |   | (492 | )   
|Deferred: |         |   |                |       |      |   |        |        |   |   |      |     
|          | Federal |   |                | 3,222 |      |   |        | (2,642 | ) |   |      | (376 | )
|          | State   |   |                | 562   |      |   |        | (431   | ) |   |      | (83  | )
|          |         |   |                |       |      |   |        |        |   |   |      |     
|          |         |   | 3,784          |       |      |   | (3,073 | )      |   |   | (459 | )   
|          |         |   |                |       |      |   |        |        |   |   |      |     
|          |         | $ | 3,784          |       |      | $ | (3,816 | )      |   | $ | (951 | )   
|          |         |   |                |       |      |   |        |        |   |   |      |     

The historical income tax expense (benefit) differs from the amounts computed by
applying the federal statutory rate of 34% to income before income taxes as
follows:

|                                                     |  |                |       |      |  |      |        |   |  |   |      |  
|---------------------------------------------------- |  | -------------- | ----- | ---- |  | ---- | ------ | - |  | - | ---- | -
|                                                     |  | 2001           |       | 2000 |  | 1999
|                                                     |  |                |       |      |  |     
|                                                     |  | (In thousands)
|Tax expense (benefit) at the statutory rate          |  | $              | 3,135 |      |  | $    | (3,667 | ) |  | $ | (946 | )
|State income taxes (benefit), net of
federal benefit |  |                | 371   |      |  |      | (282   | ) |  |   | (68  | )
|Meals and entertainment                              |  |                | 17    |      |  |      | 34     |   |  |   | 63   |  
|Other                                                |  |                | 261   |      |  |      | 99     |   |  |   |     |  
|                                                     |  |                |       |      |  |      |        |   |  |   |      |  
|                                                     |  | $              | 3,784 |      |  | $    | (3,816 | ) |  | $ | (951 | )
|                                                     |  |                |       |      |  |      |        |   |  |   |      |  

The Company received income tax refunds, net of payments, of $246,000 and
$893,000 in 2001 and 1999, respectively. In 2000, the Company paid income taxes
of $162,000.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

7. Income Taxes (continued)

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Companys deferred tax liabilities and assets are as follows:

|                               |                                       |   |                |        |      |   |        |        | 
|------------------------------ | ------------------------------------- | - | -------------- | ------ | ---- | - | ------ | ------ | 
|                               |                                       |   | December 31   
|                               |                                       |   |               
|                               |                                       |   | 2001           |        | 2000
|                               |                                       |   |                |        |     
|                               |                                       |   | (In thousands)
|Deferred tax liabilities:      |                                       |   |                |        |      |   |        |       
|                               | Tax over book depreciation            |   | $              | 13,708 |      |   | $      | 11,389 | 
|                               | Prepaid expenses deductible when paid |   |                | 353    |      |   |        | 254    | 
|                               | Other                                 |   |                | 239    |      |   |        | 392    | 
|                               |                                       |   |                |        |      |   |        |       
|Total deferred tax liabilities |                                       |   | 14,300         |        |      |   | 12,035 |       
|Deferred tax assets:           |                                       |   |                |        |      |   |        |       
|                               | Accrued expenses                      |   |                | 1,658  |      |   |        | 1,747  | 
|                               | Allowance for doubtful accounts       |   |                | 145    |      |   |        | 465    | 
|                               | Net operating loss carryforward       |   |                | 401    |      |   |        | 296    | 
|                               | Goodwill amortization                 |   |                |       |      |   |        | 1,197  | 
|                               | Other                                 |   |                |       |      |   |        | 18     | 
|                               |                                       |   |                |        |      |   |        |       
|Total deferred tax assets      |                                       |   | 2,204          |        |      |   | 3,723  |       
|                               |                                       |   |                |        |      |   |        |       
|Net deferred tax liabilities   |                                       | $ | 12,096         |        |      | $ | 8,312  |       
|                               |                                       |   |                |        |      |   |        |       

