SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

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

                  For the fiscal year ended December 31, 2001

                                       OR

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

                          Commission file number 1-5083
                               XANSER CORPORATION
             (Exact name of Registrant as specified in its Charter)

        Delaware                                                 74-1191271
----------------------------------------                    -------------------
(State or other jurisdiction of                                 IRS Employer
incorporation or organization)                               Identification No.)

2435 North Central Expressway
   Richardson, Texas                                               75080
----------------------------------------                    --------------------
(Address of principal executive offices)                         (zip code)

       Registrant's telephone number, including area code: (972) 699-4000

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

                                                         Name of each exchange
       Title of each class                                 on which registered
----------------------------------------              --------------------------
Common Stock, Without Par Value                        New York Stock Exchange
8 3/4% Convertible Subordinated                        New York Stock Exchange
    Debentures due 2008

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

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

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of  Regulation  S-K  (Subsection  229.405 of this  chapter) 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.

     Aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant: $76,469,408. This figure is estimated as of March 22, 2002, at which
date the closing  price of the  Registrant's  Common Stock on the New York Stock
Exchange was $2.50 per share,  and assumes that only the  Registrant's  officers
and directors were affiliates of the Registrant.

     Number of shares of Common  Stock,  without  par value,  of the  Registrant
outstanding at March 22, 2002: 33,008,604.


                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K
is filed herewith.


<PAGE>
                                     PART I

Item 1.    Business

GENERAL
-------

     On August 7, 2001, the  stockholders  of Kaneb Services,  Inc.  approved an
amendment to its certificate of  incorporation to change the name of the Company
from Kaneb Services,  Inc. to "Xanser Corporation"  ("Xanser" or the "Company").
Xanser conducts its principal  businesses in two industry segments,  specialized
technical services and information  technology services.  The technical services
and information  technology  services  segments operate through  subsidiaries of
Furmanite  Worldwide,  Inc. and Xtria LLC,  respectively.  Furmanite  Worldwide,
Inc.,   and  its  domestic  and   international   subsidiaries   and  affiliates
(collectively,  "Furmanite"),  provide specialized technical services, including
leak sealing under  pressure,  on-site  machining,  valve testing and repair and
other engineering products and services,  primarily to electric power generating
plants, petroleum refineries and other process industries in the United Kingdom,
Continental  Europe,  North  America,   Latin  America  and  Asia-Pacific.   For
additional  information see "Technical Services." Xtria LLC ("Xtria") is engaged
in the information technology services industry and offers products and services
that, among other functions,  provide consulting  services and computer hardware
to federal and state governmental agencies and private sector customers, provide
consulting services to hospitals and hospital networks implementing telemedicine
systems and enable financial  institutions to monitor the insurance  coverage of
their loan collateral.  For additional  information see "Information  Technology
Services."

     On November 27, 2000, the Board of Directors of the Company  authorized the
distribution of its pipeline,  terminaling and product marketing businesses (the
"Distribution")  to its  stockholders  in the  form of a new  limited  liability
company,  Kaneb  Services  LLC  ("KSL").  KSL now holds the 2%  general  partner
interest and a 25% limited  partner  interest in Kaneb Pipe Line Partners,  L.P.
("KPP")  and  the  Company's   previously   wholly-owned   petroleum   marketing
subsidiary.  On June  29,  2001,  the  Distribution  was  completed,  with  each
shareholder  of the  Company  receiving  one common  share of KSL for each three
shares of the Company's  common stock held on June 20, 2001, the record date for
the  Distribution,  resulting in the  distribution  of 10.85  million KSL common
shares. As a result, the accompanying  consolidated financial statements reflect
the results of  operations  of KSL prior to the  Distribution  as  "Discontinued
operations - businesses distributed to common shareholders".

     Xanser was  incorporated  in Delaware on January 23,  1953.  The  Company's
principal  operating  office  is  located  at  2435  North  Central  Expressway,
Richardson, Texas 75080 and its telephone number is (972) 699-4000.


OPERATING SEGMENTS
------------------

     Financial  information  regarding  the  Company's  operating  segments  and
foreign  operations is presented  under the caption  "Business  Segment Data" in
Note 9 to the Company's consolidated  financial statements.  Such information is
hereby incorporated by reference into this Item 1.


TECHNICAL SERVICES
------------------

     The Furmanite group of companies offers  specialized  technical services to
an  international  base of clients.  Founded in Virginia Beach,  Virginia in the
1920s as a  manufacturer  of leak sealing kits,  Furmanite  Worldwide,  Inc. has
evolved into an  international  service  company  that  provides  technical  and
technology  solutions.  In the  1960s,  Furmanite  expanded  within  the  United
Kingdom,  primarily through its leak sealing products and services,  and, during
the 1970's and 1980's, grew through geographic expansion and the addition of new
techniques, processes and services to become one of the largest leak sealing and
on-site machining companies in the world. The Company acquired Furmanite in 1991
to  diversify  the  Company's   operations  and  pursue   international   growth
opportunities.  For the year ended December 31, 2001,  Furmanite's  revenues and
operating   income  were   approximately   $96.3   million  and  $5.6   million,
respectively.  See "Management's  Discussion and Analysis of Financial Condition
and Results of Operations."


Products and Services

     Furmanite  provides  on-line  repairs of leaks ("leak  sealing") in valves,
pipes and other  components of piping  systems and related  equipment  typically
used in  flow-process  industries.  See "Customers and Markets."  Other services
provided by Furmanite include on-site  machining,  bolting and valve testing and
repair  on such  systems  and  equipment.  These  services  tend  to  complement
Furmanite's leak sealing service,  since these "turnaround services" are usually
performed  while a plant or piping  system is off-line.  In addition,  Furmanite
provides hot tapping,  fugitive emissions  monitoring,  passive fire protection,
concrete repair and heat exchanger  repair.  Furmanite also performs  diagnostic
services on valves and motors by, among other  methods,  utilizing  its patented
Trevitest(R) system and employing proprietary diagnostic equipment under license
from Framatome Technologies. In performing these services, Furmanite technicians
generally work at the customer's location, frequently responding on an emergency
basis.  Over its history,  Furmanite has established a reputation for delivering
quality  service  and  helping  its  customers  avoid or delay  costly  plant or
equipment  shutdowns.  For each of the years ended December 31, 2001,  2000, and
1999,  under  pressure  services  represented  approximately  42%,  42% and 40%,
respectively,  of Furmanite's revenues,  while turnaround services accounted for
approximately  50%,  48% and 45%,  respectively,  and  product  sales  and other
industrial services represented approximately 8%, 10% and 15%, respectively,  of
Furmanite's revenues for each of such years.

     Furmanite's on-line,  leak sealing under pressure services are performed on
a variety of flow-process  industry  machinery,  often in difficult  situations.
Many of Furmanite's  techniques and materials are  proprietary  and/or  patented
and, the Company believes,  provide Furmanite with a competitive  advantage over
other organizations that provide similar services. Furmanite holds approximately
200 patents and trademarks  for its  techniques,  products and materials.  These
patents, which are registered in jurisdictions around the world, expire on dates
ranging from April 2003 to December 2012.  Furmanite's  skilled technicians work
with  equipment  in a manner  designed  to  enhance  safety  and  efficiency  in
temperature  environments ranging from cryogenic to 1,400 degrees Fahrenheit and
pressure  environments  ranging from vacuum to 5,000 pounds per square inch.  In
many circumstances,  Furmanite personnel are called upon to custom-design tools,
equipment or other materials to effect the necessary repairs.  These efforts are
supported  by an  internal  quality  control  group that works with the  on-site
technicians in crafting these materials.

Customers and Markets

     Furmanite's customer base includes petroleum  refineries,  chemical plants,
offshore  energy  production  platforms,  steel mills,  nuclear power  stations,
conventional power stations,  pulp and paper mills, food and beverage processing
plants and other flow-process facilities in more than 25 countries.  Over 80% of
Furmanite's  revenues are derived from fossil and nuclear fuel power  generation
companies,  petroleum refiners and chemical  producers,  while other significant
markets include offshore oil producers and steel manufacturers. As the worldwide
industrial  infrastructure  continues to age,  additional repair and maintenance
expenditures are expected to be required for the specialized  services  provided
by  Furmanite  and  similarly  situated  organizations.  Other  factors that may
influence  the  markets  served  by  Furmanite  include  regulations   governing
construction  of  industrial  plants,  and safety and  environmental  compliance
requirements.  No single customer  accounted for more than 10% of this segment's
consolidated revenue during any of the past three fiscal years.

     Furmanite  believes that it is the most  recognized  brand in its industry.
With its 65-year history,  Furmanite's customer  relationships are long-term and
worldwide.  Furmanite  serves its customers  from its Houston,  Texas  worldwide
headquarters  and  maintains  a  substantial  presence  in the  United  Kingdom,
Continental Europe and Asia-Pacific. Furmanite currently operates North American
offices in the  United  States in Baton  Rouge,  Beaumont,  Charlotte,  Chicago,
Houston,  Merrillville and Salt Lake City.  Furmanite's worldwide operations are
further  supported by offices  currently  located in  Australia  (6  locations),
Belgium,  France,  Germany, Hong Kong, Malaysia,  the Netherlands,  New Zealand,
Norway,  Singapore and the United Kingdom (6 locations) and by licensee,  agency
and/or minority ownership  interest  arrangements in Argentina,  Brazil,  Chile,
Croatia,  Cyprus, Czech Republic,  Egypt, Finland,  Hungary,  India,  Indonesia,
Italy, Japan, Kuwait,  Macedonia,  Poland, Portugal,  Puerto Rico, Saudi Arabia,
Slovak Republic,  Korea, Sweden,  Thailand,  Trinidad,  Ukraine, the United Arab
Emirates and Venezuela.  Sales by major geographic  region for 2001 were 37% for
the United States,  50% for Europe and 13% for  Asia-Pacific.  See "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Note 9 to the Company's consolidated financial statements.

     Furmanite's  leak sealing under pressure and other specialty field services
are marketed  primarily  through direct sales calls on customers by salesmen and
technicians based at Furmanite's various operating locations, which are situated
to  facilitate  timely  customer  response,  24 hours a day,  seven days a week.
Customers  are  usually  billed  on a time  and  materials  basis  for  services
typically  performed  pursuant to either job quotation sheets or purchase orders
issued under written  customer  agreements.  Customer  agreements  are generally
short-term in duration and specify the range of and rates for the services to be
performed.  Furmanite typically provides various limited  warranties,  depending
upon the services furnished,  and has had no material warranty claims during the
three years ended December 31, 2001. Furmanite competes on the basis of service,
product  performance  and price,  generally  on a localized  basis with  smaller
companies and the in-house maintenance departments of its customers or potential
customers.  In addition to staff  reductions  and the trend toward  outsourcing,
Furmanite  believes it currently  has an  advantage  over  in-house  maintenance
departments because of the ability of its  multi-disciplined  technicians to use
Furmanite's  proprietary and patented techniques to perform quality repairs on a
timely basis while customer equipment remains in service.

Safety, Environmental and Other Regulatory Matters

     Many  aspects  of  Furmanite's   operations  are  subject  to  governmental
regulation.  National,  state  and local  authorities  of the U.S.  and  various
foreign countries have each adopted safety,  environmental and other regulations
relating to the use of certain  methods,  practices  and materials in connection
with the  performance of  Furmanite's  services and which  otherwise  affect its
operations.  Further,  because of its  international  operations,  Furmanite  is
subject  to a  number  of  political  and  economic  risks,  including  taxation
policies, labor practices, currency exchange rate fluctuations, foreign exchange
restrictions,  local  political  conditions,  import and export  limitations and
expropriation  of  equipment.  Except in  certain  developing  countries,  where
payment in a specified  currency is required by contract,  Furmanite's  services
are paid,  and its  operations  are  typically  funded,  in the  currency of the
particular country in which its business  activities are conducted.  Furmanite's
operating results were impacted by foreign currency devaluations during the year
ended December 31, 2001. See "Management's  Discussion and Analysis of Financial
Condition and Results of Operations."

     Leak  sealing  under  pressure  and  other  Furmanite  services  are  often
performed in emergency situations under circumstances involving exposure to high
temperatures and pressures,  potential  contact with caustic or toxic materials,
fire and explosion  hazards and  environmental  contamination,  any of which can
cause  serious  personal  injury  or  property  damage.  Furmanite  manages  its
operating risks by providing its technicians with extensive  on-going  classroom
and field  training and  supervision,  maintaining  a technical  support  system
through its staff of specialists,  establishing  and enforcing strict safety and
competency  requirements,  standardizing procedures and evaluating new materials
and techniques for use in connection  with its lines of service.  Furmanite also
maintains  insurance coverage for certain risks,  although there is no assurance
that  insurance  coverage  will  continue to be  available  at rates  considered
reasonable or that the insurance will be adequate to protect the Company against
liability and loss of revenues  resulting from the consequences of a significant
accident.


INFORMATION TECHNOLOGY SERVICES
-------------------------------

     Xtria  provides a suite of  information  technology  services  and  related
products to the U.S.  Government and commercial  sectors.  The segment's primary
business is information technology services - consulting,  design,  development,
integration  and  maintenance - for database  management,  web-based,  wireless,
Health  Insurance  Portability  and  Accountability   ("HIPAA")  compliance  and
telemedicine applications.  Xtria also provides these services in voice and data
networks, and network security systems. For the year ended December 31, 2001 the
information  services segment's revenues and operating income were $48.4 million
and $3.7 million,  respectively.  See  "Management's  Discussion and Analysis of
Financial  Conditions and Results of Operations".  A substantial  portion of the
revenues of this business  segment is attributable to contracts with agencies of
the U.S.  Government.  Xtria manages its  businesses  from its  headquarters  in
Richardson,  Texas, and maintains offices in Bryan, Texas,  Chantilly,  Manassas
and McLean, Virginia, Burlington, Vermont and Frederick, Maryland.


Products and Services

Database Management Services

     Xtria provides  comprehensive database management services to the financial
industry and to the U.S.  Government sector.  These services include consulting,
design, development and integration of database management applications, as well
as database monitoring and customized reporting.

     Xtria  developed  and  licenses  a  database  management   application  for
financial  institutions,  primarily  community banks.  The application  supports
internal  accounting;  tracking,  monitoring,  analyzing and managing  loans and
deposits;  and other  banking  functions.  Xtria also  developed  and licenses a
professional  lending  system to loan  companies,  and an automated  contingency
planning system for disaster  recovery to commercial banks.  These  applications
are  licensed on a per-user  basis  annually.  Xtria has expanded its market for
similar  data  management  applications  and services to the  equipment  leasing
industry.

     In addition to its software  applications,  Xtria  provides a full suite of
services  to  the  financial  industry,   including   consultation  on  database
requirements,  development  of  applications  and  systems,  as well as  ongoing
maintenance,  reporting and support. Xtria charges monthly fees to its customers
for these services. As part of its services offering,  Xtria monitors, on behalf
of its customers,  the status of insurance  coverage on  automobiles  pledged as
loan  collateral and flood  insurance on homes.  It  coordinates  communications
among financial  institutions,  insurance  companies and borrowers regarding the
status  of  insurance  coverage  protecting  the  financial  institution's  loan
collateral.  Xtria uses its own software to cross-collate databases and generate
reports  for lenders  and  insurance  companies,  charging  monthly  fees to its
customers.  Some  customers  also pay fees to Xtria in instances  where  Xtria's
services  result  in the  issuance  of an  insurance  policy to  replace  lapsed
coverage.  Xtria believes that the market for these services is fragmented among
a number of small competitors,  and that competition in this market is primarily
based upon the quality of the service provided.

     In  the  U.S.   Government  sector,   Xtria  provides  database  management
applications and services for the Head Start program of the Department of Health
and Human  Services.  Xtria  contracts  for these  services on renewable  annual
contracts, with pricing based principally on its General Services Administration
Schedule ("GSA Schedule").

Web-related Services

     Xtria  provides  a full suite of  web-related  services  to its  customers,
including web site design, development and maintenance, e-commerce applications,
network engineering, and other web-enabled application development.  Web-enabled
applications  developed by Xtria  include  field  research and program  analysis
tools, shared statistical analysis tools, and logistics coordination tools.

     Xtria's   web-related   services  are  provided  through  renewable  annual
contracts  to the  U.S.  Department  of  Health  and  Human  Services,  the U.S.
Department of Commerce and a number of commercial  accounts.  Xtria  competes on
the basis of its expertise and its knowledge of customers' needs.

     The Company  believes  that the  capabilities  Xtria offers in  web-related
services  with  large  database   components  offer  opportunities  for  further
expanding its market. For example,  during 2001 Xtria provided these services to
the state of  California's  Department  of  Education  to  improve  the means of
delivering information to the U.S. Department of Health and Human Services. This
contract resulted from Xtria's reputation for performance with the Department of
Health and Human  Services,  as well as the  significant  previous  efficiencies
gained by states' use of the same web-enabled  platform as the Federal agency to
which data is delivered.

Telemedicine Services

     Xtria  provides  full  customer  life cycle  support  (consulting,  design,
implementation  training  and  maintenance)  to  medical  facilities  of digital
imaging systems,  known as Picture Archival and Communication  Systems ("PACS").
PACS are used in connection  with digitally  recorded  images,  such as magnetic
resonance imaging,  computer  tomography scans,  ultrasounds and digital x-rays,
among  others.   Xtria  provides   technical  support  at  every  stage  of  the
implementation  of  a  PACS  by  a  medical  facility,  including  planning  and
feasibility studies,  workflow design,  specification  development,  procurement
assistance,  on-site technical supervision of PACS installers, quality assurance
and acceptance testing.  Xtria also assists the medical facilities with warranty
and service issues that may arise with the  manufacturer of the PACS components.
Xtria  personnel  who  perform  the  consulting   services  are  highly  trained
electrical, biomedical, and clinical engineers.

     Xtria  has also  developed  a  wireless  Local  Area  Network  device,  the
LAN2GoTM,  which was developed initially for a military application but has been
successfully deployed in the first wireless clinical teleradiology solution, for
the radiology department of Texas Tech University in El Paso, Texas. This system
delivers  wireless  connectivity  between a hospital  emergency  department  and
radiology  workstations  located  elsewhere  in the hospital and off-site at the
academic facility.  The solution provides  high-speed,  highly secure encryption
and wireless transmission of diagnostic quality images, allowing radiologists in
separate  facilities to read images and provide  diagnoses.  Xtria believes this
solution has market  potential  beyond the medical industry that could extend to
education, training and other government security applications.

     Xtria  was  selected  in  2001,  by the  Lahey  Clinic  Medical  Center  of
Burlington,  Massachusetts  for  the  design,  implementation,  integration  and
support of a complete  digital imaging and  telemedicine  solution,  including a
PACS. Xtria Healthcare Services division has integrated PACS with Lahey Clinic's
Radiology  Information  System  (RIS) and Hospital  Information  System (HIS) to
present  digital  radiology  images,   administrative  and  patient  information
directly to staff workstations.  This endeavor will dramatically improve patient
care and efficiency, as well as increase the clinical and financial contribution
of the radiology department to the Lahey Clinic.

     Xtria's deployment of the first phase of this PACS system has allowed Lahey
Clinic  physicians to  accelerate  patient care.  The  integrated  communication
network has enabled physicians to share studies and results electronically while
the digital  imaging  technologies  is projected to increase the  throughput  of
imaging studies by 200 to 300 percent.  The system also allows information to be
shared between the Lahey Clinic  facility and  international  locations  through
secure web-based and dedicated wide area connections as the project  progresses.
Beyond the  benefits  to  patients  and  medical  staff,  the system has greatly
reduced the costs associated with  traditional,  film-based  radiology  imaging,
which requires processing, storing and distributing images in film libraries.

     Xtria also performs work for PACS providers,  such as General  Electric and
Phillips,  in connection  with the sale and  installation  of PACS,  and for end
users of the systems.  Xtria's  principal  customer in the PACS consulting field
has been the  Department  of  Defense,  with whom  Xtria  contracted  to provide
consulting  services for eleven hospitals,  with Brooke Army Medical Center, San
Antonio, Texas, as the hub. Xtria also provides these services to other military
hospitals and to major teaching hospitals.

Voice and Data Network Services

     Xtria provides an end-to-end  network services solution for voice and data,
both  wireline  and  wireless,  that  includes  consulting  services,  specially
configured  computers,  system security and related  networking  equipment.  Its
principal  network services  customers are commercial  customers and agencies of
the U.S. Department of Justice,  which it serves through teaming agreements on a
contract basis. The contract is renewable annually by the Department of Justice.
Under this contract,  Xtria also provides installation and replacement services,
training,  software  and hardware  security  systems to the  agencies.  Hardware
components   provided   under   this   contract   are   fully   compatible   and
interchangeable, permitting routine upgrades and swaps.


