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

                                       OR

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

For the Quarterly Period                                        Commission File
Ended June 30, 2000                                             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
Incorporation or Organization)                               Identification No.)


                          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.

Class of Common Stock                              Outstanding at July 31, 2000
     No par value                                       31,136,660 shares

<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

FORM 10-Q
QUARTER ENDED JUNE 30, 2000


                                EXPLANATORY NOTE

         On February 7, 2001,  Kaneb Services,  Inc. (the  "Company")  announced
that it is exchanging, in a non-cash transaction,  common stock for its Series C
and Series F  Preferred  Stocks  (the  "Preferred  Shares")  that were issued to
certain officers of the Company.  When the Preferred Shares were issued,  it was
determined  that the  appropriate  accounting  treatment  was to record  them as
equity securities and that treatment has been consistently applied and disclosed
in the consolidated financial statements.  It has now been determined that their
estimated  redemption  value  should  be  recognized  as  non-cash  general  and
administrative   charges  against  earnings.   The  Company  restated  its  1999
consolidated financial statements on Form 10-K/A, and in addition, the Company's
financial  statements for the three and six months ended June 30, 2000 have been
restated to reflect  non-cash charges against earnings of $126,000 and $252,000,
respectively,  for the  estimated  redemption  value of the  Series F  Preferred
Stock.  Since this is an exchange for common  stock,  these  cumulative  charges
against  earnings  will be offset on the  effective  date of the  exchange by an
equal increase in stockholder's equity and, as a result, the ultimate net effect
on stockholder's  equity will be the same under either treatment.  See Note 1 to
the consolidated financial statements.


                                                                        Page No.
                           Part I. Financial Information

Item 1.  Financial Statements (Unaudited)

         Consolidated Statements of Income - Three and Six Months Ended
            June 30, 2000 and 1999                                        1

         Condensed Consolidated Balance Sheets - June 30, 2000
            and December 31, 1999                                         2

         Condensed Consolidated Statements of Cash Flows - Six
            Months Ended June 30, 2000 and 1999                           3

         Notes to Consolidated Financial Statements                       4


                           Part II. Other Information

Item 6.  Exhibits and Reports on Form 8-K                                12


<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In Thousands - Except Per Share Amounts)
(Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended                  Six Months Ended
                                                               June 30,                         June 30,
                                                     -----------------------------    -----------------------------
                                                          2000           1999              2000           1999
                                                     -------------   -------------    -------------   -------------
                                                       (Restated)                       (Restated)

<S>                                                  <C>             <C>              <C>             <C>
Revenues:
     Services                                        $      67,171   $      69,032    $     130,857   $     132,270
     Products                                              101,744          53,919          186,421          90,037
                                                     -------------   -------------    -------------   -------------
                                                           168,915         122,951          317,278         222,307
                                                     -------------   -------------    -------------   -------------
Costs and expenses:
     Operating costs                                        44,943          48,212           89,125          92,054
     Cost of sales                                          99,179          52,798          182,113          87,474
     Depreciation and amortization                           4,541           4,561            9,347           9,063
     General and administrative                              1,537           1,261            3,018           2,385
                                                     -------------   -------------    -------------  --------------

         Total costs and expenses                          150,200         106,832          283,603         190,976
                                                     -------------   -------------    -------------  --------------

Operating income                                            18,715          16,119           33,675          31,331

Other income                                                   249             163              445             447
Interest expense                                            (4,169)         (4,789)          (8,352)         (9,324)
Amortization of excess of cost over fair
   value of net assets of acquired businesses                 (550)           (555)          (1,096)         (1,066)
                                                     -------------   -------------    -------------  --------------

Income before income taxes and interest
   of outside non-controlling partners in
   KPP's net income                                         14,245          10,938           24,672          21,388
Income tax benefit (expense)                                (2,221)            412           (3,889)           (365)
Interest of outside non-controlling
  partners in KPP's net income                              (8,490)         (7,338)         (15,324)        (14,702)
                                                     -------------   -------------    -------------  --------------
     Net income                                              3,534           4,012            5,459           6,321
Dividends applicable to preferred stock                        136             108              266             222
                                                     -------------   -------------    -------------  --------------
Net income applicable to common stock                $       3,398   $       3,904    $       5,193  $        6,099
                                                     =============   =============    =============  ==============
Earnings per common share:
   Basic                                             $         .11   $         .12    $         .17  $          .19
                                                     =============   =============    =============  ==============
   Diluted                                           $         .10   $         .12    $         .16  $          .19
                                                     =============   =============    =============  ==============
</TABLE>



                 See notes to consolidated financial statements.
                                        1