The balance sheet classification of deferred income taxes is as follows:

|                       |  |                |        |      |  |   |        |  
|---------------------- |  | -------------- | ------ | ---- |  | - | ------ | -
|                       |  | December 31   
|                       |  |               
|                       |  | 2001           |        | 2000
|                       |  |                |        |     
|                       |  | (In thousands)
|Current assets         |  | $              | (1,469 | )    |  | $ | (1,942 | )
|Noncurrent liabilities |  |                | 13,565 |      |  |   | 10,254 |  
|                       |  |                |        |      |  |   |        |  
|                       |  | $              | 12,096 |      |  | $ | 8,312  |  
|                       |  |                |        |      |  |   |        |  

At December 31, 2001, the Company had net operating loss carryforwards of approximately $1.1 million
for income tax purposes that will begin to expire in 2020.

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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

8. Leases

The Company leases certain facilities and revenue equipment under noncancelable
operating leases that expire in various years through 2005. Certain of these
leases may be renewed for a one year term. The Company also shares certain
facilities leased by Forward Air and has been allocated a portion of the rent
expense related thereto. As discussed below, the Company has entered into lease
or sublease agreements with Forward Air related to certain facilities.

Included in operating leases is a motorcoach leased from a limited liability
corporation owned by the Companys Chairman and Chief Executive Officer. The
total amount of rent expense for this lease was $, $ and $36,000 in 2001,
2000 and 1999, respectively.

The Company paid Forward Air $25,000 in 2001, 2000 and 1999 to sublease a
portion of its headquarters in Greeneville, Tennessee. The Company paid Forward
Air $12,000 in 2001, 2000 and 1999 to sublease a portion of the Companys
terminal facility in Detroit, Michigan. Additionally, in 2001, the Company paid
Forward Air $32,000 to sublease a portion of its facility in Indianapolis,
Indiana to the Company from the period April 1, 2001 to December 31, 2001.
Forward Air subleases the terminal facilities for consideration based upon the
cost of such facilities to Forward Air and an agreed-upon percentage of usage.
All rental payments paid to Forward Air are included in operating leases in the
Consolidated Statement of Operations.

Future minimum rental payments under noncancelable operating leases with initial
terms of one year or more consisted of the following at December 31, 2001 (in
thousands):

|      |  |   |       | 
|----- |  | - | ----- | 
|2002  |  | $ | 1,051 | 
|2003  |  |   | 623   | 
|2004  |  |   | 25    | 
|2005  |  |   | 19    | 
|      |  |   |       | 
|Total |  | $ | 1,718 | 
|      |  |   |       | 

9. Restructuring Costs

In December 2000, the Company committed to various exit and restructuring
activities. These activities included plans to exit operations at four leased
terminals (Dallas, Memphis, Camden and Chicago). In accordance with Emerging
Issues Task Force Consensus No. 94-3, the Company accrued $56,000 for future
rent payments and termination penalties under non-cancelable leases at the
facilities in December 2000. The Company exited the leases and paid the
remaining lease payments and termination penalties in January 2001.

Certain employees were terminated related to the restructuring activities. The
Company accrued termination benefits of $56,000 as of December 31, 2000 related
to severance benefits that had

F-24



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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

9. Restructuring Costs (continued)

been communicated to the respective employees as of December 31, 2000. The
Company incurred approximately an additional $225,000 of restructuring costs
related to termination benefits in the first quarter of 2001. As part of the
closure of the terminals, the Company recorded impairment write-downs totaling
approximately $480,000 (see Note 4). Such impaired assets primarily included
leasehold improvements and other equipment abandoned at the terminals that the
Company does not expect to sell.

10. Commitments and Contingencies

The primary claims in the Companys business are workers compensation, property
damage, auto liability and medical benefits. Most of the Companys insurance
coverage provides for self-insurance levels with primary and excess coverage
which management believes is sufficient to adequately protect the Company from
catastrophic claims. In the opinion of management, adequate provision has been
made for all incurred claims up to the self-insured limits and retrospective
premiums, including provision for estimated claims incurred but not reported.