ENVIRONMENTAL CONTROLS
----------------------

     Many of the Company's  operations are subject to national,  state and local
laws and  regulations  relating to protection of the  environment.  Although the
Company  believes that its operations are in general  compliance with applicable
environmental regulation, risks of additional costs and liabilities are inherent
in its  operations,  and there can be no assurance  that  significant  costs and
liabilities will not be incurred by the Company.  Moreover,  it is possible that
other  developments,   such  as  increasingly   stringent   environmental  laws,
regulations, enforcement policies thereunder, and claims for damages to property
or  persons  resulting  from the  operations  of the  Company  could  result  in
substantial   costs  and   liabilities.   See  "Technical   Services  -  Safety,
Environmental and Other Regulatory Matters."

EMPLOYEES
---------

     At December  31, 2001,  the  continuing  operations  of the Company and its
subsidiaries employed 1,201 persons. The Furmanite group of companies employed a
total of 924  persons,  and 257  persons  were  employed  by the Xtria  group of
companies. As of December 31, 2001, approximately 397 of the persons employed by
Furmanite were subject to representation by unions or other similar associations
for  collective  bargaining or other similar  purposes;  however,  there were no
significant  collective  bargaining  or other  similar  contracts  covering  the
Furmanite employees in effect at that date.


Item 2.    Properties

     The properties  owned or utilized by the Company and its  subsidiaries  are
generally described in Item 1 of this Report.  Additional information concerning
the  obligations  of the  Company  and its  subsidiaries  for lease  and  rental
commitments is presented under the caption  "Commitments and  Contingencies"  in
Note 8 to the Company's consolidated financial statements. Such descriptions and
information are hereby incorporated by reference into this Item 2.

     The Company's  corporate  headquarters  is located in an office building in
Richardson,  Texas,  pursuant to a lease  agreement  that  expires in 2007.  The
facilities  used in the operations of the Company's  subsidiaries  are generally
held under lease agreements having various  expiration  dates,  rental rates and
other terms, except for two Furmanite  properties located in the United Kingdom,
which are owned in fee.


Item 3.    Legal Proceedings

     The Company was the Plaintiff in a legal proceeding  involving  malpractice
issues with a professional service provider previously used by the Company. This
matter was settled in December 2001 with a payment to the Company which,  net of
expenses,  totaled $6.0 million and is included in other income (expense) in the
accompanying 2001 consolidated statement of income.


Item 4.    Submission of Matters to a Vote of Security Holders

     The Company did not hold a meeting of stockholders or otherwise  submit any
matter to a vote of stockholders in the fourth quarter of 2001.


                                     PART II

Item 5.    Market for the Registrant's Common Equity and Related Stockholder
           Matters

     Shares of the Company Common Stock are listed and traded principally on the
New  York  Stock  Exchange  ("NYSE"),   under  the  symbol  XNR.  Prior  to  the
Distribution  of KSL on June 29, 2001, the Company's  Common Stock was traded on
the NYSE under the symbol KAB. At March 22, 2002, there were approximately 4,000
holders of Common  Stock of record.  The  following  table sets  forth,  for the
fiscal periods indicated,  the quoted high and low sales prices of the shares on
the New York Stock Exchange.

<TABLE>
<CAPTION>
                                                        Quoted Stock Prices          Quoted Stock Prices
                                                              for KAB                      for XNR
                                                      -----------------------      -----------------------
              Calendar Year                           High                Low      High                Low
                                                      -----             -----      -----             -----
<S>           <C>                                     <C>               <C>        <C>               <C>
              2000:
                First Quarter                         $5.88             $4.31      NA                NA
                Second Quarter                         6.75              4.00      NA                NA
                Third Quarter                          4.88              4.00      NA                NA
                Fourth Quarter                         6.00              4.44      NA                NA

              2001:
                First Quarter                          6.50              5.69      NA                NA
                Second Quarter                         7.75              5.56      NA                NA
                Third Quarter                          NA                NA        $3.13             $1.88
                Fourth Quarter                         NA                NA         2.25              1.81

              2002:
                First Quarter                          NA                NA         2.60              1.95
                  (through March 22, 2002)

              NA - Not Applicable
</TABLE>


     The Company currently intends to retain future earnings for the development
of its  business  and does not  anticipate  paying cash  dividends on its Common
Stock in the  foreseeable  future.  The  Company's  dividend  policy is reviewed
periodically  and  determined  by its Board of Directors on the basis of various
factors,  including,  but not limited to, its results of  operations,  financial
condition, capital requirements and investment opportunities.  Additionally, the
credit facilities for the working capital of Furmanite  contain  restrictions on
the respective  subsidiary's  ability to pay dividends or  distributions  to the
Company, if an event of default exists.


Item 6.    Summary Historical Financial Data

     The  following  selected  financial  data (in  thousands,  except per share
amounts) is derived from the Company's  consolidated  financial  statements  and
should be read in conjunction  with the  consolidated  financial  statements and
related notes thereto included elsewhere in this report. As a result of the June
2001 Distribution of KSL (See Note 1 to the Consolidated  Financial Statements),
the Company's pipeline,  terminaling and product marketing  businesses have been
reclassified  as  "Discontinued  operations - businesses  distributed  to common
shareholders" for all periods presented. The Company has not declared a dividend
on its Common Stock for any of the periods presented.
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                           -----------------------------------------------------------------------
                                              2001          2000           1999            1998           1997
                                           ----------     ---------      ----------     ----------      ----------

<S>                                        <C>            <C>            <C>            <C>             <C>
Income Statement Data:
Revenues............................       $  144,704     $ 127,641      $  135,433     $  135,825      $  115,780
                                           ==========     =========      ==========     ==========      ==========
Operating income (loss).............       $    5,429         4,102      $   (4,566)    $    3,335      $    3,361
                                           ==========     =========      ==========     ==========      ==========
Income (loss) from continuing
   operations before income taxes...       $    9,349     $     889     $    (8,057)    $     (791)     $   (1,534)
Income tax benefit (expense)........           13,039         5,894          38,507           (473)         (1,191)
                                           ----------     ---------      ----------     ----------      ----------
Income (loss) from continuing
   operations.......................           22,388         6,783          30,450         (1,264)         (2,725)
Income from discontinued operations -
   businesses distributed to
   common shareholders..............            3,337        10,386          28,459         14,840          13,368
                                           ----------     ---------      ----------     ----------      ----------
Net income..........................       $   25,725     $  17,169      $   58,909     $   13,576      $   10,643
                                           ==========     =========      ==========     ==========      ==========
Per Share Data:
Earnings (loss) per common share:
   Basic:
     Continuing operations..........       $      .68     $     .20      $      .95     $     (.06)     $     (.10)
     Discontinued operations........              .10           .33             .91            .47             .41
                                           ----------     ---------      ----------     ----------      ----------
        Total.......................       $      .78     $     .53      $     1.86     $      .41      $      .31
                                           ==========     =========      ==========     ==========      ==========
   Diluted:
     Continuing operations..........       $      .64     $     .19      $      .92     $     (.06)     $     (.10)
     Discontinued operations........              .10           .31             .87            .47             .41
                                           ----------     ---------      ----------     ----------      ----------
        Total.......................       $      .74     $     .50      $     1.79     $      .41      $      .31
                                           ==========     =========      ==========     ==========      ==========
Balance Sheet Data:
Cash and cash equivalents...........       $   29,545     $  20,517      $   14,516     $    7,264      $   15,626
Working capital.....................           71,789        81,185          42,191         18,709          24,796
Total assets........................          186,219       226,643         219,540        158,796         151,866
Long-term debt......................           37,801        39,593          44,223         43,958          48,934
Stockholders' equity................          115,506       166,039         144,803         87,445          78,447

</TABLE>


<PAGE>


Item 7.    Management's Discussion and Analysis of Financial Condition and
           Results of Operations

     This  discussion  should  be  read in  conjunction  with  the  consolidated
financial statements of the Company and notes thereto included elsewhere in this
report.


GENERAL
-------

     On November 27, 2000, the Board of Directors of the Company  authorized the
distribution of its pipeline,  terminaling and product marketing businesses (the
"Distribution")  to its  stockholders  in the  form of a new  limited  liability
company,  Kaneb  Services  LLC  ("KSL").  KSL now holds the 2%  general  partner
interest and a 25% limited  partner  interest in Kaneb Pipe Line Partners,  L.P.
("KPP")  and  the  Company's   previously   wholly-owned   petroleum   marketing
subsidiary.  On June  29,  2001,  the  Distribution  was  completed,  with  each
shareholder  of the  Company  receiving  one common  share of KSL for each three
shares of the Company's  common stock held on June 20, 2001, the record date for
the  Distribution,  resulting in the  distribution  of 10.85  million KSL common
shares. As a result of the Distribution, the Company's pipeline, terminaling and
product marketing businesses have been reclassified as "Discontinued  operations
- businesses distributed to common shareholders" for all periods presented.

     The Company's  continuing  operations  are  conducted  through two business
segments, specialized technical services and information technology services.


CONSOLIDATED RESULTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                              --------------------------------------------
                                                                 2001             2000            1999
                                                              -----------     -----------      -----------
                                                                             (in thousands)

<S>                                                           <C>             <C>              <C>
Revenues..................................................    $   144,704     $   127,641      $  135,433
                                                              ===========     ===========      ==========
Operating income..........................................    $     5,429     $     4,102      $   (4,566)
                                                              ===========     ===========      ==========
Income from continuing operations before income taxes.....    $     9,349     $       889      $   (8,057)
                                                              ===========     ===========      ==========

Net income:
   Continuing operations..................................    $    22,388     $     6,783      $   30,450
   Discontinued operations - businesses
     distributed to common shareholders...................          3,337          10,386          28,459
                                                              -----------     -----------      ----------
      Net income  ........................................    $    25,725     $    17,169      $   58,909
                                                              ===========     ===========      ==========
Capital expenditures from continuing operations,
   excluding acquisitions.................................    $     4,625     $     2,690      $    2,719
                                                              ===========     ===========      ==========
</TABLE>


     For the year ended December 31, 2001,  revenues increased by $17.1 million,
or 13%, when compared to 2000, due to a $12.9 million  increase in revenues from
the  information  technology  services  business and a $4.2 million  increase in
revenues from the technical  services  business.  Operating  income increased by
$1.3 million,  or 32%, in 2001, compared to 2000, due to a $2.5 million decrease
in general and administrative  expenses due to lower costs in the second half of
the year as a result of the  Distribution  and a non-cash charge of $1.4 million
in 2000 for increases in the  estimated  redemption  value of a preferred  stock
series,  partially  offset by a $0.7  million  decrease  in  technical  services
operating income and a $0.5 million decrease in information  technology services
operating income.

     Income from  continuing  operations  before income taxes  increased by $8.5
million in 2001,  compared to 2000,  due to the  recognition  of $6.0 million of
other income, net of expenses, from the resolution of a legal proceeding in 2001
and the $2.5 million  decrease in general and  administrative  expenses.  Income
from  continuing  operations  was $22.4 million for the year ended  December 31,
2001 and  includes  $18.1  million in income  tax  benefits  resulting  from the
recapitalization of a foreign subsidiary.

     For the year ended December 31, 2000,  revenues decreased $7.8 million,  or
6%, when compared to 1999,  due to a $5.9 million  decrease in revenues from the
technical  services  business and a $1.9 million  decrease in revenues  from the
information  technology  services  business.  Operating income increased by $8.7
million in 2000,  compared to 1999,  due to an increase  in  technical  services
operating  income of $6.6  million and a decrease in general and  administrative
expenses  of $3.5  million due to lower  non-cash  expenses  resulting  from the
estimated  redemption  value of a preferred stock series,  partially offset by a
$1.4 million decrease in information technology operating income.

     Income from  continuing  operations  before  income  taxes  increased  $8.9
million for the year ended  December  31,  2000,  compared  to 1999,  due to the
increase in operating income. Income from continuing operations was $6.8 million
for the year ended  December  31,  2000 and  includes  $6.3  million in expected
benefits from prior years' tax losses (change in valuation  allowance)  that are
available to offset  future  taxable  income (See "Income  Taxes").  Income from
discontinued   operations  -  businesses   distributed  to  common  shareholders
decreased by $18.1  million for the year ended  December  31, 2000,  compared to
1999,  which  includes a gain on sale of units by KPP of $10.4  million,  net of
deferred income taxes.


TECHNICAL SERVICES
------------------

     The  Company's   technical  services  business  is  conducted  through  its
Furmanite  group  of  subsidiaries.  Furmanite  provides  specialized  services,
including  leak sealing under  pressure,  on-site  machining,  safety and relief
valve  testing  and repair,  passive  fire  protection  and  fugitive  emissions
inspections to the process, power and heavy industries worldwide.

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              ----------------------------------------
                                                                2001            2000           1999
                                                              ---------      ---------       ---------
                                                                           (in thousands)

<S>                                                           <C>            <C>             <C>
  Revenues:
     United States........................................    $  35,788      $  31,743       $ 29,787
     Europe...............................................       48,554         50,446         57,258
     Asia-Pacific.........................................       11,979          9,953         11,030
                                                              ---------      ---------       --------
                                                              $  96,321      $  92,142       $ 98,075
                                                              =========      =========       ========
  Operating income:
     United States........................................    $   1,306      $   1,624       $    972
     Europe...............................................        7,011          6,997          3,292
     Asia-Pacific.........................................          879            862            557
     Headquarters.........................................       (3,615)        (3,163)        (3,225)
                                                              ---------      ---------       --------
                                                                  5,581          6,320          1,596
     Severance and other costs............................         -               -           (1,851)
                                                              ---------      ---------       --------
                                                              $   5,581      $   6,320       $   (255)
                                                              =========      =========       ========
  Capital expenditures, excluding acquisitions............    $   3,331      $   2,160       $  2,328
                                                              =========      =========       ========
</TABLE>


     For the year ended December 31, 2001, technical services revenues increased
by $4.2  million,  or 5%,  compared  to 2000.  In the  United  States,  revenues
increased  by $4.1  million,  or 13%,  compared  to 2000,  due to  increases  in
turnaround  and leak sealing  services.  In Europe,  revenues  decreased by $1.9
million,  or 4%, compared to 2000, due to foreign currency exchange  differences
and lower  levels of fire  protection  services in the United  Kingdom.  In Asia
Pacific,  revenues  increased by $2.0 million,  or 20%, compared to 2000, due to
increases in  turnaround  services in Australia  and  Singapore and increases in
product sales in Australia.  Overall,  2001 operating  income  decreased by $0.7
million in 2001,  compared to 2000, due to slightly lower  operating  margins in
the United  States and increases in general and  administrative  expenses due to
planned investments in management, marketing and product development costs.

     For the year ended  December 31, 2000,  Furmanite's  revenues  decreased by
$5.9 million,  or 6%, when compared to 1999,  primarily due to  devaluations  in
foreign currencies and an overall weak market for technical services  worldwide.
In the United  States,  revenues  increased  by $2.0  million,  or 7%, due to an
increased level of turnaround  services.  In Europe,  revenues decreased by $6.8
million,  or 12%, due primarily to the  devaluations  of foreign  currencies and
decreases in demand for turnaround and other  technical  services in Continental
Europe,  which more than offset increased business levels in the United Kingdom.
The 2000 decrease of $1.1 million, or 10%, in Asia-Pacific revenues is primarily
due to devaluations in foreign currencies and, to a lesser extent,  decreases in
turnaround and other services provided.  Overall,  Furmanite's operating income,
before severance and other costs,  increased by $4.7 million,  or 296%, in 2000,
compared to 1999, due to improved general market conditions in the United States
and overall  operation  efficiencies  realized as a result of  streamlining  the
segment's  workforce  in 1999 to  match  the  market  conditions  in each of the
operating  regions.  These improvements were partially offset by devaluations in
foreign currencies.


INFORMATION TECHNOLOGY SERVICES
-------------------------------

     The information  technology  services group provides  knowledge  management
services to the  commercial  (financial  and insurance ),  government  (federal,
state, county and local) and healthcare sectors. The group focuses on evaluating
customer's people (employees and customers), processes and technology to develop
solutions  that helps them achieve  better  outcomes  and results.  Services are
tailored to the specific needs of the customers and include consulting,  design,
development,  integration  of third party  hardware,  maintenance,  training and
customer  service  of custom  technology  solutions.
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              ----------------------------------------
                                                                2001            2000           1999
                                                              ---------      ---------       ---------
                                                                           (in thousands)

<S>                                                           <C>            <C>             <C>

  Revenues................................................    $  48,383      $  35,499        $37,358
                                                              =========      =========        =======
  Operating income........................................    $   3,651      $   4,134        $ 5,496
                                                              =========      =========        =======
  Capital expenditures, excluding acquisitions............    $   1,294      $     530        $   391
                                                              =========      =========        =======
</TABLE>

     In November 2000, the Company, through a wholly-owned subsidiary,  acquired
Double Eagle Communications and Cabling, Inc. ("Double Eagle").  Double Eagle is
a full service provider of voice and data cabling and network support  services.
On March 23, 1999, the Company, through a wholly-owned subsidiary,  acquired the
capital stock of Ellsworth Associates,  Inc.  ("Ellsworth").  Ellsworth provides
information technology services, including network, database and systems design,
and application programming, primarily to government agencies.

     For the year ended December 31, 2001,  revenues increased by $12.9 million,
or 36%,  compared to 2000,  due to increases in service  revenues and the Double
Eagle  acquisition.  2001 operating  income  decreased by $0.5 million,  or 12%,
compared to 2000,  as  increases  in services  operating  results were more than
offset by planned  investments in management,  marketing and product development
costs.

     For the year ended December 31, 2000,  revenues decreased $1.9 million,  or
5%, and operating income decreased $1.4 million,  or 25%, when compared to 1999.
Increases  in services  revenues  were more than offset by declines in equipment
sales.  Revenues  from  equipment  sales,  furnished  at the request of selected
customers,  declined in 2000,  compared to 1999, due to fluctuations in customer
needs.


INCOME TAXES
------------

     For the year ended  December 31, 2001,  income from  continuing  operations
includes   $18.1   million   in  income   tax   benefits   resulting   from  the
recapitalization  of a foreign  subsidiary.  Additionally,  income taxes for the
years ended December 31, 2001,  2000 and 1999 include  benefits of $0.6 million,
$1.1 million and $1.6 million,  respectively,  related to favorable developments
pertaining to certain state and foreign income tax issues.

     For the years  ended  December  31, 2000 and 1999,  the Company  recognized
expected  benefits from prior years' tax losses (change in valuation  allowance)
that were  available to offset future  taxable  income of $6.3 million and $37.1
million,  respectively.  The Company reduced the valuation allowance as a result
of its  reevaluation  of the  realizability  of income tax benefits  from future
operations.  The Company considered  positive evidence,  including the effect of
the  Distribution,  recent  historical  levels of taxable income,  the scheduled
reversal of deferred tax liabilities, tax planning strategies, revised estimates
of future  taxable income  growth,  and  expiration  periods of NOLs among other
things, in making this evaluation and concluding that it is more likely than not
that the Company will  realize the benefit of its net deferred tax assets.  Upon
completion of the  Distribution,  all remaining  deferred tax assets relating to
previously recorded net operating loss carryforwards ($38.8 million), which were
utilized to offset federal income taxes  resulting from the  Distribution,  were
charged directly to stockholders' equity.


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

     Cash  provided by (used in) operating  activities of continuing  operations
was $3.1 million,  $8.8 million and $(4.9) million  during the years 2001,  2000
and  1999,  respectively.  The  decrease  in 2001,  compared  to  2000,  was due
primarily  to  increases  in  working  capital   requirements  in  the  expanded
information  technology  services  business.  The increase in 2000,  compared to
1999, was due primarily to improvements in the technical  services  business and
normal fluctuations in working capital accounts.

     At  December  31,  2001,  $16.3  million  was  outstanding  under a  credit
facility,  as amended,  that provides working capital for the Technical Services
group. The credit facility,  which is without recourse to the parent company, is
due in April  2003,  bears  interest  at the option of the  borrower at variable
rates  (4.52% at December  31, 2001) based on either the LIBOR rate or the prime
rate plus a differential of up to 150 basis points,  contains certain  financial
and  operational  covenants  with  respect to the  technical  services  group of
companies,  and restricts the  subsidiary  from paying  dividends to the Company
under certain circumstances.

     The Company's 8.75% subordinated  debentures ($21.4 million  outstanding at
December 31, 2001) are convertible  into shares of the Company's common stock at
the conversion price, adjusted in 2001 for the Distribution of KSL, of $5.26 per
share.  On March 1, 2002, the Company  purchased  $10.0 million of  subordinated
debentures at par value,  which satisfies its sinking fund requirements on these
subordinated debentures through 2007.

     Annual sinking fund requirements and debt maturities on consolidated  debt,
including  capital leases,  are as follows:  $2.2 million;  $18.9 million;  $2.3
million;  $2.1  million;  and $2.1 million,  respectively,  for each of the five
years ending December 31, 2006.

     Consolidated capital expenditures for 2002 have been budgeted at $3 million
to $5  million,  depending  on the  economic  environment  and the  needs of the
business.  Capital expenditures (excluding acquisitions) in 2001 are expected to
be funded from existing cash and anticipated cash flows from operations.

