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, 1999

                                       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
                              KANEB SERVICES, INC.
             (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
Adjustable Rate Cumulative Class A                       New York Stock Exchange
  Preferred Stock
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.[ X ]

     Aggregate  market value of the voting stock held by  non-affiliates  of the
Registrant:  $147,323,368.  This figure is estimated  as of March 15,  2000,  at
which date the closing  price of the  Registrant's  Common Stock on the New York
Stock  Exchange  was $5.125 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 15, 2000: 31,205,382.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information required by Part III (Items 10, 11, 12 and 13) of Form 10-K
is incorporated by reference from portions of the Registrant's  definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.


<PAGE>
                                     PART I

Item 1.    Business

GENERAL

         Kaneb Services,  Inc. ("Kaneb" or the "Company") conducts its principal
businesses in four industry segments: (i) pipeline and terminaling, (ii) product
marketing,  (iii) information services and (iv) specialized industrial services.
The pipeline and terminaling and product  marketing  segments  operate through a
wholly-owned subsidiary of the Company, Kaneb Pipe Line Company. The information
services and  industrial  services  segments  operate  through the  wholly-owned
subsidiaries of Kaneb Information Services, Inc. and Furmanite Worldwide,  Inc.,
respectively.  Kaneb Pipe Line  Company  ("KPL")  operates  and manages  refined
petroleum  products pipeline  transportation  systems and petroleum products and
specialty  liquids terminal  storage and pipeline  facilities for the benefit of
Kaneb Pipe Line Partners,  L.P.  ("KPP" or the  "Partnership"),  which owns such
systems and facilities  through its subsidiaries.  See "Pipeline and Terminaling
Services."  KPL also  conducts  product  marketing  activities  through  another
wholly-owned  subsidiary.  Acquired by KPL in March 1998, this business provides
wholesale  motor fuel  marketing  services  throughout the Great Lakes and Rocky
Mountain  regions and in California.  See "Product  Marketing  Services."  Kaneb
Information  Services,  Inc. is engaged in the information  management  services
industry  through  its  wholly-owned  subsidiaries,  which  offer  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.  See  "Information  Services."
Furmanite Worldwide,  Inc., and its domestic and international  subsidiaries and
affiliates (collectively, "Furmanite"), provide specialized industrial services,
including  underpressure  leak  sealing,  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
Continental  Europe,  North  America,   Latin  America  and  Asia-Pacific.   See
"Industrial Services."

         Kaneb Services,  Inc. was incorporated in Delaware on January 23, 1953.
The Company  conducts its business through the  subsidiaries  identified  above,
among  others.  Kaneb'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 Kaneb's operating segments and foreign
operations is presented under the caption  "Business Segment Data" in Note 11 to
the Company's  consolidated  financial  statements.  Such  information is hereby
incorporated by reference into this Item 1.


PIPELINE AND TERMINALING SERVICES

         Through its KPL  subsidiary,  Kaneb  manages and  operates  its refined
petroleum  products pipeline  transportation  system and petroleum  products and
specialty liquids terminal storage business,  for the benefit of KPP, which owns
such systems and  facilities  through its  subsidiaries.  The pipeline  business
consists  primarily  of the  transportation,  as a common  carrier,  of  refined
petroleum products in Colorado,  Iowa,  Kansas,  Nebraska,  North Dakota,  South
Dakota and Wyoming, as well as related terminaling  activities.  The terminaling
business  is  conducted  by  KPP  under  the  tradenames  of "ST  Services"  and
"StanTrans,  Inc.," among others  (collectively,  "ST").  Kaneb operates ST's 34
terminal  storage  facilities  in 19 states and the District of Columbia and six
terminal storage  facilities in the United Kingdom,  with total storage capacity
of  approximately  28.8 million  barrels.  Including  those  situated  along its
refined petroleum products pipeline systems, the Partnership's  terminal storage
operations comprise the third largest independent liquids terminaling company in
the United  States.  For the year ended  December  31,  1999,  the  pipeline and
terminaling services segments' revenues and operating income were $158.0 million
and $64.3 million,  respectively.  See "Management's  Discussion and Analysis of
Financial Conditions and Results of Operations".  For a more detailed discussion
of the business,  activities and results of operations of KPP, reference is made
to its Annual  Report on Form 10-K for the year ended  December  31,  1999,  and
other publicly filed documents of the Partnership (NYSE: KPP).


<PAGE>


Pipeline Transportation Systems

Markets Served

         KPP pipeline transportation operations currently consist of two primary
pipeline  systems:  the East  and West  Pipelines  (the  "Pipelines"),  with its
operational  headquarters located in Wichita,  Kansas. The East Pipeline,  which
was built  commencing  in 1953,  is a 2,092 mile  integrated  pipeline,  ranging
between six and sixteen inches in diameter,  that transports  refined  petroleum
products  received from refineries in southeast Kansas or other  interconnecting
pipelines to terminals in Iowa, Kansas,  Nebraska, North Dakota and South Dakota
and to receiving  pipeline  connections in Kansas.  The East Pipeline has direct
connections  to two  Kansas  refineries  and has  direct  access by  third-party
pipelines  to four other  refineries  in Kansas,  Oklahoma  and Texas.  The East
Pipeline  also  provides  access to Gulf Coast  suppliers  of refined  petroleum
products  through  connecting  pipelines which receive  products from a pipeline
originating  on the Gulf Coast and  receives  propane  through  five  connecting
pipelines from gas processing plants in Kansas, New Mexico,  Oklahoma and Texas.
The East  Pipeline's  operation also includes 16 public truck loading  terminals
located  in five  states,  comprised  of a total  of 233  tanks  having  storage
capacity of  approximately  3,500,000  barrels of product,  and has intermediate
storage  facilities in McPherson and El Dorado,  Kansas,  consisting of 23 tanks
having an aggregate storage capacity of approximately 922,000 barrels.

         The West  Pipeline,  acquired  by the  Partnership  from Wyco Pipe Line
Company in February 1995,  consists of  approximately  550 miles of six to eight
inch diameter  pipeline that  transports  refined  petroleum  products  received
directly  and by other  interconnecting  pipelines  from  refineries  located in
Colorado,  Montana,  South Dakota and Wyoming to  terminals  in Colorado,  South
Dakota and Wyoming.  The West  Pipeline's  operations  include four public truck
loading terminals,  also located in Colorado,  South Dakota and Wyoming,  having
storage capacity of over 1,700,000 barrels of product.  Through these facilities
and operations,  the West Pipeline serves the Denver and  northeastern  Colorado
markets and  supplies jet fuel to Ellsworth  Air Force Base,  Rapid City,  South
Dakota.

         The West Pipeline is the nearest  pipeline system  paralleling the East
Pipeline  to the west.  Consequently,  there is a high level of  commonality  of
shippers  on the  Pipelines  and,  due to the  proximity  of the  East  and West
Pipelines  to one  another,  they often face  similar  competitive  issues.  The
Pipelines'  more  significant  competitors  include  refineries,  common carrier
pipelines,  proprietary  pipelines  owned and operated by major  integrated  and
large  independent  oil  companies  and other  companies  in the areas where the
Partnership's  pipeline systems and operations deliver products.  In particular,
the  Pipelines'  major  competitor is an  independent  regulated  common carrier
pipeline  system that operates  approximately  100 miles east of and parallel to
the East Pipeline.  Competition  between  common carrier  pipelines is primarily
based upon transportation charges,  quality of customer service and proximity to
end users. KPL, in its capacity as General Partner of the Partnership,  believes
that high capital costs,  tariff  regulation,  environmental  considerations and
problems  in  acquiring  rights-of-way  make it  unlikely  that other  competing
pipeline systems  comparable in size and scope to the Pipelines will be built in
the near future,  provided that the pipeline has  available  capacity to satisfy
demand and its tariffs  remain at reasonable  levels.  Further,  while  pipeline
transportation systems are generally the lowest cost method for intermediate and
long-haul  overland  movement  of refined  petroleum  products,  trucks may also
competitively  deliver  products in some of the areas  served by the  Pipelines.
However, as trucking costs render that mode of transportation  uncompetitive for
longer hauls or larger  volumes,  KPL, in its capacity as General Partner of the
Partnership,  does not believe  that,  over the long term,  trucks are effective
competition to the Pipelines' long-haul volumes.

Products

         The mix of refined petroleum products delivered by the Pipelines varies
seasonally,  with gasoline  demand  peaking in early summer,  diesel fuel demand
peaking in late  summer and  propane  demand  higher in the fall.  In  addition,
weather  conditions in the geographic  areas served by the Pipelines  affect the
demand for and the mix of the refined petroleum  products  delivered through the
Pipelines, although any such impact on the volumes shipped has historically been
short-term.  Most of the refined petroleum  products  delivered through the East
Pipeline are ultimately used in agricultural operations, including fuel for farm
equipment,  irrigation  systems,  crop-drying  facilities  and  trucks  used  to
transport crops to a variety of destinations; while the West Pipeline's products
are  generally  delivered  to a  more  urban  and  commercial  marketplace.  The
agricultural sector served by the East Pipeline is also affected by governmental
policy and crop prices.  Further,  the  Pipelines  are  dependent  upon adequate
levels of  production  of refined  petroleum  products  by  refineries  that are
connected  to the  Pipeline,  which  refineries  are,  in turn,  dependent  upon
adequate  supplies of  suitable  grades of crude oil.  KPL,  in its  capacity as
General Partner of the Partnership,  believes that, in the event that operations
at any one refinery  were  discontinued  (and assuming  unchanged  demand in the
markets  served by the  Pipelines),  the effects  thereof would be short-term in
nature and the Partnership's business would not be materially adversely affected
over the long  term.  However,  a  substantial  reduction  of output by  several
refineries as a group could affect the Pipelines'  operations to the extent that
a greater  percentage of the supply would have to come from  refineries  outside
the Pipelines' connecting access pipelines.

Tariffs

         Substantially  all  of  the  Pipelines'  operations  constitute  common
carrier activities that are subject to Federal or state tariff regulation.  Such
common carrier activities are those under which transportation  services through
the pipeline  are  available  at  published  tariffs,  as filed with the Federal
Energy  Regulatory  Commission  ("FERC")  or  the  applicable  state  regulatory
authority,  to any  shipper of refined  petroleum  products  who  requests  such
services,  provided that each refined petroleum product for which transportation
is requested  satisfies the  conditions,  requirements  and  specifications  for
transportation.


Terminal Storage Operations

Facilities

         The terminaling  business,  a significant portion of which was acquired
by the  Partnership  in 1993, has a proven track record of more than 40 years of
quality  service and experience in the operation of specialty  liquids  terminal
storage facilities. ST's terminal facilities provide throughput and storage on a
fee basis for a wide variety of products  from  petroleum  products to specialty
chemicals  and  edible  and other  liquids.  ST's 34  facilities  offer  storage
capacity  ranging  from 40,000 to 5.5 million  barrels,  comprised of two to 162
tanks per  facility.  In February  1999, ST acquired six terminals in the United
Kingdom, having aggregate capacity of approximately 5.4 million Bbls capacity in
307 tanks. As of December 31, 1999, ST's six largest  facilities were located at
Piney Point,  Maryland (5,403,000 Bbls capacity;  28 tanks);  Linden, New Jersey
(3,884,000 Bbls capacity; 22 tanks); Eastham,  England (2,185,000 Bbls capacity;
162 tanks);  Jacksonville,  Florida (2,066,000 Bbls capacity;  30 tanks);  Texas
City, Texas (2,002,000 Bbls capacity;  124 tanks); and Grays, England (1,945,000
Bbls capacity; 53 tanks). The Linden, New Jersey terminal was acquired as a part
of a November 1998 joint venture transaction with Northville Industries Corp. in
which ST acquired a 50% interest in, and the  management  of, the  facility.  In
addition to the  foregoing,  the other ST facilities are located in Alabama (2),
Arizona,  California,  the District of Columbia (2),  Florida (2),  Georgia (6),
Illinois (3), Indiana,  Kansas, Maryland (2), Minnesota,  New Mexico,  Oklahoma,
Pennsylvania,  Texas, Virginia (2), Washington, Wisconsin and the United Kingdom
(4). These terminals provide ST with a geographically  diverse base of customers
and revenue. ST's operational headquarters is located in Dallas, Texas.

         The independent liquids terminaling industry is fragmented and includes
both large, well financed publicly-traded companies that own and/or operate many
terminal  locations and small private companies that may own and/or operate only
a single  terminal  location.  In addition to the terminals owned by independent
terminal operators,  many major energy and chemical companies also own extensive
terminal facilities. Although such terminals often have the same capabilities as
those owned by independent operators,  they generally do not provide terminaling
services  to  third  parties.  In many  instances,  major  energy  and  chemical
companies  that  own  storage  facilities  are  also  significant  customers  of
independent  terminal  operators  when  independent  terminals  have  more  cost
effective  locations  near key  transportation  links such as deep water  ports.
Major energy and chemical  companies also require  independent  terminal storage
when their captive  storage  facilities are  inadequate,  either because of size
constraints,   the  nature  of  the  stored  material  or  specialized  handling
requirements.  Independent  terminal owners, such as ST, compete on the basis of
location,  versatility of terminals, service and price. For example, a favorably
located   terminal  will  have  access  to  various   means  of   cost-effective
transportation both to and from the terminal. Terminal versatility is a function
of the operator's ability to offer safe handling for a diverse group of products
having complex handling requirements. The service function typically provided by
the terminal  includes,  among other things,  the safe storage of the product at
specified temperature,  moisture and other conditions, as well as variety in the
method of  loading  and  unloading  of product  at the  terminal.  Additionally,
another  increasingly  important  service  factor is the  ability  of a terminal
operator to offer product  handling and storage that  complies  with  applicable
environmental, safety and health regulations, among others.

Products

         The variety of  products  that can be stored at ST's  terminal  storage
facilities is a significant part of what KPL, in its capacity as General Partner
of the  Partnership,  believes  is its  competitive  advantage  among  similarly
situated  organizations.  ST's  terminals  provide  storage  capacity  for  such
products  as  petroleum  products,  specialty  chemicals,  asphalt,  fertilizer,
herbicides,  latex and caustic solutions,  and edible liquids,  including animal
and  vegetable   fats  and  oils.   Further,   the   terminaling   and  pipeline
transportation  of jet fuel for the U.S.  Department  of Defense is an important
part of its  business.  Eleven  of  ST's  terminal  sites  are  involved  in the
terminaling or transport (via pipeline) of jet fuel for the Defense  Department.
Two of these locations are presently without government business.  Of the eleven
locations,  five  include  pipelines  that  deliver jet fuel  directly to nearby
military bases.

Safety, Environmental and Other Regulatory Matters

         In  addition  to  tariff  regulation  of  the  Partnership's   pipeline
activities,  certain operations of the Partnership are subject to Federal, state
and local laws and  regulations  relating to the  construction,  maintenance and
management of its facilities,  the safety of its personnel and the protection of
the  environment.  Although  KPL,  in its  capacity  as  General  Partner of the
Partnership,  believes  that the  operations of the  Partnership  are in general
compliance with applicable laws and regulations,  risks of substantial costs and
liabilities are inherent in both pipeline and terminaling operations,  and there
can be no assurance that significant  costs and liabilities will not be incurred
by the Partnership. For example, contamination resulting from spills or releases
of refined petroleum products within the petroleum pipeline industry, or refined
petroleum or other products within the terminaling industry,  are not unusual in
such  industries.  From time to time, the Partnership  has  experienced  limited
contamination  along  the  pipelines  and at  certain  of  its  pipeline-related
terminal sites,  resulting from spills or leakage of refined petroleum products.
In each instance,  the appropriate  regulatory authorities have been notified of
these events and appropriate  remediation  activities have either been completed
or are ongoing. In connection with the formation of the Partnership, the Company
agreed to bear the costs associated with environmental contamination relating to
the operations of the East Pipeline  arising prior to October 3, 1989;  however,
such costs have not been, and are not in the future anticipated to be, material.

         Additionally,  from  time to  time,  the  Partnership  has  experienced
limited  contamination  at certain of its  current and former  terminal  storage
facilities,  as a result of operations at or around these  locations.  Again, in
each instance,  the  appropriate  regulatory  authorities  have been notified of
these events and appropriate  remediation activities have either been completed,
are  ongoing  or are under  investigation.  In  certain  instances  where  other
unrelated  companies may also have  responsibility  for the  contamination  of a
particular facility or area, the Partnership,  through the appropriate operating
subsidiary,  has entered into  agreements  (or is in the process of  negotiating
such agreements) with such company or companies  providing for the allocation of
the costs and/or responsibilities of remediation of such facilities or areas.


PRODUCT MARKETING SERVICES

         In  March  1998,  Kaneb,  through  a  wholly-owned  subsidiary  of KPL,
acquired a products  marketing  business.  For over 40 years, this operation and
its predecessors  have engaged in the business of acquiring  quantities of motor
fuels and  reselling  them in smaller  lots at truck  racks  located in terminal
storage  facilities along pipelines  primarily  located  throughout  California,
Colorado,  Illinois,  Indiana,  Ohio,  Wisconsin and Wyoming.  Kaneb's  products
marketing  subsidiary does not own any retail  outlets,  pipelines or terminals.
For the year ended December 31, 1999, the product marketing  segment's  revenues
and operating  income were $212.3  million and $1.5 million,  respectively.  See
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations".