The Company estimates its self-insurance loss exposure by evaluating the merits
and circumstances surrounding individual known claims, and by performing
hindsight analysis to determine an estimate of probable losses on claims
incurred but not reported. Such losses could be realized immediately as the
events underlying the claims have already occurred as of the balance sheet
dates.

Because of the uncertainty of the ultimate resolution of outstanding claims, as
well as uncertainty regarding claims incurred but not reported, it is possible
that managements provision for these losses could change materially in the near
term. However, no estimate can currently be made of the range of additional loss
that is at least reasonably possible.

11. Employee Benefit Plan

Effective January 1, 1999, the Company adopted a retirement savings plan (the
401(k) Plan) with terms similar to the existing retirement savings plan of
Forward Air. Employees of the Company who participated in Forward Airs 401(k)
Plan were entitled to transfer their participation into the Companys 401(k)
Plan. The 401(k) Plan is a defined contribution plan whereby employees who have
completed ninety days of service, a minimum of 1,000 hours of service and are
age 21 or older are eligible to participate. The 401(k) Plan allows eligible
employees to make contributions of 2% to 15% of their annual compensation.
Employer contributions will be made at 25% of the employees contribution up to
a maximum of 4% of total annual compensation. Employer contributions vest 20%
after two years of service and continue vesting 20% per year until fully vested.
The matching contribution by the Company to the 401(k) Plan for 2001, 2000 and
1999 was approximately $83,000, $107,000 and $113,000, respectively.

F-25



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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

12. Financial Instruments

Off Balance Sheet Risk

At December 31, 2001, the Company had letters of credit outstanding totaling
$3.2 million, all of which relate to obligations carried on the balance sheet.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash investments and trade
accounts receivable. The Company does not generally require collateral from its
customers. Two customers accounted for 26% and 12%, respectively, of total trade
accounts receivable at December 31, 2001. Concentrations of credit risk with
respect to trade accounts receivable are otherwise limited due to the large
number of entities comprising the Companys customer base and their dispersion
across many different industries.

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:



| |                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------
| | Cash and cash equivalents: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.



| |                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Accounts receivable and accounts payable: The carrying amounts reported
in the balance sheet for accounts receivable and accounts payable
approximate their fair value.



| |                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Long-term debt: The fair value of the Companys long-term debt is
estimated using discounted cash flow analyses, based on the Companys
current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts reported in the balance sheet for
long-term debt approximate their fair value.

F-26



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##### Table of Contents



Landair Corporation

Notes to Consolidated Financial Statements (continued)

13. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000:

|                             |         |   |                                       |      |         |   |              |      |             |   |        |      |  |   |        |      | 
|---------------------------- | ------- | - | ------------------------------------- | ---- | ------- | - | ------------ | ---- | ----------- | - | ------ | ---- |  | - | ------ | ---- | 
|                             |         |   | 2001                                 
|                             |         |   |                                      
|                             |         |   | March 31                              |      | June 30 |   | September 30 |      | December 31
|                             |         |   |                                       |      |         |   |              |      |            
|                             |         |   | (In thousands, except per share data)
|Operating revenue            |         | $ | 28,956                                |      |         | $ | 27,102       |      |             | $ | 25,825 |      |  | $ | 25,023 |     
|Income from operations       |         |   | 2,118                                 |      |         |   | 2,395        |      |             |   | 2,863  |      |  |   | 2,178  |     
|Net income                   |         |   | 1,039                                 |      |         |   | 1,289        |      |             |   | 1,638  |      |  |   | 1,471  |     
|Net income per common
share: |         |   |                                       |      |         |   |              |      |             |   |        |      |  |   |        |     
|                             | Basic   |   | $                                     | 0.21 |         |   | $            | 0.27 |             |   | $      | 0.34 |  |   | $      | 0.30 | 
|                             | Diluted |   | $                                     | 0.21 |         |   | $            | 0.26 |             |   | $      | 0.33 |  |   | $      | 0.29 | 

