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

                                    FORM 10-K
(Mark One)
[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2004

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934

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

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

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

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

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

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

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

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

                        Yes    X          No
                           ---------        ---------

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of  Regulation  S-K  (Subsection  229.405 of this  chapter) is not contained
herein,  and will not be contained,  to the best of registrant's  knowledge,  in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.

                        Yes    X          No
                           ---------        ---------

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).

                        Yes               No    X
                           ---------        ---------

     Aggregate  market value of the voting stock held by  non-affiliates  of the
registrant:  $74,485,914. This figure is estimated as of June 30, 2004, at which
date the closing  price of the  registrant's  Common Stock on the New York Stock
Exchange was $2.46 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 21, 2005: 31,696,881.

                       DOCUMENTS INCORPORATED BY REFERENCE

     The information  required by Part III (Items 10, 11, 12, 13 and 14) 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

     Xanser  Corporation  ("Xanser" or the  "Company")  conducts  its  principal
businesses  in  two  industry  segments,   technical  services  and  information
technology services.  The technical services and information technology services
segments  operate through  subsidiaries of Furmanite  Worldwide,  Inc. and Xtria
LLC, respectively. Furmanite Worldwide, Inc., and its domestic and international
subsidiaries and affiliates  (collectively,  "Furmanite"),  provide  specialized
technical  services,  including leak sealing under pressure,  on-site machining,
valve testing and repair and other engineering products and services,  primarily
to electric  power  generating  plants,  petroleum  refineries and other process
industries in the United  Kingdom,  Continental  Europe,  North  America,  Latin
America and Asia-Pacific.  For additional  information see "Technical Services."
Xtria LLC ("Xtria") is engaged in the information  technology  services industry
and  offers   products  and   services   that   include   hardware   design  and
implementation,  web hosted data  processing,  networking,  consulting and other
support  services to the healthcare,  finance and insurance  industries,  and to
agencies  of the state and  federal  governments.  Xtria  also  provides  claims
administration   support  and  automated   document   control.   For  additional
information see "Information Technology Services."

     On November 27, 2000, the Board of Directors of the Company  authorized the
distribution of its pipeline,  terminaling and product marketing businesses (the
"Distribution")  to its  stockholders  in the  form of a new  limited  liability
company,  Kaneb  Services LLC ("KSL").  On June 29, 2001, the  Distribution  was
completed,  with each  shareholder of the Company  receiving one common share of
KSL for each three shares of the  Company's  common stock held on June 20, 2001,
the record date for the  Distribution,  resulting in the  distribution  of 10.85
million KSL common shares.

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


OPERATING SEGMENTS

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


TECHNICAL SERVICES

     The Furmanite group of companies offers  specialized  technical services to
an  international  base of clients.  Founded in Virginia Beach,  Virginia in the
1920s as a  manufacturer  of leak sealing kits,  Furmanite  Worldwide,  Inc. has
evolved into an  international  service  company  that  provides  technical  and
technology  solutions.  In the  1960s,  Furmanite  expanded  within  the  United
Kingdom,  primarily through its leak sealing products and services,  and, during
the 1970s and 1980s, grew through  geographic  expansion and the addition of new
techniques, processes and services to become one of the largest leak sealing and
on-site machining companies in the world. The Company acquired Furmanite in 1991
to  diversify  the  Company's   operations  and  pursue   international   growth
opportunities.  For the year ended December 31, 2004,  Furmanite's  revenues and
operating   income  were   approximately   $118.4   million  and  $7.9  million,
respectively.  See "Management's  Discussion and Analysis of Financial Condition
and Results of Operations."

Products and Services

     Furmanite  provides  on-line  repairs of leaks ("leak  sealing") in valves,
pipes and other  components of piping  systems and related  equipment  typically
used in  flow-process  industries.  See "Customers and Markets."  Other services
provided by Furmanite include on-site  machining,  bolting and valve testing and
repair  on such  systems  and  equipment.  These  services  tend  to  complement
Furmanite's leak sealing service,  since these "turnaround services" are usually
performed  while a plant or piping  system is off-line.  In addition,  Furmanite
provides hot tapping,  fugitive emissions  monitoring,  passive fire protection,
concrete repair and heat exchanger  repair.  Furmanite also performs  diagnostic
services on valves and motors by, among other  methods,  utilizing  its patented
Trevitest(R)  system.  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, 2004,  2003 and
2002,  under  pressure  services  represented  approximately  43%,  42% and 46%,
respectively,  of Furmanite's revenues,  while turnaround services accounted for
approximately  47%,  48% and 46%,  respectively,  and  product  sales  and other
industrial services represented approximately 10%, 10% and 8%, respectively,  of
Furmanite's revenues for each of such years.

     Furmanite's on-line,  leak sealing under pressure services are performed on
a variety of flow-process  industry  machinery,  often in difficult  situations.
Many of  Furmanite's  techniques  and  materials  are  proprietary  and some are
patented and, the Company  believes,  they provide  Furmanite with a competitive
advantage over other  organizations  that provide  similar  services.  Furmanite
holds approximately 200 patents and trademarks for its techniques,  products and
materials.  These  patents,  which are  registered in  jurisdictions  around the
world,  expire on dates  ranging  from May 2005 to  December  2012.  Furmanite's
skilled  technicians  work with equipment in a manner designed to enhance safety
and  efficiency  in  temperature  environments  ranging from  cryogenic to 1,400
degrees Fahrenheit and pressure environments ranging from vacuum to 5,000 pounds
per square inch. In many  circumstances,  Furmanite personnel are called upon to
custom-design  tools,  equipment  or other  materials  to effect  the  necessary
repairs.  These efforts are supported by an internal  quality control group that
works with the on-site technicians in crafting these materials.

Customers and Markets

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

     Furmanite  believes that it is the most  recognized  brand in its industry.
With its 75-year history,  Furmanite's customer  relationships are long-term and
worldwide.  Furmanite serves its customers from its Richardson,  Texas worldwide
headquarters  and  maintains  a  substantial  presence  in the  United  Kingdom,
Continental Europe and Asia-Pacific. Furmanite currently operates North American
offices  in the  United  States  in Baton  Rouge,  Louisiana;  Beaumont,  Texas;
Charlotte,   North   Carolina;   Houston,   Texas;   Los  Angeles,   California;
Merrillville, Indiana and Salt Lake City, Utah. Furmanite's worldwide operations
are  further  supported  by offices  currently  located in  Australia,  Belgium,
France,  Germany,  Hong Kong, Malaysia,  the Netherlands,  New Zealand,  Norway,
Singapore  and the United  Kingdom and by licensee  and agency  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,  South Korea,  Sweden,  Thailand,
Trinidad,  Ukraine,  the United  Arab  Emirates  and  Venezuela.  Sales by major
geographic  region for 2004 were 23% for the United  States,  62% for Europe and
15% for  Asia-Pacific.  See  "Management's  Discussion and Analysis of Financial
Condition and Results of  Operations"  and Note 9 to the Company's  consolidated
financial statements.

     Furmanite's  leak sealing under pressure and other specialty field services
are marketed  primarily  through direct sales calls on customers by salesmen and
technicians based at Furmanite's various operating locations, which are situated
to  facilitate  timely  customer  response,  24 hours a day,  seven days a week.
Customers  are  usually  billed  on a time  and  materials  basis  for  services
typically  performed  pursuant to either job quotation sheets or purchase orders
issued under written  customer  agreements.  Customer  agreements  are generally
short-term in duration and specify the range of and rates for the services to be
performed.  Furmanite typically provides various limited  warranties,  depending
upon the services  furnished,  and has had no material warranty costs during the
three years ended December 31, 2004. 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. Federal, state and local authorities of the U.S. and various foreign
countries have each adopted safety, environmental and other regulations relating
to the use of certain  methods,  practices and materials in connection  with the
performance of Furmanite's  services and which otherwise  affect its operations.
Further,  because of its  international  operations,  Furmanite  is subject to a
number of political  and economic  risks,  including  taxation  policies,  labor
practices,  currency exchange rate fluctuations,  foreign exchange restrictions,
local political  conditions,  import and export limitations and expropriation of
equipment.  Except in certain developing countries, where payment in a specified
currency  is  required  by  contract,  Furmanite's  services  are paid,  and its
operations are typically  funded,  in the currency of the particular  country in
which its business  activities are conducted.  See "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."

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


INFORMATION TECHNOLOGY SERVICES

     Xtria is an information  technology  services  provider for the healthcare,
risk management and government  markets through focused  offerings of solutions,
services and systems.  In the healthcare market,  Xtria provides managed service
solutions  for the  implementation  and  management  of  picture  archiving  and
communications  systems.  In the risk  management  market,  Xtria  provides risk
management information systems that enable clients to mitigate risk and increase
profitability through improved decision support and active risk management.  For
agencies of the federal, state and local government,  Xtria provides information
technology  and program  services.  With  established  intellectual  capital and
product  knowledge,   Xtria's  market-focused  operations  have  many  years  of
experience and a track record of success in the healthcare,  financial services,
insurance and  government  markets.  For the year ended  December 31, 2004,  the
information  services segment's revenues and operating income were $27.3 million
and $0.3 million,  respectively.  See  "Management's  Discussion and Analysis of
Financial  Conditions  and Results of  Operations".  Xtria is  headquartered  in
Richardson,  Texas, and maintains offices in Bryan, Texas; McLean, Virginia; and
Frederick, Maryland.

Healthcare Services

     Xtria facilitates healthcare  organizations conversion from diagnostic film
images to digital  radiology  imaging  systems,  known as Picture  Archival  and
Communication  Systems  ("PACS").  PACS are used in  connection  with  digitally
recorded  diagnostic  images,  such  as  magnetic  resonance  imaging,  computer
tomography scans,  ultrasounds and digital x-rays,  among others. The integrated
PACS  communication  network  enables  physicians  to share  studies and results
electronically  while the digital imaging  technologies are expected to increase
the  throughput of imaging  studies.  The system also allows  information  to be
shared between facilities,  including  international  locations,  through secure
web-based and dedicated wide area  connections.  Beyond the benefits to patients
and medical staff,  the system reduces the costs  associated  with  traditional,
film-based   radiology   imaging,   which  requires   processing,   storing  and
distributing images in film libraries.

     Xtria's PACS  implementation  service provides evaluation of the healthcare
organization's  PACS  readiness,  including a  technology  assessment,  workflow
analysis, cost analysis and information systems integration plan, development of
a Request For  Proposal  tailored  to the  specific  needs of the  organization,
evaluation of vendor submissions and recommendations on technical compliance and
pricing,   analysis  of  the  top  vendors,   participation  in  on-site  vendor
presentations, and negotiation of final vendor contracts. Upon completion of the
installation, Xtria's PACS implementation system continues to provide assistance
by development of a  comprehensive  transition  plan  incorporating  the digital
imaging goals,  project timelines and specific milestones  necessary to ensure a
smooth  transition to a digital  environment  for the  healthcare  organization.
Xtria also provides post-installation system support and testing by its staff of
engineers,  physicists,  and  technicians  to  ensure  the  system  is ready for
clinical use and meets the design specifications.  Additionally,  Xtria provides
on-going operational management to ensure peak performance of the PACS.

Financial and Insurance Services

     Xtria's financial and insurance group provides risk management  information
solutions and services for financial  services and  insurance  companies.  Xtria
helps clients mitigate risk and increase profitability through improved decision
support and active risk  management.  The Company's  risk  management  solutions
include lien tracking and notification services, automated document control, and
federal  and  state  delinquent  payer  compliance  reporting.  As  part  of its
services,  Xtria monitors,  on behalf of its customers,  the status of insurance
coverage on  automobiles  and homes pledged as loan  collateral.  Xtria believes
that the market for these  applications  is  fragmented  among a number of small
competitors  and that  competition  in this market is  primarily  based upon the
quality of the services provided.

     Xtria also provides claims administration services,  utilizing its industry
expertise, technical infrastructure, and process management capabilities to meet
the client's claims administration needs by tracking damaged collateral, issuing
settlement  checks  directly  to the insured  lender,  obtaining  salvage  bids,
processing  title  transfers and  providing  loss  reports.  Xtria  utilizes the
Tickler(TM)  Tracking  System to  automate  document  control  and  manage  risk
exposure  from  missing,  expired  or  improper  loan  documentation.  Sensitive
documents,  such as UCC-1s,  hazard  insurance,  title insurance,  tax receipts,
financial statements, cash flow reports, letters of credit, stock values and CDs
can be regularly reviewed and tracked by the Tickler(TM) Tracking System.

Government Services

     Xtria's  government  services division  provides  information and technical
solutions that help  organizations  and agencies of the  government  become more
efficient and competitive by leveraging  Web-based  technologies in the areas of
business services, program services and information systems services.

     Xtria's business services include a full range of services to support early
childhood  education  research  studies and  services,  training  and  technical
assistance,  conference  management,  grant review services, Web development and
graphic design.  Their program  services provide  comprehensive  information and
technical  solutions  focusing  on  educational  development,   early  childhood
development,  child welfare,  adoption,  foster care and child support programs.
Xtria's  knowledge of social services  programs helps clients better  understand
and meet the needs of children and families  and evaluate the  effectiveness  of
programs   deployed.   Xtria's  program   services  also  include  research  and
evaluation,  survey  development,  data  collection,  primary and secondary data
analysis,  report preparation,  training,  technical  assistance and support for
fulfilling  federal  reporting  requirements.  Xtria's  team of  experts  ensure
information  is  complete,  accurate  and  timely,  to  facilitate  use of  this
information  for  critical  funding  decisions,  policy  formations  and program
oversight  and   improvements.   The  information   systems   services   provide
comprehensive  information and technical  solutions that help  organizations and
agencies of the government  become more efficient and  competitive by leveraging
the latest  technologies  in  Web-based  applications  and data  infrastructure.
Information  systems  services provide  comprehensive  solutions that range from
analysis and implementation to technical support and maintenance.


ENVIRONMENTAL MATTERS

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


EMPLOYEES

     At December  31,  2004,  the Company and its  subsidiaries  employed  1,050
persons.  The Furmanite  group of companies  employed a total of 897 persons and
138 persons were  employed by the Xtria group of  companies.  As of December 31,
2004,  approximately  388 of the persons  employed by Furmanite  were subject to
representation by unions or other similar associations for collective bargaining
or other similar purposes,  including 135 of Furmanite's employees in the United
Kingdom  who are  subject  to a  collective  bargaining  contract.  The  Company
considers relations with its employees to be good.


AVAILABLE INFORMATION

     The  Company  files  annual,   quarterly,   and  other  reports  and  other
information  with the  Securities  and  Exchange  Commission  ("SEC")  under the
Securities  Exchange Act of 1934 (the "Exchange  Act").  These reports and other
information  that the  Company  files with the SEC may be read and copied at the
SEC's Public  Reference  Room at 450 Fifth  Street,  NW,  Washington,  DC 20549.
Additional  information  about the  Public  Reference  Room may be  obtained  by
calling the SEC at  1-800-SEC-0330.  In addition,  the SEC maintains an Internet
site  (http://www.sec.gov)  that contains reports,  proxy information statements
and other information regarding issuers that file electronically with the SEC.

     The Company also makes  available free of charge on or through its Internet
site  (www.xanser.com) the Annual Report on Form 10-K, Quarterly Reports on Form
10-Q,  Current  Reports on Form 8-K, and other  information  statements  and, if
applicable,  amendments to those reports filed or furnished  pursuant to Section
13(a) of the Exchange Act as soon as  reasonably  practicable  after the reports
are electronically filed with, or furnished to, the SEC.


Item 2. Properties

     The properties  owned or utilized by the Company and its  subsidiaries  are
generally  described  in  Item 1 of  this  Report  and  Note 4 to the  Company's
consolidated   financial  statements.   Additional  information  concerning  the
obligations of the Company and its subsidiaries for lease and rental commitments
is presented under the caption  "Commitments and Contingencies" in Note 8 to the
Company's consolidated  financial statements.  Such descriptions and information
are hereby incorporated by reference into this Item 2.

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


Item 3. Legal Proceedings

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


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

     The Company did not hold a meeting of stockholders or otherwise  submit any
matter to a vote of stockholders in the fourth quarter of 2004.


                                     PART II

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

     Shares of the Company's  Common Stock are listed and traded on the New York
Stock Exchange  ("NYSE") under the symbol XNR. Prior to the  Distribution of KSL
on June 29, 2001,  the  Company's  Common Stock was traded on the NYSE under the
symbol KAB. At March 21, 2005, there were approximately  4,000 holders of Common
Stock of  record.  The  following  table  sets  forth,  for the  fiscal  periods
indicated,  the quoted  high and low sales  prices of the shares on the New York
Stock Exchange.