     Pursuant to the  Distribution,  the Company  entered into an agreement (the
"Distribution  Agreement") with KSL, whereby, KSL will pay the Company an amount
equal  to  the  expenses   incurred  by  the  Company  in  connection  with  the
Distribution.  These  expenses  include  approximately  $6.1  million  in  costs
incurred in connection  with the redemption of the Company's  Series A Preferred
Stock  and  approximately  $2.1  million  in legal  and  professional  and other
expenses incurred in connection with the  Distribution.  The distribution of KSL
common shares is taxable to the Company,  which will recognize taxable income to
the extent of the excess of the value of KSL's common  shares  distributed  over
the tax basis of KSL's assets in the hands of the Company.  The Company will use
all of its  available net operating  loss  carryforwards  to reduce that taxable
income,  but the total  amount of taxable  income is expected to exceed such net
operating loss  carryforwards,  and the Distribution  Agreement obligates KSL to
pay the  Company  amounts  calculated  based on  whatever  tax is due on the net
amount of income.  The Company  cannot  currently  determine  exactly  what this
amount will be and what the tax will be, but the Company  estimates that the tax
will approximate $14.6 million, after utilization of all available net operating
loss carryforwards and $4.4 million of alternative minimum tax credits. Included
in receivable from businesses distributed to common shareholders at December 31,
2001 is $14.7 million for such costs and expenses.  The  Distribution  Agreement
also  requires KSL to pay the Company an amount  calculated  based on any income
tax liability of the Company that, in the sole judgement of the Company,  (i) is
attributable  to  increases  in  income  tax  from  past  years  arising  out of
adjustments  required by Federal and state tax  authorities,  to the extent that
such increases are properly allocable to the businesses that became part of KSL,
or (ii) is  attributable  to the  distribution  of KSL's  common  shares and the
operations of KSL's  businesses in the current year and the preceding  years. In
the event of an examination of the Company by Federal or state tax  authorities,
the Company will have unfettered  control over the  examination,  administrative
appeal, settlement or litigation that may be involved,  notwithstanding that KSL
has agreed to pay any additional tax.

     On March 30, 2001, the Company's  Series A Preferred Stock was redeemed for
cash at the stated redemption price of $10.67 per share, plus accrued and unpaid
dividends,  for a total cost of approximately $6.1 million.  The redemption cost
included a $0.4 million  redemption  premium,  which was recognized as dividends
and redemption premium applicable to preferred stock in 2001.  Additionally,  on
June 12, 2001, the Company exchanged, in non-cash transactions, 1,356,777 shares
of the Company's  common stock for all Series C Preferred and Series F Preferred
shares outstanding.

     Additional information related to the sources and uses of cash is presented
in the financial statements included in this report.


CRITICAL ACCOUNTING POLICY
--------------------------

     The carrying  value of the Company's  excess of cost over fair value of net
assets of acquired  businesses  is  periodically  evaluated  using  management's
estimates  of  undiscounted  future  cash flows as the basis of  determining  if
impairment  exists under the  provisions  of  Statement of Financial  Accounting
Standards ("SFAS") No. 121,  "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived  Assets to be Disposed Of". To the extent that  impairment is
indicated to exist, an impairment loss is recognized under SFAS No. 121 based on
fair value.  The  application of SFAS No. 121 did not have a material  impact on
the results of operations of the Company for the years ended  December 31, 2001,
2000 or 1999.  Effective  January 1, 2002, the Company will adopt the provisions
of SFAS No. 142 (see "Recent Accounting Pronouncements").


RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------

     In July of 2001,  the  Financial  Accounting  Standards  Board (the "FASB")
issued SFAS No. 141 "Business  Combinations",  which  requires that all business
combinations  initiated  after June 30, 2001 be accounted for under the purchase
method of  accounting.  SFAS No. 141 also  specifies  the criteria for recording
intangible assets other than goodwill in a business combination.

     Additionally,  in July of 2001,  the FASB issued SFAS No. 142 "Goodwill and
Other Intangible Assets", which requires that goodwill no longer be amortized to
earnings,  but  instead be reviewed  for  impairment.  The Company is  currently
assessing the impact of SFAS No. 142, which must be adopted in the first quarter
of 2002.

     Also,  the FASB  issued  SFAS No.  143  "Accounting  for  Asset  Retirement
Obligations",   which  establishes   requirements  for  the  removal-type  costs
associated with asset retirements. The Company is currently assessing the impact
of SFAS No. 143, which must be adopted in the first quarter of 2003.

     On October 3, 2001,  the FASB  issued  SFAS No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets",   which  addresses  financial
accounting  and reporting for the  impairment or disposal of long-lived  assets.
SFAS No. 144,  which  supercedes  SFAS No. 121, is  effective  for fiscal  years
beginning  after December 15, 2001 and interim periods within those fiscal years
with earlier  application  encouraged.  The Company is currently  assessing  the
impact on its financial statements.


Item 7(a). Quantitative and Qualitative Disclosure About Market Risk

     The principal market risks (i.e., the risk of loss arising from the adverse
changes in market rates and prices) to which the Company is exposed are interest
rates on the Company's debt and  investment  portfolios.  The Company  centrally
manages its debt and investment portfolios considering investment  opportunities
and risks,  tax  consequences and overall  financing  strategies.  The Company's
investment  portfolio  consists of cash equivalents;  accordingly,  the carrying
amounts  approximate fair value.  The Company's  investments are not material to
the financial  position or  performance of the Company.  Assuming  variable rate
debt of $16.3  million at December 31, 2001, a one percent  increase in interest
rates would increase interest expense by approximately $0.2 million.


Item 8.    Financial Statements and Supplementary Data

     The consolidated financial statements and supplementary data of the Company
begin on page F-1 of this report.  Such  information is hereby  incorporated  by
reference into this Item 8.


Item 9.    Changes in and Disagreements with Accountants on Accounting and
           Financial Disclosure

     None.



<PAGE>
                                    PART III

Item 10.   Directors and Executive Officers of the Registrant.

BOARD OF DIRECTORS
------------------

     The following table sets forth:  (i) the name and age of each member of the
Board of  Directors  for the  Company;  (ii) the  principal  occupation  of such
person;  (iii) the year  during  which such  person  first  became a Director of
Xanser; and (iv) the number of shares of Company Common Stock beneficially owned
by such person as of March 22, 2002.

<TABLE>
<CAPTION>
                                                                                   Shares of Common       Percent
                                                            Year First           Stock Beneficially       of Out-
                                                             Became a                 Owned at           standing
      Name               Principal Occupation                Director     Age     March 22, 2002(1)       Shares
-------------------      -------------------------------   -------------  ---    -------------------     ---------
<S>                      <C>                                   <C>        <C>         <C>                  <C>
John R. Barnes           Chairman of the Board,                1986       57          1,419,320(8)         4.30%
                         President and Chief Executive
                         Officer (2)

Sangwoo Ahn              Founding Partner of Morgan            1989       63            281,669              *
                         Lewis Githens & Ahn, an
                         investment banking firm (3)

Frank M. Burke, Jr.      Chairman and Managing General         1997       62            149,219              *
                         Partner of Burke, Mayborn
                         Company, Ltd., a private
                         investment company (4)

Charles R. Cox           Chairman of the Board and             1995       59            168,437              *
                         Chief Executive Officer of
                         WRS Infrastructure and
                         Environment, Inc., a
                         technical services company (5)

Hans Kessler             Chairman and Managing Director        1998       52             81,579              *
                         of KMB Kessler + Partner GmbH,
                         a private management consulting
                         company (6)

James R. Whatley         Investments (7)                       1956       75            174,933              *
*Less than one percent.
</TABLE>

(1)  Shares listed include those beneficially owned by the person indicated, his
     spouse or children living at home, as well as those shares that such person
     has the right to acquire  beneficial  ownership  of within 60 days of March
     22, 2002.
(2)  Mr.  Barnes also serves as a director of Kaneb  Services LLC and Kaneb Pipe
     Line Company LLC.
(3)  Mr.  Ahn, a  founding  partner of Morgan  Lewis  Githens & Ahn since  1982,
     currently  serves as a  director  of Kaneb  Services  LLC,  Kaneb Pipe Line
     Company LLC, PAR Technology Corporation and Quaker Fabric Corporation.
(4)  Mr. Burke has been Chairman and Managing General Partner of Burke,  Mayborn
     Company,  Ltd., for more than the past five years. Mr. Burke also currently
     serves as a director of Kaneb Services LLC and Kaneb Pipe Line Company LLC,
     AVIDYN, Inc. and Arch Coal, Inc.
(5)  Mr. Cox has been Chairman of the Board and Chief  Executive  Officer of WRS
     Infrastructure and Environment,  Inc., a technical services company,  since
     March  2001.  He served  as a private  business  consultant  following  his
     retirement in January 1998,  from Fluor  Daniel,  Inc.,  where he served in
     senior  executive  level  positions  during  a 29  year  career  with  that
     organization. Mr. Cox also currently serves as a director of Kaneb Services
     LLC and Kaneb Pipe Line Company LLC.
(6)  Mr.  Kessler has served as Chairman and Managing  Director of KMB Kessler +
     Partner GmbH since 1992.  He was  previously  a Managing  Director and Vice
     President of a European  Division of Tyco  International  Ltd. Mr.  Kessler
     also  currently  serves as a director of Kaneb  Services LLC and Kaneb Pipe
     Line Company LLC.
(7)  Mr. Whatley, a director of Xanser since 1956 also served as Chairman of the
     Board of Directors of Xanser  Corporation  (formerly Kaneb Services,  Inc.)
     from February 1981 until April 1989,  and continues to serve as a member of
     the  Board.  Mr.  Whatley  also  currently  serves as a  director  of Kaneb
     Services LLC and Kaneb Pipe Line Company LLC.
(8)  Includes 198,652 shares with sole voting and investment power and 1,220,668
     shares with shared voting and investment power.


EXECUTIVE OFFICERS
------------------

     The following table sets forth the names, ages,  positions with the Company
and  ownership of the Company's  Common Stock for the executive  officers of the
Company.
<TABLE>
<CAPTION>

                                                                                  Shares of Common        Percent
                                                             Years of            Stock Beneficially       of Out-
                                                            Service in                Owned at           standing
      Name                         Office                     Office      Age     March 22, 2002(1)       Shares
-------------------      --------------------------         -----------   ---    -------------------     ---------
<S>                       <C>                                   <C>       <C>         <C>                  <C>
John R. Barnes            Chairman of the Board,                15        57          1,419,320(4)         4.30%
                          President and Chief
                          Executive Officer

Howard C. Wadsworth       Vice President, Treasurer             11        57            145,684             *
                          and Secretary

William H. Kettler, Jr.   Vice President (2)                     5        48             71,036             *

Michael R. Bakke          Controller (3)                         4        42             16,902             *

*Less than one percent.
</TABLE>

(1)  Shares listed include those  beneficially  owned by the person indicated or
     his spouse or children  living at home,  as well as those  shares that such
     person has the right to acquire  beneficial  ownership of within 60 days of
     March 22, 2002.
(2)  Mr.  Kettler was elected Vice  President  in April 1997,  prior to which he
     served as Director of Human Resources for the Company from 1989.
(3)  Mr. Bakke joined the Company in January 1998 and was elected  Controller in
     February  1998.  From 1995 to 1997, Mr. Bakke served as Director of Finance
     and Planning for Enserch Exploration, Inc.
(4)  Includes 198,652 shares with sole voting and investment power and 1,220,668
     shares with shared voting and investment power.


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE STATEMENT
-----------------------------------------------------------------

     Section 16(a) of the Exchange Act ("Section  16(a)") requires the Company's
officers and directors,  among others,  to file reports of ownership and changes
of ownership in the Company's equity  securities with the SEC and the NYSE. Such
persons are also  required by related  regulations  to furnish the Company  with
copies of all Section 16(a) forms that they file.

     Based solely on its review of the copies of such forms  received by it, the
Company  believes  that,  during  fiscal year 2001,  its officers and  directors
complied  with all  applicable  filing  requirements  under  Section  16(a) with
respect to the  Company's  equity  securities,  except  that,  rather than being
reported on a timely  filed Form 4, certain  transactions  that were exempt from
the provisions of Section 16(b) (specifically,  the conversion of deferred stock
units to common stock by Mr. Ahn, Mr. Burke and Mr. Kessler, and the exercise of
a stock option by Mr. Kettler), were reported on a timely filed Form 5.

Item 11.  Executive Compensation.

Named Officers and Key Personnel

     The  following  table  sets  forth  information  concerning  the annual and
long-term  compensation  for services to the Company in all capacities  paid for
the fiscal years ended December 31, 2001,  2000 and 1999 to the Chief  Executive
Officer  and the other four most highly  compensated  officers of Xanser and key
personnel of its subsidiaries (the "Named Officers and Key Personnel").

<TABLE>
<CAPTION>
                           SUMMARY COMPENSATION TABLE

                              Annual Compensation(1)            Long Term Compensation
                             -----------------------   --------------------------------------
                                                          DSUs         Options
                                                        Related to    Related to       Other
    Name and                    Annual Compensation      Deferred      Deferred        Stock          All Other
Principal Position     Year     Salary      Bonus      Compensation  Compensation     Options      Compensation(2)
--------------------   ----    --------    -------     ------------  ------------    ---------     ---------------

<S>                    <C>    <C>         <C>          <C>             <C>           <C>            <C>
John R. Barnes         2001   $ 231,275   $   -0-          6,285          -0-         300,000        $  7,633
Chairman of the Board, 2000     226,236       -0-          6,358          -0-           -0-             8,908
President and Chief    1999     209,341       -0-          6,853          -0-           -0-             8,554
Executive Officer

Arthur Chavoya         2001     212,730 (3)   -0-         10,388          -0-         300,000             103
President and Chief
Executive Officer
Xtria

C. Jeffery Chick       2001             (4)
President and Chief
Executive Officer
Furmanite Worldwide

Joseph P. Lahey (5)    2001     214,087       -0-            390          -0-           -0-             3,423
President and Chief    2000     192,915       -0-            227          -0-           -0-             3,538
Executive Officer      1999     192,540       -0-            297          -0-           -0-             3,413
Furmanite Worldwide

Kenneth R. Falknor     2001     162,115       -0-            -0-          -0-           -0-             6,355
Senior Vice President  2000     142,885       -0-          6,000         6,000         20,000           2,051
Chief Operating Officer                 (6)
Furmanite Worldwide

Howard C. Wadsworth    2001     160,942     50,000         1,053          -0-           -0-             7,142
Vice President         2000     192,368       -0-            749          -0-          25,000           8,908
Treasurer & Secretary  1999     183,873       -0-            879          -0-           -0-             8,554
</TABLE>

(1)  Amounts  for  2001,  2000  and  1999,  respectively,  exclude  compensation
     voluntarily  deferred  for the  purchase of Deferred  Stock Units  ("DSUs")
     pursuant  to  Xanser's  Deferred  Stock  Unit Plan (the "DSU  Plan") by Mr.
     Barnes ($117,000,  $208,000 and $208,000); Mr. Lahey ($20,288,  $32,460 and
     $32,460);  Mr.  Falknor  ($15,385 and $10,961) and Mr.  Wadsworth  ($5,850,
     $9,360 and $9,360)  and/or for the purchase of DSU's pursuant to the Xanser
     Supplemental  Deferred  Compensation  Plan (the "SDC  Plan") by Mr.  Barnes
     ($13,428,  $16,818 and $16,380);  Mr. Chavoya  ($12,270) and Mr.  Wadsworth
     ($2,250, $1,980 and $2,100).
(2)  Includes the amount of the Company's contribution to the Savings Investment
     Plan (the "401(k)  Plan") and the imputed value of the  Company-paid  group
     term life insurance exceeding $50,000. For 2001, the amounts were on behalf
     of Mr. Barnes  ($7,375 and $258);  Mr.  Chavoya ($-0- and $103);  Mr. Lahey
     ($3,400 and $23); Mr. Falknor  ($8,650 and $41) and Mr.  Wadsworth  ($6,884
     and $258).
(3)  Represents salary earned by Mr. Chavoya from the date he joined the Company
     (April 1, 2001) through December 31, 2001.
(4)  Mr.  Chick was  appointed  President  and Chief  Executive  Officer  of the
     Company's Furmanite  Worldwide  subsidiary on January 28, 2002 at an annual
     base salary of $250,000 and received a stock  option  grant  applicable  to
     250,000 shares of the Company's common stock effective February 20, 2002 at
     an exercise price of $2.27 per share,  which was the market value per share
     on the date of the grant.
(5)  Mr. Lahey resigned to pursue other business interests on January 28, 2002.
(6)  Mr.  Falknor  was  appointed  Chief  Operating  Officer  of  the  Company's
     Furmanite Worldwide subsidiary on June 10, 2000.


OPTIONS/SAR'S GRANTED DURING LAST FISCAL YEAR
---------------------------------------------

     The following  table  includes the details of stock options  granted to the
Named  Officers and Key Personnel  during 2001. All stock options were priced at
100% of the closing  price of Xanser's  Common  Stock on the date of grant.  For
illustrative purposes only, the Black-Scholes option pricing model has been used
to estimate the value of stock options issued by Xanser. The assumptions used in
the  calculations  under such model include  stock price  variance or volatility
based  on  weekly  average  variances  of the  stock  for the  five-year  period
preceding  issuance,  a  risk-free  rate of  return  based on the  30-year  U.S.
Treasury bill rate for the five-year expected life of the options,  and exercise
of the  options  at the end of their  expected  life.  The actual  option  value
realized,  if such  option is  exercised,  will be based  upon the excess of the
market price of Xanser's  Common Stock over the exercise  price of the option on
the date of exercise.  There is no relationship  between the actual option value
upon exercise and the illustration below.
<TABLE>
<CAPTION>

                                                   % of Total                                        Computed Value
                                 Number of           Granted                                          Using Black
                               Options/SAR's      To Employees    Exercise Price      Expiration    Scholes Option
       Name                       Granted          During Year      ($/Share)            Date        Pricing Model
--------------------         ---------------     --------------   --------------    ------------    ---------------
<S>                               <C>                <C>                 <C>          <C>               <C>
John R. Barnes                    300,000            29.5%               $2.48        09/10/11          $261,000

Arthur Chavoya                    300,000            29.5%                2.81        07/05/11           306,000

</TABLE>

AGGREGATED FISCAL YEAR END OPTION VALUES
----------------------------------------
<TABLE>
<CAPTION>
                                                              Number of Unexercised         Value of Unexercised
                                                                 Options Held               In-the-Money Options
                             Shares                           at Fiscal Year End             at Fiscal Year End
                           Acquired on        Value       ---------------------------    ---------------------------
         Name               Exercise         Realized     Exercisable   Unexercisable    Exercisable   Unexercisable
------------------------  -------------    -----------    -----------   -------------    -----------   -------------
<S>                            <C>         <C>             <C>             <C>          <C>           <C>    <C>
John R. Barnes                -0-          $   -0-          310,979         300,000      $  212,616    $     -0-

Arthur Chavoya                -0-              -0-           50,000         250,000          -0-             -0-

Joseph P. Lahey               -0-              -0-          177,570           -0-           157,857          -0-

Kenneth R. Falknor            26,000          51,380          -0-             -0-            -0-             -0-

Howard C. Wadsworth           -0-              -0-          122,066          20,000         132,003            582

</TABLE>

     In connection with the Distribution,  the exercise price for each option to
purchase  shares of the  Company's  common  stock that was  issued  prior to the
Distribution was reduced to an amount equal to the result of (1) the fair market
value  of a  share  of  the  Company's  common  stock  on the  ex-dividend  date
multiplied by (2) a fraction,  the  numerator of which is the original  exercise
price for the option and the denominator of which was the fair market value of a
share  of the  Company's  common  stock on the last  trading  date  prior to the
ex-dividend  date. The number of shares  subject to the Company's  stock options
were not changed as a result of the  Distribution.  Additionally,  KSL agreed to
issue to the  Company's  option  holders an option to purchase  KSL shares.  The
exercise price  applicable to a given KSL option was that price that created the
same ratio of exercise  price to market price as in the adjusted  exercise price
applicable to the holder's  Company option.  The number of common shares subject
to KSL options was such number as was  necessary to produce an  intrinsic  value
(determined as of the ex-dividend  date) that, when added to the intrinsic value
of the adjusted Company option (determined as of the ex-dividend date),  equaled
the pre-distribution intrinsic value of the Company's option, if any (determined
as of the last trading date prior to the ex-dividend date). However,  options to
purchase  fractional KSL common shares were not granted.  The fair market values
of shares of the  Company's  common stock and KSL common  shares were based upon
the  closing  sales  price of the stock on the last  trading  date  prior to the
ex-distribution  date  and  the  opening  sales  price  of  the  shares  on  the
ex-distribution  date.  Further,  excluding the Company's  corporate  staff, the
Company  removed  restrictions on exercise or "vested" all Company options which
were not yet exercisable prior to the Distribution.