|                                    |         |   |                                       |       |         |   |              |      |             |   |        |      |  |   |         |       |  
|----------------------------------- | ------- | - | ------------------------------------- | ----- | ------- | - | ------------ | ---- | ----------- | - | ------ | ---- |  | - | ------- | ----- | -
|                                    |         |   | 2000                                 
|                                    |         |   |                                      
|                                    |         |   | March 31                              |       | June 30 |   | September 30 |      | December 31
|                                    |         |   |                                       |       |         |   |              |      |            
|                                    |         |   | (In thousands, except per share data)
|Operating revenue                   |         | $ | 33,130                                |       |         | $ | 32,974       |      |             | $ | 31,960 |      |  | $ | 29,423  |      
|Income (loss) from operations       |         |   | 329                                   |       |         |   | 1,594        |      |             |   | 983    |      |  |   | (11,752 | )    
|Net income (loss)                   |         |   | (139                                  | )     |         |   | 635          |      |             |   | 259    |      |  |   | (7,725  | )    
|Net income (loss) per common
share: |         |   |                                       |       |         |   |              |      |             |   |        |      |  |   |         |      
|                                    | Basic   |   | $                                     | (0.02 | )       |   | $            | 0.11 |             |   | $      | 0.05 |  |   | $       | (1.58 | )
|                                    | Diluted |   | $                                     | (0.02 | )       |   | $            | 0.11 |             |   | $      | 0.05 |  |   | $       | (1.58 | )

In the fourth quarter of 2000, the Company recorded a $6.6 million impairment
charge associated with planned disposal of certain assets. Additionally, in the
fourth quarter of 2000, the Company recorded an impairment charge of $3.3
million associated with the goodwill acquired with the purchase of Laker. See
Notes 3 and 4.

F-27



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##### Table of Contents



Landair Corporation

Schedule II  Valuation and Qualifying Accounts

|                              |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |     | 
|----------------------------- | ------------------------------------- | --------- | -------------- | -------- | -------- | -------- | --------- | -------- | ----------- | ------ | ------ | - | ---------- |  | ----- | --- | --- |  | ----- | --- | 
|Col. A                        |                                       | Col. B    |                | Col. C   |          | Col. D   |           | Col. E  
|                              |                                       |           |                |          |          |          |           |         
|                              |                                       |           |                |          |          |          | Additions |          |             |        |        |   |            |  |      
|                              |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |      
|                              |                                       |           |                |          |          |          | Charged   |          | Charged     |        |        |   |            |  |       |     |    
|                              |                                       |           | Balance at     |          | to Costs |          | to Other  |          |             |        |        |   | Balance at
|                              |                                       |           | Beginning      |          | and      |          | Accounts |          | Deductions |        | End of
|Description                   |                                       | of Period |                | Expenses |          | Describe |           | Describe |             | Period
|                              |                                       |           |                |          |          |          |           |          |             |       
|                              |                                       |           | (In thousands) |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |      
|Year ended December 31, 2001: |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              | Allowance for doubtful accounts       |           | $              | 992      |          |          | $         | (182     | )           |        | $      |  |            |  | $     | 576 | (2) |  | $     | 234 | 
|                              | Allowance for revenue
adjustments (1) |           |                | 275      |          |          |           | 116      |             |        |        |  |            |  |       | 308 | (3) |  |       | 83  | 
|                              |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              |                                       |           | 1,267          |          |          |          | (66       | )        |             |        |       |   |            |  | 884   |     |     |  | 317   |    
|Year ended December 31, 2000: |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              | Allowance for doubtful accounts       |           | $              | 423      |          |          | $         | 1,128    |             |        | $      |  |            |  | $     | 559 | (2) |  | $     | 992 | 
|                              | Allowance for revenue
adjustments (1) |           |                | 192      |          |          |           | 600      |             |        |        |  |            |  |       | 517 | (3) |  |       | 275 | 
|                              |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              |                                       |           | 615            |          |          |          | 1,728     |          |             |        |       |   |            |  | 1,076 |     |     |  | 1,267 |    
|Year ended December 31, 1999: |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              | Allowance for doubtful accounts       |           | $              | 287      |          |          | $         | 233      |             |        | $      |  |            |  | $     | 97  | (2) |  | $     | 423 | 
|                              | Allowance for revenue
adjustments (1) |           |                | 83       |          |          |           | 1,066    |             |        |        |  |            |  |       | 957 | (3) |  |       | 192 | 
|                              |                                       |           |                |          |          |          |           |          |             |        |        |   |            |  |       |     |     |  |       |    
|                              |                                       |           | 370            |          |          |          | 1,299     |          |             |        |       |   |            |  | 1,054 |     |     |  | 615   |    