                                                        Quoted Stock Prices
                                                              for XNR
                                                     -------------------------
              Calendar Year                           High               Low
              ----------------------                 ------            -------
              2003:
                First Quarter                        $ 1.90            $ 1.33
                Second Quarter                         2.50              1.65
                Third Quarter                          2.78              2.05
                Fourth Quarter                         2.75              2.18

              2004:
                First Quarter                          2.65              2.25
                Second Quarter                         2.77              2.40
                Third Quarter                          2.55              2.23
                Fourth Quarter                         3.10              2.43

              2005:
                First Quarter                          3.58              2.80
                  (through March 21, 2005)

     The Company currently intends to retain future earnings for the development
of its  business  and does not  anticipate  paying cash  dividends on its Common
Stock in the  foreseeable  future.  The  Company's  dividend  policy is reviewed
periodically  and  determined  by its Board of Directors on the basis of various
factors,  including,  but not limited to, its results of  operations,  financial
condition, capital requirements and investment opportunities.  Additionally, the
credit facilities for the working capital of Furmanite  contain  restrictions on
the respective  subsidiary's  ability to pay dividends or  distributions  to the
Company, if an event of default exists. At December 31, 2004, the Company was in
compliance with all debt covenants.


<PAGE>
Item 6. Summary Historical Financial Data

     The  following  selected  financial  data (in  thousands,  except per share
amounts) is derived from the Company's  Consolidated  Financial  Statements  and
should be read in conjunction  with the  Consolidated  Financial  Statements and
related notes  thereto  included  elsewhere in this report.  The Company has not
declared a dividend on its Common Stock for any of the periods presented.
<TABLE>
<CAPTION>

                                                                  Year Ended December 31,
                                           -----------------------------------------------------------------------
                                              2004          2003           2002            2001           2000
                                           ----------     ---------      ----------     ----------      ----------
<S>                                        <C>            <C>            <C>            <C>             <C>
Income Statement Data:
Revenues............................       $  145,687     $ 135,720      $  131,436     $  144,704      $  127,641
                                           ==========     =========      ==========     ==========      ==========
Operating income (loss).............       $    4,959     $  (3,367)     $   (4,207)    $    5,429      $    4,102
                                           ==========     =========      ==========     ==========      ==========
Income (loss) from continuing
   operations before income taxes
   and cumulative effect of change
   in accounting principle..........       $    4,144     $  (4,380)     $   (5,511)    $    9,349      $      889

Income tax benefit (expense)........           (1,748)       (8,725) (b)      3,269         13,039 (c)       5,894 (d)
                                           ----------     ---------      ----------     ----------      ----------
Income (loss) from continuing
   operations before cumulative
   effect of change in accounting
   principle........................            2,396       (13,105)         (2,242)        22,388           6,783

Cumulative effect of change in
   accounting principle-adoption
   of new accounting standard for
   goodwill, net of income taxes....              -             -           (45,269)           -              -
                                           ----------     ---------      ----------     ----------      ----------
Income (loss) from continuing
   operations.......................            2,396       (13,105)        (47,511)        22,388           6,783

Income from discontinued operations
   - businesses distributed to common
   stockholders (a)                               -             -               -            3,337          10,386
                                           ----------     ---------      ----------     ----------      ----------
Net income (loss)...................       $    2,396     $ (13,105)     $  (47,511)    $   25,725      $   17,169
                                           ==========     =========      ==========     ==========      ==========

(a)  As a result of the June 2001 Distribution of Kaneb Services LLC (See Note 1
     to  the  Consolidated  Financial   Statements),   the  Company's  pipeline,
     terminaling  and product  marketing  businesses  have been  reclassified as
     "Discontinued operations - businesses distributed to common stockholders".

(b)  Includes a $12.1 million  non-cash  deferred  income tax expense  resulting
     from a change in the valuation  allowance  for deferred tax assets  arising
     from prior year tax losses  that are  available  to offset  future  taxable
     income (see Note 2 to Consolidated Financial Statements).

(c)  Includes $18.1 million in tax benefits resulting from recapitalization of a
     foreign subsidiary.

(d)  Includes the  recognition of $6.3 million in expected  benefits from prior'
     years tax losses available to offset future taxable income.

</TABLE>



<PAGE>
<TABLE>
<CAPTION>
                                                                  Year Ended December 31,
                                           -----------------------------------------------------------------------
                                              2004          2003           2002            2001           2000
                                           ----------     ---------      ----------     ----------      ----------
<S>                                        <C>            <C>            <C>            <C>             <C>
Per Share Data:
Earnings (loss) per common share:
   Basic:
     Continuing operations:
       Before cumulative effect of
         change in accounting
         principle..................       $     0.07     $  (0.41)      $   (0.07)     $     0.68      $    0.20
       Cumulative effect of change
         in accounting principle....              -            -             (1.38)            -              -
                                           ----------     --------       ---------      ----------      ---------
                                                 0.07        (0.41)          (1.45)           0.68           0.20
     Discontinued operations........              -            -                -             0.10           0.33
                                           ----------     --------       ---------      ----------      ---------
                                           $     0.07     $  (0.41)      $   (1.45)     $     0.78      $    0.53
                                           ==========     ========       =========      ==========      =========
   Diluted:
     Continuing operations:
       Before cumulative effect of
         change in accounting
         principle..................       $     0.07     $  (0.41)      $   (0.07)     $     0.64      $    0.19
       Cumulative effect of change
         in accounting principle....              -            -             (1.38)            -              -
                                           ----------     --------       ---------      ----------      ---------
                                                 0.07        (0.41)          (1.45)           0.64           0.19
     Discontinued operations........              -            -                -             0.10           0.31
                                           ----------     --------       ---------      ----------      ---------
                                           $     0.07     $  (0.41)      $   (1.45)     $     0.74      $    0.50
                                           ==========     ========       =========      ==========      =========
</TABLE>


<TABLE>
<CAPTION>
                                                                       December 31,
                                           -----------------------------------------------------------------------
                                              2004          2003           2002            2001           2000
                                           ----------     ---------      ----------     ----------      ----------
<S>                                        <C>            <C>            <C>            <C>             <C>
Balance Sheet Data:
Cash and cash equivalents.............     $   21,598     $  21,240      $   25,624     $   29,545      $   20,517
Working capital.......................         41,216        44,103          47,055         71,789          81,185
Total assets..........................        111,920       104,790         127,647        186,219         226,643
Long-term debt, less current portion..         17,498        20,457          28,409         37,801          39,593
Stockholders' equity..................         55,890        52,452          61,549        115,506         166,039


</TABLE>

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

     This  discussion  should  be  read in  conjunction  with  the  Consolidated
Financial  Statements of Xanser  Corporation  (the  "Company") and notes thereto
included elsewhere in this report.


OVERVIEW

     The Company,  formed in 1953,  conducts  its  principal  businesses  in two
industry segments, technical services and information technology services.

     The Company's  technical services business,  which is conducted through its
Furmanite group of subsidiaries,  offers  specialized  technical  services to an
international  base of clients  located in the  United  States,  Europe and Asia
Pacific regions.  The technical  services  business  provides on-line repairs of
leaks in  valves,  pipes and other  components  of piping  systems  and  related
equipment,  typically in the flow-process  industries.  Other services  provided
include on-site machining,  bolting and valve testing and repair on such systems
and  equipment.  In  addition,  the  division  provides  hot  tapping,  fugitive
emissions  monitoring,  passive  fire  protection,   concrete  repair  and  heat
exchanger repair.

     The Company's  information  technology services business,  Xtria,  provides
services and related  products to the  healthcare  industry,  the  financial and
insurance industries,  and various governmental  agencies. The segment's primary
business is information  technology services,  including  application  software,
hardware,  web  hosted  data  processing,  networking,  consulting  and  support
services.


CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                               ----------------------------------------------------
                                                                    2004              2003               2002
                                                               -------------      -------------     ---------------
                                                                    (in thousands, except per share amounts)

<S>                                                            <C>                <C>               <C>
Revenues....................................................   $     145,687      $     135,720     $       131,436
                                                               =============      =============     ===============
Operating income (loss).....................................   $       4,959      $      (3,367)    $        (4,207)
                                                               =============      =============     ===============
Income (loss) before income taxes and cumulative effect
   of change in accounting principle........................   $       4,144      $      (4,380)    $        (5,511)
                                                               =============      =============     ===============
Net income (loss)...........................................   $       2,396      $     (13,105)    $       (47,511)
                                                               =============      =============     ===============
Earnings (loss) per common share:
    Basic:
      Before cumulative effect of change in
        accounting principle................................   $        0.07      $       (0.41)    $        (0.07)
      Cumulative effect of change in
        accounting principle................................              -                 -                (1.38)
                                                               -------------      -------------     --------------
                                                               $        0.07      $       (0.41)    $        (1.45)
                                                               =============      =============     ==============
    Diluted:
      Before cumulative effect of change in
        accounting principle................................   $        0.07      $       (0.41)    $        (0.07)
      Cumulative effect of change in
        accounting principle................................              -                 -                (1.38)
                                                               -------------      -------------     --------------
                                                               $        0.07      $       (0.41)    $        (1.45)
                                                               =============      =============     ==============

Capital expenditures........................................   $       4,533      $       3,311     $        5,504
                                                               =============      =============     ==============
</TABLE>

     For the year ended December 31, 2004,  consolidated  revenues  increased by
$10.0 million,  or 7%, when compared to 2003, due to a $17.4 million increase in
revenues  from the  technical  services  business,  partially  offset  by a $7.4
million decrease in revenues from the information  technology services business.
The 2004 increase in technical  services  revenues was due to an increased sales
and  marketing  effort  and  favorable  foreign  currency  exchange  rates  (see
"Technical Services" below). The 2004 decrease in information technology service
revenues was primarily related to non-performing operations which were closed in
late 2003,  partially offset by an increase in government  solutions and digital
healthcare revenues (see "Information Technology Services" below).

     Consolidated  operating  income  increased  by $8.3  million in 2004,  when
compared to 2003, due primarily to a $1.5 million  increase in operating  income
from the technical  services  business and a $6.9 million  increase in operating
income  from the  information  technology  services  business.  The  increase in
technical services operating income was due to overall higher revenue levels and
operating  margins and the impact of favorable  foreign currency exchange rates.
The increase in information  technology  services operating income was primarily
the result of the effects of closing the non-performing  operations in late 2003
and overall lower general and administrative costs.

     Net  income  before  income  taxes  and  cumulative  effect  of  change  in
accounting  principle  increased by $8.5 million in 2004, when compared to 2003,
due to the  overall  increase  in  operating  income and  decreases  in interest
expense (see "Interest Expense" below). Net income was $2.4 million for the year
ended December 31, 2004,  compared to a net loss of $13.1 million in 2003, which
includes a non-cash  accounting  adjustment  related to deferred  taxes of $12.1
million.

     For the year ended December 31, 2003,  consolidated  revenues  increased by
$4.3 million,  or 3%, when compared to 2002, due to a $10.3 million  increase in
revenues  from the  technical  services  business,  partially  offset  by a $6.0
million decrease in revenues from the information  technology services business.
The 2003 increase in technical  services  revenues was due to an increased sales
and marketing effort in Europe and  Asia-Pacific and favorable  foreign currency
exchange  rates,  partially  offset by lower  revenues in the United States (see
"Technical Services" below). The 2003 decrease in information technology service
revenues was due to lower revenues from certain non-performing  operations which
were closed in late 2003,  partially offset by an increase in healthcare  sector
revenues (see "Information Technology Services" below).

     The  consolidated  operating loss  decreased by $0.8 million in 2003,  when
compared to 2002,  due to a $2.8 million  increase in operating  income from the
technical  services  business  and  a  $0.8  million  decrease  in  general  and
administrative  expenses  (see  "General and  Administrative  Expenses"  below),
partially  offset  by a  $2.7  million  increase  in  operating  loss  from  the
information  technology  services  business.  The increase in technical services
operating income was due to overall higher revenue levels and operating  margins
in Europe  and  Asia-Pacific,  and the  impact  of  favorable  foreign  currency
exchange rates. The increase in information  technology  services operating loss
was primarily the result of a fourth quarter  charge of $3.5 million  pertaining
to the  write-down  of software  and  inventory  costs,  and  employee and other
termination expenses resulting from the closing of non-performing operations.

     Loss before  income  taxes and  cumulative  effect of change in  accounting
principle  decreased by $1.1 million,  when compared to 2002, due to the overall
decrease in operating  loss and a decrease in interest  expense  (see  "Interest
Expense"  below).  Income (loss) from continuing  operations was ($13.1) million
for the  year  ended  December  31,  2003 and  includes  a  non-cash  accounting
adjustment  in the fourth  quarter of 2003  related to  deferred  taxes of $12.1
million (see "Income Taxes" below).


TECHNICAL SERVICES

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              ---------------------------------------
                                                                2004            2003            2002
                                                              ---------      ---------        -------
                                                                           (in thousands)

<S>                                                           <C>            <C>             <C>
  Revenues:
     United States........................................    $  27,769      $  23,285       $ 26,199
     Europe...............................................       73,069         62,995         53,186
     Asia-Pacific.........................................       17,577         14,738         11,362
                                                              ---------      ---------       --------
                                                              $ 118,415      $ 101,018       $ 90,747
                                                              =========      =========       ========
  Operating income (loss):
     United States........................................    $    (459)     $  (1,688)      $ (1,562)
     Europe...............................................        8,152          7,756          5,990
     Asia-Pacific.........................................        2,480          2,147          1,007
     Headquarters.........................................       (2,294)        (1,878)        (1,855)
                                                              ---------      ---------       --------
                                                              $   7,879      $   6,337       $  3,580
                                                              =========      =========       ========
  Capital expenditures....................................    $   2,927      $   1,897       $  2,912
                                                              =========      =========       ========
</TABLE>

     For the year ended December 31, 2004, technical services revenues increased
by $17.4  million,  or 17%,  when compared to 2003,  due to increased  sales and
marketing  efforts and favorable  foreign currency exchange rates. In the United
States,  revenues increased by $4.5 million,  or 19%, when compared to 2003, due
to the increase in sales and marketing  efforts and  increases in  underpressure
and turnaround services performed  periodically at the request of customers.  In
Europe,  revenues increased by $10.1 million, or 16%, when compared to 2003, due
to approximately  $6.9 million in favorable  foreign currency exchange rates and
increases  in  turnaround,  other  process  plant  and  underpressure  services.
Asia-Pacific  revenues increased by $2.8 million, or 19%, when compared to 2003,
due to increases in  underpressure  services and  approximately  $1.6 million in
favorable foreign exchange rates.

     Overall,  2004  technical  services  operating  income  increased  by  $1.5
million, or 24%, when compared to 2003. In the United States, the operating loss
decreased by $1.2 million, when compared to 2003, due to overall higher revenues
and increases in operating margins. In Europe and Asia-Pacific, operating income
increased by $0.4 million, or 5%, and $0.3 million, or 16%, respectively, due to
overall  higher  revenue  levels and the impact of  favorable  foreign  currency
exchange rates,  partially offset by slightly lower operating margins due to the
mix of business.  The foreign currency  exchange rates had a favorable impact of
approximately  $0.7 million on 2004 operating income in Europe and approximately
$0.2 million on 2004 operating income in Asia-Pacific.

     For the year ended December 31, 2003, technical services revenues increased
by $10.3  million,  or 11%,  when  compared to 2002,  due to  favorable  foreign
currency  exchange rates and an increased  sales and marketing  effort in Europe
and  Asia-Pacific,  partially offset by lower revenues in the United States.  In
the United States,  revenues decreased by $2.9 million, or 11%, when compared to
2002, due to decreases in turnaround and underpressure services performed at the
discretion of customers and strategic decisions to exit non-performing contracts
which did not meet current  requirements for generating  favorable  returns.  In
Europe,  revenues increased $9.8 million,  or 18%, when compared to 2002, due to
favorable  foreign  currency  exchange  rates and  increases in  turnaround  and
underpressure  services,  and product  sales.  The  favorable  foreign  currency
exchange  rates  accounted  for  approximately  $7.2 million of the 2003 revenue
increase in Europe.  Asia-Pacific  revenues increased $3.4 million, or 30%, when
compared to 2002, due to increases in turnaround  services and favorable foreign
exchange  rates.  The favorable  foreign  currency  exchange rates accounted for
approximately $1.6 million of the 2003 revenue increase in Asia-Pacific.

     Overall,  2003  technical  services  operating  income  increased  by  $2.8
million,  or 77%, when compared to 2002. In the United States,  operating income
decreased by $0.1 million, compared to 2002, due to lower levels of business. In
Europe and Asia-Pacific, operating income increased by $1.8 million, or 29%, and
$1.1 million,  or 113%,  respectively,  due to overall higher revenue levels and
operating margins,  and the impact of favorable foreign currency exchange rates.
The favorable foreign currency  exchange rates accounted for approximately  $0.9
million of the 2003 operating income increase in Europe and  approximately  $0.2
million of the operating income increase in Asia-Pacific.