BENEFIT PLANS AND OTHER COMPENSATION
------------------------------------

     Deferred Stock Unit Plan - In 1996, the Company  initiated a Deferred Stock
Unit Plan (the "DSU Plan"), pursuant to which key employees of the Company have,
from time to time,  been  given  the  opportunity  to defer a  portion  of their
compensation  for a specified period toward the purchase of deferred stock units
("DSUs"),  an instrument designed to track the Company's common stock. Under the
plan,  as amended in 1998,  DSUs are  purchased  at a value equal to the closing
price of the Company's  common stock on the day by which the employee must elect
(if they so desire) to participate in the DSU Plan; which date is established by
the Compensation  Committee,  from time to time (the "Election Date").  During a
vesting   period  of  one  to  three  years   following  the  Election  Date,  a
participant's  DSUs  vest  only  in  an  amount  equal  to  the  lesser  of  the
compensation actually deferred to date or the value (based upon the then-current
closing price of the Company's common stock) of the pro-rata portion (as of such
date) of the  number of DSUs  acquired.  After  the  expiration  of the  vesting
period,  which is  typically  the same length as the deferral  period,  the DSUs
become fully vested, but may only be distributed  through the issuance of a like
number of shares of the Company's common stock on a pre-selected  date, which is
irrevocably  selected  by the  participant  on the  Election  Date and  which is
typically at or after the expiration of the vesting period and no later than ten
years after the  Election  Date,  or at the time of a "change of control" of the
Company,  if earlier.  DSU  accounts are unfunded by the Company and do not bear
interest.  Each person that  elects to  participate  in the DSU Plan is awarded,
under the  Company's  Stock  Incentive  Plan,  an option to purchase a number of
shares of the  Company's  common stock ranging from one-half to one and one-half
times (depending on the length of deferral) the number of DSUs purchased by such
person  at 100% of the  closing  price  of the  Company's  common  stock  on the
Election Date,  which options become  exercisable  over a specified period after
the grant, according to a schedule determined by the Compensation Committee.

     Supplemental   Deferred  Compensation  Plan  -  The  Supplemental  Deferred
Compensation  Plan (the "SDC Plan") was  established  to allow  officers and key
employees  of  Xanser  to defer a  portion  of their  salary  that,  because  of
statutory limitations,  could not otherwise be set aside for retirement purposes
in the Company's 401(k) Plan. The  non-qualified  SDC Plan permits a participant
to defer a portion of their  total base  salary that is in excess of the amounts
elected by the  participant to be deferred  under  Xanser's  401(k) Plan, but no
greater than  approximately 6% of their total base salary when such person's SDC
Plan  deferral is combined  with their 401(k) Plan  deferral  plus the amount by
which their  401(k) Plan  deferral was reduced due to  participation  in the DSU
Plan. The Company credits  contributions  to the SDC Plan under the same formula
as those contributions made to the 401(k) Plan. However,  such contributions and
participant  deferrals are made to the SDC Plan in the form of DSUs,  equivalent
in  value  to 100% of the  price  of  Xanser's  Common  Stock at the time of the
participant's deferral of salary to the SDC Plan. All amounts deferred under the
SDC Plan are  memorandum  bookkeeping  accounts,  and such  accounts do not bear
interest.  Vesting in the SDC Plan accounts  occurs  ratably over the first five
years of the  participant's  employment,  in the same manner as the 401(k) Plan.
SDC Plan accounts are not distributed until the earlier of a date  predetermined
by the  participant,  at the time of a "change of control" of the Company,  or a
qualifying  event  substantially  similar  to  qualifying   distribution  events
established under the 401(k) Plan.  Distributions from the SDC Plan will be made
in the form of shares of the Company's  Common Stock. The value of an account at
the time of distribution will be equal to the value of the participant's  vested
DSUs,  which are equivalent in value to shares of Xanser's  Common Stock at that
time.

     In connection with the Distribution, KSL agreed to issue to all DSU holders
the  number  of  DSUs  equivalent  in  price  to  KSL  shares  issuable  in  the
Distribution.  All other terms remained the same. Similarly,  the Company agreed
to  issue to  employees  of KSL who hold  DSUs,  the  number  of  shares  of the
Company's   common  stock   subject  to  the  DSUs  held  by  those   employees.
Approximately  600,000  shares will be issuable to  employees of the Company and
KSL under this arrangement and the terms of the DSU and SDC Plans.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
-----------------------------------------------------------

     Xanser  Compensation  Committee  Chairman,  Mr.  Whatley,  was an executive
officer of the Company  prior to 1987 and was a  "non-employee"  Chairman of the
Board of the Company until April 1989.


DIRECTORS' FEES
---------------

     For  serving  in 2001,  each  non-employee  member of the  Xanser  Board of
Directors was paid an annual retainer of $16,250. Each non-employee Board member
was also  eligible to  participate  in programs  comparable to the Company's DSU
Plan, such as the Company's Non-Employee Directors Deferred Stock Unit Plan (the
"Directors DSU Plan").

     During 2001, each incumbent  non-employee  Director  holding office at that
time was issued,  under the Company's  2001 Stock  Incentive  Plan, an option to
purchase up to 20,000 shares of the Company's  Common Stock at a price of $2.48,
until September 10, 2011. All of such options were issued at 100% of the closing
price of the Company's Common Stock on September 11, 2001.

     As of March 22, 2002,  incumbent  non-employee  Directors had been granted,
under the Company's  2001 Stock  Incentive  Plan,  the 1996  Directors'  SIP and
pursuant  to  individual   agreements,   non-qualified  options  to  purchase  a
cumulative  total of 529,178 shares of Common Stock at an average price of $1.49
per share, representing 100% of the fair market value of the Common Stock on the
respective  dates of grant after  adjusting  for the  Distribution  as described
above, and had purchased a total of 12,632 DSUs at an average price of $1.50 per
DSU,  under the  Directors  DSU Plan after  adjusting  for the  Distribution  as
described  previously.  Except as stated  above,  all of such stock options vest
immediately  and  expire at the  earlier  of ten years from the date of grant or
within three months after such person ceases to be a Director of the Company.


TERMINATION  AGREEMENTS
-----------------------

     In order to attract and retain qualified employees, Xanser has periodically
entered  into  termination  agreements  with key  employees  of  Xanser  and its
subsidiaries  which  provide that the Company  will pay certain  amounts into an
escrow  account if a third party  takes  certain  steps which could  result in a
change-of-control.  Under the agreements, a "change-of-control" occurs if, under
certain  specified  circumstances:  (i) a third  person,  including a "group" as
defined in Section 13(d)(3) of the Securities  Exchange Act of 1934, as amended,
becomes the beneficial  owner of shares of the Company having 20% or more of the
total  number of votes that may be cast for the  election  of  Directors  of the
Company;  or (ii) as a result  of, or in  connection  with,  any cash  tender or
exchange  offer,  merger  or  other  business   combination,   restructuring  or
proceeding under the bankruptcy laws, sale of assets or contested  election,  or
any combination of the foregoing  transactions,  the persons (or any combination
thereof)  who are  Directors  of the Company 60 days prior to the closing of any
such transaction(s)  cease to constitute a majority of the Board of Directors of
the Company or any  successor to the  Company;  or (iii) as a  consequence  of a
tender or exchange offer or a proxy contest of third party consent solicitation,
a majority of the fair market value of the assets of the Company are distributed
to the Company's  securities holders.  If a change-of-control  occurs and, among
other  things,  the  employment  of  the  employee  terminates,  voluntarily  or
involuntarily,  for any reason,  the escrowed sum will be paid to the  employee.
Messrs.  Barnes,  Chavoya, Chick and Wadsworth have termination agreements which
provide that, in the event that their  employment is terminated as a consequence
of a change-of-control,  the Company will pay each individual an amount equal to
299% of  their  average  annual  base  salary  for the five  years  prior to the
change-of-control.   Additionally,   two  other   employees  each  have  similar
agreements  pursuant to which they would be paid 100% of their respective annual
salaries  prior to the  change-of-control.  If such a  change-of-control  of the
Company were to occur at March 22, 2002,  an  aggregate of  $3,815,000  would be
payable to these individuals.


BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
-------------------------------------------------------------

     The Compensation  Committee of the Board of Directors (the  "Committee") is
responsible for  recommending the types and levels of compensation for executive
officers  of  Xanser.   The   Committee  is  comprised  of  three   independent,
non-employee Directors,  though Mr. Whatley served as an officer of Xanser prior
to 1987.  Following  thorough  review and approval by the  Committee,  decisions
relating to  executive  compensation  are  reported to and  approved by the full
Board of Directors.  The Committee has directed the  preparation  of this report
and has  approved  its  contents  and its  submission  to the  stockholders.  As
provided by the rules of the SEC, this report is not deemed to be filed with the
SEC nor  incorporated  by reference into any prior or future  fillings under the
Securities Act of 1933, as amended, or the Exchange Act.

     In  the  Committee's  opinion,  levels  of  executive  compensation  should
generally be based upon the  performance of the Company,  the  contributions  of
individual  officers to such  performance and the  comparability to persons with
similar  responsibilities  in business  enterprises similar in size or nature to
Xanser.  The Committee  believes that compensation  plans should align executive
compensation  with  returns to  stockholders,  giving due  consideration  to the
achievement of both long-term and short-term objectives.  The Committee believes
that such  compensation  policies and practices  have allowed Xanser to attract,
retain and motivate its key executives.

     The  compensation  of Xanser's  Named  Officers and Key Personnel  consists
primarily  of base  salaries  and the  opportunity  to  participate  in  certain
incentive  arrangements,  including,  among other  programs,  the 2001 SIP,  the
granting of contractual  non-qualified stock options, the Company's DSU Plan and
the Company's SDC Plan. The value of these plan benefits directly relates to the
future performance of Xanser's Common Stock. The Committee  continues to believe
that the utilization of incentive programs that are linked to the performance of
Xanser's  Common Stock closely  aligns the interests of the executive with those
of Xanser's stockholders. Consistent with all other full-time Company employees,
the Named  Officers  and Key  Personnel  are also  eligible  to  participate  in
Xanser's  401(k)  Plan.  The  Committee   believes  that  this  plan  encourages
longer-term   employment  through  gradual   service-based  vesting  of  Company
contributions.  As with other plans offered to Xanser employees, the 401(k) Plan
provides an  opportunity to Xanser  employees,  including the Named Officers and
Key  Personnel,  to tie  their own  financial  interests,  in part,  to those of
Xanser's  stockholders  by offering  employer-matching  contributions  in Xanser
Common Stock and the choice of investing their own contribution in Company stock
as well.

     The base salaries of the Named  Officers and Key  Personnel,  including the
Chief  Executive  Officer,  are  based  upon a  subjective  assessment  of  each
individual's  performance,  experience and other factors that are believed to be
relevant in  comparison  with  compensation  data  contained  in  published  and
recognized surveys. The Committee believes their current base salaries are close
to the median level of most of the comparative compensation data. In addition to
the foregoing,  two of the Company's  Named Officers and Key Personnel,  Messrs.
Chavoya and Chick,  are each eligible to receive,  on a year-to-year  basis,  an
incentive bonus based upon the actual operational results achieved,  as compared
to budget  targets,  in a given fiscal year by the  subsidiaries  of the Company
that are under their respective direct supervision.  The Committee believes that
an  improvement  in  earnings  from the prior  year and a  comparison  of actual
performance  versus budget are appropriate  standards for measuring  performance
and directly link the individual participant's total potential remuneration with
the accomplishment of established growth targets.

     Eligibility for  participation  in the various Company plans and the awards
granted  under  2001 SIP were  determined  after the  Committee  had  thoroughly
reviewed and taken into  consideration the respective  relative  accountability,
anticipated  performance  requirements  and  contributions to the Company by the
prospective  participants,  including the Named Officers and Key Personnel.  All
outstanding  stock  options that have been  granted  pursuant to these plans and
programs  were  granted at prices not less than 100% of the fair market value of
the Company's Common Stock on the dates such options were granted. The Committee
believes  that stock  options and deferred  stock units are  desirable  forms of
long-term  compensation  that allow the  Company to  recruit  and retain  senior
executive   talent  and  closely   connect  the  interests  of  management  with
stockholder value.

                                         Compensation Committee

                                         James R. Whatley, Chairman
                                         Charles R. Cox
                                         Hans Kessler


PERFORMANCE GRAPH
-----------------

     The following  graph  compares,  for the period January 1, 1997 to December
31, 2001, the  cumulative  total  stockholder  return on the Common Stock of the
Company  with  the  New  York  Stock  Exchange  ("NYSE")  Market  Index  and  an
industry-based  index  prepared by Media General  Financial  Services,  Inc. The
industry-based  index is  comprised  of  companies  that  share the same code as
Xanser, which consists of companies that offer a diverse array of services.  The
graph  assumes  an  initial  investment  of  $100  and the  reinvestment  of all
dividends, including the KSL shares received at the Distribution. The KSL shares
received are assumed sold, at market price,  with proceeds  reinvested in Xanser
stock.


<TABLE>
<CAPTION>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
-----------------------------------------------------------

                                    12/31/96     12/31/97     12/31/98     12/31/99     12/31/00     12/31/01
                                    --------     --------     --------     --------     --------     --------
<S>                                  <C>          <C>          <C>           <C>          <C>          <C>
XANSER CORPORATION                   $100         $159.62      $123.08       $134.62      $180.77      $186.90
INFORMATION TECHNOLOGY SERVICES      $100         $107.99      $136.17       $166.51      $101.97      $108.97
NYSE MARKET INDEX                    $100         $131.56      $156.55       $171.42      $175.51      $159.87

</TABLE>

Item 12.   Security Ownership of Certain Beneficial Owners and Management.

COMMON STOCK OUTSTANDING AND PRINCIPAL HOLDERS THEREOF
------------------------------------------------------

     As of March 22, 2002,  all Directors and executive  officers of the Company
as a group owned  beneficially  an aggregate of 2,508,779  shares,  representing
approximately  7.60% of the  outstanding  shares of Xanser  Common  Stock.  Such
ownership  amount includes 704,734 shares which can be acquired by Directors and
executive  officers of the Company pursuant to the exercise of outstanding stock
options within 60 days of March 22, 2002.

     The following  table sets forth  information  with respect to the shares of
Xanser's  Common Stock owned of record or  beneficially as of March 22, 2002, by
all persons other than  Directors and executive  officers of the Company who own
of record or are known by Xanser to own beneficially  more than 5% of such class
of securities:
<TABLE>
<CAPTION>

                         Name and Address                   Type of           Number           Percent
                          of Stockholder                   Ownership         of Shares          of Class
                  ----------------------------             ----------        ---------          --------
<S>               <C>                                      <C>               <C>                  <C>
                  Franklin Resources, Inc.(1)              Beneficial        2,992,500            9.2%
                  777 Mariners Island Blvd.
                  San Mateo, California 94404

(1)  The information included herein was obtained from information  contained in
     Schedule 13G, dated February 14, 2002,  filed by the  stockholder  with the
     Securities  and Exchange  Commission  ("SEC"),  pursuant to the  Securities
     Exchange Act of 1934, as amended (the "Exchange Act").

</TABLE>



Item 13.   Certain Relationships and Related Transactions.

     In  November  2000,  the Company  authorized  the  exchange,  in a non-cash
transaction,  of all of the issued and outstanding shares of its Adjustable Rate
Cumulative Class A Preferred  Stock,  Series F held by an entity for the benefit
of Mr. Barnes' family,  for 1,351,351  shares of the Company's Common Stock. The
exchange was completed in June of 2001.


<PAGE>
                                     PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K
<TABLE>
<CAPTION>

                                                                                                           Beginning
(a) (1)  Financial Statements                                                                                Page
                                                                                                           ---------
<S>      <C>                                                                                               <C>
         Set forth below are financial statements appearing in this report.

         Xanser Corporation and Subsidiaries Financial Statements:
             Independent Auditors' Report........................................................           F - 1
             Consolidated Statements of Income - Three Years  Ended
               December 31, 2001, 2000 and 1999..................................................           F - 2
             Consolidated Balance Sheets - December 31, 2001 and 2000............................           F - 3
             Consolidated Statements of  Cash Flows - Three Years Ended
               December 31, 2001, 2000 and 1999..................................................           F - 4
             Consolidated Statements of Changes in Stockholders'
               Equity - Three Years Ended December 31, 2001, 2000 and 1999.......................           F - 5
             Notes to Consolidated Financial Statements..........................................           F - 6


(a) (2)  Financial Statement Schedules

         Set forth are the financial statement schedules appearing in this
         report.

         Schedule I - Xanser Corporation (Parent Company) Condensed Financial Statements:
             Statements of Income - Three Years Ended December 31, 2001,
               2000 and 1999.....................................................................           F - 22
             Balance Sheets - December 31, 2001 and 2000.........................................           F - 23
             Statements of Cash Flows - Three Years Ended
               December 31, 2001, 2000 and 1999..................................................           F - 24

         Schedule II - Xanser Corporation Valuation and Qualifying Accounts -
             Three Years Ended December 31, 2001, 2000 and 1999..................................           F - 25

               Schedules,  other  than those  listed  above,  have been  omitted
          because of the absence of the conditions under which they are required
          or because the required  information  is included in the  consolidated
          financial statements or related notes thereto.
</TABLE>
(a) (3)  List of Exhibits

      3.1   Restated  Certificate  of  Incorporation  of the  Registrant,  dated
            September  26,  1979,  filed as Exhibit  3.1 of the  exhibits to the
            Registrant's  Registration  Statement on Form S-16, which exhibit is
            hereby incorporated by reference.

      3.2   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation  of the  Registrant,  dated April 30,  1981,  filed as
            Exhibit 3.2 of the  exhibits to the  Registrant's  Annual  Report on
            Form 10-K ("Form 10-K") for the year ended December 31, 1981,  which
            exhibit is hereby incorporated by reference.

      3.3   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation  of the  Registrant,  dated  May 28,  1985,  filed  as
            Exhibit 4.1 of the exhibits to the Registrant's  Quarterly Report on
            Form 10-Q ("Form 10-Q") for the quarter  ended June 30, 1985,  which
            exhibit is hereby incorporated by reference.

      3.4   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation of the Registrant,  dated September 17, 1985, filed as
            Exhibit 4.1 of the  exhibits to the  Registrant's  Form 10-Q for the
            quarter  ended   September   30,  1985,   which  exhibit  is  hereby
            incorporated by reference.

      3.5   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation  of the  Registrant,  dated  July 10,  1990,  filed as
            Exhibit 3.5 of the  exhibits to the  Registrant's  Form 10-K for the
            year ended December 31, 1990,  which exhibit is hereby  incorporated
            by reference.

      3.6   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation of the Registrant,  dated September 21, 1990, filed as
            Exhibit 3.5 of the  exhibits to the  Registrant's  Form 10-Q for the
            quarter  ended   September   30,  1990,   which  exhibit  is  hereby
            incorporated by reference.

      3.7   Certificate   of   Amendment   to  the   Restated   Certificate   of
            Incorporation  of the  Registrant,  dated  August 8, 2001,  filed as
            Exhibit 3.1 to the Registrant's  Current Report on Form 8-K filed on
            August 22, 2001, which exhibit is hereby incorporated by reference.

      3.8   By-laws of the Registrant, filed as exhibit 3.7 to Registrant's Form
            10-K for the year ended  December 31, 1998,  which exhibit is hereby
            incorporated by reference.

      4.1   Certificate of Designation  related to the  Registrant's  Adjustable
            Rate Cumulative Class A Preferred  Stock,  filed as Exhibit 4 of the
            exhibits  to the  Registrant's  Form  10-Q  for  the  quarter  ended
            September  30,  1983,  which  exhibit  is  hereby   incorporated  by
            reference.

      4.2   Certificate of  Designation,  Preferences  and Rights related to the
            Registrant's Series B Junior Participating Preferred Stock, filed as
            Exhibit 4.2 to the Registrant's 10-K for the year ended December 31,
            1998, which exhibit is incorporated herein by reference.

      4.3   Certificate of Designation  related to the  Registrant's  Adjustable
            Rate Cumulative Class A Preferred  Stock,  Series C, dated April 23,
            1991, filed as Exhibit 4.4 of the exhibits to Registrant's Form 10-K
            for the year  ended  December  31,  1991,  which  exhibit  is hereby
            incorporated by reference.

      4.4   Certificate of Designation  related to the  Registrant's  Adjustable
            Rate Cumulative  Class A Preferred  Stock,  Series F, dated June 12,
            1997, filed as Exhibit 4.4 of the Exhibits to Registrant's Form 10-K
            for the year  ended  December  31,  1997,  which  exhibit  is hereby
            incorporated by reference.

      4.5   Indenture  between  Moran  Energy  Inc.  ("Moran")  and  First  City
            National  Bank of Houston  ("First  City"),  dated January 15, 1984,
            under  which  Moran  issued  the  8  3/4%  Convertible  Subordinated
            Debentures  due 2008,  filed as Exhibit 4.1 to Moran's  Registration
            Statement  on Form S-3 (SEC  File No.  2-81227),  which  exhibit  is
            hereby incorporated by reference.

