##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A
AMENDMENT NO. 1

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended
June 30, 2001

OR

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

Commission File Number 333-60599

PEN HOLDINGS, INC.
(Exact Name Of Registrant As Specified in Its Charter)

|                                                                         |  |                                                
|------------------------------------------------------------------------ |  | -----------------------------------------------
|Tennessee
(State or other jurisdiction of
incorporation or organization) |  | 62-0852576
(I.R.S. Employer Identification No.)

5110 Maryland Way, Suite 300
Brentwood, Tennessee 37027
(Address Of Principal Executive Offices) (Zip Code)

Registrants telephone number, including area code: (615) 371-7300

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

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

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes || No || N/A

Indicate the number of shares of each of the registrants classes of common
stock, as of the latest practicable date: As of
August 14, 2001: Class I Common Stock, $.01 par value per share, 4,290,000
shares and Class II Common Stock, $.01 par value per share, 177,550 shares.

Pen Holdings, Inc. (Pen Holdings) is filing this Amendment on Form 10-Q/A to
revise Part I, Item 1, Financial Statements and Part I, Item 2,
Managements Discussion and Analysis of Financial Conditions and Results of
Operations (MD&A) contained in the Form 10-Q for the quarter ended June 30,
2001 (the Original 10-Q). In the course of reviewing the financial
statements to be included in the registrants quarterly report on Form 10-Q for
the quarter ended September 30, 2001, Pen Holdings determined
that it had previously reported a $3,215,000 gain on sale of coal
reserves during the three months ended June 30, 2001 that, after
revision of the financial statements for removing the book basis of
the coal reserves, resulted in a loss of $690,000. As a result, Pen Holdings is revising the
financial statements and the MD&A contained in the Original 10-Q. See Part I,
Financial Information, Item 1  Financial Statements, Note 1A.





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TABLE OF CONTENTS



|                              |                                                                    |                                                           |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------ | --------------------------------------------------------- |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION
|                              | ITEM 1. FINANCIAL STATEMENTS                                      
|                              |                                                                    | CONSOLIDATED BALANCE SHEETS                              
|                              |                                                                    | CONSOLIDATED STATEMENTS OF OPERATIONS                    
|                              |                                                                    | CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
|                              |                                                                    | CONSOLIDATED STATEMENTS OF CASH FLOWS                    
|                              |                                                                    | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS               
|                              | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|PART II  OTHER INFORMATION  
|                              | ITEM 1. LEGAL PROCEEDINGS                                         
|                              | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                 
|                              | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                           
|                              | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS       
|                              | ITEM 5. OTHER INFORMATION                                         
|                              | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                          
|                              | SIGNATURES                                                        



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##### Table of Contents



PEN HOLDINGS, INC.

INDEX

|                               |                                                                                               |                                                                                                                               |  |        |   | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- |  | ------ | - | 
|                               |                                                                                               |                                                                                                                               |  | Page  
|                               |                                                                                               |                                                                                                                               |  | Number
|                               |                                                                                               |                                                                                                                               |  |       
|PART I  FINANCIAL INFORMATION |                                                                                               |                                                                                                                               |  |       
|                              
|                              
|                              
|                              
|                               | Item 1.
Financial Statements (UNAUDITED)                                                      |                                                                                                                               |  |        |  
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Balance Sheets  June 30, 2001 and December 31, 2000                                                             |  |        | 1 | 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Statements of Operations  Three Months Ended
June 30, 2001 and 2000 and Six Months Ended
June 30, 2001 and 2000 |  |        | 2 | 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Statement of Changes In Shareholders Equity                                                                     |  |        | 3 | 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Consolidated Statements of Cash Flows  Six Months Ended
June 30, 2001 and 2000                                               |  |        | 4 | 
|                              
|                              
|                              
|                              
|                               |                                                                                               | Notes to Consolidated Financial Statements                                                                                    |  |        | 5 | 
|                              
|                              
|                              
|                              
|                               | Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations |                                                                                                                               |  | 11     |  
|                              
|                              
|                              
|                              
|                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                            |                                                                                                                               |  | 16     |  
|                              
|                              
|                              
|                              
|PART II  OTHER INFORMATION    |                                                                                               |                                                                                                                               |  |       
|                              
|                              
|                              
|                              
|                               | Item 1. Legal Proceedings                                                                     |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Item 2. Changes in Securities and Use of Proceeds                                             |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Item 3. Defaults Upon Senior Securities                                                       |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Item 4. Submission of Matters to a Vote of Security Holders                                   |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Item 5. Other Information                                                                     |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Item 6. Exhibits and Reports on Form 8-K                                                      |                                                                                                                               |  | 17     |  
|                              
|                              
|                              
|                              
|                               | Signatures                                                                                    |                                                                                                                               |  | 18     |  

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##### Table of Contents






PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

PEN HOLDINGS, INC.




CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

|                                                  |                                                                                             |                            |         |        |          |   |              |         |         |  | 
|------------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------ | -------- | - | ------------ | ------- | ------- |  | 
|                                                  |                                                                                             |                            |         |        | June 30, |   | December 31,
|                                                  |                                                                                             |                            |         |        | 2001     |   | 2000        
|                                                  |                                                                                             |                            |         |        |          |   |             
|ASSETS                                            |                                                                                             | (Revised)                  |         |        |          |  
|Current assets:                                   |                                                                                             |                            |         |        |          |   |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Cash and cash equivalents                                                                   |                            | $       | 97     |          |   | $            | 178     |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts receivable (net of allowance for doubtful
accounts of $579 and $605, respectively) |                            |         | 20,527 |          |   |              | 14,253  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Inventories                                                                                 |                            |         | 3,271  |          |   |              | 3,004   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred income taxes                                                                       |                            |         | 4,739  |          |   |              | 4,739   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Refundable income taxes                                                                     |                            |         |       |          |   |              | 3,015   |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Other assets                                                                                |                            |         | 2,610  |          |   |              | 2,886   |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | Total current assets       |         |        | 31,244   |   |              |         | 28,075  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Investment in unconsolidated affiliated companies |                                                                                             |                            | 9,694   |        |          |   | 3,046        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Coal reserves and mine development costs, net     |                                                                                             |                            | 130,540 |        |          |   | 151,845      |        
|                                                 
|                                                 
|                                                 
|                                                 
|Property, plant and equipment, net                |                                                                                             |                            | 82,318  |        |          |   | 85,771       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term investments                             |                                                                                             |                            | 9,842   |        |          |   | 16,960       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other assets                                      |                                                                                             |                            | 11,532  |        |          |   | 6,281        |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | $                          | 275,170 |        |          | $ | 291,978      |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|LIABILITIES AND SHAREHOLDERS EQUITY              |                                                                                             |                            |         |        |          |   |             
|                                                 
|                                                 
|                                                 
|                                                 
|Current liabilities:                              |                                                                                             |                            |         |        |          |   |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Revolving credit loans                                                                      |                            | $       |       |          |   | $            | 31,936  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Current maturities of long-term debt                                                        |                            |         | 1,128  |          |   |              | 103,312 |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Current maturities of capital leases                                                        |                            |         | 5,179  |          |   |              | 13,717  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accounts payable                                                                            |                            |         | 10,766 |          |   |              | 12,224  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Accrued liabilities                                                                         |                            |         | 9,078  |          |   |              | 20,985  |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Income taxes payable                                                                        |                            |         | 192    |          |   |              |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Deferred gain                                                                               |                            |         | 476    |          |   |              |        |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | Total current liabilities  |         |        | 26,819   |   |              |         | 182,174 | 
|                                                 
|                                                 
|                                                 
|                                                 
|Revolving credit loans                            |                                                                                             |                            | 4       |        |          |   |             |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term debt                                    |                                                                                             |                            | 131,663 |        |          |   |             |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term capital leases                          |                                                                                             |                            | 6,641   |        |          |   |             |        
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred income taxes                             |                                                                                             |                            | 47,251  |        |          |   | 51,780       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term deferred gain                           |                                                                                             |                            | 12,557  |        |          |   |             |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other liabilities                                 |                                                                                             |                            | 5,504   |        |          |   | 5,404        |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | Total liabilities          |         |        | 230,439  |   |              |         | 239,358 | 
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|Mandatorily redeemable preferred stock            |                                                                                             |                            | 14,656  |        |          |   | 14,110       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Shareholders equity:                             |                                                                                             |                            |         |        |          |   |              |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                             | Class I common stock       |         |        | 43       |   |              |         | 43      | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                             | Class II common stock      |         |        | 2        |   |              |         | 2       | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                             | Additional paid-in capital |         |        | 19       |   |              |         | 19      | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  |                                                                                             | Retained earnings          |         |        | 30,011   |   |              |         | 38,446  | 
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | Total shareholders equity |         |        | 30,075   |   |              |         | 38,510  | 
|                                                  |                                                                                             |                            |         |        |          |   |              |        
|                                                  |                                                                                             | $                          | 275,170 |        |          | $ | 291,978      |        
|                                                  |                                                                                             |                            |         |        |          |   |              |        