INFORMATION TECHNOLOGY SERVICES

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                              ---------------------------------------
                                                                2004            2003           2002
                                                              ---------      ---------       --------
                                                                           (in thousands)
<S>                                                           <C>            <C>             <C>
  Revenues................................................    $  27,272      $  34,702       $ 40,689
                                                              =========      =========       ========
  Operating income (loss).................................    $     342      $  (6,518)      $ (3,796)
                                                              =========      =========       ========
  Capital expenditures....................................    $   1,606      $   1,309       $  2,592
                                                              =========      =========       ========

</TABLE>

     For the year ended  December  31,  2004,  information  technology  services
revenues decreased by $7.4 million,  or 21% when compared to 2003, due primarily
to the Company's  strategic decision to close  non-performing  operations in the
fourth quarter of 2003,  partially  offset by an overall  increase in government
solutions  and  healthcare  solutions  revenues.  Revenues  for the  year  ended
December 31, 2003 included approximately $13.6 million for communication-related
installation  services and  low-margin  government  service and equipment  sales
operations, as well as certain other non-profitable operations,  closed in 2003.
Government solutions and healthcare solutions revenues increased by $4.0 million
and $3.1 million,  respectively,  when compared to 2003, due to additional  work
related to new contracts.

     Overall,   operating  income  for  the  information   technology   services
operations  increased by $6.9 million in 2004, when compared to 2003, due to the
inclusion in 2003 of $3.5 million of write-downs and  termination  costs and the
losses from the  non-performing  operations  exited in late 2003,  overall lower
administrative  costs,  and the  increase in  government  solutions  and digital
healthcare  revenues.  Operating  income for the year ended  December  31,  2004
includes approximately $1.0 million related to favorable developments pertaining
to the resolution of certain contingencies related to the Company's intellectual
property.

     For the year ended  December  31,  2003,  information  technology  services
revenues  decreased  by $6.0  million,  or 15%,  when  compared to 2002,  due to
decreases in both  communications-related  installation  revenues and government
services  equipment sales revenues,  partially offset by increases in healthcare
sector  revenues.  The Company's  communications-related  installation  services
operations and low-margin government service and equipment sales operations,  as
well as  certain  other  non-performing  operations,  were  closed in the fourth
quarter of 2003.  Revenues from  equipment  sales,  which were  furnished at the
request of selected  government  customers,  decreased  by $1.8 million in 2003,
when compared to 2002, due to normal fluctuations in customer needs.  Government
services revenues  decreased by $3.8 million in 2003, when compared to 2002, due
entirely to revenue  decreases  from a government  contract which was completed.
Additionally,  communications-related  installation  revenues  decreased by $2.7
million  in 2003,  when  compared  to 2002,  due to lower  communication-related
installation revenues from a large customer as a result of the economic downturn
in the  technology  industry,  and the impact of closing  this  business  in the
fourth quarter of 2003.  Partially  offsetting  the 2003 revenue  decrease was a
$2.5 million increase in healthcare sector revenues, resulting from an increased
sales and marketing  effort and incremental  revenues from a contract  expansion
with a large customer.

     Included in  operating  income in 2003 is a fourth  quarter  charge of $3.5
million  pertaining  to the  write-down  of inventory  and software  costs,  and
employee  and  other  termination   expenses   resulting  from  the  closing  of
non-performing  operations.  Unpaid  termination costs at December 31, 2003 were
not material.  Overall,  the 2003 operating loss for the information  technology
services  operations  increased by $2.7 million in 2003,  when compared to 2002,
primarily due to the $3.5 million of write-downs and  termination  costs and the
losses from the non-performing operations exited in late 2003.

GENERAL AND ADMINISTRATIVE EXPENSE

     General and administrative  expense includes compensation and benefits paid
to corporate officers and employees,  certain  insurance,  legal, tax, financial
reporting  and other  administrative  costs,  including  costs of  maintaining a
public company,  which are not related to specific  business  segments.  For the
year  ended  December  31,  2004,   general  and   administrative   expense  was
approximately  $3.3  million,  an increase of $0.1 million from prior year,  due
primarily to an increase in insurance costs.

     For the year ended December 31, 2003,  general and  administrative  expense
was approximately  $3.2 million, a decrease of $0.8 million from the prior year.
The decrease in 2003 general and administrative  expense,  when compared to 2002
levels,  was the result of an overall  decrease in  corporate  personnel-related
expenses, and decreases in consulting and professional fees related primarily to
corporate governance matters.


INTEREST EXPENSE

     For the year ended December 31, 2004,  interest  expense  decreased by $0.3
million,  when compared to 2003,  due to reductions in debt (see  "Liquidity and
Capital  Resources"),  partially offset by an overall increase in interest rates
on variable rate borrowings.

     For the year ended December 31, 2003,  interest  expense  decreased by $0.5
million,  when compared to 2002,  due to reductions in debt (see  "Liquidity and
Capital Resources") and lower interest rates on variable-rate borrowings.


INCOME TAXES

     During the fourth quarter of 2003,  the Company,  pursuant to an evaluation
performed in accordance with the provisions of Statement of Financial Accounting
Standards  ("SFAS")  No. 109  "Accounting  for Income  Taxes",  recorded a $12.1
million  non-cash  deferred  income tax expense  resulting  from a change in the
valuation allowance for deferred tax assets arising from prior years' tax losses
(net operating loss  carryforwards)  that are available to offset future taxable
income.  As a result,  all domestic  federal and state income taxes recorded for
the year ended December 31, 2004 are fully offset by a  corresponding  change in
valuation allowance.

     Prior to December 31, 2003, the Company recognized a full federal and state
income tax expense or benefit  for income or losses  generated  by its  domestic
operations. Federal and state benefits recorded for the years ended December 31,
2003  and 2002  aggregated  $4.5  million  (before  a $12.1  million  change  in
valuation allowances) and $4.8 million, respectively.

     Income tax benefit  differs from the  expected  tax at statutory  rates due
primarily  to the change in  valuation  allowance  for  deferred  tax assets and
different tax rates in the various state and foreign jurisdictions.


LIQUIDITY AND CAPITAL RESOURCES

     Cash provided by operating  activities  was $6.0 million,  $4.9 million and
$3.5 million during the years 2004, 2003 and 2002, respectively. The increase in
2004 operating cash flows,  when compared to 2003, was due to overall  increases
in technical  services revenues and operating income and information  technology
services  operating  income,  combined  with normal  changes in working  capital
requirements  resulting from the timing of cash receipts and disbursements.  The
increase in 2003 operating cash flows, when compared to 2002, was due to overall
increases in technical  services  revenues and operating  income,  combined with
normal changes in working capital requirements resulting from the timing of cash
receipts and disbursements.

     Capital  expenditures  for continuing  operations  were $4.5 million,  $3.3
million and $5.5 million for the years ended  December 31, 2004,  2003 and 2002,
respectively.  Consolidated  capital expenditures for 2005 have been budgeted at
$3 million to $5 million, depending on the economic environment and the needs of
the businesses.  Such expenditures,  however, will depend on many factors beyond
the Company's control, including, without limitation, demand for services in the
technical services and information services businesses, local, state and federal
government  regulations.  No  assurance  can  be  given  that  required  capital
expenditures  will not exceed  anticipated  amounts  during 2005 or  thereafter.
Capital expenditures (excluding  acquisitions) in 2005 are expected to be funded
from existing cash and anticipated cash flows from operations.

     In  connection  with a stock  repurchase  plan  authorized by the Company's
Board of Directors, the Company purchased in 2002 approximately 1,744,000 shares
of the Company's  common stock,  at a cost of $3.3 million.  The stock purchases
were funded with cash on hand.

     At December 31, 2004,  $11.5  million was  outstanding  under a $25 million
Amended and  Restated  Bank Loan  Agreement  ("Loan  Agreement")  that  provides
working capital for the technical  services group and is without recourse to the
Parent Company.  Borrowings under the Loan Agreement bear interest at the option
of the borrower at variable rates (3.95% at December 31, 2004),  based on either
the LIBOR rate or prime rate, have a commitment fee on the unused portion of the
facility and contain certain financial and operational covenants with respect to
the  technical  services  group,  including  percentage  of tangible  assets and
revenues related to certain  geographical areas, ratios of debt to cash flow, as
defined  in the Loan  Agreement,  and cash  flow to fixed  charges  and  capital
expenditures.  At December  31,  2004,  the Company was in  compliance  with all
covenants.  The  Loan  Agreement  matures  in  January  2009 and is  secured  by
substantially all of the tangible assets of the technical services group.

     The Company's 8.75%  subordinated  debentures ($5.0 million  outstanding at
December 31, 2004) are convertible  into shares of the Company's common stock at
the conversion price of $5.26 per share. On March 1, 2002, the Company purchased
$10.0  million of  subordinated  debentures  at par value,  which  satisfies its
sinking fund  requirements on these  subordinated  debentures  until their final
maturity in 2008.  On September  30, 2003,  the Company  purchased an additional
$4.9 million of subordinated debentures at par value, plus accrued interest.

     On November 27, 2000, the Board of Directors of the Company  authorized the
distribution of its pipeline,  terminaling and product marketing businesses (the
"Distribution")  to its  stockholders  in the  form of a new  limited  liability
company,  Kaneb  Services LLC ("KSL").  On June 29, 2001, the  Distribution  was
completed,  with each  shareholder of the Company  receiving one common share of
KSL for each three shares of the  Company's  common stock held on June 20, 2001,
the record date for the  Distribution,  resulting in the  distribution  of 10.85
million KSL common shares.  Pursuant to the  Distribution,  the Company  entered
into an  agreement  (the  "Distribution  Agreement")  with KSL,  whereby  KSL is
obligated  to pay  the  Company  amounts  equal  to  certain  expenses  and  tax
liabilities  incurred by the Company in  connection  with the  Distribution.  In
January of 2002,  KSL paid the Company  $10.0  million for tax  liabilities  due
under the terms of the Distribution  Agreement.  The Distribution Agreement also
requires  KSL to pay the  Company an amount  calculated  based on any income tax
liability of the Company  that,  in the sole  judgement  of the Company,  (i) is
attributable  to  increases  in  income  tax  from  past  years  arising  out of
adjustments  required by federal and state tax  authorities,  to the extent that
such increases are properly allocable to the businesses that became part of KSL,
or (ii) is  attributable  to the  distribution  of KSL's  common  shares and the
operations of KSL's businesses  prior to the Distribution  date. In the event of
an examination of the Company by federal or state tax  authorities,  the Company
will  have  unfettered  control  over the  examination,  administrative  appeal,
settlement  or  litigation  that may be involved,  notwithstanding  that KSL has
agreed to pay any  additional  tax.  At  December  31,  2004,  $6.5  million was
recorded in current assets as receivable from  businesses  distributed to common
stockholders pursuant to the provisions of the Distribution Agreement.


     The  following  is a schedule  by period of the  Company's  debt  repayment
obligations and material contractual commitments at December 31, 2004:

<TABLE>
<CAPTION>
                                                          Less than                                        After
                                              Total        1 year        1-3 years       4-5 years        5 years
                                           ----------     ---------      ----------     ----------      ----------
                                                                      (in thousands)
<S>                                        <C>            <C>            <C>            <C>             <C>
Debt:
     Technical services credit facility    $   11,532     $     -        $      -       $   11,532      $     -
     Parent company convertible
        subordinated debentures........         5,000           -               -            5,000            -
                                           ----------     ---------      ----------     ----------      ----------
                                               16,532           -               -           16,532            -
     Capital leases....................         1,490           524             822            142               2
                                           ----------     ---------      ----------     ----------      ----------
        Debt subtotal..................        18,022           524             822         16,674               2
                                           ----------     ---------      ----------     ----------      ----------
     Interest on debt..................         3,521           982           1,857            682            -
                                           ----------     ---------      ----------     ----------      ----------
        Debt and interest total........        21,543         1,506           2,679         17,356               2
                                           ----------     ---------      ----------     ----------      ----------
Other contractual commitments:
     Pension Plan contributions........         9,400           940           1,880          1,880           4,700
     Operating leases..................        14,490         4,289           6,255          2,231           1,715
                                           ----------     ---------      ----------     ----------      ----------
        Total..........................    $   45,433     $   6,735      $   10,814     $   21,467      $    6,417
                                           ==========     =========      ==========     ==========      ==========
</TABLE>

     Interest  on  debt is  calculated  based  on  outstanding  balances,  using
interest  rates in effect at December 31, 2004.  Estimated  annual  pension plan
contributions  are assumed to be consistent with current  expected  contribution
levels.


OFF-BALANCE SHEET TRANSACTIONS

     The  Company  was not a party  to any  off-balance  sheet  transactions  at
December 31,  2004,  or for any of the years ended  December  31, 2004,  2003 or
2002.


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

     Critical  accounting  policies  are those  that are most  important  to the
portrayal of our financial  position and results of  operations.  These policies
require  management's  most difficult,  subjective or complex  judgments,  often
employing the use of estimates  about the effect of matters that are  inherently
uncertain. Our most critical accounting policies pertain to revenue recognition,
allowance  for doubtful  accounts,  the  impairment  of excess of cost over fair
value of net assets of acquired businesses and income taxes. Critical accounting
policies are discussed  regularly (at least  quarterly) with the Company's Audit
Committee.

     The technical  services  segment's revenues are based primarily on time and
materials and are generally  short term in nature.  Revenues are recognized when
services to customers  have been  rendered or when products are shipped and risk
of ownership is passed to the customer. The technical services business provides
limited warranties to customers,  depending upon the service performed. Warranty
claim costs were not  material  during the three years ended  December 31, 2004.
The  Company's   information   technology   services  segment  includes  revenue
recognized  under  multiple  element  arrangements  with  its  customers,  which
requires the use of  significant  judgments  and  estimates by  management.  The
accounting  policies  for  revenue  recognition  in the  information  technology
services  segment  comply with  Emerging  Issues Task Force  ("EITF")  Issue No.
00-21,  "Revenue  Arrangements  with  Multiple   Deliverables"  and  with  AICPA
Statement of Position ("SOP") No. 97-2 "Software Revenue Recognition".  ETIF No.
00-21  provides  guidance on how to account for  arrangements  that  involve the
delivery or  performance  of multiple  products,  services  and/or rights to use
assets.  SOP No. 97-2 requires  revenue to be recognized  only after software is
delivered,  all  significant  obligations of the Company are fulfilled,  and all
significant   uncertainties  regarding  customer  acceptance  have  expired.  In
addition, the information technology services segment's revenues under long-term
service contracts are accounted for using a proportional  performance  method or
on a  straight-line  basis  in  accordance  with  the  Securities  and  Exchange
Commission's Staff Accounting  Bulletin ("SAB") No. 101 "Revenue  Recognition in
Financial Statements", as amended by SAB No. 104.

     The  Company's  technical  services  and  information  technology  services
businesses  evaluate  and adjust  allowances  for doubtful  accounts  receivable
through a  continuous  process of  assessing  accounts  receivable  balances  on
individual  customers and on an overall basis.  This process  consists of, among
other tasks, a review of historical collection experience,  current aging status
and  financial  condition of customers.  As this process  involves a significant
amount of judgment and estimation,  and sometimes  involves  significant  dollar
amounts, actual write-offs could differ from estimated amounts, which could have
a material effect on the results of operations of the Company.

     Effective  January  1,  2002,  the  Company  adopted  SFAS No.  142,  which
eliminates the  amortization for goodwill (excess of cost over fair value of net
assets of acquired  businesses)  and other  intangible  assets  with  indefinite
lives.  Under  SFAS  No.  142,   intangible  assets  with  lives  restricted  by
contractual,  legal,  or other means will  continue to be  amortized  over their
useful  lives.  As of December 31, 2004,  the Company had no  intangible  assets
subject to amortization under SFAS No. 142. Goodwill and other intangible assets
not  subject  to  amortization  are  tested  for  impairment  annually  or  more
frequently if events or changes in circumstances  indicate that the assets might
be impaired.  SFAS No. 142 requires a two-step  process for testing  impairment.
First,  the fair value of each  reporting unit is compared to its carrying value
to determine  whether an indication of  impairment  exists.  If an impairment is
indicated,  then second, the implied fair value of the reporting unit's goodwill
is determined by allocating the unit's fair value to its assets and  liabilities
(including any unrecognized intangible assets) as if the reporting unit had been
acquired in a business  combination.  The amount of impairment  for goodwill and
other intangible assets is measured as the excess of its carrying value over its
implied fair value.  Based on valuations  and analysis  performed by independent
valuation  consultants and the Company in the first quarter of 2002, the Company
determined that the carrying value of its goodwill  exceeded implied fair value,
and therefore,  the Company recorded a non-cash  charge,  after income taxes, of
$45.3 million as the cumulative effect of a change in accounting  principle.  No
impairment  charge  was  appropriate  under  the  previous  goodwill  impairment
standard (SFAS No. 121),  which was based on undiscounted  cash flows.  Based on
valuations and analysis  performed by the Company at December 31, 2004, 2003 and
2002, no additional  impairment charge was required.  Future  evaluations of the
fair  value of  goodwill  and other  intangible  assets  are  dependent  on many
factors, several of which are out of the Company's control, including the demand
for services provided.  To the extent that such factors or conditions change, it
is possible  that  future  impairments  could occur (up to the current  goodwill
carrying  value of $13.8  million),  which  could have a material  effect on the
results of operations of the Company.

