<PAGE>   1
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q/A

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       OR

              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                 For the transition period from _______ to _______

                        Commission File Number 001-05083

                              KANEB SERVICES, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

           DELAWARE                                        74-1191271
(State or other jurisdiction of                         (I.R.S. Employer
     Identification No.)                          Incorporation or Organization)

                          2435 NORTH CENTRAL EXPRESSWAY
                             RICHARDSON, TEXAS 75080
          (Address of principle executive offices, including zip code)

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

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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
Class of Common Stock                           Outstanding at April 30, 2001
---------------------                           -----------------------------
<S>                                             <C>
    No par value                                       31,149,777 shares
</TABLE>


================================================================================



<PAGE>   2

KANEB SERVICES, INC. AND SUBSIDIARIES


FORM 10-Q
QUARTER ENDED MARCH 31, 2001
--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                                                                  Page No.
                                                                                                  --------
<S>                                                                                               <C>
                           Part I. Financial Information

Item 1.           Financial Statements (Unaudited)

                  Consolidated Statements of Income - Three Months Ended
                     March 31, 2001 and 2000                                                           1

                  Condensed Consolidated Balance Sheets - March 31, 2001
                     and December 31, 2000                                                             2

                  Condensed Consolidated Statements of Cash Flows - Three
                     Months Ended March 31, 2001 and 2000                                              3

                  Notes to Consolidated Financial Statements                                           4

Item 2.           Management's Discussion and Analysis of
                     Financial Condition and Results of Operations                                    13

                           Part II. Other Information

Item 6.           Exhibits and Reports on Form 8-K                                                    18
</TABLE>



<PAGE>   3

KANEB SERVICES, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS -- EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                              THREE MONTHS ENDED
                                                                   MARCH 31,
                                                           ------------------------
                                                              2001          2000
                                                           ----------    ----------
<S>                                                        <C>           <C>
Revenues:
     Services                                              $   32,884    $   27,006
     Products                                                   3,008         4,288
                                                           ----------    ----------
           Total revenues                                      35,892        31,294
                                                           ----------    ----------

Costs and expenses:
     Operating costs                                           29,280        23,993
     Cost of products sold                                      2,677         3,903
     Depreciation and amortization                              1,251         1,362
     General and administrative                                 1,160         1,481
                                                           ----------    ----------
           Total costs and expenses                            34,368        30,739
                                                           ----------    ----------

Operating income                                                1,524           555
Interest income                                                   248           172
Other expense, net                                               (255)          (43)
Interest expense                                                 (885)         (976)
                                                           ----------    ----------
Income (loss) from continuing operations before
    income taxes                                                  632          (292)
Income tax benefit (expense)                                     (259)           57
                                                           ----------    ----------
Income (loss) from continuing operations                          373          (235)
Income from discontinued operations - businesses
    to be distributed to common shareholders,
    net of income taxes                                         6,770         2,160
                                                           ----------    ----------
Net income                                                      7,143         1,925

Dividends and redemption premium applicable
    to preferred stock                                            493           130
                                                           ----------    ----------
Net income applicable to common stock                      $    6,650    $    1,795
                                                           ==========    ==========

Earnings (loss) per common share - Basic and diluted:
       Continuing operations                               $       --    $     (.01)
       Discontinued operations                                    .21           .07
                                                           ----------    ----------
                                                           $      .21    $      .06
                                                           ==========    ==========
</TABLE>



                 See notes to consolidated financial statements.
                                        1
<PAGE>   4

KANEB SERVICES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                          MARCH 31,     DECEMBER 31,
                                                            2001            2000
                                                        ------------    ------------
                                                        (UNAUDITED)
<S>                                                     <C>             <C>
                   ASSETS
Current assets:
     Cash and cash equivalents                          $     15,886    $     20,517
     Accounts receivable, trade                               32,408          29,198
     Inventories                                               7,560           7,641
     Prepaid expenses and other current assets                 6,675           6,749
     Current deferred taxes                                   36,070          36,489
                                                        ------------    ------------
        Total current assets                                  98,599         100,594
                                                        ------------    ------------

Property and equipment                                        30,061          30,585
Less accumulated depreciation and amortization                19,673          20,043
                                                        ------------    ------------
     Net property and equipment                               10,388          10,542
                                                        ------------    ------------

Excess of cost over fair value of net assets
     of acquired businesses                                   61,943          62,470

Deferred income taxes and other assets                        11,044          11,215

Net assets of discontinued operations - businesses to
    be distributed to common shareholders                     44,947          41,822
                                                        ------------    ------------
                                                        $    226,921    $    226,643
                                                        ============    ============
     LIABILITIES AND EQUITY
Current liabilities:
     Current portion of long-term debt                  $        567    $        595
     Accounts payable                                          7,426           5,081
     Accrued expenses                                         11,210          13,733
                                                        ------------    ------------
         Total current liabilities                            19,203          19,409
                                                        ------------    ------------