The accompanying notes are an integral part of these financial statements.

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PEN HOLDINGS, INC.




CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(Unaudited)

|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |        |  
|------------------------------------------------------------------------------------------------ | ----------------------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------ | - | - | ------ | ------ | -
|                                                                                                 |                                     |   | Three Months Ended |        | Six Months Ended
|                                                                                                 |                                     |   | June 30,           |        | June 30,        
|                                                                                                 |                                     |   |                    |        |                 
|                                                                                                 |                                     |   | Revised            |        |                  |   | Revised |        |     
|                                                                                                 |                                     |   |                    |        |                  |   |         |       
|                                                                                                 |                                     |   | 2001               |        | 2000             |   | 2001    |        | 2000
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |     
|Revenues                                                                                         |                                     | $ | 42,520             |        |                  | $ | 37,750  |        |      | $ | 78,778  |        |   | $ | 77,507 |       
|                                                                                                
|Expenses (income):                                                                               |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Cost of sales                       |   |                    | 41,352 |                  |   |         | 35,070 |      |   |         | 79,085 |   |   |        | 72,460 |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Selling, general and administrative |   |                    | 2,267  |                  |   |         | 1,598  |      |   |         | 3,942  |   |   |        | 3,039  |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Interest expense                    |   |                    | 4,073  |                  |   |         | 2,008  |      |   |         | 7,715  |   |   |        | 4,036  |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Interest income                     |   |                    | (32    | )                |   |         | (355   | )    |   |         | (66    | ) |   |        | (388   | )
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Litigation settlement               |   |                    | 361    |                  |   |         |       |      |   |         | 814    |   |   |        |       |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Other (income) expense              |   |                    | (770   | )                |   |         | 802    |      |   |         | (622   | ) |   |        | 930    |  
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Loss from continuing operations before income taxes                                              |                                     |   | (4,731             | )      |                  |   | (1,373  | )      |      |   | (12,090 | )      |   |   | (2,570 | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Provision (benefit) for income taxes                                                             |                                     |   | (1,615             | )      |                  |   | (709    | )      |      |   | (4,312  | )      |   |   | (1,165 | )     
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Net loss before results of discontinued operations                                               |                                     |   | (3,116             | )      |                  |   | (664    | )      |      |   | (7,778  | )      |   |   | (1,405 | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Income from discontinued operations, net of tax                                                  |                                     |   |                   |        |                  |   | 563     |        |      |   |        |        |   |   | 542    |       
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Net loss before extraordinary items and change in accounting principle                           |                                     |   | (3,116             | )      |                  |   | (101    | )      |      |   | (7,778  | )      |   |   | (863   | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Extraordinary item  loss related to early retirement of debt, less applicable
income tax of $57 |                                     |   | (111               | )      |                  |   |        |        |      |   | (111    | )      |   |   |       |       
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Loss before change in accounting principle                                                       |                                     |   | (3,227             | )      |                  |   | (101    | )      |      |   | (7,889  | )      |   |   | (863   | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Change in accounting principle, net of tax                                                       |                                     |   |                   |        |                  |   | 1,026   |        |      |   |        |        |   |   | 1,026  |       
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Net income (loss)                                                                                |                                     |   | (3,227             | )      |                  |   | 925     |        |      |   | (7,889  | )      |   |   | 163    |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Accretion of mandatorily redeemable preferred stock                                              |                                     |   | 273                |        |                  |   | 278     |        |      |   | 546     |        |   |   | 546    |       
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       
|Net income (loss) available to common shareholders                                               |                                     | $ | (3,500             | )      |                  | $ | 647     |        |      | $ | (8,435  | )      |   | $ | (383   | )     
|                                                                                                 |                                     |   |                    |        |                  |   |         |        |      |   |         |        |   |   |        |       

The accompanying notes are an integral part of these financial statements.