     At December 31, 2004, the Company had a significant  amount of net deferred
tax assets,  which  consisted  principally of net operating loss  carryforwards,
alternative minimum tax credit carryforwards and temporary differences resulting
from  differences in the tax and book basis of certain  assets and  liabilities.
The net operating loss carryforwards expire, if unused, as follows: $1.2 million
in 2006;  $3.0 million in 2007;  $13.4  million in 2022;  $10.9 million in 2023;
and, $1.2 million in 2024. The alternative minimum tax credit carryforwards have
no expiration  date.  Based on evaluations  performed by the Company pursuant to
SFAS No. 109 in the fourth  quarter of 2003, a non-cash  valuation  allowance of
$12.1 million was provided  with respect to the Company's  federal and state net
deferred  tax  assets  (see  Note  2 to  the  Company's  Consolidated  Financial
Statements).  The  utilization  of net  operating  loss  carryforwards  could be
subject to limitation  in the event of a change in ownership,  as defined in the
tax laws. To the extent that factors or conditions  change,  it is possible that
reductions in the non-cash  valuation  allowance  could occur (up to the current
valuation allowance of $16.7 million), which could have a material effect on the
results of operating of the Company.

RECENT ACCOUNTING PRONOUNCEMENT

     In December of 2004, the Financial  Accounting  Standards Board issued SFAS
No. 123 (revised 2004),  "Share-Based  Payment" (SFAS No. 123R), which addresses
the  accounting  for  share-based  payment  transactions  in which an enterprise
receives employee services in exchange for equity instruments of the enterprise,
or  liabilities  that are  based on the fair  value of the  enterprise's  equity
instruments  or that may be settled by the issuance of such equity  instruments.
SFAS No. 123R  eliminates  the ability to account for  share-based  compensation
transactions using the intrinsic value method under Accounting  Principles Board
Opinion 25,  "Accounting for Stock Issued to Employees",  and generally requires
that such  transactions be accounted for using a  fair-value-based  method.  The
Company is currently  evaluating  the  provisions  of SFAS No. 123R to determine
which fair-value-based model and transitional provision to follow upon adoption.
The alternatives for transition  include either the modified  prospective or the
modified  retrospective  methods.  The modified prospective method requires that
compensation  expense be recorded for all unvested  stock options and restricted
stock as the requisite  service is rendered  beginning with the first quarter of
adoption.  The modified  retrospective  method requires  recording  compensation
expense for stock options and restricted  stock  beginning with the first period
restated. Under the modified retrospective method, prior periods may be restated
either as of the beginning of the year of adoption or for all periods presented.
SFAS No. 123R will be effective  for the Company  beginning in the third quarter
of  2005.  The  impact  of  adoption  on the  Company's  consolidated  financial
statements is still being evaluated.


Item 7A.      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  and  fluctuations  in
foreign currency.

     The  Company   centrally   manages  its  debt  and  investment   portfolios
considering  investment  opportunities  and risks,  tax consequences and overall
financing  strategies.  The  Company's  investment  portfolio  consists  of cash
equivalents;  accordingly,  the carrying  amounts  approximate  fair value.  The
Company's  investments are not material to the financial position or performance
of the Company.  Assuming  variable  rate debt of $11.5  million at December 31,
2004, a one percent  increase in interest rates would increase  annual  interest
expense by approximately $0.1 million.

     A  significant  portion of the  technical  services  business is exposed to
fluctuations  in  foreign  currency   exchange  rates  (see  Item  7  "Technical
Services").  Based on annual 2004 foreign currency-based  revenues and operating
income  of  $90.6  million  and  $10.6  million,  respectively,  a  one  percent
fluctuation  of all  applicable  foreign  currencies  would  result in an annual
change in  revenues  and  operating  income of $0.9  million  and $0.1  million,
respectively.




<PAGE>
Item 8.  Financial Statements and Supplementary Data

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

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

         None.

Item 9A.  Controls and  Procedures.

     Xanser  Corporation's  principal  executive officer and principal financial
officer,  after  evaluating as of December 31, 2004,  the  effectiveness  of the
Company's  disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) of the Securities  Exchange Act of 1934),  have concluded  that, as of
such date,  the Company's  disclosure  controls and  procedures are adequate and
effective to ensure that  material  information  relating to the Company and its
consolidated  subsidiaries  would be made known to them by others  within  those
entities.

     During  the  fourth  quarter  of 2004,  there  have been no  changes in the
Company's  internal  controls  over  financial  reporting  that have  materially
affected, or are reasonably likely to materially affect, those internal controls
subsequent to the date of the  evaluation.  As a result,  no corrective  actions
were required or undertaken.


                                    PART III

     The  information  required  by Items 10,  11, 12, 13 and 14 of Form 10-K is
hereby incorporated by reference to the Company's  Definitive Proxy Statement to
be filed pursuant to Regulation  14A under the  Securities  Exchange Act of 1934
within 120 days after December 31, 2004.




<PAGE>
                                     PART IV

Item 15. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>

                                                                                                           Beginning
(a) (1)  Financial Statements                                                                                Page

     Set forth below are financial statements appearing in this report.

 <S>                                                                                                             <C>
        Xanser Corporation and Subsidiaries Financial Statements:
             Reports of Independent Registered Public Accounting Firms...........................           F - 1
             Consolidated Statements of Income - Three Years Ended
               December 31, 2004, 2003 and 2002..................................................           F - 3
             Consolidated Balance Sheets - December 31, 2004 and 2003............................           F - 4
             Consolidated Statements of Cash Flows - Three Years Ended
               December 31, 2004, 2003 and 2002..................................................           F - 5
             Consolidated Statements of Changes in Stockholders'
               Equity - Three Years Ended December 31, 2004, 2003 and 2002.......................           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 - Xanser Corporation (Parent Company) Condensed Financial
           Statements:
             Statements of Income - Three Years Ended December 31, 2004, 2003 and 2002...........           F - 24
             Balance Sheets - December 31, 2004 and 2003.........................................           F - 25
             Statements of Cash Flows - Three Years Ended
               December 31, 2004, 2003 and 2002..................................................           F - 26

         Schedule II - Xanser Corporation Valuation and Qualifying Accounts -
             Three Years Ended December 31, 2004, 2003 and 2002..................................           F - 27

</TABLE>

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

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

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

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

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

    3.8   By-laws of the  Registrant,  as amended and  restated  March 10, 2005,
          filed herewith.

    4.1   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.

    4.2   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.

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

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

   10.2*  Xanser  Corporation   (formerly  Kaneb  Services,   Inc.)  1994  Stock
          Incentive  Plan,  filed  as  Exhibit  4.12  to  the  exhibits  of  the
          Registrant's Form S-8 (S.E.C.  File No. 33-54027),  as Exhibit 10.1 to
          the Registrant's  Current Report on Form 8-K filed on August 22, 2001,
          and as Exhibit 10.1 to the exhibits of the Registrant's  Form 10-Q for
          the period ended June 30, 2003, which exhibits are hereby incorporated
          by reference.

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

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

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

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

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

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

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

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

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

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

   21     List of subsidiaries of the Registrant, filed herewith.

   23.1   Consent of Grant Thornton LLP, filed herewith.

   23.2   Consent of KPMG LLP, filed herewith.

   31.1   Certification of Chief Executive  Officer,  Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002, dated as of March 30, 2005.

   31.2   Certification of Chief Financial  Officer,  Pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002, dated as of March 30, 2005.

   32.1   Certification of Chief Executive  Officer,  Pursuant to Section 906(a)
          of the Sarbanes-Oxley Act of 2002, dated as of March 30, 2005.

   32.2   Certification of Chief Financial  Officer,  Pursuant to Section 906(a)
          of the Sarbanes-Oxley Act of 2002, dated as of March 30, 2005.

     *    Denotes management contracts.



<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



Shareholders and Board of Directors
Xanser Corporation:


We  have  audited  the  accompanying   consolidated   balance  sheet  of  Xanser
Corporation  and  subsidiaries  (the  "Company") as of December 31, 2004 and the
related  consolidated  statement of income,  shareholders' equity and cash flows
for the year then ended.  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 in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we  engaged to perform  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  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,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Xanser
Corporation  and  subsidiaries  as of December  31, 2004,  and the  consolidated
results of their  operations  and their cash flows for the year then  ended,  in
conformity with accounting principles generally accepted in the United States of
America.

Our audit was  conducted  for the  purpose  of  forming  an opinion on the basic
consolidated  financial  statements  taken as a  whole.  The  related  financial
statement  Schedules I and II are presented for purposes of additional  analysis
and is not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic  consolidated  financial  statements  and, in our opinion,  are fairly
stated in all material respects in relation to the basic consolidated  financial
statements taken as a whole.


Grant Thornton LLP


Dallas, Texas
March 21, 2005



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors and
Stockholders of Xanser Corporation:

We have audited the consolidated  financial statements of Xanser Corporation and
its  subsidiaries  as of and for each of the years in the two year period  ended
December 31, 2003,  as listed in the index  appearing  under Item  15(a)(1).  In
connection with our audits of the  consolidated  financial  statements,  we have
also audited the financial  statement  schedules as of and for each of the years
in the two year period ended December 31, 2003, as listed in the index appearing
under Item  15(a)(2).  These  consolidated  financial  statements  and financial
statement  schedules are the  responsibility  of the Company's  management.  Our
responsibility is to express an opinion on the consolidated financial statements
and financial statement schedules based on our audits.

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

In our opinion, the 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, 2003,  and the results of their  operations and
their cash flows for each of the years in the two-year period ended December 31,
2003, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion,  the related  financial  statement  schedules,  when  considered in
relation  to the  basic  consolidated  financial  statements  taken  as a whole,
present fairly, in all material respects, the information set forth therein.

As  discussed  in Note 1, the Company  adopted the  provisions  of  Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" in
2002.



                                       KPMG LLP
Dallas, Texas
February 25, 2004






<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME




<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                               ----------------------------------------------------
                                                                     2004              2003               2002
                                                               --------------     --------------    ---------------

<S>                                                            <C>                <C>               <C>
Revenues:
    Services...............................................    $  138,697,000     $  120,790,000    $   114,659,000
    Products...............................................         6,990,000         14,930,000         16,777,000
                                                               --------------     --------------    ---------------
      Total revenues.......................................       145,687,000        135,720,000        131,436,000
                                                               --------------     --------------    ---------------
Costs and expenses:
    Operating costs........................................       129,058,000        116,503,000        112,159,000
    Cost of products sold..................................         4,856,000         13,538,000         15,828,000
    Depreciation and amortization..........................         3,552,000          5,860,000          3,665,000
    General and administrative.............................         3,262,000          3,186,000          3,991,000
                                                               --------------     --------------    ---------------
      Total costs and expenses.............................       140,728,000        139,087,000        135,643,000
                                                               --------------     --------------    ---------------
Operating income (loss)....................................         4,959,000         (3,367,000)        (4,207,000)

Interest income............................................           174,000            260,000            460,000
Interest expense...........................................          (989,000)        (1,273,000)        (1,764,000)
                                                               --------------     --------------    ---------------
Income (loss) before income taxes and cumulative effect
    of change in accounting principle......................         4,144,000         (4,380,000)        (5,511,000)

Income tax benefit (expense)...............................        (1,748,000)        (8,725,000)         3,269,000
                                                               --------------     ---------------   ---------------
Income (loss) before cumulative effect of change in
    accounting principle...................................         2,396,000        (13,105,000)        (2,242,000)
Cumulative effect of change in accounting principle -
    adoption of new accounting standard for goodwill,
    net of income taxes....................................              -                  -           (45,269,000)
                                                               --------------     --------------    ---------------
Net income (loss)..........................................    $    2,396,000     $  (13,105,000)   $   (47,511,000)
                                                               ==============     ==============    ===============

Earnings (loss) per common share - basic and diluted:
    Before cumulative effect of change in
      accounting principle.................................    $         0.07     $        (0.41)   $         (0.07)
    Cumulative effect of change in
      accounting principle.................................               -                  -                (1.38)
                                                               --------------     --------------    ---------------
                                                               $         0.07     $        (0.41)   $         (1.45)
                                                               ==============     ==============    ===============

</TABLE>



<PAGE>
                       XANSER CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              -------------------------------------
                                                                                   2004                   2003
                                                                              --------------         --------------
                                     ASSETS
Current assets:
<S>                                                                           <C>                    <C>
   Cash and cash equivalents.........................................         $   21,598,000         $   21,240,000
   Accounts receivable, trade (net of allowance for doubtful
     accounts of $667,000 in 2004 and $1,183,000 in 2003)............             35,470,000             31,902,000
   Receivable from businesses distributed to common stockholders.....              6,699,000              7,564,000
   Inventories.......................................................              9,131,000              8,697,000
   Prepaid expenses and other........................................              5,283,000              4,182,000
                                                                              --------------         --------------
     Total current assets............................................             78,181,000             73,585,000
                                                                              --------------         --------------
Property and equipment...............................................             46,571,000             42,152,000
Less accumulated depreciation and amortization.......................             32,933,000             29,879,000
                                                                              --------------         --------------
   Net property and equipment........................................             13,638,000             12,273,000
                                                                              --------------         --------------
Excess of cost over fair value of net assets of acquired businesses..             13,802,000             13,802,000
Deferred income taxes and other assets...............................              6,299,000              5,130,000
                                                                              --------------         --------------
                                                                              $  111,920,000         $  104,790,000
                                                                              ==============         ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt.................................         $      524,000         $      738,000
   Accounts payable..................................................              5,416,000              3,098,000
   Accrued expenses..................................................             23,416,000             18,255,000
   Accrued income taxes..............................................              7,609,000              7,391,000
                                                                              --------------         --------------
     Total current liabilities.......................................             36,965,000             29,482,000
                                                                              --------------         --------------
Long-term debt, less current portion:
   Technical services................................................             12,250,000             15,457,000
   Information technology services...................................                248,000                   -
   Parent company....................................................              5,000,000              5,000,000
                                                                              --------------         --------------
     Total long-term debt, less current portion......................             17,498,000             20,457,000
                                                                              --------------         --------------
Other liabilities....................................................              1,567,000              2,399,000

Commitments and contingencies

Stockholders' equity:
   Common stock, without par value.  Authorized, 60,000,000 shares;
     issued, 37,353,755 shares in 2004 and 37,336,176 shares in 2003.              4,335,000              4,333,000
   Additional paid-in capital........................................            126,550,000            126,561,000
   Treasury stock, at cost...........................................            (26,180,000)           (26,267,000)
   Retained earnings (accumulated deficit)...........................            (46,299,000)           (48,695,000)
   Accumulated other comprehensive income (loss).....................             (2,516,000)            (3,480,000)
                                                                              --------------         --------------
     Total stockholders' equity......................................             55,890,000             52,452,000
                                                                              --------------         --------------
                                                                              $  111,920,000         $  104,790,000
                                                                              ==============         ==============

</TABLE>

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


<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                             ------------------------------------------------------
                                                                   2004               2003                2002
                                                             --------------       -------------     ---------------
<S>                                                          <C>                  <C>               <C>
Operating activities:
   Net income (loss)......................................   $    2,396,000       $ (13,105,000)    $  (47,511,000)
   Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
       Depreciation and amortization......................        3,552,000           4,272,000          3,665,000
       Deferred income taxes..............................       (1,061,000)          7,863,000         (1,266,000)
       Cumulative effect of change in accounting principle             -                  -             45,269,000
       Write-down of software costs.......................             -              2,338,000              -
       Write-down of inventory............................          206,000             500,000              -
       Other, net.........................................         (832,000)            587,000            736,000
       Changes in current assets and liabilities:
         Accounts receivable, net.........................       (3,568,000)          4,306,000            978,000
         Inventories......................................         (640,000)           (773,000)           518,000
         Prepaid expenses and other.......................       (1,101,000)          1,079,000          2,370,000
         Accounts payable and accrued expenses............        7,062,000          (2,178,000)        (1,239,000)
                                                             --------------       -------------     --------------
     Net cash provided by operating activities............        6,014,000           4,889,000          3,520,000
                                                             --------------       -------------     --------------
Investing activities:
   Capital expenditures...................................       (4,533,000)         (3,311,000)        (5,504,000)
   Other, net.............................................        1,214,000           1,363,000          1,298,000
                                                             --------------       -------------     --------------
     Net cash used in investing activities................       (3,319,000)         (1,948,000)        (4,206,000)
                                                             --------------       -------------     --------------
Financing activities:
   Issuance of debt.......................................        1,836,000             330,000          4,750,000
   Payments on debt ......................................       (5,421,000)         (8,278,000)       (15,641,000)
   Purchase of treasury stock.............................             -                  -             (3,286,000)
   Common stock issued and other..........................           78,000               9,000            450,000
   (Increase) decrease in receivable from businesses
     distributed to common stockholders...................          865,000            (152,000)        10,492,000
                                                             --------------       -------------     --------------
     Net cash used in financing activities................       (2,642,000)         (8,091,000)        (3,235,000)
                                                             --------------       -------------     --------------
Effect of exchange rate changes on cash...................          305,000             766,000              -
                                                             --------------       -------------     --------------
Increase (decrease) in cash and cash equivalents..........          358,000          (4,384,000)        (3,921,000)
Cash and cash equivalents at beginning of year............       21,240,000          25,624,000         29,545,000
                                                             --------------       -------------     --------------
Cash and cash equivalents at end of year..................   $   21,598,000       $  21,240,000     $   25,624,000
                                                             ==============       =============     ==============
Supplemental cash flow information:
     Cash paid for interest...............................   $      952,000       $   1,534,000     $    2,244,000
                                                             ==============       =============     ==============
     Cash paid for income taxes...........................   $    2,546,000       $   1,899,000     $      926,000
                                                             ==============       =============     ==============