Products and Services

         The products  include  petroleum  motor fuels such as various grades of
gasoline  and diesel and  gasoline  blend  stocks  such as ethanol  and  natural
gasoline.  These products are generally  purchased in large batches in petroleum
pipelines or in large  storage  tanks and are  distributed  through an extensive
geographic  area which  includes the Great Lakes  Region of primarily  Illinois,
Indiana, Ohio and Wisconsin; the Rocky Mountain Region of primarily Colorado and
Wyoming; and the Far West Region of primarily California.  The products are sold
at petroleum  terminals into tank trucks. The petroleum  terminals are not owned
by Kaneb's marketing subsidiary but are leased as needed.

Customers

         The business is  essentially  a  wholesaling  business  requiring  both
favorable  customer  and  supplier  relationships.  Customers  of  the  products
marketing  business  are  primarily   independent  retail  distributors.   These
"unbranded"  customers often cannot obtain  supplies from major  ("branded") oil
companies or cannot obtain supplies from majors or others at competitive prices.
Suppliers to the products marketing business include major and large independent
oil companies and petroleum  traders.  The suppliers are  attempting to increase
their  volume or capture some of the  independent  retail sales which they could
not otherwise price to obtain without undercutting their branded customers.

         The products  marketing  industry is highly  competitive with customers
very sensitive to pricing.  Kaneb's  products  marketing  business must position
itself as a  low-cost  supplier  to its  customers  to be  successful.  Changing
product prices can cause some volatility in earnings. Kaneb's products marketing
business  minimizes  pricing risk through  high  inventory  turnover (on average
approximately  10 days of inventory on hand) and product  exchange  liabilities.
Product exchange  liabilities provide a partial hedge to the inventory position.
Kaneb's  product  marketing  business  does not  currently  engage in  commodity
futures  trading to hedge pricing  volatility,  but may do so in the future in a
limited fashion if increases in volumes make it a prudent measure.


INFORMATION SERVICES

         Kaneb  Information  Services,  Inc.,  together  with its  wholly  owned
subsidiaries  (collectively,  "KIS"), provides a variety of information services
and products to the U.S.  Government and private  customers.  For the year ended
December 31, 1999 the  information  services  segment's  revenues and  operating
income were $37.4  million and $5.6  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 are attributable to
contracts with agencies of the U.S. Government.  KIS manages its businesses from
its headquarters in Richardson,  Texas,  and maintains  offices in Chantilly and
McLean,  Virginia,  and  Frederick,  Maryland,  to more  effectively  serve  its
Washington,  DC-based  government  clients  and  to  promote  awareness  of  its
services, products and capabilities.

Computer Networking

         KIS provides consulting services and specially configured computers and
related  networking  equipment to agencies of the Department of Justice  through
teaming  agreements on a contract basis.  The contract is renewable  annually by
the Department of Justice.  Under this contract,  KIS also provides installation
and replacement services, training and software and hardware security systems to
the  agencies.  Hardware  components  provided  under  this  contract  are fully
interchangeable,   permitting   routine   upgrades   and  swaps   with   minimal
compatibility problems.

Telemedicine Services

         KIS  provides  consulting  services  in  support  of the  purchase  and
implementation  of  digital  imaging  systems,  known as  Picture  Archival  and
Communication  Systems  ("PACS"),  by  medical  facilities.  PACS  are  used  in
connection with digitally  recorded images,  such as magnetic resonance imaging,
computer  tomography scans,  ultrasounds and digital x-rays,  among others.  KIS
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.  KIS also assists
the medical  facilities with warranty and service issues that may arise with the
manufacturer of the PACS. KIS personnel who perform the consulting  services are
highly trained electrical, biomedical, and clinical engineers.

         KIS also performs work for PACS manufacturers, such as General Electric
and IBM, in connection with the sale and installation of PACS, and for end users
of the systems.  KIS' principal  customer in the PACS consulting  field has been
the Department of Defense,  with whom KIS has  contracted to provide  consulting
services for eleven  hospitals,  with Brooke Army Medical  Center,  San Antonio,
Texas, as the hub. KIS also provides these services to other military  hospitals
and to  major  teaching  hospitals.  KIS is also  marketing  wearable  digitized
medical records  ("digital dog tags") for the military and other  government and
private  sector  applications.  KIS is exploring the potential for expanding its
services in this area to  teledermatology,  telecardiology  and home  monitoring
applications.

Ellsworth Acquisition

         In March 1999, KIS acquired Ellsworth Associates,  Inc., an information
services company based in McLean, Virginia.  Through Ellsworth, KIS provides web
site development and maintenance,  network engineering,  application development
(including e-commerce applications), project planning and development, needs and
assessments planning,  programmatic analysis and research, and statistical work,
primarily for the Department of Health and Human Resources and the Department of
Commerce.  KIS also  maintains  the database  for the Head Start  program of the
Department of Health and Human Resources.

         KIS  generally   contracts  for  these  services  on  renewable  annual
contacts, with pricing based principally upon its GSA schedule. In marketing its
services  in  this  area,  KIS  competes  with  a  number  of  other  government
contractors,  primarily on the basis of expertise and knowledge  about the needs
of its  customers.  KIS believes  that the  expertise it has  developed in child
welfare related database systems creates opportunities to market its services to
state  agencies which provide  information to the U.S.  Department of Health and
Human Services.

Financial Industry Software and Services

         KIS licenses  proprietary  PC-based  software and provides  services to
community banks for internal  accounting;  tracking,  monitoring,  analyzing and
managing loans and deposits;  and other banking  functions.  KIS also licenses a
proprietary  professional  lending  system to loan  companies  and an  automated
contingency planning system for disaster recovery to commercial banks.

Collateral Insurance Monitoring

         KIS  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.  KIS uses its own proprietary 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  KIS  in  instances  where  KIS's  services  result  in  the  issuance  of  a
forced-placement  insurance policy to replace lapsed coverage. KIS 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.  KIS believes that its expertise in this field may have other
applications,  including  cross-collating  and reporting on FEMA-required  flood
insurance and delinquent child support payers.


INDUSTRIAL SERVICES

         The  Furmanite  group of  companies  offers a  variety  of  specialized
industrial  services to an international base of flow-process  industry clients.
Founded in  Virginia  Beach,  Virginia  in the 1920s as a  manufacturer  of leak
sealing kits,  Furmanite has evolved into an international  service company.  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.  Kaneb  acquired  Furmanite  in 1991 to  diversify  the
Company's operations and take advantage of international  growth  opportunities.
For the year ended December 31, 1999,  Furmanite's revenues and operating income
were  approximately  $98.1  million and $3.6  million  (before  $1.8  million in
severance costs),  respectively.  See  "Management's  Discussion and Analysis of
Financial Condition and Results of Operations."

Products and Services

         Furmanite is an industry  leader in providing  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,  1999,  1998,  and  1997,   underpressure   services
represented  approximately  40%,  38%  and  35%,  respectively,  of  Furmanite's
revenues,  while turnaround  services  accounted for approximately  45%, 46% and
45%,  respectively,  and product sales and other industrial services represented
approximately 15%, 16% and 20%,  respectively,  of Furmanite's revenues for each
of such years.

         Furmanite's on-line,  underpressure leak sealing 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'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  in order  to  effect  the
necessary  repairs.  These efforts are supported by an internal  quality control
group that  works  together  with the  on-site  technicians  in  crafting  these
materials.

Customers and Markets

         Furmanite's  customer  base  spans a  broad  industry  spectrum,  which
includes  petroleum  refineries,  chemical  plants,  offshore energy  production
platforms,  steel mills, power generation and other  flow-process  industries 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,  safety and
environmental compliance  requirements,  and fulfillment of specialized services
through the increased use of outsourcing, rather than an organization's in-house
staff.

         Furmanite  serves  its  customers  from its  Houston,  Texas  worldwide
headquarters and maintains a strong presence in the United Kingdom,  continental
Europe and the Asia-Pacific. Furmanite currently operates North American offices
in the United  States in Baton Rouge,  Beaumont,  Charlotte,  Chicago,  Houston,
Merrillville,  Cherryhill and Salt Lake City.  Furmanite's worldwide strength is
further  supported  by offices  currently  located  in  Australia  (6  offices),
Belgium,  China,  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 1999 were 30%
for  the  United  States,   59%  for  Europe  and  11%  for  Asia-Pacific.   See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and Note 11 to the Company's consolidated financial statements.

         Furmanite's  underpressure  leak  sealing  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, to date, has had no material warranty claims.
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.  Additionally,  Furmanite  participates,  from  time to  time,  with
various regulatory authorities in certain studies,  reviews and inquiries of its
projects and/or  operations.  Further,  because of its  international  presence,
Furmanite  is  subject  to a number of  political  and  economic  uncertainties,
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.

         Underpressure  leak  sealing  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  professionally  qualified  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.


ENVIRONMENTAL CONTROLS

         Many of Kaneb's  operations  are subject to  national,  state and local
laws and regulations  relating to protection of the environment.  Although Kaneb
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.


EMPLOYEES

         At  December  31,  1999,  Kaneb  and its  subsidiaries  employed  1,740
persons,  of which a total of 618 persons were employed by KPL, its pipeline and
terminaling subsidiaries and subsidiaries of KPP; 17 were employed by Martin Oil
Corporation;  190 were employed by the KIS group of companies;  and, 886 persons
were employed by the Furmanite group of companies. The Partnership itself has no
employees,  as the business and  operations of the KPP are conducted by KPL, the
General  Partner of KPP and a wholly-owned  subsidiary of Kaneb.  As of December
31,  1999,  approximately  196 of the persons  employed  by KPL were  subject to
representation by unions for collective  bargaining purposes;  however,  only 85
persons  employed  at four of KPL's  terminal  unit  locations  were  subject to
collective  bargaining  or  similar  contracts  at that  date.  Union  contracts
regarding conditions of employment for 17, 20, 14 and 34 employees are in effect
through  November 1, 2000,  June 30, 2001,  February 28, 2002 and June 29, 2002,
respectively.  Additionally,  as of December 31, 1999,  approximately 275 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.  All such
contracts  are subject to  automatic  renewal for  successive  one year  periods
unless either party  provides  written notice in a timely manner to terminate or
modify such agreement.


Item 2.    Properties

         The  properties  owned or  utilized by Kaneb and its  subsidiaries  are
generally described in Item 1 of this Report.  Additional information concerning
the obligations of Kaneb and its subsidiaries  for lease and rental  commitments
is presented under the caption "Commitments and Contingencies" in Note 10 to the
Company's consolidated  financial statements.  Such descriptions and information
are hereby incorporated by reference into this Item 2.

         Kaneb's  corporate  headquarters  is located in an office  building  in
Richardson,  Texas,  pursuant to a lease agreement that expires in 2002, subject
to a five-year  renewal  option.  The  facilities  used in the operations of the
Company's  subsidiaries,  other than the  Partnership,  are generally held under
lease agreements having various expiration dates,  rental rates and other terms,
except for three Furmanite  properties located in the United Kingdom,  which are
owned in fee. The  properties  used in the operations of the Pipelines are owned
by  KPP,  through  its  subsidiary   entities,   except  for  KPL's  operational
headquarters,  located  in  Wichita,  Kansas,  which is held  under a lease that
expires in 2004. The majority of ST's facilities are owned, while the remainder,
including  most  of its  terminal  facilities  located  in  port  areas  and its
operational  headquarters,  located in Dallas, Texas, are held pursuant to lease
agreements having various  expiration  dates,  rental rates and other terms. For
additional  information  regarding the properties  utilized in the operations of
the  Partnership,  reference  is made to the  Annual  Report on Form 10-K of the
Partnership.


Item 3.    Legal Proceedings

         A subsidiary of the Company that is no longer  actively  conducting any
operations was notified in 1989 that it is a "potentially  responsible party" in
connection  with a  governmental  investigation  relating  to a  waste  disposal
facility which has been subject to remedial  action as a location  listed on the
Environmental  Protection  Agency's  ("EPA")  Superfund  Federal  Priority  List
("Superfund").  Proceedings  arising under Superfund  typically involve numerous
waste generators and other waste  transportation and disposal companies for each
identified  facility and seek to allocate or recover costs  associated with site
investigation  and cleanup,  which costs could be  substantial.  This proceeding
involves actions allegedly taken by a former operating subsidiary of the Company
at a time  prior to the  acquisition  of such  subsidiary  by the  Company.  The
Company's  subsidiary  has  been  included  within a de  minimis  group of waste
generators  that are involved in this  proceeding,  who have been  negotiating a
collective  settlement of their liabilities with the EPA.  However,  the Company
has joined with  others  within  this de minimis  group who are each  contesting
their respective liability.  Proceedings in this matter are ongoing. The Company
has reviewed its potential  exposure,  if any, in  connection  with this matter,
giving  consideration to the nature,  accuracy and strength of evidence relating
to the Company's alleged relationship to the location,  the amount and nature of
waste taken to the location, and the number,  relationship and financial ability
of other named and unnamed  "potentially  responsible  parties" at the location.
While the Company does not anticipate that the amount of  expenditures  from its
involvement  in the above  matter  will have a  material  adverse  effect on the
Company's  operations  or  financial  condition,  the  possibility  remains that
technological,  regulatory,  enforcement or legal  developments,  the results of
environmental  studies or other factors could  materially alter this expectation
at any time.

         The Company is  Plaintiff  in  unrelated  legal  proceedings  involving
malpractice  issues with two professional  service providers  previously used by
the  Company.  The Company has  appealed a lower court  dismissal  in one of the
proceedings  and the other  action is in the  initial  stages of  discovery  and
proceedings.  Accordingly,  at this time the  Company  is  unable to  reasonably
estimate potential recoveries, if any, under such actions.

         Certain  subsidiaries  of KPP are  defendants  in a lawsuit  filed in a
Texas state court in 1997 by Grace Energy Corporation ("Grace"), the entity from
which KPP  acquired  ST Services in 1993.  The  lawsuit  involves  environmental
response and  remediation  allegedly  resulting from jet fuel leaks in the early
1970's from a pipeline.  The pipeline,  which  connected a former Grace terminal
with Otis Air Force Base, was abandoned in 1973, and the connecting terminal was
sold to an unrelated  entity in 1976.  Grace alleges that it has incurred  since
1996 expenses of approximately $3 million for response and remediation  required
by the State of Massachusetts  and that it expects to incur additional  expenses
in  the  future.   On  January  20,  2000,  the   Massachusetts   Department  of
Environmental Protection notified KPP's subsidiary that it had reason to believe
that the subsidiary  was also a Potentially  Responsible  Party.  The subsidiary
replied to that letter denying any responsibility for the Massachusetts response
and/or  remediation.  Future  expenses could  potentially  include claims by the
United States Government, as described below. Grace alleges that subsidiaries of
KPP acquired the abandoned  pipeline,  as part of the acquisition of ST Services
in 1993, and assumed  responsibility for environmental damages caused by the jet
fuel leaks from the pipeline.  Grace is seeking a ruling that these subsidiaries
are responsible for all present and future remediation  expenses for these leaks
and that Grace has no  obligation  to  indemnify  these  subsidiaries  for these
expenses. The case is set for trial in May 2000.

         The  consistent  position  of KPP's  subsidiaries  is that they did not
acquire the abandoned  pipeline as part of the 1993 ST  transaction  and did not
assume any  responsibility  for the  environmental  damage. In an order granting
partial  summary  judgment,  the trial judge has ruled that the  pipeline was an
asset of the company acquired by the subsidiary. The subsidiaries are continuing
with their defense that the pipeline had been abandoned prior to the acquisition
of ST Services and could not have been included in the assets they acquired. The
defendants have also counter-claimed against Grace for fraud and mutual mistake,
among other defenses. If they are successful at trial with their defenses and/or
counterclaims,  the judge's  partial  summary  judgment  order will be moot. The
defendants also believe they have certain rights to  indemnification  from Grace
under the acquisition  agreement with Grace. These rights include claims against
Grace for breaches of numerous  representations  in the agreement  including the
environmental  representations.   The  acquisition  agreement  includes  Grace's
agreement   to  indemnify   the   subsidiaries   against  60%  of   post-closing
environmental  remediation costs,  subject to a maximum indemnity payment of $10
million.

