Incorporated: 1953 as Kaneb Pipe Line Company
NAIC: 236220 Commercial and Institutional Building Construction
SIC: 1542 Nonresidential Construction Nec
Listed on the New York Stock Exchange and based in Richardson, Texas, Furmanite Corporation is a technical services company serving customers worldwide involved in offshore drilling, pipelines, refineries and power generation, chemical and petrochemical production, steel mills, automakers, pulp and paper mills, food and beverage processors, semiconductor manufacturers, pharmaceutical companies, and U.S. governmental agencies.
Furmanite offers a wide variety of industrial repair services, including concrete repair; leak detection and repair; leak sealing; valve care and repair; a full range of bolting services, from design to tightening; pipeline intervention; passive fire protection; and tank roof repair. The company also offers maintenance services to prevent pipeline leaks, maintain the integrity of pressurized systems, and maintain the effectiveness of valves. Furmanite's eCompliance service leverages the power of the Internet and wireless data collection technology to help companies ensure they comply with all government regulations. In addition, Furmanite offers a number of associated products, including absorbency products used to clean up leaks and spills, fire protection products, shims to prevent wave damage to offshore drilling components, jointing compound, tube plugs, and valve and flange covers. The company maintains 40 offices spread across five continents.
Company Origins: 1953
The history of the present-day Furmanite may be traced through that of the Kaneb Pipe Line Company in Houston, Texas, which was founded by Herbert E. Fisher. Born in Mobile, Alabama, in 1911, Fisher was raised in Tulsa, Oklahoma, and earned a degree from the University of Oklahoma in 1932, at which point he went to work for the Tulsa-based Stanolind Pipe Line Company. He then struck out on his own in 1951, establishing Pipe Line Technologists Inc., a Houston engineering company that would grow into a global business.
Two years later he launched his own pipeline, Kaneb, which started out with 250 miles of eight- and ten-inch pipe along the Kansas-Oklahoma border, stretching from Arkansas City and Wichita, Kansas, to Fairmont, Nebraska; hence, the company name was created by fusing "Ka" for Kansas and "neb" for Nebraska. Kaneb soon expanded into Nebraska, Iowa, and North and South Dakota. Taken public Kaneb would gain a listing on the American Stock Exchange, and by the end of the 1960s the system spanned 1,250 miles, mostly concentrated in southeast Kansas where it was connected to eight refineries, and Oklahoma where it served another 14 refineries.
In the late 1960s Kaneb contracted with a Texas-based computer data management company, Agency Records Control, Inc. (ARC), to process its operating and financial data. The firm mostly provided record-keeping services to independent insurance agencies. After working with ARC for nearly three years, Kaneb acquired the company in July 1969, the first step in an effort to diversify the company beyond pipeline hauling.
A year later Kaneb added another special service to its portfolio: land clearing. In March 1970 it acquired a pair of North Carolina companies, Appalachian Contracting Co. and Phillips & Jordan, Inc., which provided land clearing and earth moving services for pipeline construction companies, electric utilities, telephone companies, and the Army Corps of Engineers. Kaneb's next step was to become involved in coal production and marketing, achieved through the acquisition of Stansbury & Co., Inc. Other coal companies were added in 1973 (Interstate Coal Co., Inc.; Leeco, Inc.; and Mountain Clay, Inc.) along with a number of coal leases. Also, in 1972, Fisher brought Pipe Line Technologists into the fold, and later in the decade Kaneb became involved in oil and gas exploration through the acquisition of Houston's Weaver Oil & Gas Corporation, and added offshore and land drill contracting services through the acquisition of Diamond M. Co. and Wels Drilling & Service, Inc.
With the contributions of these new businesses. Kaneb experienced a sharp rise in revenues in the early 1970s. Sales of $12 million in 1969 grew to more than $100 million in 1974, while net income during this time increased from $2.1 million to $12 million. During this period the company also changed its name to Kaneb Services, Inc., reflecting its expanded scope, and graduated from the American Stock Exchange to the New York Stock Exchange.
In the early 1980s Kaneb beefed up its coal and exploration businesses while also adding some uranium interests and acquiring a few savings and loan companies, including World Savings Association in 1980 and Parker Square Savings & Loans Association and Wharton County Savings & Loan Association in 1981. As a result of this extended acquisition spree, Kaneb was able to increase revenues to well over $500 million. It accumulated considerable debt, however, along the way. Servicing that debt began to take its toll on earnings, prompting management to divest some assets in order to lessen the burden.