</TABLE>

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


<TABLE>
<CAPTION>
                                                                                      Retained       Accumulated
                                                                                      Earnings         Other
                                     Common        Additional         Treasury      (Accumulated    Comprehensive     Comprehensive
                                      Stock      Paid-In Capital        Stock          Deficit)     Income (Loss)     Income (Loss)
                                  ------------   ---------------    -------------   -------------   -------------     -------------
<S>                               <C>            <C>                <C>             <C>             <C>               <C>
Balance at January 1, 2002......  $  4,270,000   $   128,744,000    $ (23,423,000)  $  11,921,000   $  (6,006,000)
   Net income (loss)............          -                 -                -        (47,511,000)           -        $ (47,511,000)
   Common stock issued..........        63,000            68,000          319,000            -               -                 -
   Deferred stock units,
     vested.....................          -              171,000             -               -               -                 -
   Purchase of treasury stock...          -                 -          (3,286,000)           -               -                 -
   Minimum pension liability
     adjustment for subsidiary..          -                 -                -               -         (3,374,000)       (3,374,000)
   Foreign currency trans-
     lation adjustment..........          -                 -                -               -          1,901,000         1,901,000
   Taxes associated with the
     Distribution of KSL and
     other......................          -           (2,308,000)            -               -               -                 -
                                  ------------    --------------    -------------   -------------   -------------     -------------
   Comprehensive income(loss).                                                                                        $ (48,984,000)
                                                                                                                      =============
Balance at December 31, 2002....     4,333,000       126,675,000      (26,390,000)    (35,590,000)     (7,479,000)
   Net income (loss)............          -                 -                -        (13,105,000)           -        $ (13,105,000)
   Common stock issued..........          -             (153,000)         123,000            -               -                 -
   Deferred stock units,
     vested.....................         -                39,000             -               -               -                 -
   Minimum pension liability
     adjustment for subsidiary..         -                  -                -               -          1,147,000         1,147,000
   Foreign currency trans-
     lation adjustment .........         -                  -                -               -          2,852,000         2,852,000
                                  ------------    --------------    -------------   -------------   -------------     -------------
   Comprehensive income(loss)...                                                                                      $  (9,106,000)
                                                                                                                      =============
Balance at December 31, 2003....     4,333,000       126,561,000      (26,267,000)    (48,695,000)     (3,480,000)
   Net income...................          -                 -                -          2,396,000            -        $   2,396,000
   Common stock issued..........         2,000           (50,000)          87,000            -               -                 -
   Deferred stock units,
     vested.....................         -                39,000             -               -               -                 -
   Minimum pension liability
     adjustment for subsidiary..         -                  -                -               -           (445,000)         (445,000)
   Foreign currency trans-
     lation adjustment..........         -                  -                -               -          1,409,000         1,409,000
                                  ------------    --------------    -------------   -------------   -------------     -------------
   Comprehensive income.......                                                                                        $   3,360,000
                                                                                                                      =============

Balance at December 31, 2004....  $  4,335,000    $  126,550,000    $ (26,180,000)  $ (46,299,000)  $  (2,516,000)
                                  ============    ==============    =============   =============   =============

</TABLE>



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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General

     The  consolidated  financial  statements  include  the  accounts  of Xanser
Corporation (the "Company" or "Parent") and its wholly-owned subsidiaries.

     On November 27, 2000, the Board of Directors of the Company  authorized the
distribution of its pipeline and terminaling and product marketing business (the
"Distribution")  to its  stockholders  in the  form of a new  limited  liability
company,  Kaneb  Services LLC ("KSL").  On June 29, 2001, the  Distribution  was
completed,  with each  shareholder of the Company  receiving one common share of
KSL for each three shares of the  Company's  common stock held on June 20, 2001,
the record date for the  Distribution,  resulting in the  distribution  of 10.85
million KSL common shares.  Pursuant to the  Distribution,  the Company  entered
into an agreement  (the  "Distribution  Agreement")  with KSL,  whereby,  KSL is
obligated  to pay  the  Company  amounts  equal  to  certain  expenses  and  tax
liabilities  incurred by the Company in  connection  with the  Distribution.  In
January of 2002,  KSL paid the Company  $10.0  million for tax  liabilities  due
under the terms of the Distribution  Agreement.  The Distribution Agreement also
requires  KSL to pay the  Company an amount  calculated  based on any income tax
liability of the Company  that,  in the sole  judgement  of the Company,  (i) is
attributable  to  increases  in  income  tax  from  past  years  arising  out of
adjustments  required by federal and state tax  authorities,  to the extent that
such increases are properly allocable to the businesses that became part of KSL,
or (ii) is  attributable  to the  distribution  of KSL's  common  shares and the
operations of KSL's businesses  prior to the distribution  date. In the event of
an examination of the Company by federal or state tax  authorities,  the Company
will  have  unfettered  control  over the  examination,  administrative  appeal,
settlement  or  litigation  that may be involved,  notwithstanding  that KSL has
agreed to pay any  additional  tax.  At  December  31,  2004,  $6.5  million was
recorded in current assets as receivable from  businesses  distributed to common
stockholders pursuant to the provisions of the Distribution Agreement.

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

     Cash and Cash Equivalents

     The Company's  policy is to invest cash in highly liquid  investments  with
original  maturities  of three  months  or less.  Accordingly,  uninvested  cash
balances are kept at minimum  levels.  The Company does not have any  derivative
financial instruments.

     Allowance for Doubtful Accounts Receivable

     The  Company  regularly  evaluates  and  adjusts  allowances  for  doubtful
accounts receivable based on a combination of write-off history, aging analysis,
and information available on specific accounts.

     Changes in the allowance  for doubtful  accounts  receivable  for the years
ended December 31, 2004, 2003 and 2002 are as follows:

<TABLE>
<CAPTION>
<S>                                                                                   <C>
       Allowance for doubtful accounts receivable at January 1, 2002 .............    $   1,034,000

           Charged to costs and expenses..........................................          719,000
           Charged to other accounts..............................................           33,000
           Deductions.............................................................         (286,000)
                                                                                      -------------
       Allowance for doubtful accounts receivable at December 31, 2002............        1,500,000

           Charged to costs and expenses..........................................          979,000
           Charged to other accounts..............................................           43,000
           Deductions.............................................................       (1,339,000)
                                                                                      -------------
       Allowance for doubtful accounts receivable at December 31, 2003............        1,183,000

           Charged to costs and expenses..........................................          285,000
           Charged to other accounts..............................................           17,000
           Deductions.............................................................         (818,000)
                                                                                      -------------
       Allowance for doubtful accounts receivable at December 31, 2004............    $     667,000
                                                                                      =============
</TABLE>

     Inventories

     Substantially  all of the Company's  inventory balance at December 31, 2004
and 2003  consists of  consumable  materials and supplies used in the process of
providing  technical services to customers.  Inventories are valued at the lower
of cost or market.  Cost is determined  using the weighted  average cost method.
Inventory  quantities on hand are reviewed  regularly  based on related  service
levels and functionality and carrying cost is reduced accordingly, if the review
indicates a reduction in value is required.

     Cost of products  sold  primarily  relates to the cost of equipment  sales.
Inventories consumed in the process of providing technical services are included
in operating costs.

     Property and Equipment

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

     The Company  follows the  provisions  of Statement of Financial  Accounting
Standards  ("SFAS")  No.  144,  "Accounting  for the  Impairment  or Disposal of
Long-Lived Assets",  which addresses financial  accounting and reporting for the
impairment  or disposal of long-lived  assets.  Under SFAS No. 144, the carrying
value of  property  and  equipment  is  reviewed  whenever  events or changes in
circumstances  indicate that an impairment may exist, using undiscounted  future
cash flows.  To the extent  impairment is indicated to exist, an impairment loss
will be recognized based on fair value.

     Capitalized Software

     Costs  incurred  to  purchase  or develop  computer  software to be sold or
leased is capitalized in accordance  with SFAS No. 86 "Accounting  for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed".  Under SFAS No.
86,  amortization  expense is based on current and  projected  revenues for each
capitalized product, with an annual minimum equal to the straight-line method of
amortization over the product's remaining estimated economic life. For the years
ended December 31, 2003 and 2002,  amortization expense totaled $2.0 million and
$0.1  million,  respectively.  The Company  had no  unamortized  software  costs
capitalized at December 31, 2004 and 2003.

     Revenue Recognition

     The technical  services  segment's revenues are based primarily on time and
materials and are generally  short term in nature.  Revenues are recognized when
services to customers  have been  rendered or when products are shipped and risk
of ownership is passed to the customer. The technical services business provides
limited warranties to customers,  depending upon the service performed. Warranty
claim costs were not material during the three years ended December 31, 2004.

     The  information  technology  services  segment's  revenues under long-term
service contracts are accounted for using a proportional  performance  method or
on a  straight-line  basis  in  accordance  with  the  Securities  and  Exchange
Commission's Staff Accounting  Bulletin ("SAB") No. 101 "Revenue  Recognition in
Financial  Statements",  as amended by SAB No. 104. The accounting  policies for
revenue  recognition in the information  technology services segment comply with
Emerging Issues Task Force ("EITF") Issue No. 00-21,  "Revenue Arrangements with
Multiple  Deliverables"  and with AICPA  Statement of Position  ("SOP") No. 97-2
"Software  Revenue  Recognition".  ETIF No.  00-21  provides  guidance on how to
account for  arrangements  that involve the delivery or  performance of multiple
products, services and/or rights to use assets. SOP No. 97-2 requires revenue to
be recognized only after software is delivered,  all significant  obligations of
the Company are fulfilled, and all significant  uncertainties regarding customer
acceptance have expired.

     Earnings Per Share

     The amount of earnings for the period  applicable to each weighted  average
share of common stock outstanding during the period ("Basic" earnings per share)
and the amount of earnings for the period  applicable to each  weighted  average
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 consolidated statements of income.

     Comprehensive Income

     The  Company   follows  the   provisions   of  SFAS  No.  130,   "Reporting
Comprehensive Income", for the reporting and display of comprehensive income and
its components in a full set of general purpose financial  statements.  SFAS No.
130 only  requires  additional  disclosure  and does not  affect  the  Company's
financial  position or results of  operations.  At  December  31, 2004 and 2003,
accumulated  other  comprehensive  income (loss) consists of cumulative  foreign
currency   translation   adjustments  of  ($2.9)  million  and  ($1.5)  million,
respectively,  and minimum pension  liability  adjustments for subsidiaries (see
Note 3) of $5.4 million and $5.0 million, respectively.

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

     Effective January 1, 2002, the Company adopted SFAS No. 142,  "Goodwill and
Other Intangible Assets", which eliminates the amortization for goodwill (excess
of cost  over  fair  value of net  assets  of  acquired  businesses)  and  other
intangible assets with indefinite lives.  Under SFAS No. 142,  intangible assets
with lives restricted by contractual,  legal, or other means will continue to be
amortized  over their useful  lives.  At December  31, 2004,  the Company had no
intangible assets subject to amortization under SFAS No. 142. Goodwill and other
intangible assets not subject to amortization are tested for impairment annually
at year end or more  frequently if events or changes in  circumstances  indicate
that the assets might be impaired.  SFAS No. 142 requires a two-step process for
testing impairment.  First, the fair value of each reporting unit is compared to
its carrying value to determine  whether an indication of impairment  exists. If
an impairment is indicated, then second, the implied fair value of the reporting
unit's  goodwill is determined by allocating the unit's fair value to its assets
and  liabilities  (including  any  unrecognized  intangible  assets)  as if  the
reporting  unit had been  acquired  in a  business  combination.  The  amount of
impairment for goodwill and other intangible assets is measured as the excess of
a  reporting  unit's  carrying  value  over its  implied  fair  value.  Based on
valuations and analysis performed by independent  valuation  consultants and the
Company in the first quarter of 2002, the Company  determined  that the carrying
value of its goodwill  exceeded implied fair value,  and therefore,  the Company
recorded  a  non-cash  charge,  after  income  taxes,  of $45.3  million  as the
cumulative effect of a change in accounting principle.  No impairment charge was
appropriate  under the previous  goodwill  impairment  standard  (SFAS No. 121),
which was based on  undiscounted  cash flows.  Based on valuations  and analysis
performed  by the Company at December  31, 2004,  2003 and 2002,  no  additional
impairment charge was required.

     The changes in the carrying amount of excess of cost over fair value of net
assets of acquired businesses for the years ended December 31, 2004 and 2003 and
2002 are as follows:

<TABLE>
<CAPTION>

<S>                                                                                     <C>
       Excess of cost over fair value of net assets of acquired
           businesses at December 31, 2001.........................................     $61,054,000

       Cumulative effect of change in accounting principle
           recorded in the first quarter of 2002...................................     (47,252,000)
                                                                                        -----------
       Excess of cost over fair value of net assets of acquired
           businesses (technical services) at December 31, 2004, 2003 and 2002.....     $13,802,000
                                                                                        ===========
</TABLE>

     Stock Option Plans

     In December of 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123  (revised  2004),  "Share-Based  Payment"  (SFAS No.  123R),  which
addresses  the  accounting  for  share-based  payment  transactions  in which an
enterprise  receives employee services in exchange for equity instruments of the
enterprise,  or liabilities that are based on the fair value of the enterprise's
equity  instruments  or that  may be  settled  by the  issuance  of such  equity
instruments.  SFAS No. 123R  eliminates  the ability to account for  share-based
compensation  transactions  using the  intrinsic  value method under  Accounting
Principles  Board (APB) Opinion 25,  "Accounting for Stock Issued to Employees",
and  generally  requires  that  such  transactions  be  accounted  for  using  a
fair-value-based  method. The Company is currently  evaluating the provisions of
SFAS  No.  123R to  determine  which  fair-value-based  model  and  transitional
provision to follow upon  adoption.  The  alternatives  for  transition  include
either the modified  prospective  or the  modified  retrospective  methods.  The
modified  prospective method requires that compensation  expense be recorded for
all unvested  stock options and  restricted  stock as the  requisite  service is
rendered   beginning   with  the  first   quarter  of  adoption.   The  modified
retrospective  method requires recording  compensation expense for stock options
and  restricted  stock  beginning  with the  first  period  restated.  Under the
modified  retrospective  method,  prior periods may be restated either as of the
beginning  of the year of adoption or for all periods  presented.  SFAS No. 123R
will be effective for the Company  beginning in the third  quarter of 2005.  The
impact of adoption on the Company's  consolidated  financial statements is still
being evaluated.

     In  accordance  with  the  provisions  of SFAS  No.  123,  "Accounting  for
Stock-Based  Compensation",  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 No.  123.  The  Company  also  applies the
disclosure  provisions of SFAS No. 123, as amended by SFAS No. 148,  "Accounting
for   Stock-based   Compensation  -  Transition   and   Disclosure"  as  if  the
fair-value-based  method had been applied in measuring compensation expense. 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 standard deviation or volatility ranging from 35.5% to 35.8% for the
year ended  December  31, 2004,  36.2% to 36.3% for the year ended  December 31,
2003 and 32.7% to 36.6% for the year ended  December 31,  2002,  based on weekly
average  variances of the stock for the five year period preceding  issuance,  a
risk-free rate of return ranging from 3.71% to 3.75% for the year ended December
2004, 3.27% to 3.54% for the year ended December 31, 2003 and 3.25% to 4.78% for
the year ended December 31, 2002,  based on the 30-year U.S.  treasury bill rate
for the five-year expected life of the options, and no dividend yield.