         The  Otis  Air  Force  Base  is a part  of the  Massachusetts  Military
Reservation  ("MMR"),  which has been declared a Superfund  Site pursuant to the
Comprehensive  Environmental  Response,  Compensation and Liability Act. The MMR
Site contains nine groundwater  contamination plumes, two of which are allegedly
associated  with the  pipeline,  and  various  other waste  management  areas of
concern,  such as  landfills.  The United  States  Department of Defense and the
United States Coast Guard, pursuant to a Federal Facilities Agreement,  has been
responding to the Government  remediation  demand for most of the  contamination
problems at the MMR Site.  Grace and others have also  received and responded to
formal  inquiries  from the United  States  Government  in  connection  with the
environmental  damages  allegedly  resulting  from  the jet  fuel  leaks.  KPP's
subsidiaries have voluntarily  responded to an invitation from the Government to
provide information  indicating that they do not own the pipeline. In connection
with  a  court-ordered  mediation  between  Grace  and  the  subsidiaries,   the
Government  advised  the  parties in April 1999 that it has  identified  the two
spill areas that it believes to be related to the  pipeline  that is the subject
of the Grace suit.  The  Government  advised the parties that it believes it has
incurred costs of approximately $34 million,  and expects in the future to incur
costs of approximately  $55 million,  for remediation of one of the spill areas.
This amount was not intended to be a final accounting of costs or to include all
categories of costs.  The Government  also advised the parties that it could not
at that time  allocate  its costs  attributable  to the second  spill area.  KPP
believes that the ultimate cost of the remediation,  while substantial,  will be
considerably  less than the Government  has  indicated.  KPP also believes that,
even if the lawsuit determines that the subsidiary is the owner of the pipeline,
the defendants have defenses to any claim of the  Government.  Any claims by the
Government  could be material in amount  and, if made and  ultimately  sustained
against KPP's  subsidiaries,  could  adversely  affect KPP's ability to pay cash
distributions to its unitholders, including the Company.

         The Company has other 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.

<PAGE>
Item 4.    Submission of Matters to a Vote of Security Holders

         Kaneb did not hold a meeting of  stockholders  or otherwise  submit any
matter to a vote of stockholders in the fourth quarter of 1999.


                                     PART II

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

         Shares of Kaneb Common Stock are listed and traded  principally  on the
New York Stock  Exchange,  under the symbol KAB. At March 15,  2000,  there were
approximately  4,500 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.

                                           Quoted Stock Prices
                                     -------------------------------
        Calendar Year                  High                    Low
        --------------------         --------                -------
        1998:
           First Quarter             5 11/16                 4 13/16
           Second Quarter            6 7/16                  5 3/16
           Third Quarter             6                       4 1/8
           Fourth Quarter            5 1/16                  3 1/2

        1999:
           First Quarter             4 5/8                   3 7/8
           Second Quarter            4 9/16                  3 7/8
           Third Quarter             5 1/8                   4 1/8
           Fourth Quarter            5                       4 3/16

        2000:
           First Quarter             5 1/4                   4 5/16
           (through 3/15/00)

         Kaneb  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.   Kaneb'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  and  KPL  and its
subsidiaries 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 Kaneb's consolidated financial statements and should be
read in conjunction with the consolidated financial statements and related notes
thereto included elsewhere in this report.  Kaneb has not declared a dividend on
its Common Stock for any of the periods presented.

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                       ----------------------------------------------------
                                         1999       1998       1997       1996       1995
                                       --------   --------   --------   --------   --------

<S>                                    <C>        <C>        <C>        <C>        <C>
Income Statement Data:
Revenues ...........................   $505,759   $375,857   $236,936   $228,861   $212,062
                                       ========   ========   ========   ========   ========
Operating income ...................   $ 68,239   $ 61,312   $ 58,660   $ 53,815   $ 43,465
                                       ========   ========   ========   ========   ========

Income before benefit of recognizing
   tax loss carryforwards (change in
   valuation allowance) and gain on
   sale or issuance of units by KPP    $ 16,254   $ 13,576   $ 10,643   $  7,024   $  5,024
Benefit of recognizing tax loss
   carryforwards (change in
   valuation allowance) ............     37,124       --         --         --         --
Gain on sale or issuance of units
   by KPP, net of deferred income
   taxes ...........................     10,394       --         --         --       54,157
                                       --------   --------   --------   --------   --------
     Net income ....................   $ 63,772   $ 13,576   $ 10,643   $  7,024   $ 59,181
                                       ========   ========   ========   ========   ========
<PAGE>
Per Share Data:
Earnings per common share:
   Basic ...........................   $   2.01   $    .41   $    .31   $    .19   $   1.72
                                       ========   ========   ========   ========   ========
   Diluted .........................   $   1.94   $    .40   $    .30   $    .19   $   1.59
                                       ========   ========   ========   ========   ========

Cash Flow Data - Net cash provided
   by operating activities .........   $ 50,068   $ 54,206   $ 55,120   $ 48,628   $ 39,964

Balance Sheet Data:
Cash and cash equivalents ..........   $ 20,766   $  9,134   $ 23,025   $ 23,693   $ 30,389
Working capital ....................     56,990      5,632     20,423     20,033     16,302
Total assets .......................    560,315    448,045    402,273    404,691    409,827
Long-term debt .....................    211,251    196,958    181,052    186,544    191,846
Stockholders' equity (a) ...........    149,666     87,445     78,447     75,366     69,022

</TABLE>
(a)  See  Note  8 to  the  Company's  Consolidated  Financial  Statements  for a
discussion of the Company's Preferred Stock.


<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 Kaneb and notes  thereto  included  elsewhere  in this
report.

Consolidated Results of Operations
<TABLE>
<CAPTION>
                                                                         (in millions)
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Consolidated revenues ....................................   $  505.8    $  375.9    $  236.9
Consolidated operating income ............................   $   68.2    $   61.3    $   58.7
Consolidated income before benefit of recognizing
   tax loss carryforwards (change in valuation allowance)
   and gain on issuance of units by KPP, net of deferred
   income taxes ..........................................   $   16.3    $   13.6    $   10.6
Consolidated net income ..................................   $   63.8    $   13.6    $   10.6
Consolidated capital expenditures, excluding acquisitions    $   17.3    $   12.3    $   13.0
</TABLE>

         For the year ended December 31, 1999,  consolidated  revenues increased
$129.9  million,  or 35%,  when  compared to 1998,  largely from a $98.1 million
increase in revenues from the products marketing business acquired in late March
of 1998. In addition,  revenues from the pipeline and terminaling operations and
the information  services business increased by $32.2 million and $16.7 million,
respectively,  in  1999,  partially  offset  by a 1999  decrease  in  industrial
services  revenues  of $17.0  million.  Consolidated  operating  income  in 1999
increased by $6.9 million, or 11%, with significant improvements achieved in the
pipeline and terminaling and the information services businesses.

         Consolidated   income  before  the  benefit  of  recognizing  tax  loss
carryforwards  (change in valuation allowance) and the gain on issuance of units
by KPP, net of deferred  income taxes,  increased $2.7 million,  or 20%, for the
year  ended  December  31,  1999,   compared  to  the  same  1998  period.  1999
consolidated net income includes a gain of $10.4 million, net of deferred income
taxes,  resulting from the issuance of units by KPP (See  "Liquidity and Capital
Resources") and $37.1 million in expected  benefits from prior years' tax losses
(change in valuation  allowance)  that are  available to offset  future  taxable
income (See "Income Taxes"). Consolidated net income, including these items, was
$63.8 million for the year ended December 31, 1999.

         For the year ended December 31, 1998,  consolidated  revenues increased
$139.0 million,  or 59%, when compared to 1997,  largely from the $114.2 million
in revenues generated by the products marketing business. In addition,  revenues
from the pipeline and terminaling  business,  the information  services business
and industrial  services business  increased by $4.6 million,  $13.1 million and
$6.9  million,  respectively,  in 1998.  Consolidated  operating  income in 1998
increased by $2.6 million, or 5%, with the most significant  improvements in the
pipeline and terminaling and the information services  businesses.  Consolidated
net income for the year ended December 31, 1998 increased $3.0 million,  or 28%,
compared to the year ended December 31, 1997.


Pipeline and Terminaling Services

         This  business  segment  includes  the  operations  of Kaneb  Pipe Line
Partners,   L.P.  ("KPP").  KPP  provides  transportation  services  of  refined
petroleum products through a pipeline system that extends through the Midwestern
states and provides  terminaling  and storage  services for petroleum  products,
specialty chemicals and other liquids. Kaneb operates,  manages and controls the
pipeline  and  terminaling  operations  of KPP  through  its 2% general  partner
interest  and a 28% (as of December 31, 1999)  limited  partner  interest in the
Partnership.

                                                       (in millions)
                                               ------------------------------
                                                 1999       1998       1997
                                               --------   --------   --------

Revenues ...................................   $  158.0   $  125.8   $  121.2
                                               ========   ========   ========
Operating income ...........................   $   64.3   $   55.1   $   53.4
                                               ========   ========   ========
Capital expenditures,
     excluding acquisitions.................   $   14.6   $    9.4   $   10.6
                                               ========   ========   ========

         For the year ended December 31, 1999, pipeline and terminaling revenues
increased  by $32.2  million,  or 26%  compared  to 1998,  due to a $28  million
increase  in  terminaling  revenues  and a $4.2  million  increase  in  pipeline
revenues.  For the year  ended  December  31,  1998,  pipeline  and  terminaling
revenues  increased  by $4.6  million,  or 4%,  compared to 1997,  due to a $2.5
million increase in terminaling revenues and a $2.1 million increase in pipeline
revenues.  The 1999 and 1998 increase in terminaling revenues is due to terminal
acquisitions  and increased  utilization of existing  terminals due to favorable
market  conditions,  partially offset by a decrease in the overall average price
realized  for  storage.  Average  annual  tankage  utilized  for the years ended
December 31, 1999, 1998 and 1997 aggregated 22.6 million  barrels,  15.2 million
barrels and 12.4 million barrels,  respectively.  The 1999 and 1998 increases in
average annual tankage  utilized  resulted from the  acquisitions  and increased
storage at KPP's largest petroleum storage facility. Average revenues per barrel
of tankage  utilized for the years ended  December  31, 1999,  1998 and 1997 was
$4.00,  $4.11 and $4.83,  respectively.  The  decrease in 1999 and 1998  average
annual  revenues  per barrel of  tankage  utilized  was due to the  storage of a
larger  proportionate  volume of petroleum  products,  which are historically at
lower per barrel rates than specialty chemicals.  The 1999 and 1998 increases in
pipeline revenues are due to increases in volumes shipped, primarily on the East
Pipeline.  Barrel miles totaled 18.4 billion,  17.0 billion and 16.1 billion for
the years ended December 31, 1999, 1998 and 1997, respectively.

         Pipeline and terminaling operating income increased by $9.2 million, or
17% in 1999,  compared to 1998,  due to a $7.0 million  increase in  terminaling
operating income and a $2.2 million increase in pipeline  operating income.  For
the year ended  December 31, 1998,  pipeline and  terminaling  operating  income
increased by $1.7 million,  or 3%,  compared to 1997,  due to improved  pipeline
operating  income.  The  increase in 1999  terminaling  operating  income is the
result of the  acquisitions and the increase in tank  utilization.  The 1999 and
1998  improvement  in pipeline  operating  income is due to increases in volumes
shipped.

         The  interest of outside  non-controlling  partners in KPP's net income
was $33.5  million,  $29.2  million  and $27.7  million in 1999,  1998 and 1997,
respectively.  Distributions paid to the outside non-controlling  unitholders of
KPP aggregated  approximately $35.4 million,  $28.5 million and $26.9 million in
1999, 1998 and 1997, respectively.

         Capital  expenditures relate to the maintenance of existing operations.
Routine capital  expenditures for 2000 are currently estimated to be between $12
million and $15 million.

         On February 1, 1999,  KPP acquired six terminals in the United  Kingdom
from GATX Terminal Limited for (pound)22.6 million (approximately $37.2 million)
plus  transaction  costs  and  the  assumption  of  certain   liabilities.   The
acquisition of the six locations,  which have an aggregate  tankage  capacity of
5.4 million  barrels,  was financed by term loans from a bank.  $13.3 million of
the term  loans were  repaid in July 1999 with the  proceeds  from KPP's  public
offering.  (See  "Liquidity  and  Capital  Resources")  Three of the  terminals,
handling petroleum products, chemicals and molten sulfur, respectively,  operate
in England. The remaining three facilities,  two in Scotland and one in Northern
Ireland,  are  primarily  petroleum  terminals.  All six terminals are served by
deepwater marine docks.

         On October 30, 1998,  KPP entered into  acquisition  and joint  venture
agreements with Northville Industries Corp. ("Northville") to acquire and manage
the  former  Northville  terminal  located  in  Linden,  New  Jersey.  Under the
agreements,  KPP acquired a 50% interest in the  newly-formed ST Linden Terminal
LLC for $20.5 million plus transaction  costs. The petroleum  storage  facility,
which has  capacity  of 3.9  million  barrels in 22 tanks,  was funded with bank
financing  which was paid off using a portion of the proceeds  from KPP's public
unit offering in July 1999. (See "Liquidity and Capital Resources")

Product Marketing Services

         The Company's  petroleum products marketing business provides wholesale
motor fuel  marketing  services  throughout  the Great Lakes and Rocky  Mountain
regions, as well as California.

                                                        (in millions)
                                                ---------------------------
                                                  1999                1998
                                                -------             -------

Revenues....................................    $ 212.3             $ 114.2
                                                =======             =======
Operating income ...........................    $   1.5             $   0.9
                                                =======             =======

         On March 25,  1998, a  wholly-owned  subsidiary  of Kaneb  acquired the
petroleum  products  marketing  business  for  $1.5  million,  plus  the cost of
inventories.  The Company's product  marketing  services segment consists of the
operations of that business since the acquisition date.

         For the year ended December 31, 1999, revenues increased $98.1 million,
or 86%, and operating income increased by $0.6 million, or 67%, when compared to
1998,  due to an increase in both sales  volumes and sales price.  Total gallons
sold increased to 348.6 million in 1999,  compared to 221.8 million in 1998, due
to a combination  of increasing  the number of terminals  through which products
are sold and  increasing  the volumes at existing  locations.  The average price
realized  per gallon of product  sold  increased  to $0.61 in 1999,  compared to
$0.52 in 1998,  but product price  volatility  reduced 1999 average gross profit
margins by 7% from 1998.

Information Services

         Kaneb's information services business is conducted through a variety of
wholly-owned  subsidiaries.  The  information  services group  provides  network
design and installation  services,  database management and processing services,
specialized medical technology services,  insurance tracking services,  hardware
distribution  and other related  information  technology  services.  The medical
services  division  provides  systems  integration and open  architecture  based
telemedicine   solutions,   including  assessment  and  planning,   installation
assistance,  clinical  systems  integration,  acceptance  testing,  and  systems
maintenance and management of telemedicine applications.

                                                       (in millions)
                                               ------------------------------
                                                 1999       1998       1997
                                               --------   --------   --------

Revenues ...................................   $   37.4   $   20.7   $    7.6
                                               ========   ========   ========
Operating income ...........................   $    5.6   $    3.7   $    2.7
                                               ========   ========   ========
Capital expenditures,
     excluding acquisitions.................   $    0.4   $    0.3   $    0.3
                                               ========   ========   ========

         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, 1999, revenues increased $16.7 million,
or 81% and operating  income  increased  $1.9 million,  or 51%, when compared to
1998,  primarily  due to the  Ellsworth  acquisition  and  increased  consulting
services and computer  hardware sales provided to various national  governmental
agencies and the private sector. For the year ended December 31, 1998,  revenues
increased $13.1 million, or 172% and operating income increased $1.0 million, or
37% when compared to 1997,  primarily  from  increased  consulting  services and
computer hardware sales provided to various national government agencies and the
private sector. Industrial Services

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


                                                       (in millions)
                                               ------------------------------
                                                 1999       1998       1997
                                               --------   --------   --------

Revenues:
     United States.....................        $   29.8   $   35.5   $   33.7
     Europe............................            57.3       68.1       66.4
     Asia-Pacific......................            11.0       11.5        8.1
                                               --------   --------   --------
                                               $   98.1   $  115.1   $  108.2
                                               ========   ========   ========
Operating income:
     United States.....................        $    1.0   $    1.7   $    1.8
     Europe............................             3.3        5.5        6.1
     Asia-Pacific......................              .5        1.0        1.1
     Headquarters......................            (1.2)      (1.5)      (1.6)
                                               --------   --------   --------
     Operating income before severance
          and other costs..............             3.6        6.7        7.4
     Severance and other costs.........            (1.8)        -          -
                                               --------   --------   --------
       Operating income                        $    1.8   $    6.7   $    7.4
                                               ========   ========   ========
Capital expenditures,
     excluding acquisitions............        $    2.3   $    2.6   $    2.0
                                               ========   ========   ========

         For the year ended December 31, 1999, Furmanite's revenues decreased by
$17.0  million,  or 15%, when compared to 1998,  due to extremely  weak industry
market  conditions  in the United  States  and  Europe.  In the  United  States,
revenues  decreased by $5.7 million,  or 16%, due to declines in turnaround  and
other services  resulting from the weak market conditions.  In Europe,  revenues
decreased by $10.8  million,  or 16%, due to lower  turnaround and other process
plant services,  primarily in the United Kingdom and Germany, also the result of
weak market  conditions  in these  regions.  The 1999  decrease in  Asia-Pacific
revenues is primarily due to declines in underpressure and other services.