<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
                                                                             June 30,
                                                                               2000                   December 31,
                                                                            (Unaudited)                   1999
                                                                           -------------             --------------
                                                                             (Restated)
                   ASSETS
<S>                                                                        <C>                       <C>
Current assets:
     Cash and cash equivalents                                             $      28,349             $       20,766
     Accounts receivable, trade                                                   76,518                     66,991
     Inventories                                                                  17,270                     18,063
     Prepaid expenses and other current assets                                    12,442                     14,957
                                                                           -------------             --------------
        Total current assets                                                     134,579                    120,777
                                                                           -------------             --------------

Property and equipment                                                           472,261                    470,351
Less accumulated depreciation and amortization                                   149,497                    142,207
                                                                           -------------             --------------
     Net property and equipment                                                  322,764                    328,144
                                                                           -------------             --------------

Investment in affiliate                                                           21,008                     21,978

Excess of cost over fair value of net assets
     of acquired businesses                                                       61,836                     62,657

Deferred tax assets                                                               19,765                     22,754
Other assets                                                                       3,711                      4,005
                                                                           -------------             --------------
                                                                           $     563,663             $      560,315
                                                                           =============             ==============
     LIABILITIES AND EQUITY
Current liabilities:
     Current portion of long-term debt (including
         $39,500 of KPP debt at June 30, 2000)                             $      41,457             $        2,471
     Accounts payable                                                             25,270                     20,146
     Accrued expenses                                                             40,328                     41,170
                                                                           -------------             --------------
         Total current liabilities                                               107,055                     63,787
                                                                           -------------             --------------

Long-term debt, less current portion:
    Pipeline and terminaling services                                            117,678                    155,987
    Product marketing services                                                    12,001                     11,041
    Industrial services                                                           19,186                     20,557
     Parent company                                                               23,666                     23,666
                                                                           -------------             --------------
         Total long-term debt, less current portion                              172,531                    211,251
                                                                           -------------             --------------

Deferred income taxes and other liabilities                                       15,019                     15,654

Interest of outside non-controlling partners in KPP                              120,989                    124,820

Commitments and contingencies

Stockholders' equity:
     Preferred stock, without par value                                            5,792                      5,792
     Common stock, without par value                                               4,248                      4,249
     Additional paid-in-capital                                                  197,268                    197,454
     Treasury stock, at cost                                                     (31,455)                   (30,278)
     Other                                                                          (121)                      (141)
     Accumulated deficit                                                         (24,808)                   (30,001)
     Accumulated other comprehensive income (loss) -
         foreign currency translation adjustment                                  (2,855)                    (2,272)
                                                                           -------------             --------------
         Total stockholders' equity                                              148,069                    144,803
                                                                           -------------             --------------
                                                                           $     563,663             $      560,315
                                                                           =============             ==============
</TABLE>
                 See notes to consolidated financial statements.
                                        2
<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

<TABLE>
<CAPTION>

                                                             Six Months Ended June 30,
                                                             -------------------------
                                                                 2000         1999
                                                             ------------  -----------
                                                              (Restated)
<S>                                                          <C>           <C>
Operating activities:
   Net income                                                $      5,459  $     6,321
   Adjustments to reconcile net income to net
     cash provided by operating activities:
       Equity in earnings of affiliate, net of distributions          663       (1,556)
        Interest of outside non-controlling partners in KPP        15,324       14,702
       Increase in estimated redemption value of
         Series F preferred stock                                     252        --
        Amortization of excess of cost over fair
          value of net assets of acquired businesses                1,096        1,066
        Deferred income taxes                                       3,147          596
        Depreciation and amortization                               9,347        9,063
        Changes in working capital components                      (1,937)      (6,140)
                                                             ------------  -----------
         Net cash provided by operating activities                 33,351       24,052
                                                             ------------  -----------
Investing activities:
   Capital expenditures                                            (4,157)      (5,171)
   Acquisitions, net of cash acquired                                (280)     (41,255)
   Change in other assets, net                                     (1,467)        (995)
                                                             ------------  -----------
         Net cash used in investing activities                     (5,904)     (47,421)
                                                             ------------  -----------
Financing activities:
   Issuance of debt                                                 9,347       51,490
   Payments on debt                                                (9,081)      (1,311)
   Distributions to outside non-controlling partners in KPP       (18,500)     (15,350)
   Preferred stock dividends                                         (266)        (222)
   Common stock issued                                                166           92
   Purchase of treasury stock                                      (1,530)        --
                                                             ------------  ----------
         Net cash provided by (used in) financing activities      (19,864)      34,699
                                                             ------------  ----------
Increase in cash and cash equivalents                               7,583       11,330
Cash and cash equivalents at beginning of period                   20,766        9,134
                                                             ------------  -----------
Cash and cash equivalents at end of period                   $     28,349  $    20,464
                                                             ============  ===========
Supplemental cash flow information:
   Cash paid for interest                                    $     8,636   $     8,940
                                                             ============  ===========
   Cash paid for income taxes                                $        986  $       615
                                                             ============  ===========
</TABLE>