Long-term debt, less current portion:
     Technical services                                       18,529          18,197
     Parent company                                           21,396          21,396
                                                        ------------    ------------
         Total long-term debt, less current portion           39,925          39,593
                                                        ------------    ------------

Other liabilities                                              1,711           1,602

Commitments and contingencies

Stockholders' equity:
     Preferred stock, without par value                           --           5,792
     Common stock, without par value                           4,250           4,250
     Additional paid-in-capital                              204,034         203,989
     Treasury stock, at cost                                 (31,428)        (31,440)
     Accumulated deficit                                      (6,662)        (13,311)
     Accumulated other comprehensive income (loss) -
         foreign currency translation adjustment              (4,112)         (3,241)
                                                        ------------    ------------
         Total stockholders' equity                          166,082         166,039
                                                        ------------    ------------
                                                        $    226,921    $    226,643
                                                        ============    ============
</TABLE>



                 See notes to consolidated financial statements.
                                        2
<PAGE>   5

KANEB SERVICES, INC. AND SUBSIDIARIES


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                             ------------------------
                                                                2001          2000
                                                             ----------    ----------
<S>                                                          <C>           <C>
Operating activities:
   Income (loss) from continuing operations                  $      373    $     (235)
   Adjustments to reconcile income (loss) from
     continuing operations to net cash provided
     by operating activities:
       Increase in estimated redemption value
         of Series F Preferred Stock                                 --           126
       Depreciation and amortization                              1,251         1,362
       Deferred income taxes                                         32           (73)
       Other                                                        109            23
       Changes in current assets and liabilities                 (3,311)       (1,296)
                                                             ----------    ----------
       Operating activities of continuing operations             (1,546)          (93)
       Operating activities of discontinued operations           32,677        20,224
                                                             ----------    ----------
         Net cash provided by operating activities               31,131        20,131
                                                             ----------    ----------

Investing activities:
   Capital expenditures                                            (864)         (643)
   Change in other assets, net                                     (432)          359
   Investing activities of discontinued operations             (109,483)       (4,908)
                                                             ----------    ----------
       Net cash used in investing activities                   (110,779)       (5,192)
                                                             ----------    ----------

Financing activities:
   Issuance of debt                                               1,198           158
   Payments on debt and capital leases                             (894)         (877)
   Preferred stock dividends and redemption
     premium paid                                                  (493)         (130)
   Common stock issued                                               23           147
   Purchase of treasury stock                                        --        (1,092)
   Redemption of Series A Preferred Stock                        (5,680)           --
   Financing activities of discontinued operations               80,863       (12,593)
                                                             ----------    ----------
       Net cash provided by (used in) financing activities       75,017       (14,387)
                                                             ----------    ----------

Increase (decrease) in cash and cash equivalents                 (4,631)          552
Cash and cash equivalents at beginning of period                 20,517        14,516
                                                             ----------    ----------

Cash and cash equivalents at end of period                   $   15,886    $   15,068
                                                             ==========    ==========

Supplemental cash flow information:
   Cash paid for interest                                    $    1,268    $    1,471
                                                             ==========    ==========

   Cash paid for income taxes                                $      388    $      264
                                                             ==========    ==========
</TABLE>



                 See notes to consolidated financial statements.
                                        3

<PAGE>   6

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


1.   SIGNIFICANT ACCOUNTING POLICIES

     The consolidated financial statements include the accounts of Kaneb
     Services, Inc. and its subsidiaries (the "Company"). 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 shareholders in the form of a new limited liability company, Kaneb
     Services LLC ("KSL"). The new entity will own an effective 2% general
     partner interest and a 25% limited partner interest in Kaneb Pipe Line
     Partners, L.P. ("KPP") and the Company's wholly-owned petroleum marketing
     subsidiary. As a result, the accompanying financial statements reflect the
     operations of the Pipeline, Terminaling and Product Marketing businesses of
     the Company as "discontinued operations - businesses to be distributed to
     common shareholders". All significant intercompany transactions and
     balances are eliminated in consolidation.

     The unaudited condensed consolidated financial statements of the Company
     for the three month periods ended March 31, 2001 and 2000, have been
     prepared in accordance with generally accepted accounting principles.
     Significant accounting policies followed by the Company are disclosed in
     the notes to the consolidated financial statements included in the
     Company's Annual Report on Form 10-K for the year ended December 31, 2000.
     In the opinion of the Company's management, the accompanying condensed
     consolidated financial statements contain the adjustments, consisting of
     normal recurring accruals, necessary to present fairly the consolidated
     financial position of the Company and its consolidated subsidiaries at
     March 31, 2001 and the consolidated results of their operations and cash
     flows for the periods ended March 31, 2001 and 2000. Operating results for
     the three months ended March 31, 2001 are not necessarily indicative of the
     results that may be expected for the year ending December 31, 2001.