      4.6   First Supplemental  Indenture between the Registrant and First City,
            dated as of March  20,  1984,  under  which the  Registrant  assumed
            obligations  under the Indenture listed as Exhibit 4.5 above,  filed
            as  Exhibit  4.7 of the  Registrant's  Form 10-K for the year  ended
            December  31,  1983,   which  exhibit  is  hereby   incorporated  by
            reference.

      10.1* Xanser   Corporation   (formerly  Kaneb   Services,   Inc.)  Savings
            Investment  Plan, as amended,  filed as Exhibit 4.10 of the exhibits
            to the Registrant's  Registration Statement on Form S-8 ("Form S-8")
            (S.E.C.  File No.  33-41295)  as Exhibit 4.1 to the  exhibits of the
            Registrant's Form S-8 (S.E.C.  File No.  333-14067),  and as Exhibit
            4.9 to the exhibits of the  Registrant's  Form S-8 (S.E.C.  File No.
            333-83968, which exhibits are hereby incorporated by reference.

      10.2* Xanser  Corporation  (formerly  Kaneb  Services,  Inc.)  1994  Stock
            Incentive  Plan,  filed  as  Exhibit  4.12  to the  exhibits  of the
            Registrant's  Form S-8 (S.E.C.  File No.  33-54027),  and as Exhibit
            10.1 to the Registrant's  Current Report on Form 8-K filed on August
            22, 2001, which exhibits are hereby incorporated by reference.

      10.3* Xanser  Corporation  (formerly Kaneb Services,  Inc.) Deferred Stock
            Unit Plan,  as amended,  filed as Exhibit 4.1 to the exhibits of the
            Registrant's Form S-8 (S.E.C. File No. 333-08725) as Exhibit 10.1 to
            the exhibits of the  Registrant's  Current Report on Form 8-K ("Form
            8-K"),  and  as  Exhibits  4.9  and  4.10  to  the  exhibits  of the
            Registrant's Form S-8 (S.E.C.  File No.  333-83970),  which exhibits
            are hereby incorporated by reference.

      10.4* Kaneb Services,  Inc. 1996 Supplemental  Deferred Compensation Plan,
            filed as Exhibit 4.1 to the  exhibits of the  Registrant's  Form S-8
            (S.E.C. File No. 333-08727),  and as Exhibit 10.2 to the Exhibits of
            the Registrant's Form 8-K, which exhibits are hereby incorporated by
            reference.

      10.5* Kaneb Services,  Inc. $1.63 Director Stock Options, filed as Exhibit
            4.1 to the exhibits of the  Registrant's  Form S-8 (S.E.C.  File No.
            33-58981), which exhibit is hereby incorporated by reference.

      10.6* Kaneb Services, Inc. Directors Stock Options I, filed as Exhibit 4.1
            to the  exhibits  of the  Registrant's  Form  S-8  (S.E.C.  File No.
            333-14069), which exhibit is hereby incorporated by reference.

      10.7* Kaneb  Services,  Inc.  1996  Directors  Stock  Incentive  Plan,  as
            amended,  filed as Exhibit 4.1 to the  exhibits of the  Registrant's
            Form S-8  (S.E.C.  File No.  333-14071)  and as  Exhibit  4.1 to the
            exhibits of the Registrant's Form S-8 (S.E.C.  File No.  333-22109),
            and as  supplemented,  filed as Exhibit  4.2 to the  Exhibits of the
            Registrant's Form S-8 (S.E.C.  File No.  333-60195),  and as Exhibit
            10.1 to the Exhibits of the  Registrant's  Form 8-K,  which exhibits
            are hereby incorporated by reference.

      10.8* Kaneb  Services,  Inc.  Non-Employee  Directors  Deferred Stock Unit
            Plan, filed as Exhibit 4.1 to the exhibits of the Registrant's  Form
            S-8 (S.E.C. File No. 333-08723), and as Exhibit 10.3 to the Exhibits
            of the Registrant's Form 8-K, which exhibits are hereby incorporated
            by reference.

      10.9* Kaneb Services, Inc. 1994 Stock Option Agreements, filed as Exhibits
            10.1, 10.2, 10.3 and 10.4 to the exhibits of the  Registrant's  Form
            S-8  (S.E.C.   File  No.  333-34489),   which  exhibits  are  hereby
            incorporated by reference.

      10.10*Form  of  Termination  Agreement,  filed  as  Exhibit  10.10  to the
            exhibits of the  Registrant's  Form 10-K for the year ended December
            31, 1996, which exhibit is hereby incorporated by reference.

      10.11*Form of  Indemnification  Agreement,  filed as Exhibit  10.11 to the
            Registrant's  Form 10-K for the year ended December 31, 1999,  which
            exhibit is hereby incorporated by reference.

      10.12 Amended and Restated Loan Agreement  between  Furmanite PLC, Bank of
            Scotland and certain other  Lenders,  dated May 1, 1991, as amended,
            (the  "Furmanite  Loan  Agreement"),  filed as  Exhibit  10.8 of the
            exhibits to the  Registrant's  Form 10-K for the year ended December
            31, 1994;  Exhibit  10.12 of the exhibits to the  Registrant's  Form
            10-K for the year ended  December  31,  1996;  Exhibit  10.12 of the
            Registrant's  Form 10-K for the year ended  December 31, 1997;  and,
            Exhibit  10.13 of the  Registrant's  Form  10-K  for the year  ended
            December  31,  1999,  which  exhibits  are  hereby  incorporated  by
            reference.

      21    List of subsidiaries of the Registrant, filed herewith.

      23    Consent of KPMG LLP, filed herewith.

            Certain instruments respecting long-term debt of the Registrant have
            been omitted pursuant to instructions as to Exhibits. The Registrant
            agrees  to  furnish  copies  of  any  of  such  instruments  to  the
            Commission upon request.

      *     Denotes management contracts.

(b)   Reports on Form 8-K

      None.



<PAGE>

                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors and
Stockholders of Xanser Corporation:

We have audited the consolidated  financial statements of Xanser Corporation and
its  subsidiaries  as listed in the index  appearing  under  Item  14(a)(1).  In
connection with our audits of the  consolidated  financial  statements,  we have
also audited the financial  statement schedules as listed in the index appearing
under Item  14(a)(2).  These  consolidated  financial  statements  and financial
statement  schedules are the  responsibility  of the Company's  management.  Our
responsibility is to express an opinion on the consolidated financial statements
and financial statement schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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 consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of the Company and its
subsidiaries  as of  December  31,  2001  and  2000,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 2001, in conformity  with  accounting  principles  generally
accepted in the United  States of America.  Also,  in our  opinion,  the related
financial  statement  schedules,  when  considered  in  relation  to  the  basic
consolidated  financial  statements  taken as a whole,  present  fairly,  in all
material respects, the information set forth therein.




                                                      KPMG LLP

Dallas, Texas
March 4, 2002




                                      F - 1
<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>


                                                                              Year Ended December 31,
                                                               ----------------------------------------------------
                                                                     2001              2000               1999
                                                               --------------     --------------    ---------------
Revenues:
<S>                                                            <C>                <C>               <C>
    Services...............................................    $  127,421,000     $  110,440,000    $   113,476,000
    Products...............................................        17,283,000         17,201,000         21,957,000
                                                               --------------     --------------    ---------------
      Total revenues.......................................       144,704,000        127,641,000        135,433,000
                                                               --------------     --------------    ---------------

Costs and expenses:
    Operating costs........................................       114,735,000         96,341,000        105,078,000
    Cost of products sold..................................        15,529,000         15,749,000         19,218,000
    Depreciation and amortization..........................         5,208,000          5,097,000          5,896,000
    General and administrative.............................         3,803,000          6,352,000          9,807,000
                                                               --------------     --------------    ---------------
      Total costs and expenses.............................       139,275,000        123,539,000        139,999,000
                                                               --------------     --------------    ---------------

Operating income (loss)....................................         5,429,000          4,102,000         (4,566,000)

Interest income............................................           665,000            909,000            534,000
Other income (expense).....................................         6,741,000           (239,000)          (208,000)
Interest expense...........................................        (3,486,000)        (3,883,000)        (3,817,000)
                                                               --------------     --------------    ---------------
Income (loss) from continuing operations before
    income taxes...........................................         9,349,000            889,000         (8,057,000)

Income tax benefit.........................................        13,039,000          5,894,000         38,507,000
                                                               --------------     --------------    ---------------
Income from continuing operations..........................        22,388,000          6,783,000         30,450,000
Income from discontinued operations - businesses
    distributed to common shareholders, net of
    income taxes...........................................         3,337,000         10,386,000         28,459,000
                                                               --------------     --------------    ---------------
      Net income...........................................        25,725,000         17,169,000         58,909,000

Dividends and redemption premium applicable to
    preferred stock........................................           493,000            479,000            487,000
                                                               --------------     --------------    ---------------
Net income applicable to common stock......................    $   25,232,000     $   16,690,000    $    58,422,000
                                                               ==============     ==============    ===============

Earnings per common share:
    Basic:
      Continuing operations................................    $         0.68     $         0.20    $          0.95
      Discontinued operations..............................              0.10               0.33               0.91
                                                               --------------     --------------    ---------------
                                                               $         0.78     $         0.53    $          1.86
                                                               ==============     ==============    ===============
    Diluted:
      Continuing operations................................    $         0.64     $         0.19    $          0.92
      Discontinued operations..............................              0.10               0.31               0.87
                                                               --------------     --------------    ---------------
                                                               $         0.74     $         0.50    $          1.79
                                                               ==============     ==============    ===============
</TABLE>



                 See notes to consolidated financial statements.

                                      F - 2
<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              -------------------------------------
                                                                                   2001                   2000
                                                                              --------------         --------------
                                     ASSETS
Current assets:
<S>                                                                           <C>                    <C>
   Cash and cash equivalents......................................            $   29,545,000         $   20,517,000
   Accounts receivable, trade (net of allowance for  doubtful
     accounts of $1,034,000 in 2001 and $605,000 in 2000).........                37,186,000             29,198,000
   Receivable from businesses distributed to common shareholders..                17,904,000                  -
   Inventories....................................................                 8,942,000              7,641,000
   Current deferred income tax assets.............................                 2,300,000             36,489,000
   Prepaid expenses and other.....................................                 7,532,000              6,749,000
                                                                              --------------         --------------
     Total current assets.........................................               103,409,000            100,594,000
                                                                              --------------         --------------

Property and equipment............................................                33,381,000             30,585,000
Less accumulated depreciation and amortization....................                21,995,000             20,043,000
                                                                              --------------         --------------
   Net property and equipment.....................................                11,386,000             10,542,000
                                                                              --------------         --------------

Excess of cost over fair value of net assets of acquired businesses               61,054,000             62,470,000
Deferred income taxes and other assets............................                10,370,000             11,215,000
Net assets of discontinued operations - businesses distributed
   to common shareholders.........................................                      -                41,822,000
                                                                              --------------         --------------
                                                                              $  186,219,000         $  226,643,000
                                                                              ==============         ==============

                             LIABILITIES AND EQUITY
Current liabilities:
   Current portion of long-term debt..............................            $    2,173,000         $      595,000
   Accounts payable...............................................                 6,205,000              5,081,000
   Accrued expenses...............................................                13,159,000             11,709,000
   Accrued income taxes...........................................                10,083,000              2,024,000
                                                                              --------------         --------------
     Total current liabilities....................................                31,620,000             19,409,000
                                                                              --------------         --------------
Long-term debt, less current portion:
   Technical services.............................................                17,871,000             18,197,000
   Parent company.................................................                19,930,000             21,396,000
                                                                              --------------         --------------
     Total long-term debt, less current portion...................                37,801,000             39,593,000
                                                                              --------------         --------------

Other liabilities.................................................                 1,292,000              1,602,000

Commitments and contingencies

Stockholders' equity:
   Preferred stock, without par value.............................                      -                 5,792,000
   Common stock, without par value. Authorized
     60,000,000 shares; issued 36,809,267 shares in 2001 and
     36,641,121 shares in 2000....................................                 4,270,000              4,250,000
   Additional paid-in capital.....................................               128,744,000            203,989,000
   Treasury stock, at cost........................................               (23,423,000)           (31,440,000)
   Retained earnings (accumulated deficit)........................                11,921,000            (13,311,000)
   Accumulated other comprehensive income (loss)..................                (6,006,000)            (3,241,000)
                                                                              --------------         --------------
     Total stockholders' equity...................................               115,506,000            166,039,000
                                                                              --------------         --------------
                                                                              $  186,219,000         $  226,643,000
                                                                              ==============         ==============
</TABLE>

                 See notes to consolidated financial statements.

                                      F - 3

<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                                             Year Ended December 31,
                                                             ------------------------------------------------------
                                                                   2001               2000                1999
                                                             --------------       -------------     ---------------
Operating activities:
<S>                                                          <C>                  <C>               <C>
   Income from continuing operations......................   $   22,388,000       $   6,783,000     $   30,450,000
   Adjustments to reconcile income from continuing
     operations to net cash provided by operating activities:
       Depreciation and amortization......................        5,208,000           5,097,000          5,896,000
       Increase in the estimated redemption value of
         preferred stock..................................             -              1,387,000          4,863,000
       Deferred income taxes..............................      (15,399,000)         (6,150,000)       (37,197,000)
       Other, net.........................................          259,000             410,000            553,000
       Changes in current assets and liabilities:
         Accounts receivable..............................       (7,866,000)          5,857,000         (5,216,000)
         Inventories......................................       (1,301,000)          1,359,000          1,078,000
         Prepaid expenses and other.......................       (3,102,000)         (2,346,000)        (2,236,000)
         Accounts payable and accrued expenses............        2,939,000          (3,589,000)        (3,044,000)
                                                             --------------       -------------     --------------
     Operating activities of continuing operations........        3,126,000           8,808,000         (4,853,000)
     Operating activities of discontinued operations......       59,753,000          53,407,000         54,937,000
                                                             --------------       -------------     --------------
     Net cash provided by operating activities............       62,879,000          62,215,000         50,084,000
                                                             --------------       -------------     --------------
Investing activities:
   Capital expenditures...................................       (4,625,000)         (2,690,000)        (2,719,000)
   Acquisitions...........................................         (811,000)         (4,804,000)        (4,049,000)
   Other, net.............................................          605,000            (418,000)            28,000
   Investing activities of discontinued operations........     (128,258,000)        (20,067,000)       (66,922,000)
                                                             --------------       -------------     --------------
     Net cash used in investing activities................     (133,089,000)        (27,979,000)       (73,662,000)
                                                             --------------       -------------     --------------
Financing activities:
   Issuance of debt ......................................        4,441,000             924,000          2,810,000
   Payments on debt and capital leases ...................       (4,655,000)         (7,429,000)        (2,515,000)
   Preferred stock dividends and redemption premium paid..         (493,000)           (479,000)          (487,000)
   Common stock issued....................................          545,000             255,000            253,000
   Purchase of treasury stock.............................             -             (1,530,000)          (555,000)
   Redemption of preferred stock..........................       (5,676,000)               -                 -
   Decrease in receivable from businesses distributed to
     common shareholders..................................       14,076,000                -                 -
   Financing activities of discontinued operations........       71,000,000         (19,976,000)        31,324,000
                                                             --------------       -------------     --------------
     Net cash provided by (used in) financing activities..       79,238,000         (28,235,000)        30,830,000
                                                             --------------       -------------     --------------

Increase in cash and cash equivalents.....................        9,028,000           6,001,000          7,252,000
Cash and cash equivalents at beginning of year............       20,517,000          14,516,000          7,264,000
                                                             --------------       -------------     --------------
Cash and cash equivalents at end of year..................   $   29,545,000       $  20,517,000     $   14,516,000
                                                             ==============       =============     ==============
</TABLE>


                 See notes to consolidated financial statements.

                                      F - 4

<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  PART 1 OF 2

<TABLE>
<CAPTION>

                                           Preferred         Common          Additional        Treasury
                                             Stock            Stock        Paid-In Capital       Stock
                                        -------------     -------------    ---------------   -------------
<S>                                     <C>               <C>              <C>               <C>
Balance at January 1, 1999              $   5,792,000     $   4,239,000    $ 197,122,000     $ (29,775,000)

       Net income for the year.......            -                -                 -                -
       Common stock issued...........            -               10,000          191,000            52,000
       Purchase of treasury stock ...            -                -                 -             (555,000)
       Preferred stock dividends
        declared.....................            -                -                 -                -
       Foreign currency translation
        adjustment...................            -                -                 -                -
                                        -------------     ------------     -------------     -------------
       Comprehensive income
        for the year.................


Balance at December 31, 1999                5,792,000         4,249,000      197,313,000       (30,278,000)

        Net income for the year......            -                -                 -                -
        Common stock issued..........            -                1,000         (114,000)          368,000
        Deferred stock units, vested.            -                -              540,000             -
        Series F Preferred stock to
         be exchanged for common
         stock.......................            -                -            6,250,000             -
        Purchase of treasury stock...            -                -                 -           (1,530,000)
        Preferred stock dividends
         declared....................            -                -                 -                -
        Foreign currency translation
         adjustment..................            -                -                 -                -
                                        -------------     -------------    -------------     -------------
        Comprehensive income
         for the year................

Balance at December 31, 2000                5,792,000         4,250,000      203,989,000       (31,440,000)

        Net income for the year......            -                -                 -                -
        Common stock issued..........            -               20,000          380,000           257,000
        Deferred stock units, vested.            -                -              651,000             -
        Redemption of Series A
         Preferred stock.............      (5,680,000)            -                 -                -
        Repurchase of Series C and
         F Preferred stock...........        (112,000)            -           (7,725,000)        7,760,000
        Dividends and redemption
         premium applicable to
         preferred stock.............            -                -                 -                -
        Distribution of KSL..........            -                -          (74,664,000)            -
        Gain on issuance of units
         by KPP......................            -                -            6,113,000             -
        Minimum pension liability
         adjustment for subsidiary...            -                -                 -                -
        Foreign currency translation
         adjustment..................            -                -                 -                -
                                        -------------     -------------    -------------     -------------
        Comprehensive income
         for the year................

Balance at December 31, 2001            $        -        $   4,270,000    $ 128,744,000     $ (23,423,000)
                                        =============     =============    =============     =============
</TABLE>

                 See notes to consolidated financial statements.

                                      F - 5

<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  PART 2 OF 2
<TABLE>
<CAPTION>

                                                          Accumulated Other
                                          Retained        Comprehensive      Comprehensive
                                          Earnings         Income (Loss)          Income
                                        -------------    ------------------   --------------
<S>                                     <C>               <C>                 <C>
Balance at January 1, 1999              $ (88,423,000)     $  (1,510,000)     $        -

       Net income for the year.......      58,909,000             -              58,909,000
       Common stock issued...........            -                -                    -
       Purchase of treasury stock ...            -                -                    -
       Preferred stock dividends
        declared.....................        (487,000)            -                    -
       Foreign currency translation
        adjustment...................            -              (762,000)          (762,000)
                                        -------------     --------------      -------------
       Comprehensive income
        for the year.................                                         $  58,147,000
                                                                              =============

Balance at December 31, 1999              (30,001,000)       (2,272,000)               -

        Net income for the year......      17,169,000             -              17,169,000
        Common stock issued..........            -                -                    -
        Deferred stock units, vested.            -                -                    -
        Series F Preferred stock to
         be exchanged for common
         stock.......................            -                -                    -
        Purchase of treasury stock...            -                -                    -
        Preferred stock dividends
         declared....................        (479,000)            -                    -
        Foreign currency translation
         adjustment..................            -             (969,000)           (969,000)
                                        -------------     -------------       -------------
        Comprehensive income
         for the year................                                         $  16,200,000
                                                                              =============

Balance at December 31, 2000              (13,311,000)       (3,241,000)               -

        Net income for the year......      25,725,000             -              25,725,000
        Common stock issued..........            -                -                    -
        Deferred stock units, vested.            -                -                    -
        Redemption of Series A
         Preferred stock.............            -                -                    -
        Repurchase of Series C and
         F Preferred stock...........            -                -                    -
        Dividends and redemption
         premium applicable to
         preferred stock.............        (493,000)            -                    -
        Distribution of KSL..........            -              640,000                -
        Gain on issuance of units
         by KPP......................            -                -                    -
        Minimum pension liability
         adjustment for subsidiary...            -           (2,773,000)         (2,773,000)
        Foreign currency translation
         adjustment..................            -             (632,000)           (632,000)
                                        -------------     -------------       -------------
        Comprehensive income
         for the year................                                         $  22,320,000
                                                                              =============

Balance at December 31, 2001            $  11,921,000     $  (6,006,000)
                                        =============     =============
</TABLE>

                 See notes to consolidated financial statements.

                                      F - 5

<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       General

       On August 7, 2001, the stockholders of Kaneb Services,  Inc.  approved an
       amendment to its certificate of  incorporation  to change the name of the
       Company  from  "Kaneb  Services,   Inc."  to  "Xanser  Corporation"  (the
       "Company").