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|(1) |  | Represents an allowance for adjustments to accounts receivable due to disputed rates, accessorial
charges and other aspects of previously billed shipments.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Uncollectible accounts written off, net of recoveries.                                                                                                     
|   
|(3) |  | Adjustments to billed accounts receivable.                                                                                                                 

S-1



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##### Table of Contents






EXHIBIT INDEX

|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  |                 |      | 
|----------------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | ---- | 
|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  | Exhibit No. in 
|Exhibit No. Under |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  | Document Where 
|Item 601 of       |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  | Incorporated by
|Regulation S-K    |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  | Reference      
|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                        |  |                
|2.1(c)            |  | - |  | Distribution Agreement between the
registrant and Forward Air Corporation                                                                                                                                                                                                                                                              |  |                 | 2.1  | 
|2.2(d)            |  | - |  | Asset Purchase Agreement between
Landair Transport, Inc., Laker Express, Inc.
and Dennis Pressler (Schedules and other
exhibits to this document are omitted from
this filing but the registrant will furnish
supplemental copies of the omitted
materials to the Securities and Exchange
Commission (the Commission) upon
request.) |  |                 | 2.1  | 
|3.1(b)            |  | - |  | Charter of the registrant                                                                                                                                                                                                                                                                                                              |  |                 | 3.1  | 
|3.2(c)            |  | - |  | Bylaws of the registrant                                                                                                                                                                                                                                                                                                               |  |                 | 3.1  | 
|4.1(b)            |  | - |  | Form of Common Stock Certificate                                                                                                                                                                                                                                                                                                       |  |                 | 4.1  | 
|10.1(c)           |  | - |  | Transition Services Agreement between the
registrant and Forward Air Corporation                                                                                                                                                                                                                                                       |  |                 | 10.1 | 
|10.2(c)           |  | - |  | Tax Sharing Agreement between the
registrant and Forward Air Corporation                                                                                                                                                                                                                                                               |  |                 | 10.3 | 
|10.3(e)           |  | - |  | Amended and Restated Stock Option
and Incentive Plan                                                                                                                                                                                                                                                                                   |  |                 | 10.1 | 
|10.4(e)           |  | - |  | Amended and Restated Non-Employee
Director Stock Option Plan                                                                                                                                                                                                                                                                           |  |                 | 10.2 | 
|10.5(b)           |  | - |  | Employee Stock Purchase Plan                                                                                                                                                                                                                                                                                                           |  |                 | 10.6 | 
|10.6(b)           |  | - |  | Cash Incentive Plan                                                                                                                                                                                                                                                                                                                    |  |                 | 10.7 | 
|10.7(c)           |  | - |  | $15.0 million Master Secured Promissory Note
(Line of Credit), dated as of September 10,
1998, to First Tennessee Bank National
Association                                                                                                                                                                                            |  |                 | 10.6 | 