     The  following  illustrates  the effect on net income  (loss) and basic and
diluted  earnings  (loss)  per share if the fair  value  based  method  had been
applied:

<TABLE>
<CAPTION>
                                                                               Year Ended December 31,
                                                                 --------------------------------------------------
                                                                      2004              2003              2002
                                                                 ---------------   --------------    --------------
<S>                                                              <C>               <C>               <C>
      Reported net income (loss)...............................  $     2,396,000   $  (13,105,000)   $  (47,511,000)

      Stock-based employee compensation expense determined
        under the fair value based method......................         (381,000)        (138,000)         (620,000)
                                                                 ---------------   --------------    --------------
      Pro forma net income (loss)..............................  $     2,015,000   $  (13,243,000)   $  (48,131,000)
                                                                 ===============   ==============    ==============
      Earning (loss) per share:
        Basic - as reported....................................  $          0.07   $        (0.41)   $        (1.45)
                                                                 ===============   ==============    ==============
        Basic - pro forma......................................  $          0.06   $        (0.41)   $        (1.48)
                                                                 ===============   ==============    ==============
        Diluted - as reported..................................  $          0.07   $        (0.41)   $        (1.45)
                                                                 ===============   ==============    ==============
        Diluted - pro forma....................................  $          0.06   $        (0.41)   $        (1.48)
                                                                 ===============   ==============    ==============
</TABLE>

     Change in Presentation

     Certain prior year  financial  statement  items have been  reclassified  to
conform with the 2004 presentation.

     Estimates

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


2.   INCOME TAXES

     Income (loss) before  cumulative  effect of change in accounting  principle
and income tax expense is comprised of the following components:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                        -----------------------------------------------------
                                                             2004                2003              2002
                                                        --------------      -------------      --------------
<S>                                                     <C>                 <C>                <C>
       Domestic operations.........................     $   (1,101,000)     $ (12,562,000)     $ (11,427,000)
       Foreign operations..........................          5,245,000          8,182,000          5,916,000
                                                        --------------      -------------      -------------
       Income (loss) before income taxes...........     $    4,144,000      $  (4,380,000)     $  (5,511,000)
                                                        ==============      =============      =============

</TABLE>

     Income  tax  expense  (benefit)  before  cumulative  effect  of  change  in
accounting principle is comprised of the following components:

<TABLE>
<CAPTION>
       Year Ended
       December 31,                     Federal              Foreign              State               Total
       ------------------------      --------------       -------------      --------------     --------------
<S>                                  <C>                  <C>                <C>                <C>
       2004:
         Current...............      $         -          $   2,809,000      $        -         $    2,809,000
         Deferred..............                -             (1,061,000)              -             (1,061,000)
                                     --------------       -------------      --------------     --------------
                                     $         -          $   1,748,000      $        -         $    1,748,000
                                     ==============       =============      ==============     ==============
       2003:
         Current...............      $   (1,704,000)      $   2,623,000      $      (57,000)    $      862,000
         Deferred..............           8,616,000          (1,530,000)            777,000          7,863,000
                                     --------------       -------------      --------------     --------------
                                     $    6,912,000       $   1,093,000      $      720,000     $    8,725,000
                                     ==============       =============      ==============     ==============
       2002:
         Current...............      $   (2,140,000)      $      65,000      $       72,000     $   (2,003,000)
         Deferred..............          (1,825,000)          1,427,000            (868,000)        (1,266,000)
                                     --------------       -------------      --------------     --------------
                                     $   (3,965,000)      $   1,492,000      $     (796,000)    $   (3,269,000)
                                     ==============       =============      ==============     ==============

</TABLE>

     The reasons for the differences between the amount of tax expense (benefit)
provided  and the amount of tax  expense  (benefit)  computed  by  applying  the
statutory  federal  income tax rate to income  (loss)  before  income  taxes and
cumulative effect of change in accounting principle for the years 2004, 2003 and
2002 are as follows:

<TABLE>
<CAPTION>
                                                                Year Ended December 31,
                                          -----------------------------------------------------------------
                                                 2004                    2003                    2002
                                          -----------------       ------------------      -----------------
<S>                                       <C>                     <C>                     <C>
       Expected tax expense (benefit)
         at statutory rates.............  $       1,409,000       $       (1,533,000)     $      (1,929,000)
       Increase (decrease) in taxes
         resulting from:
         Change in valuation allowance..            589,000               12,112,000                   -
         State income taxes, net........           (102,000)                (468,000)              (517,000)
         Foreign tax rate differences...            (35,000)              (1,689,000)              (629,000)
         Resolution of state and foreign
           tax issues and other.........           (113,000)                 303,000               (194,000)
                                          -----------------       ------------------       ----------------
                                          $       1,748,000       $        8,725,000       $     (3,269,000)
                                          =================       ==================       ================
</TABLE>

     At December 31, 2004, the Company had available  domestic tax net operating
loss  carryforwards  ("NOLs"),   which  will  expire,  if  unused,  as  follows:
$1,211,000 in 2006;  $3,033,000 in 2007;  $13,365,000  in 2022;  $10,871,000  in
2023; and, $1,220,000 in 2024. The utilization of these NOLs 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,
2004 and 2003 are as follows:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                              -------------------------------------
                                                                                   2004                   2003
                                                                              --------------         --------------
<S>                                                                           <C>                    <C>
       Deferred tax assets:
         Net operating loss carryforwards.........................            $   10,494,000         $    9,610,000
         Alternative minimum tax credit carryforwards.............                 2,504,000              2,505,000
         Accrued liabilities......................................                 1,290,000              1,547,000
         Intangibles..............................................                 1,293,000              1,528,000
         Foreign subsidiaries, primarily accrued liabilities......                 3,302,000              2,036,000
         Other....................................................                 1,608,000              1,399,000
                                                                              --------------         --------------
         Total gross deferred tax assets..........................                20,491,000             18,625,000
       Deferred tax liabilities:
         Plant and equipment, principally due to differences in
           depreciation...........................................                  (354,000)              (343,000)
         Foreign deferred tax liabilities.........................                   (15,000)                 -
                                                                              --------------         --------------
       Net deferred tax asset before valuation allowance..........                20,122,000             18,282,000
       Less valuation allowance...................................               (16,835,000)           (16,246,000)
                                                                              --------------         --------------
         Net deferred tax asset...................................            $    3,287,000         $    2,036,000
                                                                              ==============         ==============
</TABLE>

     The  Company  maintains a  valuation  allowance  to adjust the basis of net
deferred  tax  assets in  accordance  with SFAS No. 109  "Accounting  for Income
Taxes".  Based on evaluations  performed by the Company pursuant to SFAS No. 109
in the fourth quarter of 2003, a non-cash  valuation  allowance of $12.1 million
was provided  with respect to the  Company's  federal and state net deferred tax
assets.


3.   RETIREMENT PLANS

     The Company has a defined  contribution plan which covers substantially all
domestic  employees  and  provides  for  varying  levels of  employer  matching.
Contributions to this plan were $0.7 million,  $0.7 million and $0.8 million for
2004, 2003 and 2002, 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 5.5% to 12%
and  the  employer  contributes  up to 12% of pay.  Plan  assets  are  primarily
invested in unitized  pension funds managed by United  Kingdom  registered  fund
managers. The most recent valuation of the U.K. Plan was performed as of October
31, 2004.

     Net pension cost for the U.K. Plan included the following components:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                        ---------------------------------------------------
                                                            2004                 2003              2002
                                                        --------------     -------------      -------------

<S>                                                     <C>                <C>                <C>
       Net periodic pension cost:
         Service cost................................   $      466,000     $     787,000      $     658,000
         Interest cost...............................        3,461,000         2,954,000          2,522,000
         Expected return on plan assets..............       (3,587,000)       (2,946,000)        (3,012,000)
         Amortization of prior service cost..........         (112,000)           16,000             15,000
         Recognized net loss.........................          737,000           768,000              4,000
                                                        --------------     -------------      -------------
       Net periodic pension cost.....................   $      965,000     $   1,579,000      $     187,000
                                                        ==============     =============      =============

</TABLE>


     The weighted average  assumptions used to determine benefit obligations and
net periodic costs are as follows:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          --------------------------------
                                                                                2004               2003
                                                                          --------------    --------------

<S>                                                                       <C>               <C>
       Discount rate...............................................                5.8%             6.0%
       Expected long-term return on plan assets....................                7.5%             7.5%
       Rate of compensation increase...............................                3.3%             3.3%

</TABLE>

     The  expected  long-term  rate of return on invested  assets is  determined
based on the weighted average of expected returns on asset investment categories
as follows:  8.5% for equity  securities,  8.5% for real  estate,  6.0% for debt
securities and 5.0 % for cash and other.

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          --------------------------------
                                                                                2004               2003
                                                                          --------------    --------------
<S>                                                                        <C>               <C>
       Projected benefit obligation:
         Beginning of year..........................................       $  56,466,000     $  48,326,000
         Service cost...............................................             466,000           787,000
         Interest cost..............................................           3,461,000         2,954,000
         Contributions..............................................             920,000           761,000
         Benefits paid..............................................          (1,726,000)       (1,472,000)
         Foreign currency translation adjustment and other..........           6,018,000         5,110,000
                                                                           -------------     -------------
         End of year................................................          65,605,000        56,466,000
                                                                           -------------     -------------
       Fair value of plan assets:
         Beginning of year..........................................          46,822,000        38,234,000
         Actual gain on plan assets.................................           5,045,000         4,667,000
         Contributions..............................................             920,000           761,000
         Benefits paid..............................................          (1,726,000)       (1,472,000)
         Foreign currency translation adjustment and other..........           3,763,000         4,632,000
                                                                           -------------     -------------
         End of year................................................          54,824,000        46,822,000
                                                                           -------------     -------------
       Excess projected obligation over fair value at end of year...         (10,781,000)       (9,644,000)
       Unrecognized net actuarial loss..............................          14,803,000        13,591,000
       Unamortized prior service cost...............................          (1,402,000)       (1,416,000)
                                                                           -------------     -------------
       Net pension prepaid asset....................................           2,620,000         2,531,000

       Additional minimum liability.................................         (10,121,000)       (8,845,000)
                                                                           -------------     -------------
       Net pension liability........................................       $  (7,501,000)    $  (6,314,000)
                                                                           =============     =============

</TABLE>

     The accumulated  benefit obligation for the U.K. Plan was $62.3 million and
$53.1 million at December 31, 2004 and 2003, respectively.

     The Company  recognizes a minimum pension  liability for underfunded  plans
equal to the excess of the accumulated  benefit  obligation over plan assets.  A
corresponding  amount is recognized as either an intangible asset, to the extent
of previously  unrecognized  prior  service cost, or a reduction of  accumulated
other comprehensive  income included in stockholders'  equity. In 2004, 2003 and
2002, the Company recorded  adjustments to minimum  liabilities of $0.6 million,
$(1.9) million and $4.9 million,  respectively,  which,  net of deferred  income
taxes of $0.2  million,  $(0.7)  million  and $1.5  million,  respectively,  was
recorded as accumulated other comprehensive income.


     The U.K. Plan's weighted average asset allocations are as follows:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          --------------------------------
                                                                                2004               2003
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
       Equity securities............................................              57.3%            59.2%
       Debt securities..............................................              34.9%            35.8%
       Real estate..................................................               0.7%             1.6%
       Cash and other...............................................               7.1%             3.4%
                                                                          -------------     ------------
                                                                                 100.0%           100.0%
                                                                          =============     ============
</TABLE>

     The  trustees of the U.K.  Plan have  established  a  long-term  investment
strategy  comprising  global  investment  weightings  targeted at 55% for equity
securities and 45% for debt securities and other.

     The Company expects to contribute approximately $0.9 million (unaudited) to
the U.K. Plan in 2005.

     At December 31, 2004,  expected  future  benefit  payments,  which  reflect
expected future service, are as follows:

     Year ending December 31,
           2005.............................................    $   1,824,000
           2006.............................................        1,920,000
           2007.............................................        2,016,000
           2008.............................................        2,112,000
           2009.............................................        2,304,000
           2010-2014........................................       13,438,000


4.   PROPERTY AND EQUIPMENT

     The cost of property and equipment is as follows:

<TABLE>
<CAPTION>
                                                        Estimated
                                                         Useful                     December 31,
                                                          Life            --------------------------------
                                                         (Years)                2004             2003
                                                     --------------       --------------    --------------

<S>                                                      <C>              <C>               <C>
       Technical services........................        3 - 20           $   34,264,000    $   31,237,000
       Information technology services...........        3 -  7                8,402,000         6,962,000
       General corporate.........................        3 - 10                3,905,000         3,953,000
                                                                          --------------    --------------
       Total property and equipment..............                             46,571,000        42,152,000
       Less accumulated depreciation
         and amortization........................                             32,933,000        29,879,000
                                                                          --------------    --------------
       Net property and equipment................                         $   13,638,000    $   12,273,000
                                                                          ==============    ==============
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                          --------------------------------
                                                                                2004              2003
                                                                          --------------    --------------
<S>                                                                       <C>               <C>
       Equipment..............................................            $    2,920,000    $    2,707,000
       Less accumulated depreciation and amortization ........                 1,473,000         1,160,000
                                                                          --------------    --------------
       Net equipment acquired under capital leases............            $    1,447,000    $    1,547,000
                                                                          ==============    ==============

</TABLE>
5.   LONG-TERM DEBT

     Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                          --------------------------------
                                                                                2004             2003
                                                                          --------------    --------------

<S>                                                                       <C>               <C>
       Technical services credit facility due in January of 2009          $   11,532,000    $   14,296,000
       Technical services foreign subsidiary notes, repaid in
         2004 ................................................                      -              301,000
       Capital leases.........................................                 1,490,000         1,598,000
       Parent company 8.75% convertible subordinated
         debentures due in 2008...............................                 5,000,000         5,000,000
                                                                          --------------    --------------
       Total long-term debt...................................                18,022,000        21,195,000
       Less current portion...................................                   524,000           738,000
                                                                          --------------    --------------
       Total long-term debt, less current portion.............            $   17,498,000    $   20,457,000
                                                                          ==============    ==============

</TABLE>

     At December 31, 2004,  $11.5  million was  outstanding  under a $25 million
Amended and  Restated  Bank Loan  Agreement  ("Loan  Agreement")  that  provides
working capital for the technical  services group and is without recourse to the
Parent Company.  Borrowings under the Loan Agreement bear interest at the option
of the borrower at variable rates (3.95% at December 31, 2004),  based on either
the LIBOR rate or prime rate, have a commitment fee on the unused portion of the
facility and contain certain financial and operational covenants with respect to
the  technical  services  group,  including  percentage  of tangible  assets and
revenues related to certain  geographical areas, ratios of debt to cash flow, as
defined  in the Loan  Agreement,  and cash  flow to fixed  charges  and  capital
expenditures.  At December  31,  2004,  the Company was in  compliance  with all
covenants.  The  Loan  Agreement  matures  in  January  2009 and is  secured  by
substantially all of the tangible assets of the technical services group.

     The Company's 8.75%  subordinated  debentures ($5.0 million  outstanding at
December 31, 2004) are convertible  into shares of the Company's common stock at
the conversion price, adjusted in 2001 for the Distribution of KSL, of $5.26 per
share.  On March 1, 2002, the Company  purchased  $10.0 million of  subordinated
debentures at par value,  which satisfies its sinking fund requirements on these
subordinated debentures until their maturity in 2008. On September 30, 2003, the
Company  purchased an additional $4.9 million of subordinated  debentures at par
value, plus accrued interest. The purchases were funded with cash on hand.

     At December 31, 2004,  annual sinking fund requirements and debt maturities
on consolidated debt,  including capital leases, were as follows:  $0.5 million;
$0.4 million; $0.4 million; $5.1 million; and $11.6 million;  respectively,  for
each of the five years ending December 31, 2009.


6.   CAPITAL STOCK

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

<TABLE>
<CAPTION>
                                                                                    Common Stock
                                                                 --------------------------------------------------
                                                                     Issued       Held in Treasury      Outstanding
                                                                 ------------     ----------------     ------------
<S>                                                              <C>              <C>                  <C>
       Balance at January 1, 2002..........................        36,809,267          4,097,847         32,711,420
       Common shares issued (repurchased), net.............           526,909          1,686,609         (1,159,700)
                                                                 ------------       ------------     --------------
       Balance at December 31, 2002........................        37,336,176          5,784,456         31,551,720
       Common shares issued................................              -               (28,806)            28,806
                                                                 ------------       ------------     --------------
       Balance at December 31, 2003........................        37,336,176          5,755,650         31,580,526
       Common shares issued................................            17,579            (19,149)            36,728
                                                                 ------------       ------------     --------------
       Balance at December 31, 2004........................        37,353,755          5,736,501         31,617,254
                                                                 ============       ============     ==============

</TABLE>

     In  connection  with a stock  repurchase  plan  authorized by the Company's
Board of Directors, the Company purchased in 2002 approximately 1,744,000 shares
of the Company's  common stock,  at a cost of $3.3 million.  The stock purchases
were funded with cash on hand.

     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, 2004 and 2003 there were no Series B Preferred shares outstanding.