       On November  27, 2000,  the Board of Directors of the Company  authorized
       the  distribution of its pipeline and  terminaling and product  marketing
       business (the  "Distribution")  to its  stockholders in the form of a new
       limited liability company,  Kaneb Services LLC ("KSL"). KSL now holds the
       2% general partner  interest and a 25% limited partner  interest in Kaneb
       Pipe  Line   Partners,   L.P.   ("KPP")  and  the  Company's   previously
       wholly-owned  petroleum  marketing  subsidiary.  On June  29,  2001,  the
       Distribution  was  completed,   with  each  shareholder  of  the  Company
       receiving  one common share of KSL for each three shares of the Company's
       common stock held on June 20, 2001, the record date for the Distribution,
       resulting in the  distribution  of 10.85 million KSL common shares.  As a
       result, the accompanying  financial  statements reflect the operations of
       KSL prior to the  Distribution as  "Discontinued  operations - businesses
       distributed to common shareholders" (See Note 10).

       Pursuant to the Distribution,  the Company entered into an agreement (the
       "Distribution  Agreement") with KSL, whereby, KSL will pay the Company an
       amount equal to the expenses  incurred by the Company in connection  with
       the Distribution.  These expenses include  approximately  $6.1 million in
       costs incurred in connection with the redemption of the Company's  Series
       A  Preferred   Stock  and   approximately   $2.1  million  in  legal  and
       professional   and  other  expenses   incurred  in  connection  with  the
       Distribution.  The  distribution  of  common  shares  is  taxable  to the
       Company,  which will recognize taxable income to the extent of the excess
       of the value of KSL's  common  shares  distributed  over the tax basis of
       KSL's assets in the hands of the Company. The Company will use all of its
       available net operating loss carryforwards to reduce that taxable income,
       but the total  amount of taxable  income is  expected  to exceed such net
       operating loss  carryforwards,  and the Distribution  Agreement obligates
       KSL to pay the Company amounts calculated based on whatever tax is due on
       the net amount of income. The Company cannot currently  determine exactly
       what  this  amount  will be and what the tax  will  be,  but the  Company
       estimates that the tax will approximate $14.6 million,  after utilization
       of all  available net operating  loss  carryforwards  and $4.4 million of
       alternative  minimum tax credits.  Included in receivable from businesses
       distributed to common  shareholders at December 31, 2001 is $14.7 million
       for such costs and expenses. The Distribution Agreement also requires KSL
       to pay the Company an amount calculated based on any income tax liability
       of the  Company  that,  in the  sole  judgement  of the  Company,  (i) is
       attributable  to increases  in income tax from past years  arising out of
       adjustments required by Federal and state tax authorities,  to the extent
       that such increases are properly  allocable to the businesses that became
       part of KSL, or (ii) is attributable to the  distribution of KSL's common
       shares and the operations of KSL's businesses in the current year and the
       preceding years. In the event of an examination of the Company by Federal
       or state tax authorities,  the Company will have unfettered  control over
       the examination, administrative appeal, settlement or litigation that may
       be involved,  notwithstanding  that KSL has agreed to pay any  additional
       tax.

       The following significant accounting policies are followed by the Company
       and its  subsidiaries  in the preparation of its  consolidated  financial
       statements.  All significant  intercompany  transactions and balances are
       eliminated in consolidation.

       Cash and Cash Equivalents

       The Company's policy is to invest cash in highly liquid  investments with
       original maturities of three months or less. Accordingly, uninvested cash
       balances are kept at minimum levels. Such investments are valued at cost,
       which approximates  market,  and are classified as cash equivalents.  The
       Company does not have any derivative financial instruments.

                                     F - 6
<PAGE>

       Inventories

       Inventories consist primarily of materials and supplies and are valued at
       the  lower of cost or  market.  Cost is  determined  using  the  weighted
       average cost method.

       Property and Equipment

       Property and  equipment are carried at historical  cost.  Certain  leases
       have  been  capitalized  and the  leased  assets  have been  included  in
       property and equipment. Additions of new equipment and major renewals and
       replacements  of existing  equipment are  capitalized.  Repairs and minor
       replacements  that do not  materially  increase  values or extend  useful
       lives are expensed. Depreciation of property and equipment is provided on
       the straight-line  basis at rates based upon the expected useful lives of
       the various classes of assets.

       The  Company  accounts  for  long-lived  assets  in  accordance  with the
       provisions of Statement of Financial  Accounting  Standards  ("SFAS") No.
       121,  "Accounting  for  the  Impairment  of  Long-Lived  Assets  and  for
       Long-Lived  Assets  to Be  Disposed  Of."  SFAS  No.  121  requires  that
       long-lived  assets and certain  identifiable  intangibles be reviewed for
       impairment whenever events or changes in circumstances  indicate that the
       carrying  amount of an asset may not be  recoverable.  Recoverability  of
       assets to be held and used is measured by a  comparison  of the  carrying
       amount of an asset to future net cash flows  expected to be  generated by
       the asset.  If such assets are considered to be impaired,  the impairment
       to be recognized  is measured by the amount by which the carrying  amount
       of the assets exceeds the fair value of assets.

       Revenue Recognition

       Revenues are recognized  when services to customers have been rendered or
       when products have been delivered.

       Earnings Per Share

       The amount of earnings for the period  applicable to each share of common
       stock outstanding  during the period ("Basic" earnings per share) and the
       amount of  earnings  for the  period  applicable  to each share of common
       stock  outstanding  during  the  period and to each share that would have
       been  outstanding  assuming  the  issuance of common  shares for dilutive
       potential common shares outstanding during the period ("Diluted" earnings
       per share) have been presented in the consolidated statements of income.

       Foreign Currency Translation

       The Company  translates  the balance  sheets of its foreign  subsidiaries
       using year-end  exchange rates and translates  income  statement  amounts
       using the average exchange rates in effect during the year. The gains and
       losses resulting from the change in exchange rates from year to year have
       been   reported   separately   as  a  component  of   accumulated   other
       comprehensive  income (loss) in  stockholders'  equity.  Gains and losses
       resulting  from  foreign  currency   transactions  are  included  in  the
       statements of income.

       Excess of Cost Over Fair Value of Net Assets of Acquired Businesses

       The  excess of the cost  over the fair  value of net  assets of  acquired
       businesses  is being  amortized  on a  straight-line  basis over  periods
       ranging from 15 to 40 years.  Accumulated  amortization was $20.7 million
       and $18.4 million at December 31, 2001 and 2000, respectively.

       The Company  periodically  evaluates the propriety of the carrying amount
       of the  excess  of  cost  over  fair  value  of net  assets  of  acquired
       businesses,  as well as the  amortization  period,  to determine  whether
       current events or circumstances warrant adjustments to the carrying value
       and/or the amortization  period.  The Company assesses the recoverability
       of the  amounts by  determining  whether  the  amortization  of the asset
       balance  over  its   amortization   period  can  be   recovered   through
       undiscounted future operating cash flows of the acquired  operation.  The
       amount of impairment,  if any, is measured based on projected  discounted
       future  operating cash flows.  The assessment of  recoverability  will be
       impacted if  estimated  future cash flows are not  achieved.  The Company
       believes  that no such  impairment  has occurred and that no reduction in
       the amortization period is warranted.

       Estimates

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

       Recent Accounting Pronouncements

       In July of 2001, the Financial  Accounting  Standards  Board (the "FASB")
       issued SFAS No. 141  "Business  Combinations",  which  requires  that all
       business  combinations  initiated  after June 30, 2001 be  accounted  for
       under the purchase method of accounting.  SFAS No. 141 also specifies the
       criteria  for  recording  intangible  assets  other  than  goodwill  in a
       business combination.

       Additionally, in July of 2001, the FASB issued SFAS No. 142 "Goodwill and
       Other  Intangible  Assets",  which  requires  that  goodwill no longer be
       amortized  to  earnings,  but instead be  reviewed  for  impairment.  The
       Company is currently  assessing the impact of SFAS No. 142, which must be
       adopted in the first quarter of 2002.

       Also,  the FASB  issued  SFAS No. 143  "Accounting  for Asset  Retirement
       Obligations",  which establishes  requirements for the removal-type costs
       associated with asset retirements. The Company is currently assessing the
       impact of SFAS No.  143,  which must be  adopted in the first  quarter of
       2003.

       On October 3, 2001,  the FASB issued SFAS No.  144,  "Accounting  for the
       Impairment or Disposal of Long-Lived  Assets",  which addresses financial
       accounting  and  reporting  for the  impairment or disposal of long-lived
       assets.  SFAS No. 144,  which  supercedes  SFAS No. 121, is effective for
       fiscal years beginning after December 15, 2001 and interim periods within
       those fiscal years with earlier  application  encouraged.  The Company is
       currently assessing the impact on its financial statements.

2.     INCOME TAXES

       Income  (loss) from  continuing  operations  before income tax expense is
       comprised of the following components:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                        -----------------------------------------------------
                                                             2001                2000                1999
                                                        --------------      -------------       -------------

<S>                                                     <C>                 <C>                 <C>
       Domestic operations.........................     $    3,246,000      $  (2,371,000)      $ (7,004,000)
       Foreign operations..........................          6,103,000          3,260,000         (1,053,000)
                                                        --------------      -------------       ------------
       Income (loss) before income taxes...........     $    9,349,000      $     889,000       $ (8,057,000)
                                                        ==============      =============       ============
</TABLE>

       Income tax expense (benefit) is comprised of the following components:
<TABLE>
<CAPTION>

       Year Ended
       December 31,                     Federal              Foreign            State               Total
       ------------                  -------------        ------------       ------------       -------------
<S>                                  <C>                  <C>                <C>                <C>
      2001:
         Current...............      $   1,483,000        $    649,000       $    265,000       $   2,397,000
         Deferred..............        (15,418,000)            919,000           (937,000)        (15,436,000)
                                     -------------        ------------       ------------       -------------
                                     $ (13,935,000)       $  1,568,000       $   (672,000)      $ (13,039,000)
                                     =============        ============       ============       =============
</TABLE>


<PAGE>
<TABLE>
<CAPTION>
       Year Ended
       December 31,                     Federal              Foreign            State               Total
       ------------                  -------------        ------------       ------------       -------------
<S>                                  <C>                  <C>                <C>                <C>
      2000:
         Current...............      $      47,000        $  1,031,000       $   (822,000)      $     256,000
         Deferred..............         (5,699,000)           (278,000)          (173,000)         (6,150,000)
                                     -------------        ------------       ------------       -------------
                                     $  (5,652,000)       $    753,000       $   (995,000)      $  (5,894,000)
                                     =============        ============       ============       =============
       1999:
         Current.................    $      81,000        $   (735,000)      $   (656,000)      $  (1,310,000)
         Deferred................      (37,451,000)              8,000            246,000         (37,197,000)
                                     -------------        ------------       ------------       -------------
                                     $ (37,370,000)       $   (727,000)      $   (410,000)      $ (38,507,000)
                                     =============        ============       ============       =============
</TABLE>

       The  reasons  for the  differences  between  the  amount  of tax  expense
       provided and the amount of tax expense computed by applying the statutory
       Federal  income  tax rate to income  (loss)  from  continuing  operations
       before income taxes for the years 2001, 2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                          -----------------------------------------------------------------
                                                 2001                    2000                    1999
                                          -----------------       ------------------      -----------------
<S>                                       <C>                     <C>                     <C>
       Expected tax at
         statutory rates................  $       3,272,000       $          311,000      $      (2,820,000)
       Increase (decrease) in taxes
         resulting from:
         Change in valuation allowance..              -                   (6,280,000)           (37,124,000)
         State income taxes, net........           (437,000)                (647,000)              (267,000)
         Foreign losses not benefited and
           foreign income taxes.........            141,000                 (388,000)               (13,000)
         Non-deductible charges related
           to Series F Preferred stock..              -                      485,000              1,702,000
         Goodwill amortization .........            664,000                  598,000                649,000
         Benefit from recapitalization
           of foreign subsidiary........        (18,137,000)                    -                      -
         Resolution of state and
           foreign tax issues and
           other........................          1,458,000                   27,000               (634,000)
                                          -----------------       ------------------       ----------------
                                          $     (13,039,000)      $       (5,894,000)      $    (38,507,000)
                                          =================       ==================       ================
</TABLE>

       At  December  31,  2001,  the  Company  had  available  domestic  tax net
       operating loss carryforwards  ("NOLs"),  which will expire, if unused, as
       follows:  $1,166,000 in 2006 and $3,033,000 in 2007.  The  utilization of
       these  carryforwards  could be subject to  significant  limitation in the
       event of a "change in ownership", as defined in the tax laws, which might
       be caused by purchases or sales of the Company's securities by persons or
       groups  now  or in the  future  having  5% or  greater  ownership  of the
       Company's common stock.

       For the year ended December 31, 2001,  income taxes include $18.1 million
       in  tax  benefits  resulting  from  the  recapitalization  of  a  foreign
       subsidiary.  Additionally,  income taxes for the years ended December 31,
       2001,  2000 and 1999 include  benefits of $0.6 million,  $1.1 million and
       $1.6 million, respectively,  related to favorable developments pertaining
       to certain state and foreign income tax issues.
<PAGE>

       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred  tax assets and  deferred  tax  liabilities  at
       December 31, 2001 and 2000 are as follows:
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                              -------------------------------------
                                                                                   2001                   2000
                                                                              --------------         --------------

<S>                                                                           <C>                    <C>
       Deferred tax assets:
         Net operating loss carryforwards.........................            $    1,469,000         $   35,633,000
         Alternative minimum tax credit carryforwards.............                 6,357,000              4,393,000
         Accrued liabilities......................................                   879,000              1,198,000
         Foreign deferred tax assets..............................                   205,000                  -
         Other....................................................                   531,000              2,570,000
                                                                              --------------         --------------
         Total gross deferred tax assets..........................                 9,441,000             43,794,000
                                                                              --------------         --------------

       Deferred tax liabilities:
         Plant and equipment, principally due to differences
           in depreciation........................................                   (85,000)              (136,000)
         Foreign deferred tax liabilities.........................                      -                   (21,000)
                                                                              --------------         --------------
         Total gross deferred tax liabilities.....................                   (85,000)              (157,000)
                                                                              --------------         --------------
         Net deferred tax asset...................................            $    9,356,000         $   43,637,000
                                                                              ==============         ==============
</TABLE>

       For the years ended  December 31, 2000 and 1999,  the Company  recognized
       expected  benefits  from prior  years' tax  losses  (change in  valuation
       allowance)  that were  available to offset future  taxable income of $6.3
       million  and  $37.1  million,   respectively.  The  Company  reduced  the
       valuation  allowance as a result of its reevaluation of the realizability
       of income tax benefits  from future  operations.  The Company  considered
       positive  evidence,  including  the  effect of the  Distribution,  recent
       historical levels of taxable income,  the scheduled  reversal of deferred
       tax liabilities,  tax planning  strategies,  revised  estimates of future
       taxable income growth, and expiration periods of NOLs among other things,
       in making this  evaluation and concluding that it is more likely than not
       that the Company will realize the benefit of its net deferred tax assets.
       Upon completion of the  Distribution,  all remaining  deferred tax assets
       relating to previously  recorded net operating loss carryforwards  ($38.8
       million),  which were utilized to offset federal  income taxes  resulting
       from the Distribution, were charged directly to stockholders' equity.


3.     RETIREMENT PLANS

       The Company has a defined  contribution  plan which covers  substantially
       all  domestic  employees  and  provides  for  varying  levels of employer
       matching. Contributions from continuing operations to this plan were $0.8
       million,  $0.7  million  and  $0.6  million  for  2001,  2000  and  1999,
       respectively.

       One of the Company's  foreign  subsidiaries has a defined benefit pension
       plan covering  substantially  all of its United  Kingdom  employees  (the
       "U.K.  Plan").  The  benefit is based on the  average  of the  employee's
       salary for the last three years of  employment.  Generally,  the employee
       contributes 5% and the employer contributes up to 12% of pay. Plan assets
       are  primarily  invested  in  unitized  pension  funds  managed by United
       Kingdom registered funds managers.  The most recent valuation of the U.K.
       Plan was performed as of October 31, 2001.
<PAGE>
       Net pension cost for the U.K. Plan included the following components:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                        ---------------------------------------------------
                                                            2001               2000               1999
                                                        --------------     -------------      -------------
       Net periodic pension cost:
<S>                                                     <C>                <C>                <C>
         Service cost................................   $      515,000     $     623,000      $   1,164,000
         Interest cost...............................        2,287,000         2,269,000          2,151,000
         Expected return on plan assets..............       (3,516,000)       (2,805,000)        (4,443,000)
         Amortization of prior service cost..........           15,000            15,000             27,000
         Recognized net (gain) loss..................         (321,000)         (222,000)         1,859,000
                                                        --------------     -------------      -------------
       Net periodic pension cost (benefit)...........   $   (1,020,000)    $    (120,000)     $     758,000
                                                        ==============     =============      =============
</TABLE>

       Actuarial  assumptions  used in the  accounting  for the U.K. Plan were a
       weighted  average  discount  rate of 6.0%  for 2001 and 6.5% for 2000 and
       1999,  an expected  long-term  rate of return on assets of 7.5% for 2001,
       2000 and 1999 and a rate of increase in  compensation  levels of 3.0% for
       2001, 2000 and 1999. The funded status of the U.K. Plan is as follows:

<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                          --------------------------------
                                                                                2001               2000
                                                                          --------------    --------------
<S>                                                                        <C>               <C>
       Projected benefit obligation:
         Beginning of year..........................................       $  36,548,000     $  37,098,000
         Service cost...............................................             515,000           623,000
         Interest cost..............................................           2,287,000         2,269,000
         Contributions..............................................             565,000           596,000
         Benefits paid..............................................          (1,907,000)         (910,000)
         Other......................................................           2,790,000        (3,128,000)
                                                                           -------------     -------------
         End of year................................................          40,798,000        36,548,000
                                                                           -------------     -------------
       Fair value of plan assets:
         Beginning of year..........................................          46,507,000        41,905,000
         Actual return (loss) on plan assets........................          (5,289,000)        2,940,000
         Contributions..............................................             565,000           596,000
         Benefits paid..............................................          (1,907,000)         (910,000)
         Other......................................................            (896,000)        1,976,000
                                                                           -------------     -------------
         End of year................................................          38,980,000        46,507,000
                                                                           -------------     -------------

       Excess fair value over (under) projected obligation..........          (1,818,000)        9,959,000
       Unrecognized net actuarial loss (gain).......................           4,136,000        (9,234,000)
       Unamortized prior service cost...............................             122,000           141,000
                                                                           -------------     -------------
       Net pension prepaid asset....................................           2,440,000           866,000

       Additional minimum liability.................................          (4,082,000)            -
                                                                           -------------     -------------
       Net pension prepaid asset (liability)........................       $  (1,642,000)    $     866,000
                                                                           =============     =============
</TABLE>

       The Company recognizes a minimum pension liability for underfunded plans.
       The minimum  liability is equal to the excess of the accumulated  benefit
       obligation  over plan assets.  A  corresponding  amount is  recognized as
       either an  intangible  asset,  to the extent of  previously  unrecognized
       prior  service cost, or a reduction of  accumulated  other  comprehensive
       income included in stockholders'  equity. In 2001, the Company recognized
       an additional  minimum liability of $4.1 million,  which, net of deferred
       income taxes of $1.3 million,  is recorded as a reduction in  accumulated
       other comprehensive income.

<PAGE>
4.     PROPERTY AND EQUIPMENT

       The cost of property  and  equipment  from  continuing  operations  is as
       follows:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                          --------------------------------
                                                                                2001             2000
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
       Technical services.....................................            $   23,969,000    $   22,614,000
       Information technology services........................                 5,564,000         4,123,000
       General corporate......................................                 3,848,000         3,848,000
                                                                          --------------    --------------
       Total property and equipment...........................                33,381,000        30,585,000
       Less accumulated depreciation and amortization.........                21,995,000        20,043,000
                                                                          --------------    --------------
       Net property and equipment.............................            $   11,386,000    $   10,542,000
                                                                          ==============    ==============
</TABLE>

       Equipment  under  capital  leases is included in the cost of property and
       equipment from continuing operations is as follows:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                          --------------------------------
                                                                                2001              2000
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
       Technical services equipment...........................            $    2,566,000    $    2,255,000
       Less accumulated depreciation..........................                 1,189,000         1,122,000
                                                                          --------------    --------------
       Net equipment acquired under capital leases............            $    1,377,000    $    1,133,000
                                                                          ==============    ==============
</TABLE>


5.     LONG-TERM DEBT

       Long-term debt from continuing operations is summarized as follows:
<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          --------------------------------
                                                                                2001             2000
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
       Technical services credit facility due in April 2003...            $   16,283,000    $   14,120,000
       Various notes of technical services foreign
         subsidiaries, with interest ranging from 6.75% to
         8.0%, due through 2012...............................                   855,000         3,473,000
       Capital leases of equipment............................                 1,440,000         1,199,000
       Parent company 8.75% convertible subordinated
         debentures due through 2008..........................                21,396,000        21,396,000
                                                                          --------------    --------------
       Total long-term debt...................................                39,974,000        40,188,000
       Less current portion...................................                 2,173,000           595,000
                                                                          --------------    --------------
       Total long-term debt, less current portion.............            $   37,801,000    $   39,593,000
                                                                          ==============    ==============
</TABLE>

       At  December  31,  2001,  $16.3  million was  outstanding  under a credit
       facility,  as amended,  that provides  working  capital for the technical
       services group.  The credit  facility,  which is without  recourse to the
       Company,  is due in April  2003,  bears  interest  at the  option  of the
       borrower at variable  rates  (4.52% at December 31, 2001) based on either
       the LIBOR rate or the prime rate plus a  differential  of up to 150 basis
       points,  has a commitment  fee equal to one-half of one percent per annum
       on  unutilized  amounts,   contains  certain  financial  and  operational
       covenants with respect to the technical services group of companies,  and
       restricts  the  subsidiary  from paying  dividends  to the Company  under
       certain  circumstances.  This credit facility is secured by substantially
       all of the tangible assets of the technical services group.