2    COMPREHENSIVE INCOME

     Comprehensive income for the three months ended March 31, 2001 and 2000 is
     as follows:

<TABLE>
<CAPTION>
                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                 2001          2000
                                              ----------    ----------
                                                  (in thousands)
<S>                                           <C>           <C>
Net income                                    $    7,143    $    1,925
Other comprehensive income (loss) - foreign
   currency translation adjustment                  (871)          (43)
                                              ----------    ----------

Comprehensive income                          $    6,272    $    1,882
                                              ==========    ==========
</TABLE>



                                       4
<PAGE>   7

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


3.   EARNINGS PER SHARE

     The following is a reconciliation of Basic and Diluted earnings (loss) per
     share (in thousands, except for per share amounts):

<TABLE>
<CAPTION>
                                                                           Weighted
                                                                            Average
                                                  Net          Common      Per-Share
                                                 Income        Shares       Amount
                                               ----------    ----------   ----------
<S>                                            <C>           <C>          <C>
THREE MONTHS ENDED MARCH 31, 2001
    Income from continuing operations          $      373
    Dividends and redemption premium
       applicable to preferred stock                 (493)
                                               ----------

    Basic earnings per share -
       Income (loss) applicable to common
         stock                                       (120)       31,744   $       --
                                                                          ==========

    Effect of dilutive securities -
       Common stock options, Series F
       Preferred and DSUs                              --            --
                                               ----------    ----------

    Diluted earnings per share -
       Income (loss) applicable to common
       stock, Series F Preferred, DSUs and
       assumed options exercised               $     (120)       31,744   $       --
                                               ==========    ==========   ==========

THREE MONTHS ENDED MARCH 31, 2000
    Income (loss) from continuing operations   $     (235)
    Dividends applicable to preferred stock          (130)
                                               ----------

    Basic earnings per share -
       Income (loss) applicable to common
         stock                                       (365)       31,261   $     (.01)
                                                                          ==========

    Effect of dilutive securities -
       Common stock options, Series F
       Preferred and DSUs                              --            --
                                               ----------    ----------

    Diluted earnings per share -
       Income (loss) applicable to common
       stock, Series F Preferred, DSUs and
       assumed options exercised               $     (365)       31,261   $     (.01)
                                               ==========    ==========   ==========
</TABLE>

     As a result of the loss from continuing operations applicable to common
     stock, all options and the Company's 8.75% convertible subordinated
     debentures were excluded from the computation of diluted earnings per share
     because the effect would be anti-dilutive.



                                       5
<PAGE>   8

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


4.   CONTINGENCIES

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

5.   BUSINESS SEGMENT DATA

     The Company provides technical services to an international client base
     that includes refineries, chemical plants, pipelines, offshore drilling and
     production platforms, steel mills, food and drink processing facilities,
     power generation, and other process industries. Additionally, the Company's
     information technology services segment provides consulting services,
     hardware sales and other related information management and processing
     services to governmental, insurance and financial institutions. General
     corporate includes compensation and benefits paid to officers and employees
     of the Company, insurance premiums, general and administrative costs, tax
     and financial reporting costs and legal and audit fees not reasonably
     allocable to specific business segments. General corporate assets include
     cash, deferred taxes and other assets not related to the Company's
     segments. Effective January 1, 2001, the compensation and benefit costs of
     certain officers of the technical services and information technology
     services segments were transferred from general corporate to their
     respective segments. Such costs approximated $0.1 million for the first
     quarter for each of these segments.

     The Company measures segment profit as operating income. Total assets are
     those assets, including excess of cost over fair value of acquired
     businesses, controlled by each reportable segment.

<TABLE>
<CAPTION>
                                         Three Months Ended
                                              March 31,
                                       -----------------------
                                          2001         2000
                                       ----------   ----------
                                           (in thousands)
<S>                                    <C>          <C>
Business segment revenues:
   Technical services                  $   24,561   $   22,959
   Information technology services         11,331        8,335
                                       ----------   ----------
                                       $   35,892   $   31,294
                                       ==========   ==========
Technical services segment revenues:
   Underpressure services              $    9,544   $    9,374
   Turnaround services                     12,502       10,868
   Other services                           2,515        2,717
                                       ----------   ----------
                                       $   24,561   $   22,959
                                       ==========   ==========
</TABLE>



                                       6
<PAGE>   9

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                 2001          2000
                                              ----------    ----------
                                                   (in thousands)
<S>                                           <C>           <C>
Business segment profit:
   Technical services                         $    1,313    $      924
   Information technology services                 1,371         1,112
   General corporate                              (1,160)       (1,481)
                                              ----------    ----------
      Operating income                             1,524           555
   Interest income                                   248           172
   Other expense, net                               (255)          (43)
   Interest expense                                 (885)         (976)
                                              ----------    ----------
   Income (loss) from continuing operations
      before income taxes                     $      632    $     (292)
                                              ==========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                March 31,   December 31,
                                                  2001          2000
                                              ------------  ------------
<S>                                           <C>           <C>
Total assets:
   Technical services                         $    103,121  $    103,817
   Information technology services                  21,919        20,086
   General corporate                                56,934        60,918
   Discontinued operations, net                     44,947        41,822
                                              ------------  ------------
                                              $    226,921  $    226,643
                                              ============  ============
</TABLE>