2



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##### Table of Contents



PEN HOLDINGS, INC.




CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(in thousands, except shares)
(Unaudited)

|                                        |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  |         |    |          |  |   |        |   |  |   |        |  
|--------------------------------------- |  | ------------ | --------- | ------------ |  | ---------- | -- | ------- |  | ------- | ------- | -------- |  | ----- | - |  |  | ------- | -- | -------- |  | - | ------ | - |  | - | ------ | -
|                                        |  | Class I      |           | Class II     |  |            |    |         |  |         |         |          |  |       |   | 
|                                        |  | Common Stock |           | Common Stock |  |            |    |         |  |         |         |          |  |       |   | 
|                                        |  |              |           |              |  | Additional |    |         |  |         |         |          |  |      
|                                        |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  | Paid-in |    | Retained |  |   |        |  
|                                        |  | Shares       |           | Amounts      |  | Shares     |    | Amounts |  | Capital |         | Earnings |  | Total
|                                        |  |              |           |              |  |            |    |         |  |         |         |          |  |      
|Balance at December 31, 2000            |  |              | 4,290,000 |              |  | $          | 43 |         |  |         | 177,550 |          |  | $     | 2 |  |  | $       | 19 |          |  | $ | 38,446 |   |  | $ | 38,510 |  
|                                       
|                                       
|                                       
|                                       
|Accretion of redeemable
preferred stock |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  |         |    |          |  |   | (546   | ) |  |   | (546   | )
|                                       
|                                       
|                                       
|                                       
|Net income (loss) (revised)             |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  |         |    |          |  |   | (7,889 | ) |  |   | (7,889 | )
|                                        |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  |         |    |          |  |   |        |   |  |   |        |  
|Balance at June 30, 2001 (revised)      |  |              | 4,290,000 |              |  | $          | 43 |         |  |         | 177,550 |          |  | $     | 2 |  |  | $       | 19 |          |  | $ | 30,011 |   |  | $ | 30,075 |  
|                                        |  |              |           |              |  |            |    |         |  |         |         |          |  |       |   |  |  |         |    |          |  |   |        |   |  |   |        |  

The accompanying notes are an integral part of these financial statements.