                 See notes to consolidated financial statements.
                                        3



<PAGE>
KANEB SERVICES, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements
(Unaudited)


1.   RESTATEMENT OF FINANCIAL STATEMENTS

     On February 7, 2001, Kaneb Services, Inc. (the "Company") announced that it
     is exchanging, in a non-cash transaction, common stock for its Series C and
     Series F Preferred  Stocks  (the  "Preferred  Shares")  that were issued to
     certain officers of the Company.  When the Preferred Shares were issued, it
     was determined that the appropriate accounting treatment was to record them
     as equity securities and that treatment has been  consistently  applied and
     disclosed  in  the  consolidated  financial  statements.  It has  now  been
     determined  that their estimated  redemption  value should be recognized as
     non-cash general and administrative charges against earnings. The Company's
     results of operations for the three and six months ended June 30, 2000 have
     been restated to reflect  non-cash charges against earnings of $126,000 and
     $252,000,  respectively, for the estimated redemption value of the Series F
     Preferred Stock, as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Three Months Ended                Six Months Ended
                                                                June 30,                         June 30,
                                                     -----------------------------    -----------------------------
                                                          As              As               As              As
                                                       Reported        Restated         Reported        Restated
                                                     -------------   -------------    -------------  --------------
     <S>                                             <C>             <C>              <C>            <C>
     Operating income                                $      18,841   $      18,715    $      33,927  $       33,675
     Net income                                      $       3,660   $       3,534    $       5,711  $        5,459
     Earnings per common share:
       Basic                                         $        0.11   $        0.11    $        0.17  $         0.17
       Diluted                                       $        0.11   $        0.10    $        0.17  $         0.16

     Deferred income taxes and other liabilities     $       9,904   $      15,019
     Accumumated deficit                             $     (19,693)  $     (24,808)
     Total stockholders' equity                      $     153,184   $     148,069

</TABLE>


2.   SIGNIFICANT ACCOUNTING POLICIES

     The unaudited condensed  consolidated  financial  statements of the Company
     and its  subsidiaries  for the three and six month  periods  ended June 30,
     2000 and 1999,  have been prepared in accordance  with  generally  accepted
     accounting principles applied on a consistent basis. 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/A for the year ended  December 31, 1999. 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  at June 30,  2000  and the  consolidated  results  of its'
     operations  and cash flows for the  periods  ended June 30,  2000 and 1999.
     Operating  results for the three and six months ended June 30, 2000 are not
     necessarily  indicative  of the results  that may be expected  for the year
     ending December 31, 2000.



3.   ACQUISITION BY KPP

     On February 1, 1999,  Kaneb Pipe Line Partners,  L.P.  ("KPP") acquired six
     terminals in the United Kingdom from GATX Terminals Limited for (pound)22.6
     million  (approximately  $37.2  million)  plus  transaction  costs  and the
     assumption of certain  liabilities.  The  acquisition,  which was initially
     financed  by term  loans  from a bank,  has been  accounted  for  using the
     purchase method of accounting.  $13.3 million of the term loans were repaid
     in July 1999 with the  proceeds  from a public  offering  of KPP units (see
     Note 4). The remaining portion ($25.9 million) is due in January 2002.


4.    PUBLIC OFFERING OF KPP UNITS

     In July 1999, KPP issued 2.25 million limited partnership units in a public
     offering at $30.75 per unit, generating  approximately $65.7 million in net
     proceeds.  A portion of the  proceeds was used to repay in full KPP's $15.0
     million  promissory note, KPP's $25.0 million revolving credit facility and
     $18.3  million of KPP's term loans  (including  $13.3 million in term loans
     resulting from the United Kingdom terminal  acquisition referred to in Note
     3.) As result of KPP issuing  additional  units to unrelated  parties,  the
     Company's  pro-rata  share  of the net  assets  of KPP  increased  by $16.8
     million.  Accordingly, in the third quarter of 1999, the Company recognized
     a $16.8  million gain before  deferred  income taxes of $6.4  million.  The
     transaction  reduced the Company's limited partner interest in KPP from 31%
     to 28%.