6.   DISCONTINUED OPERATIONS - BUSINESSES TO BE DISTRIBUTED TO COMMON
     SHAREHOLDERS

     The results of operations for the pipeline, terminaling and product
     marketing businesses are reflected in the accompanying consolidated
     statements of income as "discontinued operations - businesses to be
     distributed to common shareholders" (See Note 1). A summary of operating
     results of discontinued operations for the three months ended March 31,
     2001 and 2000 is presented below:

<TABLE>
<CAPTION>
                                                 Three Months Ended
                                                      March 31,
                                              ------------------------
                                                 2001          2000
                                              ----------    ----------
                                                  (in thousands)
<S>                                           <C>           <C>
Revenues:
  Pipeline and terminaling services           $   48,069    $   36,680
  Product marketing services                      88,352        80,389
                                              ----------    ----------
                                              $  136,421    $  117,069
                                              ==========    ==========
Operating profit:
  Pipeline and terminaling services           $   18,294    $   12,900
  Product marketing services                        (775)          959
  Distribution expenses                             (250)           --
                                              ----------    ----------
                                              $   17,269    $   13,859
                                              ==========    ==========
</TABLE>



                                       7
<PAGE>   10

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                                              Three Months Ended
                                                                   March 31,
                                                           ------------------------
                                                              2001            2000
                                                           ----------      ----------
                                                                 (in thousands)
<S>                                                        <C>             <C>
Income before gain on issuance of units by
  KPP, income taxes, interest of outside
  non-controlling partners in KPP's net
  income and extraordinary item                            $   12,432      $   10,719

Gain on issuance of units by KPP                                9,859              --
Income taxes                                                   (5,004)         (1,725)
Interest of outside non-controlling partners
  in KPP's net income                                          (9,658)         (6,834)
Extraordinary loss on KPP debt extinguishment,
  net of income taxes and interest of outside
  non-controlling partners in KPP's net income                   (859)             --
                                                           ----------      ----------
Income from discontinued operations,
  net of income taxes                                      $    6,770      $    2,160
                                                           ==========      ==========
</TABLE>

     A summary balance sheet of the discontinued operations as of March 31, 2001
     and December 31, 2000 is presented below:

<TABLE>
<CAPTION>
                                                             March 31,     December, 31
                                                               2001            2000
                                                           ------------    ------------
                                                                 (in thousands)
<S>                                                        <C>             <C>
Current assets                                             $     70,245    $     66,330
Property and equipment, net                                     484,235         321,448
Investment in affiliates                                         22,031          22,568
Other assets                                                      1,596           1,607
                                                           ------------    ------------
  Total assets                                                  578,107         411,953

Current liabilities                                             (84,114)        (41,796)
Long-term debt                                                 (257,500)       (184,052)
Deferred taxes and other liabilities                            (30,726)        (24,302)
Interest of outside non-controlling partners in KPP            (160,820)       (119,981)
                                                           ------------    ------------

Net assets of discontinued operations - businesses to be
  distributed to common shareholders                       $     44,947    $     41,822
                                                           ============    ============
</TABLE>


     On January 3, 2001, KPP, through a wholly-owned subsidiary, acquired Shore
     Terminals LLC ("Shore") for $107 million in cash and 1,975,090 KPP units.
     Financing for the cash portion of the purchase price was supplied under a
     new $275 million unsecured revolving credit agreement with a group of
     banks. The acquisition has been accounted for using the



                                       8
<PAGE>   11

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


     purchase method of accounting. As a result of KPP issuing additional units
     to unrelated parties, the Company's pro-rata share of net assets of KPP
     increased by $9.9 million. Accordingly, the Company recognized a $9.9
     million gain, before deferred income taxes of $3.8 million, in the first
     quarter of 2001.

     In March of 2001, a wholly-owned subsidiary of KPP entered into two
     contracts for the purpose of locking in interest rates on $100 million of
     anticipated ten-year public debt offerings. As the interest rate locks were
     not designated as hedging instruments pursuant to the requirements of SFAS
     No. 133, increases or decreases in the fair value of the contracts are
     recognized by KPP in results of operations on a current basis. The fair
     value of the contracts was not material to the results of operations or
     financial position of the Company as of and for the three months ended
     March 31, 2001. On May 22, 2001, the contracts were settled resulting in an
     aggregate gain to KPP of $3.8 million.