         For the year ended December 31, 1998, Furmanite's revenues increased by
$6.9 million,  or 6%, when compared to 1997, due to overall increases in each of
the three geographical  areas. In the United States,  revenues increased by $1.8
million,  or 5%, due  primarily to  improvements  in on-site  machining and leak
sealing services.  In Europe,  revenues increased by $1.7 million, or 3%, due to
increases in leak sealing,  passive fire protection and turnaround services. The
increase in  Asia-Pacific  revenues is primarily  attributable to the Australian
operations, acquired effective July 1, 1997.

         Overall,  Furmanite's  operating  income,  before  severance  and other
costs,  decreased by $3.1 million, or 46%, in 1999, compared to 1998, due to the
extremely  weak  industry  market  conditions  in the United  States and Europe.
Severance and other costs resulted from resizing  Furmanite's  work force to the
current  market   conditions  in  these  regions.   As  of  December  31,  1999,
substantially all of such costs had been paid. Furmanite's 1998 operating income
decreased  by $0.7  million,  or 9%,  compared to 1997,  due  primarily to lower
margin work  performed in the United  Kingdom as a result of a general  economic
slowdown during the last half of 1998.

         Capital  expenditures are primarily related to field services equipment
and  capital  costs  related  to the  implementation  of new  services.  Capital
expenditures  for 2000 are  currently  estimated to be $3 million to $5 million,
depending on the economic environment and the needs of the business.

Income Taxes

         Income tax expense for the year ended  December  31, 1999  includes the
recognition  in the fourth  quarter of $37.1  million in expected  benefits from
prior years' tax losses  (change in valuation  allowance)  that are available to
offset future taxable income.  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 supported by 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 ($67.4 million expires in 2002),  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.  Ultimate realization of the deferred tax asset is dependent upon, among
other  factors,  the Company's  ability to generate  sufficient  taxable  income
within  the  carryforward  periods  (2000  to 2007)  and is  subject  to  change
depending on the tax laws in effect in the years in which the  carryforwards are
used.  As a  result  of the 1999  recognition  of  expected  future  income  tax
benefits,  subsequent  periods will reflect a full effective tax rate provision.
Additionally,  the Company's  income tax expense for the year ended December 31,
1999  includes  benefits  of $3.1  million  related  to  favorable  developments
pertaining to certain state and foreign income tax issues.


Liquidity and Capital Resources

         Cash provided by consolidated  operating  activities was $50.1 million,
$54.2  million  and  $55.1  million  during  the  years  1999,  1998  and  1997,
respectively.  The decrease in 1999 and 1998,  was due primarily to increases in
working  capital  requirements  relating to increased sales volume levels in the
product marketing business acquired in March 1998.

         At December  31, 1999,  $17.9  million was  outstanding  under a credit
facility, as amended, that was originally obtained by a wholly-owned  subsidiary
in conjunction with the acquisition of Furmanite.  The credit facility, which is
without  recourse  to the parent  company,  is due 2001,  bears  interest at the
option of the  borrower at variable  rates based on either the LIBOR rate or the
prime rate plus a  differential  of up to 150 basis points and contains  certain
financial and  operational  covenants  with respect to the  industrial  services
group of companies.

         KPP has a credit agreement with two banks that currently provides a $25
million  revolving  credit  facility for working  capital and other  Partnership
purposes.  Borrowings  under the credit facility bear interest at variable rates
and are due and  payable on January 31,  2001.  The credit  agreement,  which is
without recourse to the Company,  has a commitment fee of 0.15% per annum of the
unused credit  facility.  At December 31, 1999, $2.2 million was drawn under the
credit facility.

         In January 1999,  KPP entered into a credit  agreement with a bank that
provides for the issuance of $39.2 million of term loans in connection  with the
United Kingdom  terminal  acquisition  and $5.0 million for general  partnership
purposes. The term loans, which bear interest in varying amounts, are secured by
the capital stock of the subsidiaries that acquired the United Kingdom terminals
and by a mortgage  on the East  Pipeline,  and are pari passu with the  existing
mortgage notes and credit facility.  The term loans,  which are without recourse
to the Company,  contain  certain  financial and  operational  covenants.  $18.3
million  of the term  loans  were  repaid in July  1999  with a  portion  of the
proceeds  from a public  offering of KPP units.  The  remaining  portion  ($25.8
million) is due in January 2002.

         In July 1999, KPP issued 2.25 million  limited  partnership  units in a
public offering at $30.75 per unit,  generating  approximately  $65.6 million in
net  proceeds.  A portion of the  proceeds was used to repay in full KPP's $15.0
million promissory note, KPP's $25.0 million revolving credit facility and $18.3
million of KPP's term loans  (including  $13.3  million in term loans  resulting
from the  United  Kingdom  terminal  acquisition).  As a result  of KPP  issuing
additional units to unrelated  parties,  the Company's pro-rata share of the net
assets of KPP increased by $16.8 million.  Accordingly, the Company recognized a
$16.8 million gain before deferred income taxes of $6.4 million.

         In December 1995, Kaneb entered into an agreement with an international
bank that provides for a $15 million  revolving credit facility through December
1, 2000 that bears interest at a variable rate at the Company's  option based on
the LIBOR rate plus 100 basis points or at the prime rate in effect from time to
time with a commitment fee of 0.5% per annum of the unused credit  facility.  No
amounts were drawn under the credit facility at December 31, 1999, 1998 or 1997.

         In March 1998, a wholly-owned  subsidiary of the Company entered into a
credit  agreement  with a bank that,  as  amended,  provides  for a $15  million
revolving credit facility through March 2001. The credit facility bears interest
at variable rates, has a commitment fee of 0.25% per annum on unutilized amounts
and contains certain financial and operational  covenants.  The credit facility,
which is without  recourse to the Company,  is secured by essentially all of the
tangible and intangible assets of the products marketing business and by 500,000
KPP limited partnership units held by a wholly-owned  subsidiary of the Company.
At December 31, 1999, $11.0 million was drawn on the facility.

         Consolidated  capital  expenditures  for 2000 have been budgeted at $15
million to $20 million,  depending on the economic  environment and the needs of
the business.  Consolidated  debt  maturities  are $2.5  million;  $2.4 million;
$100.1 million  (including $70.2 million of KPP debt);  $54.9 million (including
$52.8  million of KPP debt);  and $10.1 million  (including  $8.0 million of KPP
debt),  respectively,  for each of the five  years  ending  December  31,  2004.
Capital expenditures (excluding  acquisitions) in 2000 are expected to be funded
from existing cash and anticipated cash flows from operations.


Year 2000 Issue

         As of the date of this  Report,  the  Company has not  experienced  any
significant  disruptions in its operations  during the transition  into the Year
2000 ("Y2K").  In the third quarter of 1999,  the Company  announced that it had
completed  its  assessment of Y2K risks and that it had  formulated  contingency
plans to  mitigate  potential  adverse  effects  which  might have  arisen  from
noncompliant  systems or third parties who had not adequately  addressed the Y2K
issue.  To date, the Company has not incurred any  significant  costs related to
Y2K issues.  The Company will continue to monitor its operations and systems and
address any date-related problems that may arise as the year progresses.


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
year-end 1999 variable rate debt and investment  levels,  a one percent increase
in interest rates would increase net interest  expense and decrease  interest of
outside  non-controlling  partners  in KPP's net  income by  approximately  $0.4
million and less than $0.1 million, respectively.


Item 8.    Financial Statements and Supplementary Data

         The consolidated  financial  statements and  supplementary  data of the
Company  begins  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

         Reference is made to the Registrant's  Current Reports on Forms 8-K and
8-K/A, dated November 6, 1998 and March 9, 1999,  respectively which reports are
incorporated herein by reference.


                                    PART III

The  information  required by Part III (Items 10, 11, 12 and 13) of Form 10-K is
incorporated  by reference from portions of the  Registrant's  definitive  proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the close of the fiscal year covered by this Report.


                                     PART IV


Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K

                                                                       Beginning
(a)(1) Financial Statements                                              Page

       Set forth below are financial statements appearing in this report.

       Reports of Independent Accountants...............................  F - 1

       Financial Statements of Kaneb Services, Inc., and Subsidiaries:

       Consolidated Statements of Income - Years  Ended
         December 31, 1999, 1998 and 1997...............................  F - 3

       Consolidated Balance Sheets - December 31, 1999 and 1998.........  F - 4

       Consolidated Statements of  Cash Flows - Years Ended
         December 31, 1999, 1998 and 1997...............................  F - 5

       Consolidated Statements of Changes in Stockholders'
         Equity - Years Ended December 31, 1999, 1998 and 1997..........  F - 6

       Notes to Consolidated Financial Statements.......................  F - 7


(a)(2) Financial Statement Schedules

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

         Schedule I - Kaneb Services, Inc. (Parent Company)
         Condensed Financial Statements:

             Statements of Income - Years Ended December 31, 1999,
               1998 and 1997............................................  F - 26

             Balance Sheets - December 31, 1999 and 1998................  F - 27

             Statements of Cash Flows - Years Ended
               December 31, 1999, 1998 and 1997.........................  F - 28

         Schedule II - Kaneb Services, Inc. Valuation and Qualifying
             Accounts - Years Ended December 31, 1999, 1998 and 1997....  F - 29

         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.


(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,  19875,  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      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     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) and as Exhibit 4.1
         to the exhibits of Registrant's Form S-8 (S.E.C.  File No.  333-14067),
         which exhibits are hereby incorporated by reference.

10.2     Kaneb  Services,  Inc. 1984  Nonqualified  Stock Option Plan,  filed as
         Exhibit 10.26 to the exhibits of the Registrant's Form S-8 (S.E.C. File
         No. 2-90929), which exhibit is hereby incorporated by reference.

10.3     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), which exhibit is hereby incorporated by reference.

10.4     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) and as Exhibit 10.1 to the Exhibits of the Registrant's
         Current  Report on Form 8-K ("Form  8-K"),  which  exhibits  are hereby
         incorporated by reference.

10.5     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.

10.6     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.

10.7     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.

10.8     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.

10.9     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.

10.10    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,  and Exhibit  10.12 of the  Registrant's
         Form 10-K for the year ended  December  31,  1997,  which  exhibits are
         hereby incorporated by reference.

10.13    Amendments to the Furmanite Loan Agreement, filed herewith.

10.14    Loan Agreement between the Registrant,  KPL and Bank of Scotland, dated
         as of December 1, 1995,  filed as Exhibit  10.10 of the exhibits to the
         Registrant's  Form 10-K for the year ended  December  31,  1995,  which
         exhibit is hereby incorporated by reference.

21       List of subsidiaries of the Registrant, filed herewith.

23       Consents of  independent  accountants: KPMG LLP and
         PricewaterhouseCoopers  LLP, filed herewith.

27       Financial Data Schedule, 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.

(b)      Reports on Form 8-K

         None.


<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and
Stockholders of Kaneb Services, Inc.

We have audited the 1999 and 1998  consolidated  financial  statements  of Kaneb
Services,  Inc.  and its  subsidiaries  (the  "Company")  as listed in the index
appearing  under Item 14(a)(1) on page 20. In connection  with our audits of the
1999 and 1998 consolidated  financial statements,  we have also audited the 1999
and 1998 financial  statement  schedules as listed in the index  appearing under
Item 14(a)(2) on page 20. 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  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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,  1999  and  1998,  and the  results  of their
operations  and their cash flows for the years then ended,  in  conformity  with
generally accepted accounting principles. Also, in our opinion, the related 1999
and 1998 financial statement schedules,  when considered in relation to the 1999
and 1998  basic  consolidated  financial  statements  taken as a whole,  present
fairly, in all material respects, the information set forth therein.


KPMG LLP
Dallas, Texas
February 25, 2000


<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors and
Stockholders of Kaneb Services, Inc.

In our opinion,  the  consolidated  statements  of income,  of cash flows and of
changes in  stockholders'  equity as of and for the year ended December 31, 1997
(listed in the index  appearing  under Item 14(a)(1) and (2) on page 20) present
fairly,  in all material  respects,  the results of operations and cash flows of
Kaneb  Services,  Inc. and its  subsidiaries  (the "Company") for the year ended
December 31, 1997, in conformity with generally accepted accounting  principles.
These financial  statements are the responsibility of the Company's  management;
our responsibility is to express an opinion on these financial  statements based
on our audit.  We conducted our audit of these  statements  in  accordance  with
generally accepted auditing standards which 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,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audit  provides a reasonable  basis for the opinion  expressed
above.  We have not  audited  the  consolidated  financial  statements  of Kaneb
Services,  Inc. and its subsidiaries  for any period  subsequent to December 31,
1997.


PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
February 19, 1998


<PAGE>
                      KANEB SERVICES, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                                      -----------------------------------------------
                                                           1999            1998             1997
                                                      -------------    -------------    -------------
<S>                                                   <C>              <C>              <C>
Revenues:
    Services ......................................   $ 271,504,000    $ 250,225,000    $ 236,936,000
    Products ......................................     234,255,000      125,632,000             --
                                                      -------------    -------------    -------------
      Total revenues ..............................     505,759,000      375,857,000      236,936,000
                                                      -------------    -------------    -------------

Costs and expenses:
    Operating costs ................................    185,375,000      171,742,000      156,654,000
    Cost of sales ..................................    228,383,000      121,509,000             --
    Depreciation and amortization ..................     18,818,000       16,203,000       16,715,000
    General and administrative .....................      4,944,000        5,091,000        4,907,000
                                                      -------------    -------------    -------------
      Total costs and expenses .....................    437,520,000      314,545,000      178,276,000
                                                      -------------    -------------    -------------

Operating income ...................................     68,239,000       61,312,000       58,660,000

Interest income ....................................        750,000          189,000          533,000
Other income (expense) .............................         21,000          679,000         (696,000)
Interest expense ...................................    (17,695,000)     (15,714,000)     (15,531,000)
Amortization of excess of cost over fair
    value of net assets of acquired businesses .....     (2,172,000)      (1,948,000)      (1,879,000)
                                                      -------------    -------------    -------------
Income before interest of outside non-controlling
    partners in KPP's net income, gain on issuance
    of units by KPP and income taxes ...............     49,143,000       44,518,000       41,087,000

Gain on issuance of units by KPP ...................     16,764,000             --               --
Income tax benefit (expense) .......................     31,344,000       (1,768,000)      (2,789,000)
Interest of outside non-controlling partners
    in KPP's net income ............................    (33,479,000)     (29,174,000)     (27,655,000)
                                                      -------------    -------------    -------------
Net income ..........................................    63,772,000       13,576,000       10,643,000
Dividends applicable to preferred stock .............       487,000          508,000          538,000
                                                      -------------    -------------    -------------
Net income applicable to common stock ..............  $  63,285,000    $  13,068,000    $  10,105,000
                                                      =============    =============    =============

Earnings per common share:
    Basic ..........................................  $        2.01    $         .41    $         .31
                                                      =============    =============    =============
    Diluted ........................................  $        1.94    $         .40    $         .30
                                                      =============    =============    =============
</TABLE>






                See notes to consolidated financial statements.

                                      F - 3

<PAGE>
                      KANEB SERVICES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                     December 31,
                                                           ------------------------------
                                                               1999             1998
                                                           -------------    -------------

                                     ASSETS
<S>                                                        <C>              <C>
Current assets:
   Cash and cash equivalents ...........................   $  20,766,000    $   9,134,000
   Accounts receivable, trade (net of allowance for
     doubtful accounts of $1,532,000 in 1999 and
     $925,000 in 1998) .................................      66,991,000       47,540,000
   Inventories .........................................      18,063,000       13,465,000
   Prepaid expenses and other current assets ...........      14,957,000        6,615,000
                                                           -------------    -------------
     Total current assets ..............................     120,777,000       76,754,000
                                                           -------------    -------------
Property and equipment .................................     470,351,000      411,285,000
Less accumulated depreciation and amortization .........     142,207,000      130,759,000
                                                           -------------    -------------
   Net property and equipment ..........................     328,144,000      280,526,000
                                                           -------------    -------------
Investment in affiliate ................................      21,978,000       21,005,000

Excess of cost over fair value of net assets of
     acquired businesses ...............................      62,657,000       62,521,000
Deferred tax assets ....................................      22,754,000        2,250,000
Other assets ...........................................       4,005,000        4,989,000
                                                           -------------    -------------
                                                           $ 560,315,000    $ 448,045,000
                                                           =============    =============
                             LIABILITIES AND EQUITY
Current liabilities:
    Short-term and current portion of long-term debt:
     Pipeline and terminaling services .................   $        --      $  10,000,000
     Product marketing services ........................            --          2,852,000
     Industrial services ...............................       2,471,000        2,441,000
                                                           -------------    -------------
       Total short-term and current portion of long-term
          debt .........................................       2,471,000       15,293,000
   Accounts payable ....................................      20,146,000       14,520,000
   Accrued expenses ....................................      41,170,000       41,309,000
                                                           -------------    -------------
     Total current liabilities .........................      63,787,000       71,122,000
                                                           -------------    -------------
Long-term debt, less current portion:
   Pipeline and terminaling services ...................     155,987,000      153,000,000
   Product marketing services ..........................      11,041,000             --
   Industrial services .................................      20,557,000       20,292,000
   Parent company ......................................      23,666,000       23,666,000
                                                           -------------    -------------
     Total long-term debt, less current portion ........     211,251,000      196,958,000
                                                           -------------    -------------
Deferred income taxes and other liabilities ............      10,791,000       15,626,000
Interest of outside non-controlling partners in KPP ....     124,820,000       76,894,000

Commitments and contingencies

Stockholders' equity:
   Preferred stock, without par value ..................       5,792,000        5,792,000
   Common stock, without par value.  Authorized
     60,000,000 shares; issued 36,638,069 shares
     in 1999 and 36,554,206 shares in 1998 .............       4,249,000        4,239,000
   Additional paid-in capital ..........................     197,454,000      197,263,000
   Treasury stock, at cost .............................     (30,278,000)     (29,775,000)
   Other ...............................................        (141,000)        (141,000)
   Accumulated deficit .................................     (25,138,000)     (88,423,000)
   Accumulated other comprehensive income (loss) -
     foreign currency translation adjustment ...........      (2,272,000)      (1,510,000)
                                                           -------------    -------------
     Total stockholders' equity ........................     149,666,000       87,445,000
                                                           -------------    -------------
                                                           $ 560,315,000    $ 448,045,000
                                                           =============    =============
</TABLE>

                See notes to consolidated financial statements.