3



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##### Table of Contents



PEN HOLDINGS, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |         |        |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------- | ------ | ---------------- | ------- | ---- | ----- | ------- | ------ | -
|                                                                              |                                                                                                                                                        |                                                    |        | Six Months Ended
|                                                                              |                                                                                                                                                        |                                                    |        | June 30,        
|                                                                              |                                                                                                                                                        |                                                    |        |                 
|                                                                              |                                                                                                                                                        |                                                    |        | Revised          |         |     
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |     
|                                                                              |                                                                                                                                                        |                                                    |        | 2001             |         | 2000
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |     
|Cash flows from operating activities:                                         |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net income (loss)                                                                                                                                      |                                                    | $      | (7,889           | )       |      | $     | 163     |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:                                                        |                                                    |        |                  |         |      |       |         |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Depreciation, depletion and amortization           |        |                  | 9,982   |      |       |         | 7,968  |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Equity in net losses of affiliates                 |        |                  | 359     |      |       |         | 775    |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Deferred income taxes                              |        |                  | (4,529  | )    |       |         | (161   | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Loss on sale of investment                         |        |                  |        |      |       |         | (856   | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Loss on sale of property and equipment             |        |                  | 690     |      |       |         | 72     |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Extraordinary loss on debt refinancing, net of tax |        |                  | 111     |      |       |         |       |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Interest income on long-term investments           |        |                  | (429    | )    |       |         | (647   | )
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|Cash generated (used) by operations, before changes in assets and liabilities |                                                                                                                                                        |                                                    | (1,705 | )                |         |      | 7,314 |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Changes in assets and liabilities, net of effects from dispositions:          |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Accounts receivable                                |        |                  | (6,274  | )    |       |         | (641   | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Inventories                                        |        |                  | (267    | )    |       |         | (1,210 | )
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Accounts payable and accrued expenses              |        |                  | (12,640 | )    |       |         | 747    |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Other                                              |        |                  | (3,109  | )    |       |         | (778   | )
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                              |                                                                                                                                                        | Net cash provided (used) by operating activities   |        |                  | (23,995 | )    |       |         | 5,432  |  
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|Cash flows from investing activities:                                         |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Capital expenditures                                                                                                                                   |                                                    |        | (8,236           | )       |      |       | (12,484 | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds
from sale of property and equipment                                                                                                           |                                                    |        | 3,354            |         |      |       | 46      |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from sale of reserves                                                                                                                         |                                                    |        | 33,000           |         |      |       |        |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from sale of investment                                                                                                                       |                                                    |        |                 |         |      |       | 2,900   |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Investments in affiliated companies                                                                                                                    |                                                    |        | (7,117           | )       |      |       | (600    | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Escrowed funds                                                                                                                                         |                                                    |        | 7,547            |         |      |       |        |       
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                              | Net cash provided (used) by investing activities                                                                                                       |                                                    |        | 28,548           |         |      |       | (10,138 | )     
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|Cash flows from financing activities:                                         |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Proceeds from issuance of long-term debt                                                                                                               |                                                    |        | 29,500           |         |      |       |        |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Repayment of long-term debt                                                                                                                            |                                                    |        | (60              | )       |      |       | (55     | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Repayment of capital leases                                                                                                                            |                                                    |        | (2,142           | )       |      |       | (991    | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Net borrowings (payments) under line of credit agreements and current notes payable                                                                    |                                                    |        | (31,932          | )       |      |       | 5,245   |       
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                              | Net cash (used for) provided by financing activities                                                                                                   |                                                    |        | (4,634           | )       |      |       | 4,199   |       
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                              | Net decrease in cash                                                                                                                                   |                                                    |        | (81              | )       |      |       | (507    | )     
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Cash and cash equivalents at beginning of period                                                                                                       |                                                    |        | 178              |         |      |       | 599     |       
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                              | Cash and cash equivalents at end of period                                                                                                             |                                                    | $      | 97               |         |      | $     | 92      |       
|                                                                              |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|Supplemental disclosures of cash flow information:                            |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | Cash paid for:                                                                                                                                         |                                                    |        |                  |         |      |       |         |       
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Interest                                           |        | $                | 7,709   |      |       | $       | 6,670  |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              |                                                                                                                                                        | Income taxes                                       |        |                  |        |      |       |         |       |  
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|Supplemental disclosure of non-cash transactions:                             |                                                                                                                                                        |                                                    |        |                  |         |      |       |        
|                                                                             
|                                                                             
|                                                                             
|                                                                             
|                                                                              | In the six months ended June 30, 2001 and June 30, 2000, the Company financed through capital lease
transactions $244,000 and $14,049,000 of equipment |                                                    |        |                  |         |      |       |         |       

The accompanying notes are an integral part of these financial statements.

4



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##### Table of Contents



PEN HOLDINGS, INC.




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
(UNAUDITED)

NOTE 1  DESCRIPTION OF BUSINESS:

Pen Holdings, Inc. (Pen Holdings) and its consolidated subsidiaries
(references to the Company are to Pen Holdings and its consolidated
subsidiaries) are primarily engaged in the mining and sale of coal, selling
predominantly to utility companies. The Company also receives royalty income
from coal reserves leased to other companies. The Companys coal reserves and
mining operations are in Kentucky and West Virginia.

On June 4, 2001, The Elk Horn Coal Corporation, a wholly owned subsidiary
of Pen Holdings (Elk Horn) sold the coal and related real estate interests,
rights and other assets commonly referred to as the Fork Creek Properties, to
an unrelated party for an aggregate sales price of $33,000,000 in cash. The
Company has acquired the right to mine the property subject to one of Pen
Holdings subsidiaries paying specified royalties which will be paid on each
ton of Fork Creek coal mined and sold. The gain of $13,058,000 on this sale
was recorded as deferred gain on the balance sheet and will be recognized as
other income based on the tons mined as a percentage of total estimated
recoverable tons from the property.