     The operations of KPP are subject to Federal, state and local laws and
     regulations relating to protection of the environment. Although KPP
     believes that its operations are in general compliance with applicable
     environmental regulation, risks of additional costs and liabilities are
     inherent in its operations, and there can be no assurance that significant
     costs and liabilities will not be incurred by KPP. Moreover, it is possible
     that other developments, such as increasingly stringent environmental laws,
     regulations, enforcement policies thereunder, and claims for damages to
     property or persons resulting from the operations of KPP, could result in
     substantial costs and liabilities to KPP.

     On April 7, 2000, a fuel oil pipeline in Maryland owned by Potomac Electric
     Power Company ("PEPCO") ruptured. The pipeline was operated by a
     partnership of which a subsidiary of KPP is general partner. PEPCO has
     reported that, through December 2000, it incurred approximately $66 million
     in clean-up costs and expects to incur total cleanup costs of $70 million
     to $75 million. Since May 2000, KPP's subsidiary has participated
     provisionally in a minority share of the cleanup expense, which has been
     funded by KPP's insurance carriers. KPP cannot predict the amount, if any,
     that ultimately may be determined to be KPP's share of the remediation
     expense, but it believes that such amount will be covered by insurance and
     will not materially affect KPP's financial condition.

     As a result of the rupture, purported class actions have been filed in
     federal and state court in Maryland by property and/or business owners
     alleging damages in unspecified amounts against PEPCO and KPP's subsidiary
     under various theories, including the federal Oil Pollution Act. The court
     has ordered a consolidated complaint to be filed in this action. KPP's
     insurance carriers have assumed the defense of these actions. While KPP
     cannot predict the amount, if any, of any liability it may have in these
     suits, it believes that such amounts will be covered by insurance and that
     these actions will not have a material adverse effect on its financial
     condition.



                                       9
<PAGE>   12

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


     PEPCO and KPP's subsidiary have agreed with the State of Maryland to pay
     costs of assessing natural resource damages under the federal Oil Pollution
     Act, but they cannot predict at this time the amount of any damages that
     may be claimed by Maryland. KPP believes that both the assessment costs and
     such damages are covered by insurance and will not materially affect KPP's
     financial condition.

     The U.S. Department of Transportation has issued a Notice of Proposed
     Violation to PEPCO and KPP's subsidiary alleging violations over several
     years of pipeline safety regulations and proposing a civil penalty of
     $674,000. KPP's subsidiary and PEPCO have contested the allegations of
     violations and the proposed penalty. The ultimate amount of any penalty
     attributable to KPP cannot be determined at this time, but KPP believes
     that this matter will not have a material effect on KPP's financial
     condition.

     Certain subsidiaries of KPP were sued in a Texas state court in 1997 by
     Grace Energy Corporation ("Grace"), the entity from which KPP acquired ST
     Services in 1993. The lawsuit involves environmental response and
     remediation allegedly resulting from jet fuel leaks in the early 1970's
     from a pipeline. The pipeline, which connected a former Grace terminal with
     Otis Air Force Base in Massachusetts, was abandoned in 1976, when the
     connecting terminal was sold to an unrelated entity.

     Grace alleged that subsidiaries of KPP acquired the abandoned pipeline, as
     part of the acquisition of ST Services in 1993, and assumed responsibility
     for environmental damages allegedly caused by the jet fuel leaks. Grace
     sought a ruling that these subsidiaries are responsible for all present and
     future remediation expenses for these leaks and that Grace has no
     obligation to indemnify these subsidiaries for these expenses.

     In the lawsuit, Grace also sought indemnification for expenses that it has
     incurred since 1996 of approximately $3.5 million for response and
     remediation required by the State of Massachusetts and for additional
     expenses that it expects to incur in the future. The consistent position of
     KPP's subsidiaries is that they did not acquire the abandoned pipeline as
     part of the 1993 ST Services transaction, and therefore did not assume any
     responsibility for the environmental damage nor any liability to Grace for
     the pipeline.

     At the end of the trial on May 19, 2000, the jury returned a verdict
     including findings that Grace had breached a provision of the 1993
     acquisition agreement and that the pipeline was abandoned prior to 1978. On
     July 17, 2000, the Judge entered final judgment in the case, which is now
     on appeal to the Dallas Court of Appeals, that Grace take nothing from the
     subsidiaries on its claims, including claims for future expenses. Although
     KPP's subsidiaries have not incurred any expenses in connection with the
     remediation, the court also ruled, in effect, that the subsidiaries would
     not be entitled to an indemnification from Grace if any such expenses were
     incurred in the future. However, the Judge let stand a prior summary
     judgment ruling that the pipeline was an asset of the company acquired as
     part of the 1993 ST Services transaction. The Judge also awarded attorney
     fees to Grace.