In 1982 ARC was sold to the Fireman's Fund Insurance Companies for $52.5 million. Three years later a Canadian oil and gas subsidiary was sold for more than $2.2 million. Although Kaneb was unsuccessful in its bid to divest Diamond M. in early 1985, later in the year it was able to sell its coal operations to Transco Energy Company, fetching $234 million in cash while eliminating $7 million in debt. All told, Kaneb was able to reduce its debt by about $160 million, one-quarter of the total amount. Given that the energy sector was suffering from an international slump, the relief was greatly needed.
Fisher Retires: 1981
Herbert Fisher retired as Kaneb's chairman in 1981; he remained a director until his death four years later at the age of 74. The company's chief executive officer, James R. Whatley, took over the chairmanship as well. Kaneb also added a new position in 1981, chief operating officer, which was awarded to 49-year-old Michael D. Shoup, who later became president and CEO.
Shoup would become embroiled in a company controversy during his tenure. A lawsuit filed in 1986 by a terminated officer of the company, Roger C. Sims, charged the company with having him fired after he refused to certify fraudulent tax returns and failed to approve Shoup's and another senior vice-president's personal expenditures. Some of these expenses allegedly included improper use of the corporate jet, which Sims maintained the executives used on one occasion to fly to Dallas with their wives for the Cotton Bowl, and Shoup used on another occasion to fly to Austin to lobby officials about a personal financial matter.
After Kaneb hired a law firm to investigate Sims' charges, Shoup resigned. He then received a compensation package valued at more than $550,000, sparking outrage at the company's annual shareholders meeting, which had been postponed once because of the matter. There were some calls for the entire board to resign and for the company to be sold. Much of the anger resulted from the difficult financial situation that Kaneb was facing due to falling oil and gas prices.
Whatley, who took over as CEO on an interim basis, tried to placate shareholders by pointing this out. According to the Wall Street Journal, he told them somewhat facetiously, "I think we could join together and request an audience with the king of Saudi (Arabia) and straighten these things out." Sims' suit made its way through the courts until December 1989 when he prevailed, and a jury awarded him $32.4 million in actual and punitive damages plus interest.
Kaneb's board did not step down, but it did bring in a new chief executive in October 1986, John R. Barnes, the former president of Stanton Oil Company and Dorchester Gas Corporation. During his four years at the helm at Dorchester, Barnes increased revenues to $1.5 billion, a major improvement over the $50 million the company generated when he joined it in 1976 as vice-president of corporate development.
Turnaround Attempts
Barnes quickly set himself to the task of turning around Kaneb, which barely had enough assets to satisfy creditors if it were liquidated. At first he and his new management team from Dallas lived out of suitcases in Houston for several months before relocating the company's headquarters to Richardson, Texas, near Dallas. His first step in the resurrection of Kaneb was to sell the offshore drilling units, followed by the divestiture of one-third of the company's interest in Kaneb Pipeline Partners Ltd., which housed the company's pipeline assets, a move that garnered $100 million. He then merged the Kaneb Metering Corporation subsidiary with its chief rival, NDE Environmental Corporation, receiving $13 million in stock and a pair of seats on the NDE board. Moreover, Barnes declared a moratorium on dividends and debt payments in order to renegotiate the terms of the company's debt. As a result of these steps, he was able to eliminate about $500 million in debt.
With Kaneb's finances in much better shape and some cash at his disposal, Barnes looked for a new source of revenues. "I want a balanced portfolio of service businesses," he told the Dallas Business Journal, adding, "I don't believe in putting all the eggs in one basket no matter how good one is." In March 1991 he found a new basket, acquiring Furmanite plc for $66 million in cash and stock. Based in Kendal, England, Furmanite, a specialized industrial services company, produced nearly $100 million in annual sales.
The balance sheet showed steady improvement in the early 1990s, increasing from $176.7 million in 1992 to more than $212 million in 1995. Net income improved from a loss of $7.2 million in 1992 to $3.5 million in 1995. Furmanite was doing especially well. In 1996 the unit enjoyed a 31 percent increase in operating income due to internal expansion. Kaneb also increased its international service offering by forming an alliance from Framatome Technologies, Inc., subsidiary of France's Framatome S.A., which offered proprietary diagnostic technologies to industrial markets and was particularly well positioned to serve the Gulf Coast region. Revenues increased to $228.9 million in 1996 and net income grew to more than $6.5 million.