       The Company's 8.75% subordinated debentures ($21.4 million outstanding at
       December 31, 2001) are  convertible  into shares of the Company's  common
       stock at the conversion  price,  adjusted in 2001 for the Distribution of
       KSL, of $5.26 per share.  On March 1, 2002, the Company  purchased  $10.0
       million of  subordinated  debentures  at par value,  which  satisfies its
       sinking fund requirements on these subordinated debentures through 2007.

       At  December  31,  2001,   annual  sinking  fund  requirements  and  debt
       maturities  on  consolidated  debt,  including  capital  leases,  were as
       follows:  $2.2 million;  $18.9 million;  $2.3 million;  $2.1 million; and
       $2.1 million,  respectively,  for each of the five years ending  December
       31, 2006.


6.     CAPITAL STOCK

       Series A Preferred Stock

       On March 30, 2001, the Company  redeemed its 567,950 shares of Cumulative
       Class A Adjustable Rate Preferred Stock,  Series A ("Series A Preferred")
       for cash at the stated redemption price of $10.67 per share, plus accrued
       and unpaid dividends, for a total cost of approximately $6.1 million. The
       redemption  cost included a $0.4 million  redemption  premium,  which was
       recognized as dividends and  redemption  premium  applicable to preferred
       stock in 2001.

       Series B Preferred Stock

       On April 9,  1998,  the Board of  Directors  of the  Company  declared  a
       dividend  distribution  of one stock  purchase  right  ("Right") for each
       outstanding  share of common stock to stockholders of record on April 19,
       1998.  These  Rights are  substantially  similar  to, and were  issued in
       replacement  of,  rights that expired on April 19, 1998,  pursuant to the
       Company's  Stockholders  Rights Plan.  Pursuant to the replacement  plan,
       each Right entitles the holder, upon the occurrence of certain events, to
       purchase from the Company one one-hundredth of a share of Series B Junior
       Participating  Preferred  Stock, no par value, at a price of $15, subject
       to  adjustment.  The Rights will not  separate  from the common  stock or
       become  exercisable  until a person or group either  acquires  beneficial
       ownership  of 15% or more of the  Company's  common  stock or commences a
       tender or exchange  offer that would  result in ownership of 20% or more,
       whichever occurs earlier. The Rights, which expire on April 19, 2008, are
       redeemable in whole, but not in part, at the Company's option at any time
       for a price of $0.01 per Right.  At December 31, 2001 and 2000 there were
       no Series B Preferred shares outstanding.

       Stock Compensation Plans

       Series C and F Preferred Stock - On June 12, 2001, the Company  exchanged
       in non-cash transactions,  1,356,777 shares of the Company's common stock
       for all Adjustable Rate Cumulative Class A Preferred Stock,  Series C and
       Series F shares  issued to certain  officers of the Company.  General and
       administrative  expense in the  accompanying  consolidated  statements of
       income  includes a non-cash  charge of $1.4  million and $4.9 million for
       the  years  ended  December  31,  2000 and  1999,  respectively,  for the
       estimated value of the preferred shares.

       Stock Option  Plans - The Company has stock  option plans and  agreements
       for officers,  directors  and key  employees.  The options  granted under
       these plans and agreements generally expire ten years from date of grant.
       All options  were  granted at prices  greater than or equal to the market
       price at the date of grant or repricing. At December 31, 2001, options on
       3,049,083  shares at prices ranging from $.54 to $3.05 were  outstanding,
       of which 2,168,083 were exercisable at prices ranging from $.54 to $3.05.

       In  accordance  with the  provisions  of SFAS No.  123,  "Accounting  for
       Stock-Based  Compensation"  ("SFAS 123"), the Company applies APB Opinion
       25 and related  interpretations  in accounting for its stock option plans
       and, accordingly,  does not recognize compensation cost based on the fair
       value of the options granted at grant date as prescribed by SFAS 123. The
       Black-Scholes option pricing model has been used to estimate the value of
       stock options issued and the assumptions in the  calculations  under such
       model  include stock price  variance or volatility  ranging from 9.32% to
       10.40% based on weekly  average  variances of the stock for the five year
       period preceding issuance,  a risk-free rate of return ranging from 4.38%
       to 4.98% based on the 30-year U.S.  treasury  bill rate for the five-year
       expected  life of the options,  and no dividend  yield.  Using  estimates
       calculated  by such option  pricing  model,  pro forma net income,  basic
       earnings  per share  and  diluted  earnings  per  share  would  have been
       $25,132,000,  $0.75 and $0.71,  respectively  for the year ended December
       31, 2001, as compared to the reported  amounts of $25,725,000,  $0.78 and
       $0.74, respectively.  For the year ended December 31, 2000, pro forma net
       income,  basic  earnings  per share and diluted  earnings per share would
       have been $16,544,000,  $0.50 and $0.48, respectively, as compared to the
       reported amounts of $17,169,000,  $0.53 and $0.50, respectively.  For the
       year ended  December  31,  1999 pro forma net income,  basic  earning per
       share and diluted earnings per share would have been  $58,292,000,  $1.84
       and  $1.77,  respectively,   as  compared  to  the  reported  amounts  of
       $58,909,000, $1.86 and $1.79, respectively.

       The changes in stock  options  outstanding  for the  Company's  plans for
       2001, 2000 and 1999 were as follows:
<TABLE>
<CAPTION>
                                                                                            Average Price
                                                                          Shares               per Share
                                                                     ---------------        --------------

<S>                                                                      <C>                   <C>
       Outstanding at January 1, 1999.........................           2,091,352             $  3.36
       Granted................................................             210,191             $  4.29
       Exercised..............................................             (80,121)            $  2.64
       Forfeited..............................................            (154,622)            $  4.14
                                                                     -------------
       Outstanding at December 31, 1999.......................           2,066,800             $  3.42
       Granted................................................             207,840             $  5.18
       Exercised..............................................             (17,494)            $  4.99
       Forfeited..............................................             (58,863)            $  4.65
                                                                     -------------
       Outstanding at December 31, 2000.......................           2,198,283             $  3.54
       Granted................................................           1,016,000             $  2.67
       Exercised..............................................            (165,200)            $  2.89
                                                                     -------------
       Outstanding at December 31, 2001.......................           3,049,083             $  1.66
                                                                     =============
</TABLE>

       In connection with the  Distribution,  the exercise price for each option
       to purchase shares of the Company's common stock was reduced to an amount
       equal  to the  result  of (1) the  fair  market  value  of a share of the
       Company's  common  stock  on the  ex-dividend  date  multiplied  by (2) a
       fraction,  the numerator of which is the original  exercise price for the
       option and the  denominator of which was the fair market value of a share
       of the  Company's  common  stock on the last  trading  date  prior to the
       ex-dividend  date.  The number of shares  subject to the Company's  stock
       options were not changed as a result of the  Distribution.  Additionally,
       KSL agreed to issue to the Company's option holders an option to purchase
       KSL shares.  The exercise price applicable to a given KSL option was that
       price that created the same ratio of exercise price to market price as in
       the adjusted  exercise price  applicable to the holder's  Company option.
       The number of common shares subject to KSL options was such number as was
       necessary to produce an intrinsic value (determined as of the ex-dividend
       date) that,  when added to the  intrinsic  value of the adjusted  Company
       option   (determined   as  of  the   ex-dividend   date),   equaled   the
       pre-distribution  intrinsic  value  of  the  Company's  option,  if  any,
       (determined as of the last trading date prior to the  ex-dividend  date).
       However,  options  to  purchase  fractional  KSL common  shares  were not
       granted.  The fair market values of shares of the Company's  common stock
       and KSL common  shares  were based upon the  closing  sales  price of the
       stock on the last trading date prior to the ex-distribution  date and the
       opening sales price of the shares on the  ex-distribution  date. Further,
       excluding the Company's corporate staff, the Company removed restrictions
       on  exercise  or  "vested"  all  Company   options  which  were  not  yet
       exercisable prior to the Distribution.

       Deferred  Stock Unit Plan - In 1996,  the  Company  initiated  a Deferred
       Stock Unit Plan (the "DSU Plan"),  pursuant to which key employees of the
       Company have,  from time to time,  been given the  opportunity to defer a
       portion of their  compensation for a specified period toward the purchase
       of deferred  stock units  ("DSUs"),  an instrument  designed to track the
       Company's  common  stock.  Under the plan,  as amended in 1998,  DSUs are
       purchased at a value equal to the closing price of the  Company's  common
       stock on the day by which the employee  must elect (if they so desire) to
       participate   in  the  DSU  Plan;   which  date  is  established  by  the
       Compensation Committee, from time to time (the "Election Date"). During a
       vesting  period of one to three years  following  the  Election  Date,  a
       participant's  DSUs  vest only in an  amount  equal to the  lesser of the
       compensation  actually  deferred  to date or the  value  (based  upon the
       then-current closing price of the Company's common stock) of the pro-rata
       portion  (as of such  date) of the  number  of DSUs  acquired.  After the
       expiration of the vesting  period,  which is typically the same length as
       the  deferral  period,  the DSUs  become  fully  vested,  but may only be
       distributed  through  the  issuance  of a like  number  of  shares of the
       Company's  common  stock on a  pre-selected  date,  which is  irrevocably
       selected by the  participant  on the Election Date and which is typically
       at or after the  expiration  of the vesting  period and no later than ten
       years after the Election Date, or at the time of a "change of control" of
       the Company, if earlier.  DSU accounts are unfunded by the Company and do
       not bear interest. Each person that elects to participate in the DSU Plan
       is  awarded,  under the  Company's  Stock  Incentive  Plan,  an option to
       purchase a number of shares of the  Company's  common stock  ranging from
       one-half to one and one-half times  (depending on the length of deferral)
       the number of DSUs  purchased by such person at 100% of the closing price
       of the Company's  common stock on the Election Date, which options become
       exercisable  over a  specified  period  after the grant,  according  to a
       schedule determined by the Compensation  Committee. At December 31, 2001,
       vested DSUs aggregating 448,035 were included in stockholders'  equity as
       additional  paid-in  capital.  In connection with the  Distribution,  KSL
       agreed to issue to all DSU holders the number of DSUs equivalent in price
       to KSL shares  issuable in the  Distribution.  All other  terms  remained
       unchanged. Similarly, the Company agreed to issue to employees of KSL who
       hold DSUs, the number of shares of the Company's  common stock subject to
       the DSUs held by those  employees.  Approximately  600,000 shares will be
       issuable to employees of the Company and KSL under this  arrangement  and
       the terms of the DSU Plan.


7.     EARNINGS PER SHARE

       The following is a reconciliation of basic and diluted earnings per share
       from continuing operations:
<TABLE>
<CAPTION>
                                                                               Weighted
                                                                                Average
                                                               Net              Common          Per-Share
                                                             Income             Shares           Amount
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <c>
         Year Ended December 31, 2001
         ----------------------------
           Income from continuing operations.........   $    22,388,000
           Dividend and redemption premium
              applicable to preferred stock..........          (493,000)
                                                        ---------------
           Basic EPS -
              Income applicable to common stock......        21,895,000        32,503,000    $         0.68
                                                                                             ==============
           Effect of dilutive securities -
              Common stock options, Series F
                Preferred Stock and DSUs.............            -              1,631,000
                                                        ---------------    --------------
           Diluted EPS -
              Income applicable to common stock,
                Series F Preferred stock, DSUs
                and assumed options exercised........   $    21,895,000        34,134,000    $         0.64
                                                        ===============    ==============    ==============

         Year Ended December 31, 2000
         ----------------------------
           Income from continuing operations.........   $     6,783,000
           Dividend applicable to preferred stock....          (479,000)
                                                        ---------------
           Basic EPS -
              Income applicable to common stock......         6,304,000        31,767,000    $         0.20
                                                                                             ==============
           Effect of dilutive securities -
              Common stock options, Series F
                Preferred Stock and DSUs.............            -              1,319,000
                                                        ---------------    --------------
           Diluted EPS -
              Income applicable to common stock,
                Series F Preferred stock, DSUs
                and assumed options exercised........   $     6,304,000        33,086,000    $         0.19

                                                         ===============    ==============    ==============
<PAGE>
                                                                               Weighted
                                                                                Average
                                                               Net              Common          Per-Share
                                                             Income             Shares           Amount
                                                        ---------------    --------------    --------------
        Year Ended December 31, 1999
         ----------------------------
           Income from continuing operations.........   $    30,450,000
           Dividend applicable to preferred stock....          (487,000)
                                                        ---------------
           Basic EPS -
              Income applicable to common stock......        29,963,000        31,453,000    $         0.95
                                                                                             ==============
           Effect of dilutive securities -
              Common stock options, Series F
                Preferred Stock and DSUs.............            -              1,237,000
                                                        ---------------    --------------
           Diluted EPS -
              Income applicable to common stock,
                Series F Preferred stock, DSUs
                and assumed options exercised........   $    29,963,000        32,690,000    $         0.92
                                                        ===============    ==============    ==============
</TABLE>

       Options to purchase  959,000,  284,597 and 605,600 shares of common stock
       at weighted average prices of $2.71, $5.40 and $4.90, were outstanding at
       December 31, 2001, 2000 and 1999, respectively,  but were not included in
       the  computation  of diluted EPS because the options'  exercise price was
       greater than the average market price of the common stock.  Additionally,
       the Company's  8.75%  convertible  subordinated  debentures were excluded
       from the  computation  of  diluted  EPS  because  the  effect of  assumed
       conversion is anti-dilutive.

<PAGE>
8.     COMMITMENTS AND CONTINGENCIES

       The Company leases  vehicles,  office space,  office  equipment and other
       items of  personal  property  under  leases  expiring  at various  dates.
       Management  expects that,  in the normal course of business,  leases that
       expire will be renewed or replaced by other  leases.  Total rent  expense
       incurred under operating leases attributable to continuing operations was
       $3.6 million for 2001, $3.2 million for 2000 and $3.6 million for 1999.


       At December 31, 2001, future minimum rental  commitments  attributable to
       continuing  operations  under all capital leases and operating leases are
       as follows:
<TABLE>
<CAPTION>
                                                                           Capital             Operating
                                                                           Leases               Leases
                                                                       --------------       --------------
<S>      <C>                                                           <C>                  <C>
         2002.....................................................     $      719,000       $    2,989,000
         2003.....................................................            526,000            2,383,000
         2004.....................................................            274,000            2,008,000
         2005 ....................................................             71,000            1,079,000
         2006.....................................................               -                 705,000
         Thereafter...............................................               -               1,670,000
                                                                       --------------       --------------
         Total minimum lease payments.............................          1,590,000       $   10,834,000
                                                                                            ==============
         Less amounts representing interest.......................           (150,000)
                                                                       --------------
         Present value of net minimum lease payments..............     $    1,440,000
                                                                       ==============
</TABLE>

       The Company was the Plaintiff in a legal proceeding involving malpractice
       issues  with a  professional  service  provider  previously  used  by the
       Company.  This matter was settled in December  2001 with a payment to the
       Company which,  net of expenses,  totaled $6.0 million and is included in
       other income (expense) for the year ended December 31, 2001.

       The Company has contingent liabilities resulting from litigation,  claims
       and commitments  incident to the ordinary course of business.  Management
       believes, based on the advice of counsel, that the ultimate resolution of
       such  contingencies  will not have a  materially  adverse  effect  on the
       financial position or results of operations of the Company.

9.     BUSINESS SEGMENT DATA

       The Company provides technical  services to an international  client base
       that includes refineries,  chemical plants, pipelines,  offshore drilling
       and  production  platforms,   steel  mills,  food  and  drink  processing
       facilities, power generation, and other process industries. Additionally,
       the Company's information technology services segment provides consulting
       services,  hardware  sales and other related  information  management and
       processing   services   to   governmental,    insurance   and   financial
       institutions.  General corporate includes  compensation and benefits paid
       to officers and employees of the Company, insurance premiums, general and
       administrative  costs, tax and financial reporting costs, legal and audit
       fees not  reasonably  allocable to specific  business  segments.  General
       corporate  assets  include  cash,  deferred  taxes and other  assets  not
       related to its segments.
<PAGE>
       The Company measures segment profit as operating income. Total assets are
       those assets,  including  excess of cost over fair value of net assets of
       acquired businesses, controlled by each reportable segment.
<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                        ---------------------------------------------------
                                                             2001                2000            1999
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Business segment revenues:
         Technical services..........................   $    96,321,000    $   92,142,000    $   98,075,000
         Information technology services.............        48,383,000        35,499,000        37,358,000
                                                        ---------------    --------------    --------------
                                                        $   144,704,000    $  127,641,000    $  135,433,000
                                                        ===============    ==============    ==============
       Technical services segment revenues:
         Under pressure services.....................   $    39,903,000    $   38,652,000    $   38,873,000
         Turnaround services.........................        48,301,000        44,283,000        43,859,000
         Other services..............................         8,117,000         9,207,000        15,343,000
                                                        ---------------    --------------    --------------
                                                        $    96,321,000    $   92,142,000    $   98,075,000
                                                        ===============    ==============    ==============
</TABLE>
<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                        ---------------------------------------------------
                                                             2001                2000            1999
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Business segment profit:
         Technical services .........................   $     5,581,000    $    6,320,000    $     (255,000)
         Information technology services.............         3,651,000         4,134,000         5,496,000
         General corporate...........................        (3,803,000)       (6,352,000)       (9,807,000)
                                                        ---------------    --------------    --------------
           Operating income (loss)...................         5,429,000         4,102,000        (4,566,000)
         Interest income.............................           665,000           909,000           534,000
         Other income (expense)......................         6,741,000          (239,000)         (208,000)
         Interest expense............................        (3,486,000)       (3,883,000)       (3,817,000)
                                                        ---------------    --------------    --------------
         Income (loss) from continuing operations
           before income taxes.......................   $     9,349,000    $      889,000    $   (8,057,000)
                                                        ===============    ==============    ==============

       Business segment assets:
         Depreciation and amortization:
           Technical services........................   $     4,514,000    $    4,585,000    $    5,485,000
           Information technology services...........           694,000           512,000           411,000
                                                        ---------------    --------------    --------------
                                                        $     5,208,000    $    5,097,000    $    5,896,000
                                                        ===============    ==============    ==============

         Capital expenditures (excluding acquisitions):
           Technical services........................   $     3,331,000    $    2,160,000    $    2,328,000
           Information technology services...........         1,294,000           530,000           391,000
                                                        ---------------    --------------    --------------
                                                        $     4,625,000    $    2,690,000    $    2,719,000
                                                        ===============    ==============    ==============
</TABLE>
<TABLE>
<CAPTION>

                                                                             December 31,
                                                        ---------------------------------------------------
                                                              2001               2000             1999
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
         Total assets:
           Technical services........................   $   102,147,000    $  103,817,000    $  108,094,000
           Information technology services...........        30,877,000        20,086,000        17,911,000
           General corporate.........................        53,195,000        60,918,000        50,171,000
           Discontinued operations, net..............             -            41,822,000        43,364,000
                                                        ---------------    --------------    --------------
                                                        $   186,219,000    $  226,643,000    $  219,540,000
                                                        ===============    ==============    ==============
</TABLE>

<PAGE>
       The following  geographical area data includes revenues based on location
       of the operating segment and net property and equipment based on physical
       location:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                        ---------------------------------------------------
                                                              2001               2000             1999
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Geographical area revenues:
         United States............................      $    84,171,000    $   67,242,000    $   67,145,000
         Europe...................................           48,554,000        50,446,000        57,258,000
         Asia-Pacific.............................           11,979,000         9,953,000        11,030,000
                                                        ---------------    --------------    --------------
                                                        $   144,704,000    $  127,641,000    $  135,433,000
                                                        ===============    ==============    ==============
       Geographical area operating income (loss):
         United States............................      $    (2,461,000)   $   (3,757,000)   $   (7,164,000)
         Europe...................................            7,011,000         6,997,000         2,041,000
         Asia-Pacific.............................              879,000           862,000           557,000
                                                        ---------------    --------------    --------------
                                                        $     5,429,000    $    4,102,000    $   (4,566,000)
                                                        ===============    ==============    ==============