                                       10
<PAGE>   13

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


     While the judgment means that the subsidiaries have no obligation to
     reimburse Grace for the approximately $3.5 million it has incurred, as
     required by the State of Massachusetts, KPP's subsidiaries have filed an
     appeal of the judgment finding that the Otis Pipeline was transferred to
     them and the award of attorney fees.

     On April 2, 2001, Grace filed a petition in bankruptcy, which created an
     automatic stay against actions against Grace. This automatic stay will
     affect the appeal of this matter. The Texas court of appeals has issued an
     order staying all proceedings of the appeal because of the bankruptcy. Once
     the stay is lifted, KPP's subsidiaries that are party to the law suit
     intend to resume vigorous prosecution of the appeal.

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

     The Government has made no claims against KPP or any other person on
     account of this matter. KPP believes that if any such claims were made, its
     subsidiaries would have substantial defenses to such claims. Under
     Massachusetts law, the party responsible for remediation of a facility is
     the last owner before the abandonment, which was a Grace company. KPP does
     not believe that either the Grace litigation or any claims that may be made
     by the Government will adversely affect its ability to make cash
     distributions to its unitholders, but there can be no assurances in that
     regard.



                                       11
<PAGE>   14

KANEB SERVICES, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
--------------------------------------------------------------------------------


7.   RECENT ACCOUNTING PRONOUNCEMENTS

     Effective January 1, 2001, the Company adopted the provisions of SFAS No.
     133, "Accounting For Derivative Instruments and Hedging Activities", which
     establishes the accounting and reporting standards for such activities.
     Under SFAS No. 133, companies must recognize all derivative instruments on
     its balance sheet at fair value. Changes in the value of derivative
     instruments, which are considered hedges, are offset against the change in
     fair value of the hedged item through earnings, or recognized in other
     comprehensive income until the hedged item is recognized in earnings,
     depending on the nature of the hedge. On January 1, 2001, the Company was
     not a party to any derivative contracts, accordingly, adoption of SFAS No.
     133 at that date did not have any effect on the Company's results of
     operations or financial position. See Note 6 regarding interest rate locks
     entered into in March of 2001 by a wholly-owned subsidiary of KPP.



                                       12
<PAGE>   15

KANEB SERVICES, INC. AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------

     This discussion should be read in conjunction with the consolidated
     financial statements of Kaneb Services, Inc. (the "Company") and notes
     thereto included elsewhere in this report.

     OPERATING RESULTS:

     TECHNICAL SERVICES

     This business segment provides specialized industrial services, including
     underpressure leak sealing, on-site machining, safety and relief valve
     testing and repair, passive fire protection and fugitive emissions
     inspections to the process and power industry worldwide.

<TABLE>
<CAPTION>
                                                        Three Months Ended
                                                             March 31,
                                                     ------------------------
                                                        2001          2000
                                                     ----------    ----------
                                                          (in thousands)
<S>                                                  <C>           <C>
Revenues:
    United States                                    $    9,734    $    7,844
    Europe                                               11,732        12,563
    Asia-Pacific                                          3,095         2,552
                                                     ----------    ----------
         Total Revenues                              $   24,561    $   22,959
                                                     ==========    ==========

Operating income:
    United States                                    $      611    $      487
    Europe                                                1,511           950
    Asia-Pacific                                            157           263
    Headquarters                                           (492)         (281)
    Amortization of excess of cost over fair value
      of net assets of acquired businesses                 (474)         (495)
                                                     ----------    ----------
         Total operating income                      $    1,313    $      924
                                                     ==========    ==========

Capital expenditures,
    excluding acquisitions                           $      805    $      407
                                                     ==========    ==========
</TABLE>

     For the three months ended March 31, 2001, revenues for the technical
     services business increased by $1.6 million, or 7%, when compared to the
     same 2000 period, due to overall improvements in turnaround services,
     primarily in the United States and Europe, resulting from improved market
     conditions. In the United States, revenues increased by 24%, compared to
     the same period in 2000, due to the increases in turnaround services and
     increases in leaksealing services. In Europe, revenues decreased by 7% due
     to devaluations of foreign currencies and declines in demand for
     leaksealing services. Asia-Pacific revenues increased by 21% in the first
     quarter of 2001, compared to the same period in 2000, due to an increase in
     product sales.

     Overall, technical services operating income increased by $0.4 million, or
     42%, for the three months ended March 31, 2001, when compared to the same
     2000 period, due to increases in



                                       13
<PAGE>   16

KANEB SERVICES, INC. AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


     operating income in the United States and Europe resulting from
     higher-margin turnaround services and overall improved market conditions.

     INFORMATION TECHNOLOGY SERVICES

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


<TABLE>
<CAPTION>
                               Three Months Ended
                                    March 31,
                             -----------------------
                                2001         2000
                             ----------   ----------
                                 (in thousands)
<S>                          <C>          <C>
Revenues                     $   11,331   $    8,335
                             ==========   ==========

Operating income             $    1,371   $    1,112
                             ==========   ==========

Capital expenditures,
    excluding acquisitions   $       59   $      236
                             ==========   ==========
</TABLE>


     In November 2000, the Company, through a wholly-owned subsidiary, acquired
     Double Eagle Communications and Cabling, Inc. ("Double Eagle"). Double
     Eagle is a full service provider of voice and data cabling and network
     support services.