Furmanite's Asia-Pacific business was strengthened in 1997 by acquiring a licensee in Australia, but a downturn in that region's economy as well as in the United Kingdom soon provided Furmanite with difficult business conditions. Barnes efforts to spread the risk through diversity paid dividends, as Kaneb was able to shift the focus of its services operations to find alternate sources of revenue. As a result, the company was able to retain the financial wherewithal to take advantage of acquisition opportunities as the arose. In 1998 Kaneb's pipeline business was bolstered by the addition of terminals in Chicago, Vancouver, and Linden, New Jersey, as well as tankage at Savannah, Georgia, and Stockton, California.
Wall Street did not appreciate Kaneb's diversity, however, refusing to take into account the underlying value of the company's assets, at least in the opinion of management. Thus, in 2000 the company announced a plan to spin off the pipeline, terminals, and product marketing businesses as a new company, Kaneb Services. The technology and technical services assets would remain but Kaneb Services would take a new name, Xanser Corporation, which would consist of Furmanite and an information technology service subsidiary called Xtria. These changes took effect in August 2001.
Following the split, Xanser struggled, mostly due to the performance of some of the information technology units. Furmanite, on the other hand, delivered excellent result. In 2001 revenues totaled $144.7 million, resulting in new income of $25.7 million. A year later, however, sales dipped to $131.4 million and the company reported a $47.5 million net loss. Sales improved to $135.7 million in 2003 but Xanser lost a further $13.1 million. The company returned to profitability in 2004 but whatever improvements exhibited by Xtria were short lived, as in 2005 the subsidiary turned in another poor performance to overshadow Furmanite's contribution. To grow Furmanite further, Xanser acquired Flowserve USA Inc. for $18.8 million. Not only did the Flowserve assets provide a good geographic fit, they added complementary business lines, including pressurized online repair services and general valve repair services.
Company revenues totaled $246.4 million in 2006, a significant improvement over the $153.9 million recorded the prior year. A net loss resulted in both years, $0.43 million in 2006 and $3.4 million in 2006. In 2007 Xtria's operations were combined with those of Furmanite. Because the company was operating as a single unit, the decision was made to scrap the Xanser name and to build upon that of Furmanite. Following shareholder approval, the company changed its name to Furmanite Corporation in May 2007.
Principal Subsidiaries
Furmanite Equipment Leasing Company LLC; Furmanite Worldwide, Inc.; Furmanite America Inc.; Xtria LLC.
Principal Competitors
Perini Corporation; Forest City Enterprises, Inc.; Matrix Service Company.
Further Reading
Campanella, Frank W., "Acquisitions Spur Swift Growth in Operations at Kaneb Pipe Line," Barron's, October 19, 1970, p. 29.
Crown, Judith, "Kaneb Services Moving Headquarters from Sugar Land to Dallas," Houston Chronicle, June 6, 1987.
Green, Wayne E., and Amy Dockser Marcus, "Fired Executive Gets Huge Jury Award," Wall Street Journal, December 5, 1989, p. 1.
Hill, Dee, "Kaneb Chief Revamps an Oil Industry Dinosaur," Dallas Business Journal, August 30, 1991, p. 1.
Hussey, Allan F., "Growing Stake in Coal Fuels Sharp Gains at Kaneb Services," Barron's, June 28, 1976, p. 29.
"Services Set for Herbert E. Fisher, 74," Houston Chronicle, June 28, 1985.
"Slimmed Down: Kaneb Services Sees Profits Again After Reshaping Its Business," Barron's, July 29, 1985, p. 39.
Solis, Dianna, "Kaneb Officers Face Hostile Questioning at Annual Meeting," Wall Street Journal, August 13, 1986, p. 1.
------, "Kaneb Services, Directors Are Sued by Major Holder," Wall Street Journal, May 8, 1986, p. 1.
"Transco to Acquire Kaneb Coal Unit for $238 Million," Wall Street Journal, May 23, 1985, p. 1.
— Ed Dinger