</TABLE>
<TABLE>
<CAPTION>
                                                                             December 31,
                                                        ---------------------------------------------------
                                                              2001               2000             1999
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Geographical area net property and equipment:
         United States............................      $     5,346,000    $    3,099,000    $    3,536,000
         Europe...................................            5,110,000         6,506,000         6,288,000
         Asia-Pacific.............................              930,000           937,000         1,364,000
                                                        ---------------    --------------    --------------
                                                        $    11,386,000    $   10,542,000    $   11,188,000
                                                        ===============    ==============    ==============
</TABLE>

<PAGE>
10.    DISCONTINUED OPERATIONS - BUSINESSES DISTRIBUTED TO COMMON SHAREHOLDERS

       The  results of  operations  for the  pipeline,  terminaling  and product
       marketing  businesses  are  reflected  in the  accompanying  consolidated
       statements of income as "Discontinued operations - businesses distributed
       to common  shareholders"  (See Note 1). A summary of operating results of
       discontinued  operations  for the years ended  December 31, 2001 (through
       date of Distribution on June 29, 2001), 2000 and 1999 is presented below:
<TABLE>
<CAPTION>

                                                                        Year Ended December 31,
                                                        -----------------------------------------------------
                                                             2001                2000                1999
                                                        --------------      -------------       -------------
<S>                                                     <C>                 <C>                 <C>
       Revenues:
         Pipeline and terminaling..................     $  101,021,000      $ 156,232,000       $ 158,028,000
         Product marketing business................        187,231,000        381,186,000         212,298,000
                                                        --------------      -------------       -------------
                                                        $  288,252,000      $ 537,418,000       $ 370,326,000
                                                        ==============      =============       =============
       Operating profit:
         Pipeline and terminaling..................     $   39,896,000      $  58,104,000       $  64,311,000
         Product marketing business................           (264,000)         2,472,000           1,495,000
         Distribution expenses.....................         (1,923,000)              -                   -
                                                        --------------      -------------       -------------
                                                        $   37,709,000      $  60,576,000       $  65,806,000
                                                        ==============      =============       =============
       Income before income taxes and interest
         of outside non-controlling partners in
         KPP's net income and extraordinary item...     $   32,653,000      $  48,688,000       $  69,101,000

       Income taxes................................         (3,090,000)        (5,609,000)         (7,163,000)
       Extraordinary loss on KPP debt
         extinguishment, net of income taxes
         and interest of outside non-controlling
         partners in KPP's net income..............           (859,000)              -                   -
       Interest of outside non-controlling partners
         in KPP's net income.......................        (25,367,000)       (32,693,000)        (33,479,000)
                                                        --------------      -------------       -------------
       Income from discontinued operations,
         net of income taxes.......................     $    3,337,000      $  10,386,000       $  28,459,000
                                                        ==============      =============       =============
</TABLE>

       On January 3, 2001,  KPP,  through a  wholly-owned  subsidiary,  acquired
       Shore  Terminals LLC ("Shore") for $107 million in cash and 1,975,090 KPP
       limited  partnership  units  (valued  at  $56.5  million  on the  date of
       agreement  and its  announcement).  Financing for the cash portion of the
       purchase price was supplied under KPP's $275 million unsecured  revolving
       credit  agreement  with a  group  of  banks.  The  acquisition  has  been
       accounted for using the purchase method of accounting. As a result of KPP
       issuing  additional units to unrelated  parties,  the Company's  pro-rata
       share of net assets of KPP  increased by $9.9 million.  Accordingly,  the
       Company recorded a $9.9 million  increase in additional  paid-in capital,
       before deferred income taxes of $3.8 million, in 2001.

       In March of 2001,  a  wholly-owned  subsidiary  of KPP  entered  into two
       contracts for the purpose of locking in interest rates on $100 million of
       anticipated  ten-year public debt  offerings.  As the interest rate locks
       were not designated as hedging  instruments  pursuant to the requirements
       of SFAS  No.  133,  increases  or  decreases  in the  fair  value  of the
       contracts  are  recognized  by KPP in results of  operations on a current
       basis.  On May 22,  2001,  the  contracts  were  settled  resulting in an
       aggregate gain to KPP of $3.8 million.

<PAGE>
11.    ACCRUED EXPENSES

       Accrued  expenses  from  continuing   operations  are  comprised  of  the
       following components:
<TABLE>
<CAPTION>

                                                                                    December 31,
                                                                          ---------------------------------
                                                                                2001              2000
                                                                          ----------------   --------------
<S>                                                                       <C>                <C>
       Accrued taxes other than income...............................     $      409,000     $      403,000
       Accrued interest..............................................          1,014,000            882,000
       Accrued compensation and benefits.............................          4,393,000          2,366,000
       Other accrued expenses........................................          7,343,000          8,058,000
                                                                          --------------     --------------
                                                                          $   13,159,000     $   11,709,000
                                                                          ==============     ==============
</TABLE>

12.    SUPPLEMENTAL CASH FLOW INFORMATION

       Supplemental information on cash paid from continuing operations for:
<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                            -------------------------------------------------
                                                                 2001              2000               1999
                                                            --------------    ---------------    ------------
<S>                                                         <C>               <C>                <C>
       Interest......................................       $    3,383,000    $     3,755,000    $  3,719,000
                                                            ==============    ===============    ============
       Income taxes..................................       $    1,270,000    $     1,716,000    $  1,030,000
                                                            ==============    ===============    ============
</TABLE>


13.    FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

       The estimated  fair value of cash  equivalents,  accounts  receivable and
       accounts payable approximate their carrying amounts due to the relatively
       short period to maturity of these  instruments.  The estimated fair value
       of all debt from continuing  operations  (excluding capital leases) as of
       December 31, 2001 and 2000 was  approximately $37 million and $36 million
       as  compared  to the  carrying  value  of $39  million  and $39  million,
       respectively. These fair values were estimated using discounted cash flow
       analysis,  based on the Company's current incremental borrowing rates for
       similar types of borrowing  arrangements,  when quoted market prices were
       not  available.  The  Company  has not  determined  the fair value of its
       capital leases as it is not  practicable.  The estimates  presented above
       are not necessarily indicative of the amounts that would be realized in a
       current  market  exchange.   The  Company  has  no  derivative  financial
       instruments.

       The technical  services  segment  provides  services to an  international
       client base that includes petroleum refineries, chemical plants, offshore
       energy  production  platforms,   steel  mills,  nuclear  power  stations,
       conventional  power  stations,  pulp and paper  mills,  food and beverage
       processing  plants and other  flow-process  facilities.  The  information
       technology services segment provides services and related products to the
       U. S.  Government and commercial  sectors.  A substantial  portion of the
       revenues  of  the  information  technology  segment  is  attributable  to
       contracts  with  agencies of the U. S.  Government.  The Company does not
       believe  that  it has a  significant  concentration  of  credit  risk  at
       December 31, 2001, as the  Company's  accounts  receivable  are generated
       from these distinct business  segments with customers located  throughout
       the United States, Europe and Asia-Pacific.


<PAGE>
14.    QUARTERLY FINANCIAL DATA (UNAUDITED)

       Quarterly operating results for 2001 and 2000 are summarized as follows:
<TABLE>
<CAPTION>

                                                                        Quarter Ended
                                           -----------------------------------------------------------------------
                                               March 31,          June 30,        September 30,      December 31,
                                           ---------------    --------------     --------------    ---------------
<S>                                        <C>                <C>                <C>               <C>
       2001:
       Revenues.........................   $    35,892,000    $   38,724,000     $   34,935,000    $    35,153,000
                                           ===============    ==============     ==============    ===============
       Operating income.................   $     1,524,000    $    1,388,000     $    1,585,000    $       932,000
                                           ===============    ==============     ==============    ===============
       Net income (loss):
         Continuing operations..........   $       373,000    $      685,000     $    1,229,000    $    20,101,000 (a)
         Discontinued operations........           657,000         2,766,000               -               (86,000)
                                           ---------------    --------------     --------------    ---------------
           Total........................   $     1,030,000    $    3,451,000     $    1,229,000    $    20,015,000
                                           ===============    ==============     ==============    ===============

       Earnings per common share:
         Basic:
           Continuing operations........   $        -         $          .02     $          .04    $           .60
           Discontinued operations......               .02               .09            -                  -
                                           ---------------    --------------     --------------    ---------------
              Total.....................   $           .02    $          .11     $          .04    $           .60
                                           ===============    ==============     ==============    ===============
         Diluted:
           Continuing operations........   $        -         $          .02     $          .04    $           .59
           Discontinued operations......               .02               .08            -                  -
                                           ---------------    --------------     --------------    ---------------
              Total.....................   $           .02    $          .10     $          .04    $           .59
                                           ===============    ==============     ==============    ===============

       2000:
       Revenues.........................   $    31,294,000    $   33,380,000     $   33,763,000    $    29,204,000
                                           ===============    ==============     ==============    ===============
       Operating income (loss)..........   $       555,000    $    1,575,000     $    2,006,000    $       (34,000)
                                           ===============    ==============     ==============    ===============
       Net income (loss):
         Continuing operations..........   $      (235,000)   $      587,000     $    1,190,000    $     5,241,000 (b)
         Discontinued operations........         2,160,000         2,947,000          3,269,000          2,010,000
                                           ---------------    --------------     --------------    ---------------
           Total........................   $     1,925,000    $    3,534,000     $    4,459,000    $     7,251,000
                                           ===============    ==============     ==============    ===============

       Earnings (loss) per common share:
         Basic:
           Continuing operations........   $          (.01)   $          .01     $          .03    $           .17
           Discontinued operations......               .07               .10                .11                .06
                                           ---------------    --------------     --------------    ---------------
              Total.....................   $           .06    $          .11     $          .14    $           .23
                                           ===============    ==============     ==============    ===============
         Diluted:
           Continuing operations........   $          (.01)   $          .01     $          .03    $           .16
           Discontinued operations......               .07               .09                .10                .06
                                           ---------------    --------------     --------------    ---------------
              Total.....................   $           .06    $          .10     $          .13    $           .22
                                           ===============    ==============     ==============    ===============
</TABLE>


       (a)    See  Note 2  regarding  income  tax  benefits  resulting  from the
              recapitalization of a foreign subsidiary ($18.1 million).

       (b)    See Note 2 regarding reduction in valuation allowance for deferred
              tax assets ($6.3 million).



<PAGE>
                                                                      Schedule I

                       XANSER CORPORATION (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME


<TABLE>
<CAPTION>


                                                                             Year Ended December 31,
                                                              -----------------------------------------------------
                                                                   2001               2000                1999
                                                              -------------       -------------      --------------

<S>                                                           <C>                 <C>                <C>
General and administrative expenses.....................      $  (3,803,000)      $  (6,352,000)     $   (9,807,000)
Interest expense........................................         (2,270,000)         (2,242,000)         (2,218,000)
Intercompany fees and expenses..........................          2,446,000           2,915,000           3,189,000
Interest and other income, net..........................          7,254,000             804,000           1,677,000
Equity in income (loss) of subsidiaries.................          4,112,000           9,648,000          (1,553,000)
                                                              -------------       -------------      --------------
Income (loss) from continuing operations
   before income taxes..................................          7,739,000           4,773,000          (8,712,000)
Income tax benefit......................................         14,649,000           2,010,000          39,162,000
                                                              -------------       -------------      --------------
Income from continuing operations.......................         22,388,000           6,783,000          30,450,000
Income from discontinued operations - businesses
   distributed to common shareholders, net of
   income taxes.........................................          3,337,000          10,386,000          28,459,000
                                                              -------------       -------------      --------------
Net income..............................................         25,725,000          17,169,000          58,909,000
Dividends and redemption premium applicable
   to preferred stock...................................            493,000             479,000             487,000
                                                              -------------       -------------      --------------

Net income applicable to common  stock..................      $  25,232,000       $  16,690,000      $   58,422,000
                                                              =============       =============      ==============

Earnings per common share:
    Basic:
      Continuing operations.............................      $        0.68       $        0.20      $         0.95
      Discontinued operations...........................               0.10                0.33                0.91
                                                              -------------       -------------      --------------
                                                              $        0.78       $        0.53      $         1.86
                                                              =============       =============      ==============
    Diluted:
      Continuing operations.............................      $        0.64       $        0.19      $         0.92
      Discontinued operations...........................               0.10                0.31                0.87
                                                              -------------       -------------      --------------
                                                              $        0.74       $        0.50      $         1.79
                                                              =============       =============      ==============

</TABLE>



               See "Notes to Consolidated Financial Statements" of
            Xanser Corporation and Subsidiaries included in this report.

                                     F - 22

<PAGE>
                                                                      Schedule I
                                                                     (Continued)
                       XANSER CORPORATION (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                             --------------------------------------
                                                                                  2001                   2000
                                                                             ---------------        ---------------

                                     ASSETS
Current assets:
<S>                                                                          <C>                    <C>
   Cash and cash equivalents............................................     $    23,353,000        $    13,953,000
   Receivable from businesses distributed to common shareholders........          17,904,000                  -
   Current deferred income tax assets...................................           2,300,000             36,489,000
   Prepaid expenses and other...........................................           2,807,000              2,928,000
                                                                             ---------------        ---------------

     Total current assets...............................................          46,364,000             53,370,000
                                                                             ---------------        ---------------

Property and equipment..................................................           3,848,000              3,848,000
Less accumulated depreciation...........................................           3,848,000              3,848,000
                                                                             ---------------        ---------------

     Net property and equipment.........................................               -                      -
                                                                             ---------------        ---------------

Investments in, advances to and notes receivable
  from subsidiaries.....................................................          97,444,000             96,450,000

Deferred income tax and other assets....................................           6,831,000              6,910,000

Net assets of discontinued operations - businesses distributed
   to common shareholders...............................................               -                 41,822,000
                                                                             ---------------        ---------------
                                                                             $   150,639,000        $   198,552,000
                                                                             ===============        ===============


                             LIABILITIES AND EQUITY

Current liabilities:
   Current portion of long-term debt....................................     $     1,466,000        $         -
   Accounts payable and accrued expenses................................          13,472,000              5,741,000
                                                                             ---------------        ---------------

     Total current liabilities..........................................          14,938,000              5,741,000
                                                                             ---------------        ---------------

Long-term debt, less current portion....................................          19,930,000             21,396,000

Deferred income taxes and other liabilities.............................             265,000              5,376,000

Stockholders' equity:
   Preferred stock, without par value...................................               -                  5,792,000
   Common stock, without par value......................................           4,270,000              4,250,000
   Additional paid-in capital...........................................         128,744,000            203,989,000
   Treasury stock, at cost..............................................         (23,423,000)           (31,440,000)
   Retained earnings (accumulated deficit)..............................          11,921,000            (13,311,000)
   Accumulated comprehensive income (loss)..............................          (6,006,000)            (3,241,000)
                                                                             ---------------        ---------------

       Total stockholders' equity.......................................         115,506,000            166,039,000
                                                                             ---------------        ---------------
                                                                             $   150,639,000        $   198,552,000
                                                                             ===============        ===============
</TABLE>

               See "Notes to Consolidated Financial Statements" of
            Xanser Corporation and Subsidiaries included in this report.

                                     F - 23

<PAGE>
                                                                      Schedule I
                                                                     (Continued)
                       XANSER CORPORATION (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                          Year Ended December 31,
                                                       -----------------------------------------------------------
                                                              2001                2000                 1999
                                                       -----------------    ----------------    ------------------
Operating activities:
<S>                                                    <C>                  <C>                 <C>
   Income from continuing operations.................  $      22,388,000    $      6,783,000    $       30,450,000
   Adjustments to reconcile income from
     continuing operations to net cash provided
     by (used in) operating activities:
       Equity in loss (income) of subsidiaries.......         (4,112,000)         (9,648,000)            1,553,000
       Deferred income taxes.........................        (21,032,000)         (1,223,000)          (36,918,000)
       Increase in the estimated redemption value of
         preferred stock.............................              -               1,387,000             4,863,000
       Changes in current assets and liabilities:
         Prepaid expenses and other current assets...            121,000          (1,694,000)           (1,057,000)
         Accounts payable and accrued expenses ......          1,250,000             141,000            (1,767,000)
                                                       -----------------    ----------------    ------------------
         Net cash provided by (used in)
           operating activities......................         (1,385,000)         (4,254,000)           (2,876,000)
                                                       -----------------    ----------------    ------------------
Investing activities:
   Change in other assets, net.......................           (507,000)         (2,092,000)           (3,450,000)
                                                       -----------------    ----------------    ------------------
         Net cash used in investing activities.......           (507,000)         (2,092,000)           (3,450,000)
                                                       -----------------    ----------------    ------------------

Financing activities:
   Preferred stock dividends paid....................           (493,000)           (479,000)             (487,000)
   Payments on debt..................................              -              (2,270,000)                -
   Change in investments in, advances to and notes
     receivable from subsidiaries....................            345,000           2,655,000             8,092,000
   Common stock issued...............................            545,000             255,000               253,000
   Purchase of treasury stock........................              -              (1,530,000)             (555,000)
   Redemption of preferred stock.....................         (5,676,000)               -                    -
   Decrease in receivable from businesses
     distributed to common shareholders..............         14,076,000                -                    -
   Change in net assets of discontinued operations...          2,495,000          11,928,000             7,888,000
                                                       -----------------    ----------------    ------------------

        Net cash provided by financing activities....         11,292,000          10,559,000            15,191,000
                                                       -----------------    ----------------    ------------------

Increase in cash and cash equivalents................          9,400,000           4,213,000             8,865,000
Cash and cash equivalents at beginning of year.......         13,953,000           9,740,000               875,000
                                                       -----------------    ----------------    ------------------

Cash and cash equivalents at end of year.............  $      23,353,000    $     13,953,000    $        9,740,000
                                                       =================    ================    ==================

</TABLE>
               See "Notes to Consolidated Financial Statements" of
            Xanser Corporation and Subsidiaries included in this report.

                                     F - 24


<PAGE>
                                                                     Schedule II
                               XANSER CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                   Additions
                                                         -----------------------------
                                          Balance at       Charged to      Charged to                      Balance at
                                         Beginning of      Costs and         Other                           End of
         Descriptions                      Period          Expenses        Accounts         Deductions        Period
------------------------------------   --------------    -------------    -------------   --------------   -----------

ALLOWANCE DEDUCTED FROM
  ASSETS TO WHICH THEY APPLY

Year Ended December 31, 2001:
<S>                                    <C>               <C>               <C>             <C>             <C>
   For doubtful receivables
     classified as current assets...   $         605      $        485    $          (9)(a) $        (47)(b)$    1,034
                                       =============      ============    =============     ============    ==========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $         -        $      -        $        -        $       -       $      -
                                       =============      ===========     =============     ============    ==========

Year Ended December 31, 2000:
   For doubtful receivables
     classified as current assets...   $         999      $        92     $         (10)(a) $       (476)(b)$      605
                                       =============      ===========     =============    =============    ==========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $       7,204      $     -         $        -        $     (7,204)   $      -
                                       =============      ===========     =============     ============    ==========

Year Ended December 31, 1999:
   For doubtful receivables
     classified as current assets...   $         727      $       664     $        (119)(a) $       (273)(b)$      999
                                       =============      ===========     =============     ============    ==========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $      52,797      $     -         $        -        $    (45,593)   $    7,204
                                       =============      ===========     =============     ============    ==========
</TABLE>


Notes:

       (a)    Foreign currency translation adjustments.

       (b)    Receivable write-offs and reclassifications, net of recoveries.


                                     F - 25


<PAGE>
                                   SIGNATURES

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



                                     XANSER CORPORATION

                                     By:             JOHN R. BARNES
                                        ----------------------------------------
                                        President and Chief Executive Officer
                                     Date:    March 28, 2002

       Pursuant to the  requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the  following  persons on behalf of Xanser
Corporation and in the capacities and on the date indicated.
<TABLE>
<CAPTION>

            Signature                                                 Title                              Date

<S>                                                        <C>                                     <C>
Principal Executive Officer

           JOHN R. BARNES                                  President, Chief Executive              March 28, 2002
----------------------------------------                       Officer and Director

Principal Accounting Officer

          MICHAEL R. BAKKE                                 Controller                              March 28, 2002
----------------------------------------


Directors

             SANGWOO AHN                                   Director                                March 28, 2002
----------------------------------------



           JOHN R. BARNES                                  Director                                March 28, 2002
---------------------------------------



         FRANK M. BURKE, JR.                               Director                                March 28, 2002
----------------------------------------



           CHARLES R. COX                                  Director                                March 28, 2002
----------------------------------------



            HANS KESSLER                                   Director                                March 28, 2002
----------------------------------------



          JAMES R. WHATLEY                                 Director                                March 28, 2002
----------------------------------------

</TABLE>