     For the three months ended March 31, 2001, revenues increased by $3.0
     million, or 36%, as a result of increases in service revenues, primarily
     due to the Double Eagle acquisition, partially offset by declines in
     equipment sales. Revenues from equipment sales, furnished at the request of
     selected customers, declined in the first quarter of 2001, when compared to
     2000, due to fluctuations in customer needs. For the three months ended
     March 31, 2001, operating income increased by $0.3 million, or 23%, when
     compared to the same 2000 period, the result of the Double Eagle
     acquisition and increased consulting services provided to various national
     government agencies and the private sector, partially offset by the
     decreases in equipment sales.



                                       14
<PAGE>   17

KANEB SERVICES, INC. AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


     DISCONTINUED OPERATIONS - BUSINESSES TO BE DISTRIBUTED TO COMMON
     SHAREHOLDERS

     The pipeline and terminaling segment includes the operations of KPP. KPP
     provides transportation services of refined petroleum products through a
     pipeline system that extends throughout the Midwestern states and provides
     terminaling and storage services for petroleum products, specialty
     chemicals and other liquids. The Company operates, manages and controls the
     pipeline and terminaling operations of KPP through an effective 2% general
     partner interest and a 25% limited partner interest in KPP. The products
     marketing business segment provides wholesale motor fuel marketing services
     throughout the Great Lakes and Rocky Mountain regions, as well as
     California.

<TABLE>
<CAPTION>
                                         Three Months Ended
                                              March 31,
                                      ------------------------
                                         2001          2000
                                      ----------    ----------
                                           (in thousands)
<S>                                   <C>           <C>
Revenues:
  Pipeline and terminaling services   $   48,069    $   36,680
  Product marketing services              88,352        80,389
                                      ----------    ----------
                                      $  136,421    $  117,069
                                      ==========    ==========
Operating income:
  Pipeline and terminaling services   $   18,294    $   12,900
  Product marketing services                (775)          959
  Distribution expenses                     (250)           --
                                      ----------    ----------
                                      $   17,269    $   13,859
                                      ==========    ==========
</TABLE>

     On January 3, 2001, KPP, through a wholly-owned subsidiary, acquired Shore
     Terminals LLC ("Shore") for $107 million in cash and 1,975,090 KPP units.
     Financing for the cash portion of the purchase price was supplied under a
     new $275 million unsecured revolving credit agreement with a bank. See
     "Liquidity and Capital Resources". Shore owns seven terminals, located in
     four states, with a total tankage capacity of 7.8 million barrels. All of
     the terminals handle petroleum products and, with the exception of one,
     have deep water access.

     For the three months ended March 31, 2001, revenues for the Pipeline and
     Terminaling business increased by $11.4 million when compared to 2000, due
     to a $10.5 million increase in revenues in the terminaling business and
     $0.9 million increase in pipeline revenues. Terminaling revenue increases
     are a result of the Shore acquisition and overall increases in utilization
     at existing locations, the result of relatively favorable market
     conditions. Average annual tankage utilized for the three months ended
     March 31, 2001 increased to 30.0 million barrels from 21.0 million barrels
     for the comparable prior year period. Approximately 85% of the increase in
     both revenues and average annual tankage utilized was attributable to
     Shore. For the three months ended March 31, 2001, average annualized
     revenues per barrel of tankage utilized increased to $4.25 per barrel,
     compared to $4.09 per barrel for the same prior year period, the result of
     favorable market conditions, compared to the first quarter of



                                       15
<PAGE>   18

KANEB SERVICES, INC. AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


     2000. Pipeline revenue increases are due to increases in barrel miles
     shipped and increases in terminaling charges. Pipeline barrel miles shipped
     totaled 4.1 billion and 4.0 billion for the three month periods ended March
     31, 2001 and 2000, respectively.

     The $5.4 million increase in pipeline and terminaling operating income for
     the quarter ended March 31, 2001, compared to 2000, is due entirely to an
     increase in terminaling operating income, a result of the Shore acquisition
     and the increase in tank utilization.

     The interest of outside non-controlling partners in KPP's net income was
     $9.7 million and $6.8 million for the three months ended March 31, 2001 and
     2000, respectively. Distributions paid to the outside non-controlling
     unitholders of KPP aggregated approximately $10.6 million and $9.3 million
     for the three month periods ended March 31, 2001 and 2000, respectively.

     Capital expenditures of $3.0 million and $2.3 million for the three month
     periods ended March 31, 2001 and 2000 relate to the maintenance of KPP's
     existing operations. Routine maintenance capital expenditures for 2001 are
     currently estimated to be between $12 million and $15 million.