     Stock Option Plans

     The Company has stock option plans and agreements  for officers,  directors
and key  employees.  The  options  granted  under  these  plans  and  agreements
generally vest over periods ranging from zero to five years and 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,  2004,
options  on  3,334,174  shares  at  prices  ranging  from  $0.54 to  $2.90  were
outstanding,  of which 2,115,335,  were exercisable at prices ranging from $0.54
to $2.90.  At December 31, 2003,  options on 3,008,711  shares at prices ranging
from $.54 to $3.05 were  outstanding,  of which  1,925,330,  were exercisable at
prices  ranging from $.54 to $3.05.  At December 31, 2002,  options on 3,103,014
shares at prices ranging from $.54 to $3.05 were outstanding, of which 1,749,743
were exercisable at prices ranging from $.54 to $3.05. The weighted average fair
market  value of options at the time of grant for the years 2004,  2003 and 2002
was $0.92 per  share,  $0.96  per  share  and  $0.86  per  share,  respectively,
calculated using the Black-Scholes option pricing model.

     At  December  31,  2004,  the range of option  exercise  prices,  number of
options outstanding, number of options exercisable and weighted average exercise
price, are as follows:

<TABLE>
<CAPTION>
                                                Options               Average Price per Option        Average
            Range of Exercise        ----------------------------     ------------------------      Contractual
                   Price              Outstanding    Exercisable      Outstanding  Exercisable      Life (years)
         ------------------------    -------------  -------------     -----------  -----------     -------------
<S>                                  <C>            <C>               <C>          <C>             <C>
         $0.54 - $0.81...........           70,000         70,000       $  0.56       $  0.56          0.2
         $0.82 - $1.23...........          817,629        817,629       $  0.90       $  0.90          1.4
         $1.24 - $1.86...........          514,411        499,411       $  1.59       $  1.58          3.9
         $1.87 - $2.81...........        1,911,134        715,695       $  2.41       $  2.41          8.0
         $2.82 - $2.90...........           21,000         12,600       $  2.90       $  2.90          6.6
                                     -------------   ------------
                                         3,334,174      2,115,335       $  1.87       $  1.57          5.5
                                     =============   ============

</TABLE>

     The changes in stock options  outstanding  for the Company's  plans for the
years 2004, 2003 and 2002 were as follows:

<TABLE>
<CAPTION>
                                                                                             Average Price
                                                                        Shares                  per Share
                                                                     -------------           ---------------

<S>                                                                  <C>                     <C>
       Outstanding at January 1, 2002.........................           3,049,083                 $  1.66
       Granted................................................             956,132                 $  2.20
       Exercised..............................................            (533,234)                $  1.09
       Forfeited..............................................            (368,967)                $  2.71
                                                                     -------------
       Outstanding at December 31, 2002.......................           3,103,014                 $  1.80
       Granted................................................             155,000                 $  2.58
       Forfeited..............................................            (249,303)                $  2.22
                                                                     -------------
       Outstanding at December 31, 2003.......................           3,008,711                 $  1.80
       Granted................................................             725,161                 $  2.50
       Exercised..............................................             (17,579)                $  1.53
       Forfeited..............................................            (382,119)                $  2.50
                                                                     -------------
       Outstanding at December 31, 2004.......................           3,334,174                 $  1.87
                                                                     =============

</TABLE>

     There were no stock options which expired  during the years ended  December
31, 2004, 2003 and 2002.

     Deferred Stock Unit Plans

     In 2002,  the Company  initiated a Deferred  Stock Unit Plan (the "2002 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 2002 DSU
Plan,  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 2002 DSU Plan;  which date is established by the Compensation
Committee,  from time to time (the "Election Date").  During a vesting period of
one to three years following the Election Date, a  participant's  DSUs vest only
in an amount equal to the lesser of the compensation  actually  deferred to date
or the value (based upon the then-current  closing price of the Company's common
stock) of the pro-rata portion (as of such date) of the number of DSUs acquired.
After the expiration of the vesting  period,  which is typically the same length
as the  deferral  period,  the  DSUs  become  fully  vested,  but  may  only  be
distributed  through the  issuance  of a like number of shares of the  Company's
common  stock on a  pre-selected  date,  which is  irrevocably  selected  by the
participant  on the  Election  Date and  which  is  typically  at or  after  the
expiration of the vesting  period and no later than ten years after the Election
Date,  or at the time of a "change of control" of the Company,  if earlier.  DSU
accounts are unfunded by the Company.  Each person that elects to participate in
the 2002 DSU Plan is awarded,  under the  Company's  stock  incentive  plan,  an
option to purchase a number of shares of the Company's common stock ranging from
one-half to one and one-half  times  (depending  on the length of deferral)  the
number of DSUs  purchased  by such  person at 100% of the  closing  price of the
Company's  common stock on the Election Date,  which options become  exercisable
over a specified period after the grant,  according to a schedule  determined by
the Compensation  Committee.  At December 31, 2004, 21,921 DSUs had vested under
the 2002 DSU Plan.

     In 1996,  the Company  initiated a Deferred  Stock Unit plan (the "1996 DSU
Plan") with terms and  conditions  similar to the 2002 DSU Plan.  In  connection
with the Distribution, KSL agreed to issue to all DSU holders the number of DSUs
equivalent in price to KSL shares issuable in the Distribution.  All other terms
remained unchanged.  Similarly,  the Company agreed to issue to employees of KSL
who hold DSUs, the number of shares of the Company's common stock subject to the
DSUs held by those employees. At December 31, 2004, approximately 415,718 shares
of the Company's  common stock were issuable to employees of the Company and KSL
employees under this arrangement and the terms of the 1996 DSU Plan.


7.   EARNINGS PER SHARE

     The following is a  reconciliation  of basic and diluted earnings per share
("EPS") before cumulative effect of change in accounting principle:

<TABLE>
<CAPTION>
                                                                               Weighted
                                                                                Average
                                                               Net              Common          Per-Share
                                                          Income (loss)         Shares            Amount
                                                        ---------------    --------------    --------------
<S>                                                     <C>                    <C>           <C>
         Year Ended December 31, 2004
         ----------------------------
           Basic EPS -
              Net income.............................   $     2,396,000        32,035,000    $         0.07

           Effect of dilutive securities.............             -             1,173,000
                                                        ---------------    --------------
           Diluted EPS -
              Net income.............................   $     2,396,000        33,208,000    $         0.07
                                                        ===============    ==============    ==============

         Year Ended December 31, 2003
         ----------------------------
           Basic EPS -
              Net income (loss)......................   $   (13,105,000)       31,995,000    $        (0.41)

           Effect of dilutive securities.............             -                  -
                                                        ---------------    --------------
           Diluted EPS -
              Net income (loss)......................   $   (13,105,000)       31,995,000    $        (0.41)
                                                        ===============    ==============    ==============

         Year Ended December 31, 2002
         ----------------------------
           Basic EPS -
              Net income (loss), before cumulative
                effect of change in accounting
                principle............................   $    (2,242,000)       32,747,000    $        (0.07)
                                                                                             ==============
           Effect of dilutive securities.............               -                 -
                                                        ---------------    --------------
           Diluted EPS -
              Net income (loss), before cumulative
                effect of change in accounting
                principle............................   $    (2,242,000)       32,747,000    $        (0.07)
                                                        ===============    ==============    ==============

</TABLE>

     Options to purchase  134,432  shares of common  stock at  weighted  average
prices of $2.73 were  outstanding at December 31, 2004, 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. As a result of the net losses
for 2003 and 2002,  all  3,008,711  and  3,103,014  stock  options,  at weighted
average prices of $1.80 for 2003 and 2002, respectively,  were excluded from the
computation  of  diluted  earnings  per  share  because  the  effects  would  be
anti-dilutive.  The convertible  subordinated  debentures were excluded from the
computations  of diluted EPS in 2004  because the  conversion  price was greater
than  the  market  price.   Additionally,   the  Company's   8.75%   convertible
subordinated  debentures  were excluded from the  computation  of diluted EPS in
2003 and 2002 because the effect of assumed conversion was anti-dilutive.


8.   COMMITMENTS AND CONTINGENCIES

     The Company leases vehicles, office space, office equipment and other items
of personal property under leases expiring at various dates.  Management expects
that,  in the normal  course of business,  leases that expire will be renewed or
replaced by other leases. Total rent expense incurred under operating leases was
$3.8 million for 2004, $4.1 million for 2003 and $3.9 million for 2002.

     At December 31, 2004,  future minimum rental  commitments under all capital
leases and operating leases are as follows:

<TABLE>
<CAPTION>
                                                                           Capital             Operating
                                                                           Leases               Leases
                                                                       --------------       --------------
<S>      <C>                                                           <C>                  <C>
         2005.....................................................     $      598,000       $    4,289,000
         2006 ....................................................            514,000            3,816,000
         2007.....................................................            387,000            2,439,000
         2008.....................................................            110,000            1,221,000
         2009.....................................................             41,000            1,010,000
         Thereafter...............................................              2,000            1,715,000
                                                                       --------------       --------------
         Total minimum lease payments.............................          1,652,000       $   14,490,000
                                                                                            ==============
         Less amounts representing interest.......................            162,000
                                                                       --------------
         Present value of net minimum lease payments..............     $    1,490,000
                                                                       ==============

</TABLE>

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


9.   BUSINESS SEGMENT DATA

     The Company provides  technical  services to an  international  client base
that includes  refineries,  chemical plants,  pipelines,  offshore  drilling and
production platforms,  steel mills, food and drink processing facilities,  power
generation,   and  other  process   industries.   Additionally,   the  Company's
information  technology services segment provides consulting services,  hardware
sales and other  related  information  management  and  processing  services  to
healthcare, governmental, insurance and financial institutions.

     The Company measures segment profit as operating income.  Segment operating
results are reported on the basis that is used internally for evaluating segment
performance  and  deciding  how  to  allocate  resources  to  segments.  General
corporate  includes  compensation  and benefits  paid to corporate  officers and
employees,   certain  insurance,  legal,  tax,  financial  reporting  and  other
administrative costs, including costs of maintaining a public company, which are
not related to specific business segments.

     Segment assets are those assets,  including  excess of cost over fair value
of net assets of acquired  businesses,  controlled by each  reportable  segment.
General  corporate  assets include  corporate cash balances,  deferred taxes and
other assets not related to specific segments.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                        ---------------------------------------------------
                                                             2004                2003            2002
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Business segment revenues:
         Technical services..........................   $   118,415,000    $  101,018,000    $   90,747,000
         Information technology services.............        27,272,000        34,702,000        40,689,000
                                                        ---------------    --------------    --------------
                                                        $   145,687,000    $  135,720,000    $  131,436,000
                                                        ===============    ==============    ==============
       Technical services segment revenues:
         Under pressure services.....................   $    50,308,000    $   41,875,000    $   41,192,000
         Turnaround services.........................        56,212,000        48,768,000        41,949,000
         Other services..............................        11,895,000        10,375,000         7,606,000
                                                        ---------------    --------------    --------------
                                                        $   118,415,000    $  101,018,000    $   90,747,000
                                                        ===============    ==============    ==============

       Business segment profit (loss):
         Technical services .........................   $     7,879,000    $    6,337,000    $    3,580,000
         Information technology services.............           342,000        (6,518,000)       (3,796,000)
         General corporate...........................        (3,262,000)       (3,186,000)       (3,991,000)
                                                        ---------------    --------------    --------------
           Operating income (loss)...................         4,959,000        (3,367,000)       (4,207,000)
         Interest income.............................           174,000           260,000           460,000
         Interest expense............................          (989,000)       (1,273,000)       (1,764,000)
                                                        ---------------    --------------    --------------
         Income (loss) before income taxes and
           cumulative effect of change in accounting
           principle.................................   $     4,144,000    $   (4,380,000)   $   (5,511,000)
                                                        ===============    ==============    ==============

       Business segment assets:
         Depreciation and amortization:
           Technical services........................   $     2,582,000    $    2,609,000    $    2,540,000
           Information technology services...........           970,000         3,251,000         1,125,000
                                                        ---------------    --------------    --------------
                                                        $     3,552,000    $    5,860,000    $   3,665,0000
                                                        ===============    ==============    ==============
         Capital expenditures:
           Technical services........................   $     2,927,000    $    1,897,000    $    2,912,000
           Information technology services...........         1,606,000         1,309,000         2,592,000
           General corporate.........................              -              105,000               -
                                                        ---------------    --------------    --------------
                                                        $     4,533,000    $    3,311,000    $    5,504,000
                                                        ===============    ==============    ==============
</TABLE>
<TABLE>
<CAPTION>

                                                                             December 31,
                                                        ---------------------------------------------------
                                                              2004               2003             2002
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
         Total assets:
           Technical services........................   $    69,962,000    $   66,117,000    $   63,319,000
           Information technology services...........        16,720,000        14,902,000        26,956,000
           General corporate.........................        25,238,000        23,771,000        37,372,000
                                                        ---------------    --------------    --------------
                                                        $   111,920,000    $  104,790,000    $  127,647,000
                                                        ===============    ==============    ==============

</TABLE>

     The following geographical area data includes revenues and operating income
(loss) based on location of the operating segment and net property and equipment
based on physical location:

<TABLE>
<CAPTION>
                                                                        Year Ended December 31,
                                                        ---------------------------------------------------
                                                              2004               2003             2002
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Geographical area revenues:
         United States...............................   $    55,041,000    $   57,987,000    $   66,888,000
         Europe......................................        73,069,000        62,995,000        53,187,000
         Asia-Pacific................................        17,577,000        14,738,000        11,361,000
                                                        ---------------    --------------    --------------
                                                        $   145,687,000    $  135,720,000    $  131,436,000
                                                        ===============    ==============    ==============

       Geographical area operating income (loss):
         United States...............................   $    (5,673,000)   $  (13,270,000)   $  (11,204,000)
         Europe......................................         8,152,000         7,756,000         5,990,000
         Asia-Pacific................................         2,480,000         2,147,000         1,007,000
                                                        ---------------    --------------    --------------
                                                        $     4,959,000    $   (3,367,000)   $   (4,207,000)
                                                        ===============    ==============    ==============
</TABLE>
<TABLE>
<CAPTION>
                                                                             December 31,
                                                        ---------------------------------------------------
                                                              2004               2003             2002
                                                        ---------------    --------------    --------------
<S>                                                     <C>                <C>               <C>
       Geographical area property and equipment, net:
         United States...............................   $     5,145,000    $    5,128,000    $    7,269,000
         Europe......................................         6,930,000         5,874,000         5,652,000
         Asia-Pacific................................         1,563,000         1,271,000         1,034,000
                                                        ---------------    --------------    --------------
                                                        $    13,638,000    $   12,273,000    $   13,955,000
                                                        ===============    ==============    ==============

</TABLE>

     Included in the Europe  geographic  region for the years ended December 31,
2004, 2003 and 2002 is United Kingdom  revenues of $45.4 million,  $37.8 million
and $31.9 million,  respectively,  and United Kingdom  operating  income of $5.9
million, $4.6 million and $4.1 million, respectively. At December 31, 2004, 2003
and 2002,  United Kingdom  property  plant and equipment,  net was $4.7 million,
$4.4 million and $4.2 million, respectively.


10.  ACCRUED EXPENSES

     Accrued expenses are comprised of the following components:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                                          ---------------------------------
                                                                                2004              2003
                                                                          --------------     --------------
<S>                                                                       <C>                <C>
       Accrued compensation and benefits.............................     $   11,016,000     $    9,664,000
       Accrued equipment cost of sales...............................          3,841,000               -
       Accrued taxes other than income...............................            913,000            703,000
       Accrued interest..............................................            200,000            202,000
       Other.........................................................          7,446,000          7,686,000
                                                                          --------------     --------------
                                                                          $   23,416,000     $   18,255,000
                                                                          ==============     ==============

</TABLE>

11.  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, 2004 and 2003 was  approximately
$18 million and $22 million as compared to the carrying value of $18 million and
$21 million,  respectively.  These fair values were estimated  using  discounted
cash flow analysis,  based on the Company's current incremental  borrowing rates
for similar types of borrowing arrangements,  when quoted market prices were not
available.  The Company has not  determined the fair value of its capital leases
as it is not  practicable.  The estimates  presented  above are not  necessarily
indicative of the amounts that would be realized in a current  market  exchange.
The Company has no derivative financial instruments.

     The technical services segment provides services to an international client
base that  includes  petroleum  refineries,  chemical  plants,  offshore  energy
production  platforms,  steel mills, nuclear power stations,  conventional power
stations,  pulp and paper mills,  food and beverage  processing plants and other
flow-process  facilities.  The information  technology services segment provides
services and related  products to the U. S.  Government and commercial  sectors.
The Company does not believe that it has a significant  concentration  of credit
risk at December 31, 2004, as the Company's  accounts  receivable  are generated
from these  distinct  business  segments with customers  located  throughout the
United States, Europe and Asia-Pacific.