In addition, the Company entered into the Second Amended and Restated
Credit Agreement, dated as of May 31, 2001 (the Amended Credit Agreement), by
and among Pen Holdings and certain financial institutions party thereto (the
Lenders). The Amended Credit Agreement provides for (a) revolving loans the
aggregate outstanding principal amount of which shall not exceed $15,000,000 at
any one time, and (b) term loans in an aggregate principal amount of up to
$32,000,000 of which $29,500,000 has been advanced and the remaining portion is
subject to meeting certain borrowing base criteria, all on the terms and
conditions of the Amended Credit Agreement. The Lenders are the successor to
the former lenders under the Amended Credit Agreement. The Lenders have taken
assignment to, and the assumption of, all of the rights and obligations of the
prior lenders under the Amended Credit Agreement and the assignment to the
agents, for the ratable benefit of the Lenders, of all rights of the prior
agent under the Amended Credit Agreement and related loan documents in the
collateral securing the indebtedness. As a result of entering into the Amended
Credit Agreement, the outstanding indebtedness was converted into revolving
loans and term loans under and subject to the terms and conditions of the
Amended Credit Agreement. The Lenders have guarantees from each of the
subsidiaries of Pen Holdings and have security interests and mortgages on
substantially all of Pen Holdings and its subsidiaries properties to secure
obligations under the Amended Credit Agreement.

On February 16, 2001, Pen Holdings announced that the Supreme Court of
Kentucky decided to not review a February 25, 2000 two-to-one split decision of
the Commonwealth of Kentucky Court of Appeals upholding a September 1998 Floyd
County Kentucky Circuit Court jury verdict in favor of Cheyenne Resources, Inc.
and its wholly owned subsidiary, PC&H Construction, Inc. (collectively,
Cheyenne). The Floyd County Kentucky Circuit Court jury verdict awarded
Cheyenne damages of approximately $9.5 million (plus prejudgment interest of
approximately $5 million). This lawsuit (the Cheyenne Litigation) was
brought against Elk Horn on a case relating to a coal lease that was entered
into by Elk Horn prior to the Companys purchase of Elk Horn. The Supreme
Court of Kentucky decision not to review the lower court decision rendered the
judgment final and non-appealable. As of June 4, 2001, Elk Horn fully
satisfied the judgment held by an affiliate of Travelers Casualty and Surety
Company of America (Travelers) which Travelers had held when it paid the
appeal bond it issued in connection with the Cheyenne Litigation.

During the three months ended June 30, 2000, the Company recorded a
receivable for Black Lung Excise Tax payments on export shipments for the
periods 1995 through 1999. This tax has been declared to be unconstitutional
by the United States Supreme Court and the Internal Revenue Service is
preparing to process refund claims for tax periods not closed by the three year
statute of limitations. The refund totals $1,504,000 and was credited to cost
of sales in the three months ended June 30, 2000. During the three months
ended June 30, 2001, the Supreme Court ruled in favor of another coal company
by allowing a previous decision enabling companies to apply for six years of
back tax refunds rather than the three years refund that the Justice
Department had been seeking. Therefore, in the three months ended June 30,
2001, the Company recorded an additional receivable for Black Lung Excise Tax
payments made in 1994 and 1995. The refund totals $898,000 and was credited to
costs of sales in the three months ended June 30, 2001. In the three months
ended June 30, 2001, the Company also recorded a receivable of $570,000
relating to expected refunds of Harbor Maintenance Fees which it paid on export
shipments from 1987 through 1993. This fee had previously been declared
unconstitutional and the Company had previously collected refunds for the
periods 1994 through 1999. The U.S. Customs Service recently issued final
regulations relating to the processing of the refund claims for these earlier
years.

At December 31, 2000, prior to the reserve sale and refinancing, all of
the Companys debt had been classified as current due to potential events of
defaults that existed at the balance sheet date under the Companys then
current Amended Credit Agreement. Since these defaults have been cured by the
events described above, the Companys debt as of June 30, 2001 has been
re-classified.

Disposal of a Business Segment  Discontinued Operations

In June 2000, the Company sold the stock of Pen Cotton Company of South
Carolina, a wholly owned subsidiary engaged in cotton ginning and warehousing
in South Carolina. The sales price was $2,900,000 paid in cash at closing.
Pen Holdings is a guarantor of the debt that the buyer incurred to purchase the
business. The gain resulting from the sale of approximately $848,000 (less
applicable

5



---



##### Table of Contents



taxes of $288,000) is included in Income from discontinued operations. As a
result of this sale the Company has discontinued its cotton operations.