                                      F - 4
<PAGE>

                      KANEB SERVICES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                                                                             Year Ended December 31,
                                                              ----------------------------------------------------
                                                                   1999               1998                1997
                                                              -------------       -------------     --------------
<S>                                                           <C>                 <C>               <C>
Operating activities:
   Net income ............................................    $  63,772,000       $  13,576,000     $   10,643,000
   Adjustments to reconcile net income to
     net cash provided by operating activities:
       Depreciation and amortization......................       18,818,000          16,203,000         16,715,000
       Amortization of excess of cost over fair value
         of net assets of acquired businesses.............        2,172,000           1,948,000          1,879,000
       Interest of outside non-controlling partners in KPP       33,479,000          29,174,000         27,655,000
       Gain on issuance of units by KPP...................      (16,764,000)               --                 --
       Deferred income taxes..............................      (29,647,000)            518,000             86,000
       Equity in earnings of affiliate,
          net of distribution.............................       (1,072,000)               --                 --
       Changes in current assets and liabilities:
         Accounts receivable..............................      (17,175,000)        (12,272,000)        (2,111,000)
         Inventories......................................       (4,592,000)         (4,600,000)          (373,000)
         Prepaid expenses and other current assets........       (3,079,000)           (922,000)           674,000
         Accounts payable and accrued expenses............        4,172,000          10,581,000            (48,000)
                                                              -------------       -------------     --------------
     Net cash provided by operating activities............       50,084,000          54,206,000         55,120,000
                                                              -------------       -------------     --------------

Investing activities:
   Capital expenditures...................................      (17,339,000)        (12,256,000)       (13,011,000)
   Acquisitions...........................................      (48,439,000)        (47,947,000)        (4,855,000)
   Increase in other assets, net..........................       (3,504,000)             (8,000)        (1,819,000)
                                                              -------------       -------------     --------------
     Net cash used in investing activities................      (69,282,000)        (60,211,000)       (19,685,000)
                                                              -------------       -------------     --------------

Financing activities:
   Issuance of debt ......................................       62,318,000          40,717,000          8,619,000
   Payments on debt and capital leases ...................      (60,847,000)        (14,912,000)       (12,768,000)
   Distributions to outside non-controlling
     partners in KPP......................................      (35,426,000)        (28,509,000)       (26,864,000)
   Preferred stock dividends paid.........................         (487,000)           (508,000)          (538,000)
   Common stock issued....................................          253,000             194,000             33,000
   Purchase of treasury stock.............................         (555,000)         (4,868,000)        (4,585,000)
   Net proceeds from issuance of units by KPP.............       65,574,000                --                 --
                                                              -------------       -------------     --------------
     Net cash provided by (used in) financing activities..       30,830,000          (7,886,000)       (36,103,000)
                                                              -------------       -------------     --------------

Increase (decrease) in cash and cash equivalents..........       11,632,000         (13,891,000)          (668,000)
Cash and cash equivalents at beginning of year............        9,134,000          23,025,000         23,693,000
                                                              -------------       -------------     --------------
Cash and cash equivalents at end of year..................    $  20,766,000       $   9,134,000     $   23,025,000
                                                              =============       =============     ==============
</TABLE>



                See notes to consolidated financial statements.

                                      F - 5

<PAGE>
                     KANEB SERVICES, INC. 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             Other
                                        -------------     -------------    ---------------   -------------    -------------

<S>                                     <C>               <C>              <C>               <C>              <C>
Balance at January 1, 1997              $   5,792,000     $   4,230,000    $ 197,213,000     $ (20,631,000)   $        -

       Net income for the year.......            -                -                 -                -                 -
       Common stock issued...........            -                4,000           29,000             -                 -
       Purchase of treasury stock ...            -                -                 -           (4,585,000)            -
       Preferred stock dividends
        declared.....................            -                -                 -                -                 -
            adjustment ..............            -                -                 -                -                 -
                                        -------------     ------------     -------------     -------------    -------------
       Comprehensive income
        for the year.................


Balance at December 31, 1997                5,792,000         4,234,000      197,242,000       (25,216,000)            -

        Net income for the year......            -                -                 -                -                 -
        Common stock issued..........            -                5,000           21,000           309,000         (141,000)
        Purchase of treasury stock ..            -                -                 -           (4,868,000)            -
        Preferred stock dividends
        declared.....................            -                -                 -                -                 -
        Foreign currency translation
             adjustment .............            -                -                 -                -                 -
                                        -------------     -------------    -------------     -------------    -------------
        Comprehensive income
        for the year.................

Balance at December 31, 1998                5,792,000         4,239,000      197,263,000       (29,775,000)        (141,000)

        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    $ 197,454,000     $ (30,278,000)   $    (141,000)
                                        =============     =============    =============     =============    ==============
</TABLE>

                 See notes to consolidated financial statements.

                                      F - 6

<PAGE>
                     KANEB SERVICES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                  PART 2 OF 2
<TABLE>
<CAPTION>

                                                          Accumulated Other
                                         Accumulated       Comprehensive      Comprehensive
                                           Deficit         Income (Loss)          Income
                                        -------------    ------------------   --------------

<S>                                     <C>                <C>                <C>
Balance at January 1, 1997              $(111,596,000)     $      358,000     $        --

       Net income for the year.......      10,643,000                --          10,643,000
       Common stock issued...........            --                  --                --
       Purchase of treasury stock ...            --                  --                --
       Preferred stock dividends
        declared.....................        (538,000)               --                --
       Foreign currency translation
            adjustment ..............            --            (2,472,000)       (2,472,000)
                                        -------------      --------------     -------------
       Comprehensive income
        for the year.................                                         $   8,171,000
                                                                              =============

Balance at December 31, 1997             (101,491,000)         (2,114,000)             --

        Net income for the year......      13,576,000                --          13,576,000
        Common stock issued..........            --                  --                --
        Purchase of treasury stock ..            --                  --                --
        Preferred stock dividends
        declared.....................        (508,000)               --                --
        Foreign currency translation
             adjustment .............            --               604,000           604,000
                                        --------------     --------------     -------------
        Comprehensive income
        for the year.................                                         $  14,180,000
                                                                              =============

Balance at December 31, 1998               (88,423,000)        (1,510,000)             --

        Net income for the year......       63,772,000               --          63,772,000
        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.................                                         $  63,010,000
                                                                              =============

Balance at December 31, 1999            $ (25,138,000)     $   (2,272,000)
                                        =============      ==============
</TABLE>


                 See notes to consolidated financial statements.

                                      F - 6

<PAGE>
                      KANEB SERVICES, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       The  following  significant  accounting  policies  are  followed by Kaneb
       Services, Inc. (the "Company") and its subsidiaries in the preparation of
       its consolidated financial statements.

       Principles of Consolidation

       The consolidated financial statements include the accounts of the Company
       and its  subsidiaries  and Kaneb Pipe Line Partners,  L.P.  ("KPP").  The
       Company  controls the  operations  of KPP through its 2% general  partner
       interest and 28% limited  partner  interest as of December 31, 1999.  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.

       Inventories

       Inventories  consist  primarily  of  finished  goods  of  the  industrial
       services  segment  and  petroleum  products  purchased  for resale in the
       products  marketing  business  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 original 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 rates  used for  pipeline  and  certain  storage
       facilities,  which  are  subject  to  regulation,  are the  same as those
       promulgated by the Federal Energy Regulatory Commission.

       The carrying  value of property and equipment is  periodically  evaluated
       using  undiscounted  future  cash flows as the basis for  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  impairment  is indicated  to exist,  an  impairment  loss will be
       recognized under SFAS No. 121 based on fair value.

       Revenue Recognition

       Substantially all revenues are recognized when services to customers have
       been   rendered  or  when   products   have  been   delivered.   Pipeline
       transportation  revenues are recognized upon receipt of the products into
       the pipeline system.

       Sales of Securities by Subsidiaries

       The  Company  recognizes  gains and  losses in the  statements  of income
       resulting from subsidiary sales of additional equity interests, including
       KPP limited partnership units, to unrelated parties.

       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 a period of
       40 years. Accumulated amortization was $16.3 million and $14.1 million at
       December 31, 1999 and 1998, 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 revised  estimates of useful lives.  The Company  believes that no
       such  impairment  has occurred and that no reduction in estimated  useful
       lives is warranted.

       Environmental

       KPP  environmental  expenditures  that relate to current  operations  are
       expensed or capitalized as  appropriate.  Expenditures  that relate to an
       existing condition caused by past operations, and which do not contribute
       to current or future revenue  generation,  are expensed.  Liabilities are
       recorded  when  environmental  assessments  and/or  remedial  efforts are
       probable,  and the  costs can be  reasonably  estimated.  Generally,  the
       timing of these  accruals  coincides with the completion of a feasibility
       study or KPP's commitment to a formal plan of action.

       Estimates

       The preparation of the Company's financial  statements in conformity with
       generally  accepted  accounting  principles  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.

       Change in Presentation

       Certain prior year financial  statement  items have been  reclassified to
       conform with the 1999 presentation.


2.     ASSET ACQUISITIONS

       On March 25, 1998, a  wholly-owned  subsidiary of the Company  acquired a
       products  marketing  business for $1.5 million,  plus the cost of product
       inventories.  The products  marketing  business provides  wholesale motor
       fuel  marketing  services  throughout  the Great Lakes and Rocky Mountain
       regions,  as well as California.  The asset purchase agreement includes a
       provision  for an  earn-out  based on  annual  operating  results  of the
       acquired business for a five-year period ending in March 2003. No amounts
       were  payable  under  the  earn-out   provision  in  1999  or  1998.  The
       acquisition was accounted for using the purchase method of accounting.

       On October 30,  1998,  KPP entered  into  acquisition  and joint  venture
       agreements with Northville Industries Corp. ("Northville") to acquire and
       manage the former  Northville  terminal  located in Linden,  New  Jersey.
       Under the agreements,  KPP acquired a 50% interest in the newly-formed ST
       Linden  Terminal  LLC for  $20.5  million  plus  transaction  costs.  The
       investment is being  accounted  for by the equity  method of  accounting,
       with the excess cost over net book value of the equity  investment  being
       amortized  over the  life of the  underlying  assets.  During  1998,  KPP
       acquired  other  terminals and pipelines for aggregate  consideration  of
       $23.9 million.

       On February 1, 1999,  KPP  acquired six  terminals in the United  Kingdom
       from GATX Terminal Limited for (pound)22.6 million  (approximately  $37.2
       million)   plus   transaction   costs  and  the   assumption  of  certain
       liabilities.  The  acquisition,  which was  initially  financed with term
       loans from a bank,  has been  accounted for using the purchase  method of
       accounting. $13.3 million of the term loans were repaid in July 1999 with
       the  proceeds  from a public  unit  offering  (see Note 3). The pro forma
       effect of the acquisition was not material to the results of operations.


3.     PUBLIC OFFERING OF KPP UNITS

       In July 1999,  KPP issued 2.25  million  limited  partnership  units in a
       public  offering  at $30.75  per  unit,  generating  approximately  $65.6
       million in net  proceeds.  A portion of the proceeds was used to repay in
       full KPP's $15.0 million  promissory note, KPP's $25.0 million  revolving
       credit  facility and $18.3 million of KPP's term loans  (including  $13.3
       million  in  term  loans  resulting  from  the  United  Kingdom  terminal
       acquisition referred to in Note 2). As a result of KPP issuing additional
       units to  unrelated  parties,  the  Company's  pro-rata  share of the net
       assets  of KPP  increased  by $16.8  million.  Accordingly,  the  Company
       recognized  a $16.8  million  gain before  deferred  income taxes of $6.4
       million.  This transaction reduced the Company's limited partner interest
       in KPP from 31% to 28%.


4.     INCOME TAXES

       Income before income tax expense and interest of outside  non-controlling
       partners in KPP's net income is comprised of the following components:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                        -----------------------------------------------------
                                                             1999                1998                1997
                                                        --------------      -------------       -------------

       <S>                                              <C>                 <C>                 <C>
       Domestic operations.........................     $   33,549,000      $  17,540,000       $  11,769,000
       Foreign operations..........................          2,160,000         (1,339,000)          1,663,000
                                                        --------------      -------------       -------------
       Income before non-taxable interest of outside
         non-controlling partners in KPP's net
         income....................................         35,709,000         16,201,000          13,432,000
       Non-taxable interest of outside non-controlling
         Partners in KPP's net income..............         30,198,000         28,317,000          27,655,000
                                                        --------------      -------------       -------------
                                                        $  65,907,0000      $  44,518,000       $  41,087,000
                                                        ==============      =============       =============
</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>
       1999:
         Current.................    $     392,000        $   (735,000)      $ (1,354,000)      $  (1,697,000)
         Deferred................      (31,253,000)          1,304,000            302,000         (29,647,000)
                                     -------------        ------------       ------------       -------------
                                     $ (30,861,000)       $    569,000       $ (1,052,000)      $ (31,344,000)
                                     =============        ============       ============       =============

       1998:
         Current.................    $     330,000        $    320,000       $    600,000       $   1,250,000
         Deferred................          518,000               -                   -                518,000
                                     -------------        ------------       ------------       -------------
                                     $     848,000        $    320,000       $    600,000       $   1,768,000
                                     =============        ============       ============       =============

       1997:
         Current...............      $     577,000        $    925,000       $  1,201,000       $   2,703,000
         Deferred..............             74,000              12,000               -                 86,000
                                     -------------        ------------       ------------       -------------
                                     $     651,000        $    937,000       $  1,201,000       $   2,789,000
                                     =============        ============       ============       =============
</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  before  income  taxes and interest of
       outside non-controlling  partners in KPP's net income for the years 1999,
       1998 and 1997 are as follows:
<TABLE>
<CAPTION>
                                                                   Year Ended December 31,
                                          ----------------------------------------------------------------------
                                                    1999                    1998                    1997
                                          ----------------------  ----------------------  ----------------------
                                               Amount         %        Amount         %       Amount         %
                                          -------------     ----  ---------------   ----  --------------   -----
       <S>                                <C>               <C>   <C>               <C>   <C>              <C>
       Expected tax at
         statutory rates................  $  12,498,000     35.0  $     5,671,000   35.0  $    4,701,000   35.0
       Increase (decrease) in taxes
         resulting from:
         Change in valuation allowance..    (43,143,000)  (120.8)      (7,066,000) (43.6)     (3,048,000) (22.6)
         State income taxes, net........      1,065,000      3.0          390,000    2.4         781,000    5.8
         Foreign losses not benefited and
           Foreign income taxes.........        526,000      1.5       2,098,000    12.9         355,000    2.6
         Resolution of state and foreign
           tax issues and other.........     (2,290,000)    (6.5)         675,000    4.2            --       --
                                          -------------   ------  ---------------  -----  --------------  -----
                                          $ (31,344,000)   (87.8) $     1,768,000   10.9  $    2,789,000   20.8
                                          =============    =====  ===============  =====  ==============  =====
</TABLE>

       At  December  31,  1999,  the  Company  had  available  domestic  tax net
       operating loss carryforwards  ("NOLs"),  which will expire, if unused, as
       follows:  $67,449,000 in 2002,  $12,626,000 in 2003, $16,866,000 in 2005,
       $17,508,000 in 2006 and $3,033,000 in 2007. Additionally, at December 31,
       1999,  the Company had  investment  tax credits  aggregating  $1,786,000,
       which  will  expire,  if  unused,  in 2000,  that could be used to offset
       current  domestic  income taxes,  but only after all  available  NOLs are
       utilized.  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.