     For the three months ended March 31, 2001, revenues for the product
     marketing business increased by $8.0 million, or 10%, when compared to the
     same 2000 period, primarily a result of an increase in both sales volumes
     and sales price. Total gallons sold increased to 97 million in the first
     quarter of 2001, compared to 95 million in the first quarter of 2000, due
     to a combination of increasing the number of terminals through which
     products are sold and increasing the volumes at existing locations. The
     average price realized per gallon of product sold increased to $0.91 in the
     first quarter of 2001, compared to $0.85 for the same period in 2000.
     Products marketing operating income decreased by $1.7 million in the first
     quarter of 2001, compared to the first quarter of 2000, due to sharp
     fluctuations in prices, which more than offset normal operating margins.

     LIQUIDITY AND CAPITAL RESOURCES

     During the first three months of 2001, the Company's working capital
     requirements for operations and capital expenditures were funded through
     the use of internally generated funds.

     Cash provided by (used in) continuing operations was $(1.5) million and
     $(0.1) million for the three months ended March 31, 2001 and 2000,
     respectively. Capital expenditures from continuing operations were $0.9
     million for the three months ended March 31, 2001, compared to $0.6 million
     in 2000. Routine maintenance capital expenditures in 2001 have been funded
     by internally generated funds.



                                       16
<PAGE>   19

KANEB SERVICES, INC. AND SUBSIDIARIES


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------


     In December 2000, KPP entered into a credit agreement with a group of banks
     that provides for a $275 million unsecured revolving credit facility
     through December 2003. The credit facility, which is without recourse to
     the parent company, bears interest at variable rates and has a variable
     commitment fee on unutilized amounts. The credit facility contains
     financial and operational covenants, including limitations on KPP
     investments, sales of assets and transactions with affiliates. Absent an
     event of default, the covenants do not restrict distributions to KPP
     unitholders. In January 2001, proceeds from the facility were used to repay
     in full KPP's $128 million of mortgage notes and $15 million outstanding
     under its $25 million revolving credit facility. An additional $107 million
     was used to finance the cash portion of the Shore acquisition. Under the
     provisions of the mortgage notes, KPP incurred $6.5 million in prepayment
     penalties, which, net of interest of outside non-controlling partners in
     KPP's net income and income taxes, has been recognized in discontinued
     operations - businesses to be distributed to common shareholders in the
     first quarter of 2001. At March 31, 2001, $257.5 million was drawn on the
     facility, at an interest rate of 6.04%, which is due in December of 2003.

     In August of 2000, a wholly-owned subsidiary of KPP filed a shelf
     registration statement on Form S-3 for the issuance of up to $500 million
     of public debt securities. In March of 2001, this subsidiary entered into
     two contracts for the purpose of locking in interest rates on $100 million
     of the anticipated ten-year public debt offerings. In May of 2001, KPP
     announced that, due to increases in ten-year Treasury rates, coupled with
     the declines in floating interest rates, it has elected to defer issuance
     of the public debt securities. The fair value of the contracts was not
     material to the results of operations or financial position of the Company
     as of and for the three months ended March 31, 2001. On May 22, 2001, the
     contracts were settled resulting in an aggregate gain to KPP of $3.8
     million.

     In connection with the planned distribution, the Company's Series A
     Preferred Stock was redeemed for cash on March 30, 2001 at the stated
     redemption price of $10.67 per share, plus accrued and unpaid dividends,
     for a total cost of approximately $6.1 million. The redemption cost
     includes a $0.4 million redemption premium, which is recognized as
     preferred dividends in the first quarter of 2001. Additionally, the Board
     of Directors has authorized the exchange, in non-cash transactions, of
     1,356,777 shares of the Company's common stock for all Series C Preferred
     and Series F Preferred shares outstanding. The exchanges are expected to be
     completed in the first half of 2001.

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



                                       17
<PAGE>   20

                           PART II - OTHER INFORMATION

     Item 6.      Exhibits and Reports on Form 8-K

         (a)      Exhibits.
                  None.


         (b)      Reports on Form 8-K

                  Current Report on Form 8-K regarding Kaneb Pipe Line Partners
                  L.P.'s Acquisition of Shore Terminals LLC, located in
                  California, Washington, Oregon and Nevada, filed January 18,
                  2001.

                  Current Report on Form 8-K/A updating Kaneb Pipe Line Partners
                  L.P.'s Acquisition of Shore Terminals LLC, located in
                  California, Washington, Oregon and Nevada, filed March 19,
                  2001.

                                    Signature


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



                                       KANEB SERVICES, INC.
                                       (Registrant)


Date: May 24, 2001                     /s/ MICHAEL R. BAKKE
                                       -----------------------------------------
                                       Michael R. Bakke
                                       Controller



                                       18