The statements of
operations for the three months and six months ended June 30, 2000
have been reclassified to reflect these discontinued operations. For the three months and six months ended June 30, 2000, results of
operations of Pen Cotton Company of South Carolina produced income of $5,000
(less applicable taxes of $2,000) and a loss of $27,000 (less applicable tax
credits of $9,000), respectively.

NOTE 1A  REVISION OF FINANCIAL STATEMENTS:

In the course of reviewing the financial statements to be included in the
registrants quarterly report on form 10-Q for the quarter ended September 30,
2001, Pen Holdings determined that it had previously reported a
$3,215,000 gain on sale of coal reserves during the three months
ended June 30, 2001 that, after revision of the financial statements
for removing the book basis of the coal reserves, resulted in a loss
of $690,000. The Company
determined that it would have to revise its financial statements.

The following summarizes the effects of the adjustments on the
accompanying balance sheet as of June 30, 2001, the statement of operations for
the three and six months ended June 30, 2001 and the statement of cash flows
for the six months ended June 30, 2001:

CONDENSED BALANCE SHEET
(in thousands)

|                                                  |                                           |  |          |         |          |  |         |         | 
|------------------------------------------------- | ----------------------------------------- |  | -------- | ------- | -------- |  | ------- | ------- | 
|                                                  |                                           |  | June 30, |         | June 30,
|                                                  |                                           |  | 2001     |         | 2001    
|                                                  |                                           |  |          |         |         
|                                                  |                                           |  | Reported |         | Revised 
|                                                  |                                           |  |          |         |         
|                                                  | Total current assets                      |  | $        | 31,244  |          |  | $       | 31,244  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Investment in unconsolidated affiliated companies |                                           |  | 9,694    |         |          |  | 9,694   |        
|                                                 
|                                                 
|                                                 
|                                                 
|Coal reserves and mine development costs, net     |                                           |  | 134,445  |         |          |  | 130,540 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Property, plant and equipment, net                |                                           |  | 82,318   |         |          |  | 82,318  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term investments                             |                                           |  | 9,842    |         |          |  | 9,842   |        
|                                                 
|                                                 
|                                                 
|                                                 
|Net assets to be disposed                         |                                           |  |         |         |          |  |        |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other assets                                      |                                           |  | 11,532   |         |          |  | 11,532  |        
|                                                  |                                           |  |          |         |          |  |         |        
|                                                  | Total Assets                              |  | $        | 279,075 |          |  | $       | 275,170 | 
|                                                  |                                           |  |          |         |          |  |         |        
|                                                 
|                                                  | Total current liabilities                 |  | $        | 26,819  |          |  | $       | 26,819  | 
|                                                 
|                                                 
|                                                 
|                                                 
|Revolving credit loans                            |                                           |  | 4        |         |          |  | 4       |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term debt                                    |                                           |  | 131,663  |         |          |  | 131,663 |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term capital leases                          |                                           |  | 6,641    |         |          |  | 6,641   |        
|                                                 
|                                                 
|                                                 
|                                                 
|Deferred income taxes                             |                                           |  | 48,579   |         |          |  | 47,251  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Long-term deferred gain                           |                                           |  | 12,557   |         |          |  | 12,557  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Other liabilities                                 |                                           |  | 5,504    |         |          |  | 5,504   |        
|                                                  |                                           |  |          |         |          |  |         |        
|                                                  | Total liabilities                         |  |          | 231,767 |          |  |         | 230,439 | 
|                                                  |                                           |  |          |         |          |  |         |        
|Mandatorily redeemable preferred stock            |                                           |  | 14,656   |         |          |  | 14,656  |        
|                                                 
|                                                 
|                                                 
|                                                 
|Shareholders equity:                             |                                           |  |          |         |          |  |         |        
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Class I common stock                      |  |          | 43      |          |  |         | 43      | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Class II common stock                     |  |          | 2       |          |  |         | 2       | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Additional paid-in capital                |  |          | 19      |          |  |         | 19      | 
|                                                 
|                                                 
|                                                 
|                                                 
|                                                  | Retained earnings                         |  |          | 32,588  |          |  |         | 30,011  | 
|                                                  |                                           |  |          |         |          |  |         |        
|                                                  | Total shareholders equity                |  |          | 32,652  |          |  |         | 30,075  | 
|                                                  |                                           |  |          |         |          |  |         |        
|                                                  | Total Liabilities and Shareholders Equity |  | $        | 279,075 |          |  | $       | 275,170 | 
|                                                  |                                           |  |          |         |          |  |         |        