       The tax effects of temporary  differences  that give rise to  significant
       portions of the  deferred  tax assets and  deferred  tax  liabilities  at
       December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              -------------------------------------
                                                                                   1999                   1998
                                                                              --------------         --------------
       <S>                                                                    <C>                    <C>
       Deferred tax assets:
         Net operating loss carryforwards.........................            $   41,119,000         $   45,521,000
         Investment tax credit carryforwards......................                 1,786,000              3,957,000
         Alternative minimum tax credit carryforwards.............                 3,996,000              3,668,000
         Accrued liabilities......................................                 2,328,000              3,593,000
         Other....................................................                 2,266,000              1,806,000
                                                                              --------------         --------------
         Total gross deferred tax assets..........................                51,495,000             58,545,000
         Less valuation allowance.................................                (9,654,000)           (52,797,000)
                                                                              --------------         --------------
         Net deferred tax assets..................................                41,841,000              5,748,000
                                                                              --------------         --------------

       Deferred tax liabilities:
         Plant and equipment, principally due to differences
           in depreciation........................................            $   (8,437,000)        $   (3,507,000)
         Unconsolidated domestic subsidiaries.....................                (3,741,000)            (3,599,000)
         Foreign deferred tax liabilities.........................                (1,637,000)              (317,000)
                                                                              --------------         --------------
         Total gross deferred tax liabilities.....................               (13,815,000)            (7,423,000)
                                                                              --------------         --------------

         Net deferred tax asset (liability).......................            $   28,026,000         $   (1,675,000)
                                                                              ==============         ==============
</TABLE>

       The Company maintains a valuation  allowance to adjust the total deferred
       tax assets to net  realizable  value in accordance  with SFAS No. 109. In
       the fourth quarter of 1999, the Company  reduced the valuation  allowance
       by $37.1 million as a result of its reevaluation of the  realizability of
       income tax  benefits  from  future  operations.  The  Company  considered
       positive  evidence  supported  by 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 ($67.4 million expires in 2002),  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.  Ultimate  realization of the deferred tax asset is dependent
       upon, among other factors,  the Company's ability to generate  sufficient
       taxable  income  within the  carryforward  periods  (2000 to 2007) and is
       subject  to  change  depending  on the tax laws in effect in the years in
       which the carryforwards are used.


5.     RETIREMENT PLANS

       The Company has a defined  contribution  plan which covers  substantially
       all  domestic  employees  and  provides  for  varying  levels of employer
       matching.  Company  contributions  to this plan were $1.4  million,  $1.2
       million and $1.1 million for 1999, 1998 and 1997, 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, 1999.


       Net pension cost for the U.K. Plan included the following components:
<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                        --------------------------------------------------
                                                            1999                1998              1997
                                                        --------------     -------------      ------------
       <S>                                              <C>                <C>                <C>
       Net periodic benefit cost:
         Service cost................................   $    1,164,000     $   1,352,000      $   1,254,000
         Interest cost...............................        2,151,000         2,311,000          2,021,000
         Expected return on plan assets..............       (4,443,000)       (2,527,000)        (2,720,000)
         Amortization of prior service cost..........           27,000            27,000             27,000
         Recognized net (gain) loss..................        1,859,000          (508,000)          (121,000)
                                                        --------------     -------------      -------------
       Net periodic pension cost.....................   $      758,000     $     655,000      $     461,000
                                                        ==============     =============      =============
</TABLE>
     Actuarial  assumptions  used in the  accounting  for the U.K.  Plan  were a
     weighted  average  discount rate of 6.5% for 1999,  6.25% for 1998 and 7.5%
     for 1997, an expected  long-term  rate of return on assets of 7.5% for 1999
     and 1998 and 9.0% for 1997 and a rate of increase in compensation levels of
     3.0% for 1999 and 1998 and 5.5% for  1997.  The  funded  status of the U.K.
     Plan is as follows:
                                                           December 31,
                                                   ----------------------------
                                                       1999            1998
                                                   ------------    ------------

     Projected benefit obligation:
       Beginning of year .......................   $ 35,438,000    $ 30,564,000
       Service cost ............................      1,164,000       1,352,000
       Interest cost ...........................      2,151,000       2,311,000
       Contributions ...........................        786,000       1,116,000
       Benefits paid ...........................       (636,000)       (525,000)
       Other ...................................     (1,805,000)        620,000
                                                   ------------    ------------
       End of year .............................     37,098,000      35,438,000
                                                   ------------    ------------

     Fair value of plan assets:
       Beginning of year .......................     36,266,000      33,138,000
       Actual return on plan assets ............      6,364,000       1,957,000
       Contributions ...........................        786,000       1,116,000
       Benefits paid ...........................       (636,000)       (525,000)
       Other ...................................       (875,000)        580,000
                                                   ------------    ------------
       End of year .............................     41,905,000      36,266,000
                                                   ------------    ------------

     Excess fair value over projected obligation      4,807,000         828,000
     Unrecognized net actuarial gain ...........     (4,811,000)       (990,000)
     Unamortized prior service cost ............        168,000         299,000
                                                   ------------    ------------
     Net pension prepaid asset .................   $    164,000    $    137,000
                                                   ============    ============

6.     PROPERTY AND EQUIPMENT

       The cost of property and equipment is as follows:

                                                            December 31,
                                                 ------------------------------
                                                      1999             1998
                                                 --------------    ------------

     Pipeline and terminaling services .......   $ 439,537,000    $ 377,248,000
     Product marketing services ..............          97,000           53,000
     Information services ....................       3,643,000        3,354,000
     Industrial services .....................      23,226,000       26,782,000
     General corporate .......................       3,848,000        3,848,000
                                                 -------------    -------------
     Total property and equipment ............     470,351,000      411,285,000
     Accumulated depreciation and amortization    (142,207,000)    (130,759,000)
                                                 -------------    -------------
     Net property and equipment ..............   $ 328,144,000    $ 280,526,000
                                                 =============    =============

       Equipment  under capital  leases and included in the cost of property and
       equipment is as follows:

                                                          December 31,
                                                 ------------------------------
                                                      1999             1998
                                                 -------------    -------------

     Industrial services equipment ...........   $   2,144,000    $   4,044,000
     Accumulated depreciation ................      (1,222,000)      (3,147,000)
                                                 -------------    -------------
     Net equipment acquired under capital
          leases..............................   $     922,000    $     897,000
                                                 =============    =============


7.     DEBT

       Debt is summarized as follows:
<TABLE>
<CAPTION>
                                                                      December 31,
                                                              ---------------------------
                                                                  1999           1998
                                                              ------------   ------------
     <S>                                                      <C>            <C>
     Pipeline and terminaling services:
       Mortgage notes due 2001 and 2002 ...................   $ 60,000,000   $ 60,000,000
       Mortgage notes due 2001 through 2016 ...............     68,000,000     68,000,000
       Revolving credit facility due January 2001 .........      2,200,000     25,000,000
       Term loans due in 2002 .............................     25,787,000           --
       Promissory note, repaid in June 1999 ...............           --       10,000,000
                                                              ------------   ------------
            Total debt ....................................    155,987,000    163,000,000
       Less short-term and current portion ................           --       10,000,000
                                                              ------------   ------------
                                                              $155,987,000   $153,000,000
                                                              ============   ============
     Product marketing services:
       Revolving credit facility due March 2001 ...........   $ 11,041,000   $  2,852,000
                                                              ------------   ------------
         Total debt .......................................     11,041,000      2,852,000
       Less short-term and current portion ................           --        2,852,000
                                                              ------------   ------------
                                                              $ 11,041,000   $       --
                                                              ============   ============
     Industrial services:
       Credit facility due through 2001 ...................   $ 17,945,000   $ 17,764,000
       Various notes of foreign subsidiaries, with
         interest ranging from 6.75% to 8.0%, due
         through 2001 .....................................      4,097,000      4,020,000
       Capital leases .....................................        986,000        949,000
                                                              ------------   ------------
            Total debt ....................................     23,028,000     22,733,000
       Less current portion ...............................      2,471,000      2,441,000
                                                              ------------   ------------
                                                              $ 20,557,000   $ 20,292,000
                                                              ============   ============
     Parent company:
       8.75% convertible subordinated debentures
         due through 2008..................................   $ 23,666,000   $ 23,666,000
       Revolving credit facility...........................           --             --
                                                              ------------   ------------
              Total debt...................................     23,666,000     23,666,000
         Less current portion..............................           --             --
                                                              ------------   -------------
                                                              $ 23,666,000   $  23,666,000
                                                              ============   =============

     Total consolidated debt...............................   $213,722,000   $ 212,251,000
     Short-term and current portion........................      2,471,000      15,293,000
                                                              ------------   -------------
     Total consolidated debt, less short-term and
         current portion...................................   $211,251,000   $ 196,958,000
                                                              ============   =============
</TABLE>

       Pipeline and Terminaling Services

       In 1994, KPP, through a wholly-owned subsidiary,  entered into a restated
       credit  agreement  with a group of banks that, as  subsequently  amended,
       provides for a $25 million  revolving credit facility through January 31,
       2001.  The credit  facility,  which is without  recourse to the  Company,
       bears  interest at variable  interest  rates and has a commitment  fee of
       0.15% per annum of the unused credit facility. At December 31, 1999, $2.2
       million was drawn under the credit facility.

       Also in 1994, KPP, through another  wholly-owned  subsidiary,  issued $33
       million  of  first  mortgage  notes  ("Notes")  to a group  of  insurance
       companies. The Notes bear interest at the rate of 8.05% per annum and are
       due  on  December  22,  2001.  In  1995,  KPP,   through  a  wholly-owned
       subsidiary,  issued $27 million of additional Notes due February 24, 2002
       which bear interest at the rate of 8.37% per annum.  The Notes and credit
       facility,  which are without  recourse to the  Company,  are secured by a
       mortgage  on  the  East  Pipeline  and  contain  certain   financial  and
       operational covenants.

       In June 1996, KPP, through a wholly-owned subsidiary,  issued $68 million
       of new first mortgage notes bearing  interest at rates ranging from 7.08%
       to 7.98%.  $35.0 million of these notes is due June 2001, $8.0 million is
       due June 2003,  $10.0  million is due June 2006 and $15.0  million is due
       June  2016.  The loan,  which is  without  recourse  to the  Company,  is
       secured,  pari passu with the existing  Notes and credit  facility,  by a
       mortgage on the East Pipeline.

       In January 1999, KPP, through two wholly-owned subsidiaries, entered into
       a credit  agreement  with a bank that  provides for the issuance of $39.2
       million of term loans in  connection  with the  United  Kingdom  terminal
       acquisition and $5.0 million for general partnership  purposes.  The term
       loans,  $18.3  million of which bore  interest  in varying  amounts,  are
       secured by the capital stock of the subsidiaries that acquired the United
       Kingdom  terminals  and by a mortgage on the East  Pipeline and, are pari
       passu with the  existing  mortgage  notes and credit  facility.  The term
       loans,  which  are  without  recourse  to the  Company,  contain  certain
       financial  and  operational  covenants.  $18.3 million of the terms loans
       were repaid in July 1999 with the proceeds from a public  offering of KPP
       units.  The remaining  portion ($25.8 million) with a fixed rate of 7.14%
       is due in January 2002.

       Product Marketing Services

       In March 1998, a  wholly-owned  subsidiary of the Company  entered into a
       credit agreement with a bank that, as amended, provides for a $15 million
       revolving  credit facility  through March 2001. The credit facility bears
       interest at variable rates (7.24% at December 31, 1999), has a commitment
       fee of 0.25%  per  annum  on  unutilized  amounts  and  contains  certain
       financial  and  operational  covenants.  The  credit  facility,  which is
       without  recourse to the Company,  is secured by  essentially  all of the
       tangible and intangible assets of the products  marketing business and by
       500,000 KPP limited  partnership units held by a wholly-owned  subsidiary
       of the  Company.  At December 31,  1999,  $11.0  million was drawn on the
       facility.

       Industrial Services

       At  December  31,  1999,  $17.9  million was  outstanding  under a credit
       facility, as amended,  that was obtained by a wholly-owned  subsidiary in
       conjunction with the acquisition of Furmanite. The credit facility, which
       is without  recourse to the Company,  is due 2001,  bears interest at the
       option of the  borrower at variable  rates  (6.23% at December  31, 1999)
       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  industrial  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  industrial  services
       group.

       Parent Company

       The 8.75%  subordinated  debentures  are  convertible  into shares of the
       Company's  common  stock at a conversion  price of $17.54 per share.  The
       Company has satisfied the sinking fund requirements on these subordinated
       debentures through 2000.

       In  December  1995,  the  Company  entered  into  an  agreement  with  an
       international  bank that  provides  for a $15  million  revolving  credit
       facility through December 1, 2000, that bears interest at a variable rate
       at the Company's  option based on the LIBOR rate plus 100 basis points or
       at the prime rate in effect  from time to time with a  commitment  fee of
       0.5% per annum of the unused  credit  facility.  The credit  facility  is
       secured by 1.0 million of the Company's limited partnership units in KPP.
       No amounts  were drawn under the credit  facility at December 31, 1999 or
       1998.

       Consolidated Maturities

       Annual  sinking fund  requirements  and debt  maturities on  consolidated
       debt, including capital leases, are: $2.5 million;  $2.4 million;  $100.1
       million  (including $70.2 million of KPP debt);  $54.9 million (including
       $52.8 million of KPP debt); and $10.1 million  (including $8.0 million of
       KPP debt),  respectively,  for each of the five years ending December 31,
       2004.


 8.    CAPITAL STOCK

       The  changes  in the  number  of  issued  and  outstanding  shares of the
       Company's preferred and common stock are summarized as follows:

<TABLE>
<CAPTION>

                                                                                      Common Stock
                                                                  -------------------------------------------------
                                                      Preferred                       Held in
                                                    Stock Issued       Issued         Treasury        Outstanding
                                                   -------------  --------------  --------------   ----------------
       <S>                                         <C>            <C>             <C>              <C>
       Balance at January 1, 1997.................       568,450      36,491,027       3,156,076         33,334,951
       Series F Preferred Stock issued............         1,000           --              --                 --
       Common shares issued or purchased..........         --              36,256       1,190,900        (1,154,644)
                                                   -------------  --------------  --------------   ----------------

       Balance at December 31, 1997...............       569,450      36,527,283       4,346,976         32,180,307
       Common shares issued or purchased..........         --             26,923         797,608           (770,685)
                                                   -------------  --------------  --------------   -----------------

       Balance at December 31, 1998...............       569,450      36,554,206       5,144,584         31,409,622
       Common shares issued or purchased..........         --             83,863         116,383            (32,520)
                                                   -------------  --------------  --------------   ----------------

       Balance at December 31, 1999...............       569,450      36,638,069       5,260,967         31,377,102
                                                   =============  ==============  ==============   ================
</TABLE>


       Series A Preferred Stock

       The Company has 567,950  shares of  Cumulative  Class A  Adjustable  Rate
       Preferred  Stock,  Series A ("Series A Preferred") with a stated value of
       $10  per  share  outstanding  at  December  31,  1999.  Dividends  accrue
       quarterly  at the  applicable  U.S.  Treasury  rate plus 2.00  percentage
       points (200 basis points)  ("Applicable  Rate"),  but will in no event be
       less than 7.5% per annum or greater than 14% per annum.  If dividends are
       in arrears for two or more quarters,  additional  dividends accrue on all
       dividends in arrears at a rate equal to the Applicable Rate plus 25 basis
       points for each quarter  dividends  are in arrears (but not more than the
       lesser  of 14% per  annum or 300 basis  points  more than the  Applicable
       Rate).  If unpaid accrued  dividends  exist with respect to eight or more
       quarters, the holders of the Series A Preferred may elect individually to
       require  the Company to redeem  their  shares at a price of $12 per share
       plus dividends in arrears.  No such arrearages existed as of December 31,
       1999, 1998 and 1997. The Company, at its option, may redeem shares at any
       time at a price of $12 per share  (reduced  ratably  to $10 over 15 years
       unless  unpaid  accrued  dividends  exist  with  respect to eight or more
       quarters) plus accrued and unpaid dividends thereon.

       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, 1999 and 1998 there were
       no Series B Preferred shares outstanding.