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##### Table of Contents



|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  |                 | 
|----------------- |  | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | --------------- | 
|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  | Exhibit No. in  | 
|Exhibit No. Under |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  | Document Where  | 
|Item 601 of       |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  | Incorporated by | 
|Regulation S-K    |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  | Reference       | 
|                  |  |   |  |                                                                                                                                                                                                                                                                                                                                                          |  |  |                 | 
|10.8(e)           |  | - |  | $3.0 Million Note Secured by Real Estate,
dated March 25, 1999, to First Tennessee Bank
National Association                                                                                                                                                                                                                                             |  |  | 10.5            | 
|10.9(e)           |  | - |  | Guaranty Agreement, dated as of March 25,
1999, by the registrant to First Tennessee
Bank National Association                                                                                                                                                                                                                                           |  |  | 10.6            | 
|10.10(g)          |  | - |  | First Amendment to the Transition Services
Agreement, dated as of February 4, 2000
between Forward Air Corporation and the
registrant                                                                                                                                                                                                                    |  |  | 10.1            | 
|10.11(h)          |  | - |  | First Amendment to the Amended and
Restated Non-Employee Director Stock Option
Plan                                                                                                                                                                                                                                                                      |  |  | 10.1            | 
|10.12(h)          |  | - |  | Stock Purchase Agreement between the
registrant and East Tennessee Foundation,
dated as of June 2, 2000                                                                                                                                                                                                                                                  |  |  | 10.2            | 
|10.13(a)          |  | - |  | Landair Corporation Section 125 Plan                                                                                                                                                                                                                                                                                                                     |  |  |                | 
|10.14(a)          |  | - |  | Dedicated Transportation Agreement
between Sonoco Products Company and
its subsidiaries and affiliates and Landair
Transport, Inc., dated as of August 1, 1999
(Schedules and other exhibits to this
document are omitted from this filing but
the registrant will furnish supplemental
copies of the omitted materials to the
Commission upon request.) |  |  |                | 
|10.15(a)          |  | - |  | Addendum to Dedicated Transportation
Agreement between Sonoco Products Company
and its subsidiaries and affiliates and Landair
Transport, Inc., dated as of August 1, 2001
(The exhibit to this document is omitted
from this filing but the registrant will
furnish supplemental copies of the
omitted material to the Commission upon request.)        |  |  |                | 
|10.16(a)          |  | - |  | Second Amendment to the Transition
Services Agreement, dated as of
December 31, 2001 between Forward Air
Corporation and the registrant                                                                                                                                                                                                                  |  |  |                | 





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##### Table of Contents



|                  |  |   |  |                                |  |  |                 | 
|----------------- |  | - |  | ------------------------------ |  |  | --------------- | 
|                  |  |   |  |                                |  |  | Exhibit No. in  | 
|Exhibit No. Under |  |   |  |                                |  |  | Document Where  | 
|Item 601 of       |  |   |  |                                |  |  | Incorporated by | 
|Regulation S-K    |  |   |  |                                |  |  | Reference       | 
|                  |  |   |  |                                |  |  |                 | 
|21.1(b)           |  | - |  | Subsidiaries of the registrant |  |  | 21.1            | 
|23.1(a)           |  | - |  | Consent of Ernst & Young LLP   |  |  |                | 

(a)  Filed herewith.

(b)  Filed as an exhibit to the registrants Registration Statement on Form 10, filed with the
Commission on July 13, 1998, as amended.

(c)  Filed as an exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1998, filed with the Commission on November 16, 1998.

(d)  Filed as an exhibit to the registrants Form 8-K, filed with the Commission on December
22, 1998.

(e)  Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999, filed with the Commission on May 17, 1999.

(f)  Filed as an exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1999, filed with the Commission on November 15, 1999.

(g)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000, filed with the Commission on May 5, 2000.

(h)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2000, filed with the Commission on August 8, 2000.

(i)  Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2001, filed with the Commission on May 14, 2001.