5.   COMPREHENSIVE INCOME

     Comprehensive  income for the three and six months  ended June 30, 2000 and
     1999 is as follows (in thousands):

<TABLE>
<CAPTION>
                                                           Three Months Ended                Six Months Ended
                                                                June 30,                         June 30,
                                                     -----------------------------    -----------------------------
                                                          2000            1999             2000           1999
                                                     -------------   -------------    -------------  --------------
                                                       (Restated)                       (Restated)

     <S>                                             <C>             <C>              <C>            <C>
     Net income                                      $       3,534   $       4,012    $       5,459  $        6,321
     Other comprehensive income (loss)
        foreign currency translation
        adjustment                                            (540)             35             (583)           (525)
                                                     -------------   -------------    -------------  --------------
     Comprehensive income                            $       2,994   $       4,047    $       4,876  $        5,796
                                                     =============   =============    =============  ==============
</TABLE>


6.   EARNINGS PER SHARE

     The following is a  reconciliation  of Basic and Diluted earnings 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 June 30, 2000
           Net income, as restated                           $         3,534
           Dividends applicable to preferred stock                      (136)
                                                             ---------------
           Basic earnings per share -
              Income applicable to common stock                        3,398              31,151   $        .11
                                                                                                   ============
           Effect of dilutive securities -
              Common stock options, Series F
                Preferred Stock and DSUs                                -                  1,782
                                                             ---------------     ---------------
           Diluted earnings per share -
              Income applicable to common stock,
                Series F Preferred Stock, DSUs
                and assumed options exercised                $         3,398              32,933   $        .10
                                                             ===============     ===============   ============

       Three Months Ended June 30, 1999
           Net income                                        $         4,012
           Dividends applicable to preferred stock                      (108)
                                                             ---------------
           Basic earnings per share -
              Income applicable to common stock                        3,904              31,436    $       .12
                                                                                                    ===========
           Effect of dilutive securities -
              Common stock options and DSUs                             -                  1,084
                                                             ---------------     ---------------
           Diluted earnings per share -
              Income applicable to common stock,
              DSUs and assumed options exercised             $         3,904              32,520    $       .12
                                                             ===============     ===============    ===========
<PAGE>
                                                                                    Weighted
                                                                                     Average
                                                                   Net               Common         Per-Share
                                                                 Income              Shares           Amount
                                                             ---------------     ---------------   ------------
       Six Months Ended June 30, 2000
           Net income, as restated                           $         5,459
           Dividends applicable to preferred stock                      (266)
                                                             ---------------
           Basic earnings per share -
              Income applicable to common stock                        5,193              31,206    $       .17
                                                                                                    ===========
           Effect of dilutive securities -
              Common stock options, Series F
                Preferred Stock and DSUs                                -                  1,759
                                                             ---------------     ---------------
           Diluted earnings per share -
              Income applicable to common stock,
                Series F Preferred Stock, DSUs
                and assumed options exercised                $         5,193              32,965   $        .16
                                                             ===============     ===============   ============

       Six Months Ended June 30, 1999
           Net income                                        $         6,321
           Dividends applicable to preferred stock                      (222)
                                                             ---------------
           Basic earnings per share -
              Income applicable to common stock                        6,099              31,425   $        .19
                                                                                                   ============
           Effect of dilutive securities -
              Common stock options and DSUs                             -                  1,069
                                                             ---------------     ---------------
           Diluted earnings per share -
              Income applicable to common stock,
              DSUs and assumed options exercised             $         6,099              32,494   $        .19
                                                             ===============         ===========   ============
</TABLE>


     Options to purchase  131,557 and 94,553  shares of common stock at weighted
     average  prices of $5.56 and $5.20,  were  outstanding at June 30, 2000 and
     1999,  respectively,  but were not included in the  computation  of diluted
     earnings per share because the options' exercise price was greater than the
     average market price of the common stock. Additionally, the Company's 8.75%
     convertible  subordinated  debentures were excluded from the computation of
     diluted  earnings  per share  because the effect of assumed  conversion  is
     anti-dilutive.


7.   CONTINGENCIES

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

     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.

     The lawsuit involves environmental response and remediation required by the
     State of Massachusetts. 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  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  judgment,  which is not yet final, in the
     case 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 transaction. The Judge
     also awarded attorney fees to Grace.

     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 intend to appeal
     the judgment finding that the Otis Pipeline was transferred to them and the
     award of attorney fees.

     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.