       Series C Preferred Stock

       In April 1991,  the Company  authorized  1,000 shares of Adjustable  Rate
       Cumulative Class A Preferred Stock, Series C ("Series C Preferred") which
       have a  preference  value of $1.00 per share and are only  entitled  to a
       dividend if the value of the Company's common stock increases. The Series
       C  Preferred,  as an entire  class,  is  entitled  to an annual  dividend
       commencing January 1, 1992, equal to 1/2 of 1%  (proportionately  reduced
       for authorized  but unissued  shares in the class) of the increase in the
       average per share market value of the  Company's  common stock during the
       year preceding payment of the dividend, over $4.79 (the average per share
       market value of the Company's common stock during 1990) multiplied by the
       average  number  of  shares of common  stock  outstanding.  The  Series C
       Preferred has mandatory  redemption  requirements in the event of certain
       types of corporate  reorganizations  and may be redeemed at the option of
       the Company  during the first 60 days of each year  commencing  1994. The
       redemption  price is the sum of (i) one  divided  by the  average  annual
       yield of all  issues of  preferred  stock  listed  on the New York  Stock
       Exchange  during the calendar year  preceding the date of the  redemption
       period times the average dividend for the two most recent years plus (ii)
       a pro rata portion of the prior year's  dividend based upon the number of
       elapsed days in the year of redemption  plus (iii) any accrued and unpaid
       dividends. The Company may also repurchase the shares of a holder at such
       redemption price during the first 60 days following the year in which the
       holder  first  ceases to be an employee of the  Company.  A holder of the
       Series C Preferred may, at his option,  require the Company to redeem his
       shares at 120% of such redemption price if the Company elects,  within 10
       days after the most recent dividend  payment date, not to pay the accrued
       dividend.  Upon  liquidation,  holders  of the  Series  C  Preferred  are
       entitled to receive $1.00 per share plus accrued and unpaid dividends. As
       of December 31, 1999,  there were 500 shares of Series C Preferred issued
       and outstanding to certain officers of the Company.

       Series F Preferred Stock

       In  June  1997,  the  Company  authorized  and  issued  1,000  shares  of
       Adjustable Rate Cumulative Class A Preferred  Stock,  Series F ("Series F
       Preferred"),  with a stated value of $1.00 per share to an officer of the
       Company.  The annual dividend for the entire class of Series F Preferred,
       which accrues on January 1 of each year and is payable on April 1 of each
       year, is calculated by multiplying (i) 1% of the annual  improvement (but
       not including  amounts  related to any gains or losses on the sale of any
       KPP units nor any amounts  related to any other gains or losses in excess
       of $1  million  on the sale of other  capital  assets)  in the  Company's
       diluted  earnings per share of common stock ("Common  EPS"),  by (ii) the
       amount of issued and outstanding  shares of the Company's common stock on
       January 1, 1997. The calculation of the annual dividend for 1999 excludes
       the gain on the  issuance of units by KPP ($10.4  million net of deferred
       taxes)  as well as the  benefit  of  recognizing  tax loss  carryforwards
       ($37.1 million reduction in the valuation  allowance) and calculations of
       the annual  dividend for subsequent  periods will be adjusted for any tax
       provision required as a result of recognizing the benefit of the tax loss
       carryforwards in 1999.

       If the Common EPS increase for the five-year  period ending  December 31,
       2001  has not  exceeded  20%  compounded  annually,  the  series  will be
       redeemed for $1.00 per share on April 1, 2002. Otherwise, the series will
       be redeemed on April 1, 2002 at a "Redemption Price" for the entire class
       of the series equal to the average  percentage  increase in excess of 20%
       in Common EPS for such period  multiplied by (i) seventy-five  hundredths
       of 1% of the cumulative Common EPS for each calendar year ended for which
       the series is outstanding,  and (ii) the amount of issued and outstanding
       shares of the Company's Common Stock on January 1, 1997.

       Redemption of the series may be deferred at the Company's option until no
       later than April 1, 2003 if the Common EPS increase for the 2001 calendar
       year is less than 15%.  The Series F  Preferred  may be  redeemed  at the
       option of the holder at 120% of the Redemption Price if the Company fails
       to pay an annual  dividend within 10 days of the due date or in the event
       of a change  of  control,  or at the  Redemption  Price  in the  event of
       certain  corporate  reorganizations  or the  authorization  of a class of
       preferred  stock  ranking  higher in priority to the Series F  Preferred.
       Upon  liquidation,  holders of the Series F  Preferred  are  entitled  to
       receive $1.00 per share plus accrued and unpaid dividends.

       Stock Compensation 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, 1999, options on 2,066,800 shares at prices
       ranging  from  $1.63 to $5.63 were  outstanding,  of which  733,951  were
       exercisable at prices ranging from $1.63 to $5.63.

       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 11.74% to
       11.88% based on weekly  average  variances of the stock for the five year
       period preceding issuance,  a risk-free rate of return ranging from 5.07%
       to 6.07% 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
       $63,155,359,  $1.99 and $1.98,  respectively  for the year ended December
       31, 1999, as compared to the reported  amounts of $63,772,000,  $2.01 and
       $1.94, respectively.  For the year ended December 31, 1998, pro forma net
       income,  basic  earnings  per share and diluted  earnings per share would
       have been $13,020,000,  $0.39 and $0.39,  respectively for the year ended
       December 31, 1998,  as compared to the reported  amounts of  $13,576,000,
       $0.41 and $0.40, respectively.  For the year ended December 31, 1997, pro
       forma net income, basic earnings per share and diluted earnings per share
       would have been $10,327,000,  $0.30 and $0.30, respectively,  as compared
       to the reported amounts of $10,643,000, $0.31 and $0.30, respectively.

       The changes in stock  options  outstanding  for the  Company's  plans for
       1999, 1998 and 1997 were as follows:

                                                              Average Price
                                                    Shares      per Share
                                                  ----------  -------------

               Outstanding at January 1, 1997 .    1,620,178    $   2.60
               Granted ........................      138,872    $   3.74
               Exercised ......................      (64,535)   $   2.29
               Forfeited ......................     (116,000)   $   2.63
                                                  ----------

               Outstanding at December 31, 1997    1,578,515    $   2.70
               Granted ........................      617,347    $   4.98
               Exercised ......................      (59,910)   $   2.51
               Forfeited ......................      (44,600)   $   3.75
                                                  ----------

               Outstanding at December 31, 1998    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
                                                  ==========


       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 no earlier than the  expiration
       of the  vesting  period  and no later than ten years  after the  Election
       Date.  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 1994 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.

<PAGE>
9.     EARNINGS PER SHARE

       The  following  is a  reconciliation  of basic and diluted  earnings  per
       share:
<TABLE>
<CAPTION>
                                                                               Weighted
                                                                                Average
                                                               Net              Common          Per-Share
                                                             Income             Shares           Amount
                                                        ---------------    --------------    --------------
       <S>                                              <C>                <C>               <C>
       Year Ended December 31, 1999
           Net income................................   $    63,772,000
           Dividend applicable to preferred stock....          (487,000)
                                                        ---------------

           Basic EPS -
              Net income applicable to common stock..        63,285,000        31,452,868    $         2.01
                                                                                             ==============

           Effect of dilutive securities -
              Common stock options and DSUs..........            -              1,099,269
                                                        ---------------    --------------

           Diluted EPS -
              Income applicable to common stock, DSUs
                and assumed options exercised........   $    63,285,000        32,552,137    $         1.94
                                                        ===============    ==============    ==============

       Year Ended December 31, 1998
           Net income................................   $    13,576,000
           Dividend applicable to preferred stock....          (508,000)
                                                        ----------------

           Basic EPS -
              Net income applicable to common stock..        13,068,000        31,739,572    $          .41
                                                                                             ==============

           Effect of dilutive securities -
              Common stock options and DSUs..........            -              1,057,846
                                                        ---------------    --------------

           Diluted EPS -
              Income applicable to common stock, DSUs
                and assumed options exercised........   $    13,068,000        32,797,418    $          .40
                                                        ===============    ==============    ==============

       Year Ended December 31, 1997
           Net income................................   $    10,643,000
           Dividend applicable to preferred stock....          (538,000)
                                                        ----------------

           Basic EPS -
              Net income applicable to common stock..        10,105,000        32,547,371    $          .31
                                                                                             ==============

           Effect of dilutive securities -
              Common stock options...................            -                585,926
                                                        ---------------    --------------

           Diluted EPS -
              Income applicable to common stock
                and assumed options exercised........   $    10,105,000        33,133,297    $          .30
                                                        ===============    ==============    ==============
</TABLE>

       Options to purchase 605,600, 189,523 and 15,000 shares of common stock at
       weighted  average prices of $4.90,  $5.50 and $5.00,  were outstanding at
       December 31, 1999, 1998 and 1997, 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.

10.    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
       under  operating  leases was $5.9 million for 1999, $3.8 million for 1998
       and $3.5 million for 1997.
<PAGE>
       At December 31, 1999, minimum rental commitments under all capital leases
       and operating leases for future years are as follows:

                                                      Capital      Operating
                                                      Leases         Leases
                                                   -----------    -----------

          2000 .................................   $   388,000    $ 4,432,000
          2001 .................................       384,000      3,263,000
          2002 .................................       199,000      1,926,000
          2003 .................................       135,000      1,275,000
          2004 .................................          --          712,000
          Thereafter ...........................          --        1,109,000
                                                   -----------    -----------
     Total minimum lease payments ..............     1,106,000    $12,717,000
                                                                  ===========
     Less amounts representing interest ........      (120,000)
                                                   -----------
     Present value of net minimum lease payments   $   986,000
                                                   ===========

       KPP  makes  quarterly  distributions  of 100% of its  Available  Cash (as
       defined in the Partnership  Agreement) to holders of limited  partnership
       units and the general partner.  Available Cash consists  generally of all
       the cash receipts of the Partnership  less all of its cash  disbursements
       and reserves.  The assets of KPP,  other than Available  Cash,  cannot be
       distributed without a majority vote of the non-affiliated unitholders.

       The  operations  of the Company  are subject to Federal,  state and local
       laws and regulations relating to protection of the environment.  Although
       KPP  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 KPP.
       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 KPP, could result in substantial  costs and liabilities
       to KPP. KPP has recorded an undiscounted reserve in other liabilities for
       environmental  claims of $8.2 million,  including $7.6 million related to
       acquisitions   of  pipelines  and   terminals.   During  1999  and  1998,
       respectively, KPP incurred $0.9 million and $0.6 million of costs related
       to such acquisition reserves and reduced the liability accordingly.

       Certain  subsidiaries of KPP are defendants in a lawsuit filed in a Texas
       state court in 1997 by Grace  Energy  Corporation  ("Grace"),  the entity
       from  which KPP  acquired  ST  Services  in 1993.  The  lawsuit  involves
       environmental  response and remediation allegedly resulting from jet fuel
       leaks in the early 1970's from a pipeline. The pipeline,  which connected
       a former Grace  terminal with Otis Air Force Base, was abandoned in 1973,
       and the  connecting  terminal  was sold to an  unrelated  entity in 1976.
       Grace alleges that it has incurred  since 1996 expenses of  approximately
       $3  million  for  response  and  remediation  required  by the  State  of
       Massachusetts  and that it expects to incur  additional  expenses  in the
       future.   On  January  20,  2000,   the   Massachusetts   Department   of
       Environmental  Protection notified KPP's subsidiary that it had reason to
       believe that the subsidiary was also a Potentially Responsible Party. The
       subsidiary  replied to that  letter  denying any  responsibility  for the
       Massachusetts   response  and/or   remediation.   Future  expenses  could
       potentially include claims by the United States Government,  as described
       below.  Grace  alleges that  subsidiaries  of KPP acquired the  abandoned
       pipeline,  as part of the acquisition of ST Services in 1993, and assumed
       responsibility  for  environmental  damages  caused by the jet fuel leaks
       from the pipeline.  Grace is seeking a ruling that these subsidiaries are
       responsible  for all present and future  remediation  expenses  for these
       leaks and that Grace has no  obligation to indemnify  these  subsidiaries
       for these expenses. The case is set for trial in May 2000.

       The  consistent  position  of  KPP's  subsidiaries  is that  they did not
       acquire the abandoned pipeline as part of the 1993 ST transaction and did
       not assume any responsibility  for the environmental  damage. In an order
       granting  partial  summary  judgment,  the trial judge has ruled that the
       pipeline  was an asset of the  company  acquired by the  subsidiary.  The
       subsidiaries are continuing with their defense that the pipeline had been
       abandoned prior to the acquisition of ST Services and could not have been
       included  in  the  assets  they  acquired.   The  defendants   have  also
       counter-claimed  against Grace for fraud and mutual mistake,  among other
       defenses.  If they are  successful  at trial with their  defenses  and/or
       counterclaims,  the judge's partial summary  judgment order will be moot.
       The defendants  also believe they have certain rights to  indemnification
       from Grace  under the  acquisition  agreement  with Grace.  These  rights
       include claims against Grace for breaches of numerous  representations in
       the  agreement   including   the   environmental   representations.   The
       acquisition   agreement  includes  Grace's  agreement  to  indemnify  the
       subsidiaries against 60% of post-closing environmental remediation costs,
       subject to a maximum indemnity payment of $10 million.

       The  Otis  Air  Force  Base  is a  part  of  the  Massachusetts  Military
       Reservation ("MMR"), which has been declared a Superfund Site pursuant to
       the Comprehensive Environmental Response, Compensation and Liability Act.
       The MMR Site contains nine groundwater contamination plumes, two of which
       are  allegedly  associated  with the  pipeline,  and various  other waste
       management  areas  of  concern,  such as  landfills.  The  United  States
       Department  of Defense and the United  States Coast Guard,  pursuant to a
       Federal  Facilities  Agreement,  has been  responding  to the  Government
       remediation  demand  for most of the  contamination  problems  at the MMR
       Site.  Grace  and  others  have also  received  and  responded  to formal
       inquiries  from the  United  States  Government  in  connection  with the
       environmental  damages allegedly resulting from the jet fuel leaks. KPP's
       subsidiaries  have  voluntarily  responded  to  an  invitation  from  the
       Government  to provide  information  indicating  that they do not own the
       pipeline. In connection with a court-ordered  mediation between Grace and
       the subsidiaries,  the Government  advised the parties in April 1999 that
       it has  identified  the two spill areas that it believes to be related to
       the  pipeline  that is the  subject  of the Grace  suit.  The  Government
       advised  the  parties  that  it  believes  it  has   incurred   costs  of
       approximately  $34  million,  and expects in the future to incur costs of
       approximately  $55 million,  for  remediation  of one of the spill areas.
       This  amount was not  intended  to be a final  accounting  of costs or to
       include all categories of costs.  The Government also advised the parties
       that it could not at that time  allocate  its costs  attributable  to the
       second  spill  area.   KPP  believes   that  the  ultimate  cost  of  the
       remediation,  while  substantial,  will be  considerably  less  than  the
       Government  has indicated.  KPP also believes  that,  even if the lawsuit
       determines  that  the  subsidiary  is  the  owner  of the  pipeline,  the
       defendants  have defenses to any claim of the  Government.  Any claims by
       the  Government  could be material in amount and, if made and  ultimately
       sustained  against  KPP's  subsidiaries,  could  adversely  affect  KPP's
       ability  to pay cash  distributions  to its  unitholders,  including  the
       Company.

       The Company has other 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.


11.    BUSINESS SEGMENT DATA

       The  Pipeline  and   Terminaling   Segment   includes  the  pipeline  and
       terminaling  operations  of KPP which  consist of the  transportation  of
       refined  petroleum  products in the Midwestern states as a common carrier
       and the storage of  petroleum  products,  specialty  chemicals  and other
       liquids. The Company's Product Marketing Segment provides wholesale motor
       fuel  marketing  services  throughout  the  Midwest  and  Rocky  Mountain
       regions,  as well  as  California.  The  Company's  Information  Services
       Segment provides  consulting  services,  hardware sales and other related
       information management and processing services to governmental, insurance
       and financial institutions. Additionally, the Company provides Industrial
       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.  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.  Effective  July  1,  1999,  the  responsibilities  of  certain
       officers of the Industrial  Services and  Information  Services  segments
       were expanded and their  compensation  and benefit  costs (which  totaled
       approximately  $0.2 million for the six month  period ended  December 31,
       1999 for each of these  segments) were  transferred to General  Corporate
       and no longer  considered by the Company in assessing the  measurement of
       such  segment's  results.  In  1999,  the  Company  managed  the  Product
       Marketing Segment as a separate operating segment.  Those operations were
       previously   combined   with  the  Pipeline  and   Terminaling   segment.
       Information  for 1998  has been  recast  to be  consistent  with the 1999
       presentation.

       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.