12.  QUARTERLY FINANCIAL DATA (UNAUDITED)

     Quarterly operating results for 2004 and 2003 are summarized as follows:


<TABLE>
<CAPTION>
                                                                        Quarter Ended
                                            ----------------------------------------------------------------------
                                               March 31,          June 30,        September 30,      December 31,
                                            --------------    ---------------     --------------    --------------
<S>                                         <C>               <C>                 <C>               <C>
       2004:
       Revenues..........................   $   32,164,000    $    35,656,000     $   35,764,000    $   42,103,000
                                            ==============    ===============     ==============    ==============
       Operating income..................   $      390,000    $     1,617,000     $    1,261,000    $    1,691,000
                                            ==============    ===============     ==============    ==============
       Net income........................   $      110,000    $       869,000     $      205,000    $    1,212,000
                                            ==============    ===============     ==============    ==============
       Earnings per common share -
         basic and diluted...............   $        -        $          0.03     $         0.01    $         0.04
                                            ==============    ===============     ==============    ==============
       2003:
       Revenues..........................   $   32,224,000    $    33,233,000     $   37,742,000    $   32,521,000
                                            ==============    ===============     ==============    ==============
       Operating income (loss)...........   $      226,000    $       689,000     $      238,000    $   (4,520,000)
                                            ==============    ===============     ==============    ==============
       Net income (loss).................   $      143,000    $       420,000     $      367,000    $  (14,035,000)(a)
                                            ==============    ===============     ==============    ==============
       Earnings (loss) per common share -
         basic and diluted...............   $         -       $          0.01     $         0.01    $        (0.44)
                                            ==============    ===============     ==============    ==============

</TABLE>
          (a)  See Note 2 regarding increase in valuation allowance for deferred
               tax assets.  Additionally,  fourth quarter 2003 results include a
               charge of $3.5 million  pertaining to the write-down of inventory
               and software costs, and employee and other  termination  expenses
               resulting from the closing of such operations.



<PAGE>
                                                                      Schedule I

                       XANSER CORPORATION (PARENT COMPANY)
                         CONDENSED STATEMENTS OF INCOME



<TABLE>
<CAPTION>
                                                                             Year Ended December 31,
                                                              -----------------------------------------------------
                                                                   2004               2003                2002
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
General and administrative expenses.....................      $  (3,262,000)      $  (3,186,000)     $   (3,991,000)
Interest expense........................................           (477,000)           (693,000)           (991,000)
Interest and other income...............................             69,000             159,000             360,000
Equity in income (loss) of subsidiaries.................          6,066,000          (1,426,000)         (1,969,000)
                                                              -------------       -------------      --------------
Income (loss) before income taxes and cumulative effect
   of change in accounting principle....................          2,396,000          (5,146,000)         (6,591,000)
Income tax benefit (expense)............................               -             (7,959,000)          4,349,000
                                                              -------------       -------------      --------------

Income (loss) before cumulative effect of change in
   accounting principle.................................          2,396,000         (13,105,000)         (2,242,000)

Cumulative effect of change in accounting principle -
   adoption of new accounting standard for
   goodwill, net of income taxes........................               -                  -             (45,269,000)
                                                              -------------       -------------      --------------
Net income (loss).......................................      $   2,396,000       $ (13,105,000)     $  (47,511,000)
                                                              =============       =============      ==============

Earnings (loss) per common share - basic and diluted:
    Before cumulative effect of change in
      accounting principle..............................      $        0.07       $        (0.41)    $       (0.07)
    Cumulative effect of change in accounting
      principle.........................................                 -                 -                 (1.38)
                                                              -------------       -------------      -------------
                                                              $        0.07       $        (0.41)    $       (1.45)
                                                              =============       ==============     =============

</TABLE>


<PAGE>
                                                                      Schedule I
                                                                     (Continued)

                       XANSER CORPORATION (PARENT COMPANY)
                            CONDENSED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             --------------------------------------
                                                                                  2004                   2003
                                                                             ---------------        ---------------

                                     ASSETS
<S>                                                                          <C>                    <C>
Current assets:
   Cash and cash equivalents............................................     $    15,060,000        $    13,109,000
   Receivable from businesses distributed to common stockholders........           6,699,000              7,564,000
   Prepaid expenses and other...........................................              63,000                961,000
                                                                             ---------------        ---------------
     Total current assets...............................................          21,822,000             21,634,000
                                                                             ---------------        ---------------
Property and equipment..................................................           3,905,000              3,953,000
Less accumulated depreciation and amortization..........................           3,848,000              3,848,000
                                                                             ---------------        ---------------
     Net property and equipment.........................................              57,000                105,000
                                                                             ---------------        ---------------
Investments in, advances to and notes receivable
  from subsidiaries.....................................................          47,482,000             43,891,000
                                                                             ---------------        ---------------
                                                                             $    69,361,000        $    65,630,000
                                                                             ===============        ===============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accounts payable and accrued expenses................................     $     6,904,000        $     7,004,000
                                                                             ---------------        ---------------
     Total current liabilities..........................................           6,904,000              7,004,000
                                                                             ---------------        ---------------
Long-term debt, less current portion....................................           5,000,000              5,000,000

Other liabilities.......................................................           1,567,000              1,174,000

Stockholders' equity:
   Common stock, without par value......................................           4,335,000              4,333,000
   Additional paid-in capital...........................................         126,550,000            126,561,000
   Treasury stock, at cost..............................................         (26,180,000)           (26,267,000)
   Retained earnings (accumulated deficit)..............................         (46,299,000)           (48,695,000)
   Accumulated comprehensive income (loss)..............................          (2,516,000)            (3,480,000)
                                                                             ---------------        ---------------
       Total stockholders' equity.......................................          55,890,000             52,452,000
                                                                             ---------------        ---------------
                                                                             $    69,361,000        $    65,630,000
                                                                             ===============        ===============

</TABLE>

<PAGE>
                                                                      Schedule I
                                                                     (Continued)

                       XANSER CORPORATION (PARENT COMPANY)
                       CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                          Year Ended December 31,
                                                       -----------------------------------------------------------
                                                              2004                2003                 2002
                                                       -----------------    ----------------    ------------------
<S>                                                    <C>                  <C>                 <C>
Operating activities:
   Net income (loss).................................  $       2,396,000    $    (13,105,000)   $      (47,511,000)
   Adjustments to reconcile net income (loss) to net
     cash provided by (used in) operating activities:
       Equity in income of subsidiaries, net of
         dividends...................................         (2,627,000)          1,554,000              (155,000)
       Deferred income taxes.........................              -               9,393,000               181,000
       Cumulative effect of change in accounting
         principle...................................              -                   -                45,269,000
       Other, net....................................            393,000             477,000               648,000
       Changes in current assets and liabilities:
         Prepaid expenses and other current assets...            898,000            (400,000)            2,246,000
         Accounts payable and accrued expenses ......           (100,000)             84,000            (4,672,000)
                                                       -----------------    ----------------    ------------------
         Net cash provided by (used in) operating
           activities................................            960,000          (1,997,000)           (3,994,000)
                                                       -----------------    ----------------    ------------------
Investing activities:
   Capital expenditures..............................              -                (105,000)                -
   Change in other assets, net.......................             48,000           2,852,000             1,883,000
                                                       -----------------    ----------------    ------------------
         Net cash provided by investing activities...             48,000           2,747,000             1,883,000
                                                       -----------------    ----------------    ------------------
Financing activities:
   Payments on debt..................................              -             (4,930,000)           (11,466,000)
   Common stock issued and other.....................             78,000               9,000               450,000
   Purchase of treasury stock........................              -                   -                (3,286,000)
   Increase (decrease) in receivable from businesses
     distributed to common stockholders..............            865,000            (152,000)           10,492,000
                                                       -----------------    ----------------    ------------------
         Net cash provided by (used in)
           financing activities......................            943,000          (5,073,000)           (3,810,000)
                                                       -----------------    ----------------    ------------------
Increase (decrease) in cash and cash equivalents.....          1,951,000          (4,323,000)           (5,921,000)
Cash and cash equivalents at beginning of year.......         13,109,000          17,432,000            23,353,000
                                                       -----------------    ----------------    ------------------
Cash and cash equivalents at end of year.............  $      15,060,000    $     13,109,000    $       17,432,000
                                                       =================    ================    ==================

</TABLE>


<PAGE>
                                                                     Schedule II

                               XANSER CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS
                                 (in thousands)


<TABLE>
<CAPTION>
                                                                   Additions
                                                          -----------------------------
                                         Balance at        Charged to      Charged to                         Balance at
                                        Beginning of        Costs and        Other                             End of
          Descriptions                     Period           Expenses        Accounts         Deductions        Period
------------------------------------   -------------      -----------     -------------     ------------     -----------
<S>                                    <C>                <C>             <C>               <C>              <C>
ALLOWANCE DEDUCTED FROM
  ASSETS TO WHICH THEY APPLY

Year Ended December 31, 2004:
   For doubtful receivables
     classified as current assets...   $       1,183      $       285     $          17(a)  $       (818)(b) $       667
                                       =============      ===========     =============     ============     ===========

   For deferred tax asset valuation
     allowance classified as
     non-current assets.............   $      16,246     $        589     $     -           $      -         $    16,835
                                       =============     ============     =============     ============     ===========

Year Ended December 31, 2003:
   For doubtful receivables
     classified as current assets...   $       1,500     $        979     $          43(a)  $     (1,339)(b) $     1,183
                                       =============     ============     =============     ============     ===========
   For deferred tax asset valuation
     allowance classified as
     non-current assets.............   $       4,134     $     12,112     $     -           $      -         $    16,246
                                       =============     ============     =============     ============     ===========

Year Ended December 31, 2002:
   For doubtful receivables
     classified as current assets...   $       1,034     $        719     $          33(a)  $       (286)(b) $     1,500
                                       =============     ============     =============     ============     ===========

   For deferred tax asset valuation
     allowance classified as
     non-current assets.............   $       4,134     $       -        $     -           $      -         $     4,134
                                       =============     ============     =============     ============     ===========

</TABLE>

Notes:

     (a)  Foreign currency translation adjustments.

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





<PAGE>

                                   SIGNATURES

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



                               XANSER CORPORATION

                               By:              //s//  JOHN R. BARNES
                                  ----------------------------------------------
                                  President and Chief Executive Officer
                                  Date:    March 30, 2005

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

<TABLE>
<CAPTION>
            Signature                                                 Title                              Date


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


        //s//  JOHN R. BARNES                              President, Chief Executive              March 30, 2005
----------------------------------------                   Officer and Director

Principal Accounting Officer


       //s// MICHAEL R. BAKKE                              Controller                              March 30, 2005
----------------------------------------



Directors

          //s// SANGWOO AHN                                Director                                March 30, 2005
----------------------------------------



      //s// FRANK M. BURKE, JR.                            Director                                March 30, 2005
----------------------------------------



        //s//  CHARLES R. COX                              Director                                March 30, 2005
----------------------------------------



         //s//  HANS KESSLER                               Director                                March 30, 2005
----------------------------------------



       //s//  JAMES R. WHATLEY                             Director                                March 30, 2005
----------------------------------------


</TABLE>


<PAGE>
                                                                    Exhibit 31.1


                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, John R. Barnes, Chief Executive Officer of Xanser Corporation certify that:

1.   I have reviewed this annual report on Form 10-K of Xanser Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;

     b)   [intentionally omitted pursuant to SEC Release No. 34-47986];

     c)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  and presented in this annual  report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the end of the period covered by this annual report,  based on such
          evaluation; and

     d)   disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's most recent fiscal quarter that has materially  affected,
          or  is  reasonably  likely  to  materially  affect,  the  registrant's
          internal control over financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: March 30, 2005




                                               //s//  JOHN R. BARNES
                                           -------------------------------------
                                           John R. Barnes
                                           President and Chief Executive Officer


<PAGE>
                                                                    Exhibit 31.2


                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
            PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002



I, Howard C. Wadsworth,  Chief Financial Officer of Xanser  Corporation  certify
that:

1.   I have reviewed this annual report on Form 10-K of Xanser Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;

     b)   [intentionally omitted pursuant to SEC Release No. 34-47986];

     c)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and  procedures  and presented in this annual  report our  conclusions
          about the effectiveness of the disclosure controls and procedures,  as
          of the end of the period covered by this annual report,  based on such
          evaluation; and

     d)   disclosed  in  this  annual  report  any  change  in the  registrant's
          internal  control over financial  reporting  that occurred  during the
          registrant's most recent fiscal quarter that has materially  affected,
          or  is  reasonably  likely  to  materially  affect,  the  registrant's
          internal control over financial reporting; and

5.   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent evaluation of internal control over financial reporting, to
     the registrant's auditors and the audit committee of the registrant's board
     of directors (or persons performing the equivalent functions):

     a)   all significant  deficiencies and material weaknesses in the design or
          operation  of internal  control  over  financial  reporting  which are
          reasonably  likely to  adversely  affect the  registrant's  ability to
          record, process, summarize and report financial information; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          control over financial reporting.


Date: March 30, 2005



                                         //s//  HOWARD C. WADSWORTH
                                       -----------------------------------------
                                       Howard C. Wadsworth
                                       Vice President, Treasurer and Secretary
                                       (Chief Financial Officer)


<PAGE>
                                                                    Exhibit 32.1



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
          PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002



     The undersigned,  being the Chief Executive  Officer of Xanser  Corporation
(the "Company")  hereby  certifies that, to his knowledge,  the Company's Annual
Report on Form 10-K for the year ended December 31, 2004,  filed with the United
States Securities and Exchange  Commission pursuant to Section 13(a) or 15(d) of
the Securities  Exchange Act of 1934 (15 U.S.C.  78m or 78o(d)),  fully complies
with the  requirements of Section 13(a) or 15(d) of the Securities  Exchange Act
of 1934 and that information contained in such Annual Report fairly presents, in
all material respects,  the financial condition and results of operations of the
Company.

     This written  statement is being  furnished to the  Securities and Exchange
Commission  as an exhibit to such Form 10-K.  A signed  original of this written
statement  required by Section 906 has been provided to Xanser  Corporation  and
will be retained by Xanser  Corporation  and  furnished  to the  Securities  and
Exchange Commission or its staff upon request.

Date:    March 30, 2005



                                           //s//   JOHN R. BARNES
                                        ----------------------------------------
                                        John R. Barnes
                                        President and Chief Executive Officer




<PAGE>
                                                                    Exhibit 32.2



                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
          PURSUANT TO SECTION 906(A) OF THE SARBANES-OXLEY ACT OF 2002



     The undersigned,  being the Chief Financial  Officer of Xanser  Corporation
(the "Company")  hereby  certifies that, to his knowledge,  the Company's Annual
Report on Form 10-K for the year ended December 31, 2004,  filed with the United
States Securities and Exchange  Commission pursuant to Section 13(a) or 15(d) of
the Securities  Exchange Act of 1934 (15 U.S.C.  78m or 78o(d)),  fully complies
with the  requirements of Section 13(a) or 15(d) of the Securities  Exchange Act
of 1934 and that information contained in such Annual Report fairly presents, in
all material respects,  the financial condition and results of operations of the
Company.

     This written  statement is being  furnished to the  Securities and Exchange
Commission  as an exhibit to such Form 10-K.  A signed  original of this written
statement  required by Section 906 has been provided to Xanser  Corporation  and
will be retained by Xanser  Corporation  and  furnished  to the  Securities  and
Exchange Commission or its staff upon request.

Date:    March 30, 2005



                                            //s//  HOWARD C. WADSWORTH
                                         ---------------------------------------
                                         Howard C. Wadsworth
                                         Vice President, Treasurer and Secretary
                                         (Chief Financial Officer)




<PAGE>
                                                                    Exhibit 23.1




            Consent of Independent Registered Public Accounting Firm



We have issued our report dated March 21, 2005,  accompanying  the  consolidated
financial statements included in the Annual Report of Xanser Corporation on Form
10-K  for  the  year  ended   December  31,  2004.  We  hereby  consent  to  the
incorporation by reference of said report in the Registration Statements on Form
S-8 (File No. 333-101996, 333-87446, 333-83970, 333-83968, 333-68558, 333-34496,
333-60195,  333-22109,  333-14071,  333-14069,  333-14067, 333-08727, 333-08725,
333-08723, 33-58981, 33-54027 and 33-41295).


GRANT THORNTON LLP


Dallas, Texas
March 21, 2005




<PAGE>
                                                                    Exhibit 23.2







            Consent of Independent Registered Public Accounting Firm




The Board of Directors
Xanser Corporation:

We consent to the  incorporation  by  reference in the  registration  statements
numbers  333-101996,  333-87446,  333-83970,  333-83968,  333-68558,  333-34496,
333-60195,  333-22109,  333-14071,  333-14069,  333-14067, 333-08727, 333-08725,
333-08723,  33-58981, 33-54027 and 33-41295 on Form S-8 of Xanser Corporation of
our report dated  February 25, 2004,  with respect to the  consolidated  balance
sheets  of  Xanser   Corporation  as  of  December  31,  2003  and  the  related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the years in the two-year  period ended December 31, 2003, and
all related financial statement schedules,  which report appears in the December
31, 2004, annual report on Form 10-K of Xanser Corporation. Our report refers to
a change in accounting for goodwill in 2002.


                                            KPMG LLP


Dallas, Texas
March 28, 2005