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


8.   BUSINESS SEGMENT DATA

     The Pipeline and Terminaling  Segment includes the pipeline and terminaling
     operations of KPP which consist of the  transportation of refined petroleum
     products in the  Midwestern  states as a common  carrier and the storage of
     petroleum products,  specialty  chemicals and other liquids.  The Company's
     Product Marketing Segment provides  wholesale motor fuel marketing services
     throughout the Midwest and Rocky Mountain  regions,  as well as California.
     The Company's  Information  Technology Services Segment provides consulting
     services,  hardware  sales and other  related  information  management  and
     processing services to governmental,  insurance and financial institutions.
     Additionally,  the Company provides Industrial Services to an international
     client base that includes refineries,  chemical plants, pipelines, offshore
     drilling and production  platforms,  steel mills, food and drink processing
     facilities,  power  generation,  and  other  process  industries.   General
     Corporate includes compensation and benefits paid to officers and employees
     of the Parent  Company,  insurance  premiums,  general  and  administrative
     costs,  tax and  financial  reporting  costs,  legal  and  audit  fees  not
     reasonably allocable to specific business segments.

     The Company measures segment profit as operating  income.  Total assets are
     those controlled by each reportable segment (in thousands).

<TABLE>
<CAPTION>

                                                         Three Months Ended                Six Months Ended
                                                              June 30,                         June 30,
                                                     -----------------------------    -----------------------------
                                                          2000           1999              2000           1999
                                                     -------------   -------------    -------------  --------------
     <S>                                             <C>             <C>              <C>            <C>
     Business segment revenues:
        Pipeline and terminaling services            $      38,438   $      39,171    $      75,118  $       76,016
        Product marketing services                          97,097          51,173          177,486          82,540
        Information technology services                      9,029           7,542           17,364          14,570
        Industrial services                                 24,351          25,065           47,310          49,181
                                                     -------------   -------------    -------------  --------------
                                                     $     168,915   $     122,951    $     317,278  $      222,307
                                                     =============   =============    =============  ==============
     Pipeline and terminaling services segment revenues:
           Pipeline operations                       $      17,483   $      16,182    $      32,731  $       31,346
           Terminaling operations                           20,955          22,989           42,387          44,670
                                                     -------------   -------------    -------------  --------------
                                                     $      38,438   $      39,171    $      75,118  $       76,016
                                                     =============   =============    =============  ==============
     Industrial services segment
       revenues:
        Underpressure services                       $      10,243   $       9,500    $      19,617  $       19,225
        Turnaround services                                 11,923          12,909           22,791          23,525
        Other services                                       2,185           2,656            4,902           6,431
                                                     -------------   -------------    -------------  --------------
                                                     $      24,351   $      25,065    $      47,310  $       49,181
                                                     =============   =============    =============  ==============

<PAGE>
                                                         Three Months Ended                Six Months Ended
                                                              June 30,                         June 30,
                                                     -----------------------------    -----------------------------
                                                          2000           1999              2000           1999
                                                     -------------   -------------    -------------  --------------
                                                       (Restated)                       (Restated)
     Business segment profit:
        Pipeline and terminaling services            $      14,930   $      15,642    $      27,830  $       30,566
        Product marketing services                           1,671             327            2,639             692
        Information technology services                      1,184           1,154            2,338           2,078
        Industrial services                                  2,467             257            3,886             380
        General corporate                                   (1,537)         (1,261)          (3,018)         (2,385)
                                                     -------------   -------------    -------------  --------------
           Operating income                                 18,715          16,119           33,675          31,331
        Other income                                           249             163              445             447
        Interest expense                                    (4,169)         (4,789)          (8,352)         (9,324)
        Amortization of excess of cost
           over fair value of net assets
           of acquired businesses                             (550)           (555)          (1,096)         (1,066)
                                                     -------------   -------------    -------------  --------------
        Income before income taxes and
           interest of outside non-controlling
           partners of KPP's net income              $      14,245   $      10,938    $      24,672  $       21,388
                                                     =============   =============    =============  ==============


                                                                                         June 30,      December 31,
                                                                                           2000           1999
                                                                                      -------------  --------------
     Total assets:
        Pipeline and terminaling services                                             $     362,744  $      366,935
        Product marketing services                                                           39,815          28,101
        Information technology services                                                      15,269          17,911
        Industrial services                                                                 104,468         108,094
        General corporate                                                                    41,367          39,274
                                                                                      -------------  --------------
                                                                                      $     563,663  $      560,315
                                                                                      =============  ==============
</TABLE>

<PAGE>

                           PART II - Other Information

     Item 6.      Exhibits and Reports on Form 8-K

          (a)     Exhibits.

                  27.  Financial Data Schedule


         (b)      Reports on Form 8-K

                  None.



                                    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:  February 9, 2001                       //s//
                                       ------------------------------------
                                       Michael R. Bakke
                                       Controller