<PAGE>
<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                        ---------------------------------------------------
                                                              1999              1998              1997
                                                        ---------------    --------------    --------------
       <S>                                              <C>                <C>               <C>
       Business segment revenues:
         Pipeline and terminaling services...........   $   158,028,000    $  125,812,000    $  121,156,000
         Product marketing services..................       212,298,000       114,220,000               -
         Information services........................        37,358,000        20,709,000         7,557,000
         Industrial services.........................        98,075,000       115,116,000       108,223,000
                                                        ---------------    --------------    --------------
                                                        $   505,759,000    $  375,857,000    $  236,936,000
                                                        ===============    ==============    ==============

       Pipeline and terminaling services segment revenues:
           Pipeline operations.......................   $    67,607,000    $   63,421,000    $   61,320,000
           Terminaling operations....................        90,421,000        62,391,000        59,836,000
                                                        ---------------    --------------    --------------
                                                        $   158,028,000    $  125,812,000    $  121,156,000
                                                        ===============    ==============    ==============

       Industrial services segment revenues:
         Underpressure services......................   $    38,873,000    $   43,208,000    $   37,769,000
         Turnaround services.........................        43,859,000        52,924,000        48,655,000
         Other services..............................        15,343,000        18,984,000        21,799,000
                                                        ---------------    --------------    --------------
                                                        $    98,075,000    $  115,116,000    $  108,223,000
                                                        ===============    ==============    ==============
</TABLE>
<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                        ---------------------------------------------------
                                                              1999              1998              1997
                                                        ---------------    --------------    --------------
       <S>                                              <C>                <C>               <C>
       Business segment profit:
         Pipeline and terminaling services...........   $    64,311,000    $   55,117,000    $   53,420,000
         Product marketing services..................         1,495,000           940,000              -
         Information services........................         5,627,000         3,690,000         2,709,000
         Industrial services ........................         1,750,000         6,656,000         7,438,000
         General corporate...........................        (4,944,000)       (5,091,000)       (4,907,000)
                                                        ---------------    --------------    --------------
           Operating income..........................        68,239,000        61,312,000        58,660,000
         Interest expense............................       (17,695,000)      (15,714,000)      (15,531,000)
         Other income (expense)......................           771,000           868,000          (163,000)
         Amortization of excess of cost over fair value
           of net assets of acquired businesses......        (2,172,000)       (1,948,000)       (1,879,000)
                                                        ---------------    --------------    --------------
         Income before interest of outside
           non-controlling partners in KPP's net
           income, gain on issuance of units by KPP
           and income taxes..........................   $    49,143,000    $   44,518,000    $   41,087,000
                                                        ===============    ==============    ==============

       Business segment assets:
         Depreciation and amortization:
           Pipeline and terminaling services.........   $    15,043,000    $   12,148,000    $   11,711,000
           Product marketing services................            15,000             9,000               -
           Information services......................           280,000           192,000           151,000
           Industrial services.......................         3,480,000         3,854,000         4,563,000
           General corporate.........................             -                  -              290,000
                                                        ---------------    --------------    --------------
                                                        $    18,818,000    $   16,203,000    $   16,715,000
                                                        ===============    ==============    ==============

         Capital expenditures (excluding acquisitions):
           Pipeline and terminaling services.........   $    14,568,000    $    9,401,000    $   10,641,000
           Product marketing services................            52,000               -                 -
           Information services......................           391,000           281,000           327,000
           Industrial services.......................         2,328,000         2,574,000         2,013,000
           General corporate.........................              -                 -               30,000
                                                        ---------------    --------------    --------------
                                                        $    17,339,000    $   12,256,000    $   13,011,000
                                                        ===============    ==============    ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                             December 31,
                                                        ---------------------------------------------------
                                                              1999               1998             1997
                                                        ---------------    --------------    --------------
         <S>                                            <C>                <C>               <C>
         Total assets:
           Pipeline and terminaling services.........   $   366,935,000    $  310,825,000    $  270,055,000
           Product marketing services................        28,101,000        12,233,000               -
           Information services......................        17,911,000        11,082,000         5,429,000
           Industrial services.......................       108,094,000       110,603,000       116,503,000
           General corporate.........................        39,274,000         3,302,000        10,286,000
                                                        ---------------    --------------    --------------
                                                        $   560,315,000    $  448,045,000    $  402,273,000
                                                        ===============    ==============    ==============

</TABLE>

       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,
                                                        ---------------------------------------------------
                                                              1999               1998             1997
                                                        ---------------    --------------    --------------
       <S>                                              <C>                <C>               <C>
       Geographical area revenues:
         United States............................      $   415,640,000    $  296,336,000    $  162,367,000
         Europe...................................           79,089,000        68,050,000        66,431,000
         Asia-Pacific.............................           11,030,000        11,471,000         8,138,000
                                                        ---------------    --------------    --------------
                                                        $   505,759,000    $  375,857,000    $  236,936,000
                                                        ===============    ==============    ==============
       Geographical area operating income:
         United States............................      $    59,767,000    $   54,858,000    $   51,384,000
         Europe...................................            7,915,000         5,456,000         6,139,000
         Asia-Pacific.............................              557,000           998,000         1,137,000
                                                        ---------------    --------------    --------------
                                                        $    68,239,000    $   61,312,000    $   58,660,000
                                                        ===============    ==============    ==============

       Geographical area net property and equipment:
         United States............................      $   278,787,000    $  271,228,000    $  249,470,000
         Europe...................................           47,993,000         7,781,000        10,419,000
         Asia-Pacific.............................            1,364,000         1,517,000         1,472,000
                                                        ---------------    --------------    --------------
                                                        $   328,144,000    $  280,526,000    $  261,361,000
                                                        ===============    ==============    ==============
</TABLE>

12.    ACCRUED EXPENSES

       Accrued  expenses are comprised of the  following  components at December
       31, 1999 and 1998:

                                                      December 31,
                                              -------------------------
                                                  1999          1998
                                              -----------   -----------
          Accrued distribution payable ....   $ 9,250,000   $ 7,127,000
          Accrued income taxes ............     1,545,000     2,212,000
          Accrued taxes other than income .     4,217,000     2,631,000
          Accrued interest ................     2,554,000     2,454,000
          Accrued compensation and benefits     3,729,000     3,735,000
          Accrued environmental ...........     2,482,000     1,702,000
          Deferred terminaling fees .......     3,075,000     3,526,000
          Other accrued expenses ..........    14,318,000    17,922,000
                                              -----------   -----------
                                              $41,170,000   $41,309,000
                                              ===========   ===========
<PAGE>
13.    SUPPLEMENTAL CASH FLOW INFORMATION

       Supplemental information on cash paid during the period for:

                                             Year Ended December 31,
                              -------------------------------------------------
                                   1999              1998              1997
                              --------------    ---------------    ------------

       Interest............   $   16,972,000    $    15,385,000    $ 15,373,000
                              ==============    ===============    ============
       Income taxes........   $    1,447,000    $     2,310,000    $  1,535,000
                              ==============    ===============    ============


14.    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  (excluding  capital leases) as of December 31, 1999 and 1998
       was  approximately  $219  million  and $217  million as  compared  to the
       carrying value of $213 million and $211 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 Company does not believe that it has a significant  concentration  of
       credit risk at December 31, 1999,  as the Company's  accounts  receivable
       are generated from four distinct business segments with customers located
       throughout the United States, Europe and Asia-Pacific.

 15.   QUARTERLY FINANCIAL DATA (UNAUDITED)

       Quarterly operating results for 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>

                                                                  Quarter Ended
                                    -----------------------------------------------------------------------
                                       March 31,           June 30,        September 30,      December 31,
                                    --------------     ---------------    --------------     --------------
       <S>                          <C>                <C>                <C>                <C>
       1999:
       Revenues................     $   99,356,000     $   122,951,000    $  134,280,000     $  149,172,000
                                    ==============     ===============    ==============     ==============
       Operating income........     $   15,212,000     $    16,119,000    $   19,251,000     $   17,657,000
                                    ==============     ===============    ==============     ==============
       Net income .............     $    2,309,000     $     4,012,000    $   15,547,000(a)  $   41,904,000(b)
                                    ==============     ===============    ==============     ==============
       Earnings per
         common share:
           Basic................    $          .07     $           .12    $          .49     $         1.33
                                    ==============     ===============    ==============     ==============
           Diluted..............    $          .07     $           .12    $          .47     $         1.28
                                    ==============     ===============    ==============     ==============

       1998:
       Revenues................     $   59,501,000     $   100,492,000    $  105,476,000     $  110,388,000
                                    ==============     ===============    ==============     ==============
       Operating income........     $   12,607,000     $    14,981,000    $   17,907,000     $   15,817,000
                                    ==============     ===============    ==============     ==============
       Net income .............     $    1,836,000     $     3,365,000    $    4,434,000     $    3,941,000
                                    ==============     ===============    ==============     ==============
       Earnings per
         common share:
           Basic................    $          .05     $           .10    $          .14     $          .12
                                    ==============     ===============    ==============     ==============
           Diluted..............    $          .05     $           .10    $          .13     $          .12
                                    ==============     ===============    ==============     ==============
</TABLE>

       (a) See Note 3 regarding gain on issuance of units by KPP.

       (b) See  Note 4 regarding reduction in valuation  allowance  for deferred
           tax assets.


<PAGE>
                                                                      Schedule I

                      KANEB SERVICES, INC. (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME


<TABLE>
<CAPTION>
                                                      Year Ended December 31,
                                           --------------------------------------------
                                               1999            1998            1997
                                           ------------    ------------    ------------

<S>                                        <C>             <C>             <C>
General and administrative expenses ....   $ (4,944,000)   $ (5,091,000)   $ (4,617,000)
Depreciation and amortization ..........           --              --          (290,000)
Interest expense .......................     (2,218,000)     (2,212,000)     (2,239,000)
Intercompany fees and expenses .........      3,189,000       3,022,000       2,266,000
Interest income ........................        264,000         284,000         372,000
Other income (expense) .................      1,413,000       1,354,000      (1,024,000)
Equity in income of subsidiaries and KPP     26,906,000      16,219,000      16,175,000
                                           ------------    ------------    ------------

Income before income tax expense .......     24,610,000      13,576,000      10,643,000
Income tax benefit .....................     39,162,000            --              --
                                           ------------    ------------    ------------
Net income .............................     63,772,000      13,576,000      10,643,000
Dividends applicable to preferred stock         487,000         508,000         538,000
                                           ------------    ------------    ------------

Net income applicable to common  stock .   $ 63,285,000    $ 13,068,000    $ 10,105,000
                                           ============    ============    ============

Earnings per common share:
   Basic ...............................   $       2.01    $        .41    $        .31
                                           ============    ============    ============
   Diluted .............................   $       1.94    $        .40    $        .30
                                           ============    ============    ============
</TABLE>


               See "Notes to Consolidated Financial Statements" of
         Kaneb Services, Inc. and Subsidiaries included in this report.



<PAGE>
                                                                      Schedule I
                                                                     (Continued)
                      KANEB SERVICES, INC. (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                December 31,
                                                      ------------------------------
                                                           1999             1998
                                                      -------------    -------------
                                     ASSETS

<S>                                                   <C>              <C>
Current assets:
   Cash and cash equivalents ......................   $   9,740,000    $     875,000
   Prepaid expenses and other current assets ......       6,484,000          177,000
                                                      -------------    -------------

Total current assets ..............................      16,224,000        1,052,000
                                                      -------------    -------------

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 and KPP .......................     133,987,000      123,567,000

Deferred tax and other assets .....................      33,649,000        2,250,000
                                                      -------------    -------------
                                                      $ 183,860,000    $ 126,869,000
                                                      =============    =============


                             LIABILITIES AND EQUITY

Current liabilities - accounts payable
   and accrued expenses ...........................   $   5,600,000    $   7,367,000

Long-term debt ....................................      23,666,000       23,666,000

Deferred credits and other liabilities ............       4,928,000        8,391,000

Stockholders' equity:
   Preferred stock, without par value .............       5,792,000        5,792,000
   Common stock, without par value ................       4,249,000        4,239,000
   Additional paid-in capital .....................     197,454,000      197,263,000
   Treasury stock, at cost ........................     (30,278,000)     (29,775,000)
   Other ..........................................        (141,000)        (141,000)
   Accumulated deficit ............................     (25,138,000)     (88,423,000)
   Accumulated comprehensive income (loss) -
     foreign currency translation adjustment ......      (2,272,000)      (1,510,000)
                                                      -------------    -------------
       Total stockholders' equity .................     149,666,000       87,445,000
                                                      -------------    -------------
                                                      $ 183,860,000    $ 126,869,000
                                                      =============    =============
</TABLE>



               See "Notes to Consolidated Financial Statements" of
         Kaneb Services, Inc. and Subsidiaries included in this report.


<PAGE>
                                                                      Schedule I
                                                                     (Continued)
                      KANEB SERVICES, INC. (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                       ------------------------------------------------------------
                                                              1999                1998                 1997
                                                       -----------------    ----------------    ------------------
<S>                                                    <C>                  <C>                 <C>
Operating activities:
   Net income .......................................  $      63,772,000    $     13,576,000    $       10,643,000
   Adjustments to reconcile net income to net cash
     provided by (used in) operating activities:
     Depreciation and amortization...................              -                   -                   290,000
     Equity in net income of subsidiaries and KPP....        (26,906,000)        (16,219,000)          (16,175,000)
     Deferred income taxes...........................        (36,918,000)              -                     -
     Changes in current assets and liabilities:
       Accounts receivable...........................              -                   -                   102,000
       Prepaid expenses..............................         (1,057,000)           (177,000)              818,000
       Accounts payable and accrued expenses ........         (1,767,000)          3,380,000            (4,439,000)
                                                       -----------------    ----------------    -------------------

       Net cash provided by (used in)
         operating activities........................         (2,876,000)            560,000            (8,761,000)
                                                       -----------------    ----------------    -------------------

Investing activities:
   Capital expenditures..............................              -                   -                   (30,000)
   Change in other assets, net.......................         (3,956,000)            667,000            (3,082,000)
                                                       -----------------    ----------------    -------------------

       Net cash provided by (used in)
         investing activities........................         (3,956,000)            667,000            (3,112,000)
                                                       -----------------    ----------------    -------------------

Financing activities:
   Preferred stock dividends paid....................           (487,000)           (508,000)             (538,000)
   Change in investments in, advances to and notes
     receivable from subsidiaries and KPP............         16,486,000          (3,213,000)           16,075,000
   Common stock issued...............................            253,000             194,000                33,000
   Purchase of treasury stock........................           (555,000)         (4,868,000)           (4,585,000)
                                                       -----------------    -----------------   -------------------

        Net cash provided by (used in) financing
         activities..................................         15,697,000          (8,395,000)           10,985,000
                                                       -----------------    ----------------    ------------------

Increase (decrease) in cash and cash equivalents.....          8,865,000          (7,168,000)             (888,000)
Cash and cash equivalents at beginning of year.......            875,000           8,043,000             8,931,000
                                                       -----------------    ----------------    ------------------

Cash and cash equivalents at end of year.............  $       9,740,000    $        875,000    $        8,043,000
                                                       =================    ================    ==================
</TABLE>


               See "Notes to Consolidated Financial Statements" of
         Kaneb Services, Inc. and Subsidiaries included in this report.
<PAGE>
                                                                     Schedule II

                              KANEB SERVICES, INC.
                        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

<S>                                    <C>                <C>             <C>               <C>                 <C>
Year Ended December 31, 1999:
   For doubtful receivables
     classified as current assets...   $         925      $     1,117     $        (119)(a) $      (391)(b)     $     1,532
                                       =============      ===========     =============     ===========         ===========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $      52,797      $    --         $      --        $    (43,143)        $     9,654
                                       =============      ===========     =============    ============         ===========

Year Ended December 31, 1998:
   For doubtful receivables
     classified as current assets...   $         570      $       430     $          99(a) $       (174)(b)     $       925
                                       =============      ===========     =============    ============         ===========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $      55,684      $    --          $     --         $    (2,887)        $    52,797
                                       =============      ===========     =============     ===========         ===========

Year Ended December 31, 1997:
   For doubtful receivables
     classified as current assets...   $         666      $       246     $         (19)(a) $      (323)(b)     $       570
                                       =============      ===========     =============     ===========         ===========

   For deferred tax asset valuation
     allowance classified as
     noncurrent assets..............   $      86,698      $    --         $      --         $   (31,014)        $    55,684
                                       =============      ===========     =============     ===========         ===========
</TABLE>


Notes:
   (a) Foreign currency translation adjustments.
   (b) Receivable write-offs and reclassifications, net of recoveries.



               See "Notes to Consolidated Financial Statements" of
         Kaneb Services, Inc. and Subsidiaries included in this report.

<PAGE>
                                   SIGNATURES

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



                                      KANEB SERVICES, INC.

                                      By:  JOHN R. BARNES
                                           President and Chief Executive Officer
                                           Date: March 24, 2000

     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 Kaneb
Services, Inc. and in the capacities and on the date indicated.

     Signature                        Title                           Date

Principal Executive Officer

JOHN R. BARNES                President, Chief Executive          March 24, 2000
                              Officer and Director

Principal Accounting Officer

MICHAEL R. BAKKE              Controller                          March 24, 2000


Directors

SANGWOO AHN                   Director                            March 24, 2000

JOHN R. BARNES                Director                            March 24, 2000

FRANK M. BURKE, JR.           Director                            March 24, 2000

CHARLES R. COX                Director                            March 24, 2000

HANS KESSLER                  Director                            March 24, 2000

JAMES R. WHATLEY              Director                            March 24, 2000




<PAGE>


                                  EXHIBIT LIST

Exhibit
Number                                   Title
--------  ----------------------------------------------------------------------

 10.13    Amendments  to  the  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,  and
          Exhibit  10.12  of the  Registrant's  Form  10-K  for the  year  ended
          December  31,  1997,   which  exhibits  are  hereby   incorporated  by
          reference.

   21     List of Subsidiaries

   23     Consents of  independent  accountants:  KPMG LLP and
          PricewaterhouseCoopers  LLP

   27     Financial Data Schedule