6



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##### Table of Contents



CONDENSED STATEMENTS OF OPERATIONS
(in thousands)

|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |        |  
|------------------------------------------------------------------------------------------------ | ----------------------------------- | - | ------------------ | ------ | ---------------- | - | -------- | ------ | ------- | - | ------ | ------ | - | - | ------- | ------ | -
|                                                                                                 |                                     |   | Three Months Ended |        | Six Months Ended
|                                                                                                 |                                     |   | June 30, 2001      |        | June 30, 2001   
|                                                                                                 |                                     |   |                    |        |                 
|                                                                                                 |                                     |   | Reported           |        | Revised          |   | Reported |        | Revised
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |        
|Revenues                                                                                         |                                     | $ | 42,520             |        |                  | $ | 42,520   |        |         | $ | 78,778 |        |   | $ | 78,778  |       
|                                                                                                
|Expenses (income):                                                                               |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Cost of sales                       |   |                    | 41,352 |                  |   |          | 41,352 |         |   |        | 79,085 |   |   |         | 79,085 |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Selling, general and administrative |   |                    | 2,267  |                  |   |          | 2,267  |         |   |        | 3,942  |   |   |         | 3,942  |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Interest expense                    |   |                    | 4,073  |                  |   |          | 4,073  |         |   |        | 7,715  |   |   |         | 7,715  |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Interest income                     |   |                    | (32    | )                |   |          | (32    | )       |   |        | (66    | ) |   |         | (66    | )
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Litigation settlement               |   |                    | 361    |                  |   |          | 361    |         |   |        | 814    |   |   |         | 814    |  
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                 | Other income                        |   |                    | (4,675 | )                |   |          | (770   | )       |   |        | (4,527 | ) |   |         | (622   | )
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       
|Loss from continuing operations before income taxes                                              |                                     |   | (826               | )      |                  |   | (4,731   | )      |         |   | (8,185 | )      |   |   | (12,090 | )     
|                                                                                                
|                                                                                                
|                                                                                                
|                                                                                                
|Provision (benefit) for income taxes                                                             |                                     |   | (287               | )      |                  |   | (1,615   | )      |         |   | (2,984 | )      |   |   | (4,312  | )     
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       
|Net loss before extraordinary item                                                               |                                     |   | (539               | )      |                  |   | (3,116   | )      |         |   | (5,201 | )      |   |   | (7,778  | )     
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       
|Extraordinary item  loss related to early
retirement of debt, less applicable income
tax of $57 |                                     |   | (111               | )      |                  |   | (111     | )      |         |   | (111   | )      |   |   | (111    | )     
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       
|Net loss                                                                                         |                                     | $ | (650               | )      |                  | $ | (3,227   | )      |         | $ | (5,312 | )      |   | $ | (7,889  | )     
|                                                                                                 |                                     |   |                    |        |                  |   |          |        |         |   |        |        |   |   |         |       

7



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##### Table of Contents



CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)

|                                                                  |                                                                             |                                                    |        |                  |        |                  |        |         |        |  
|----------------------------------------------------------------- | --------------------------------------------------------------------------- | -------------------------------------------------- | ------ | ---------------- | ------ | ---------------- | ------ | ------- | ------ | -
|                                                                  |                                                                             |                                                    |        | Six Months Ended |        | Six Months Ended
|                                                                  |                                                                             |                                                    |        | June 30, 2001    |        | June 30, 2001   
|                                                                  |                                                                             |                                                    |        |                  |        |                 
|                                                                  |                                                                             |                                                    |        | Reported         |        | Revised         
|                                                                  |                                                                             |                                                    |        |                  |        |                 
|Cash flows from operating activities:                             |                                                                             |                                                    |        |                  |        |                  |        |        
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net loss                                                                    |                                                    | $      | (5,312           | )      |                  | $      | (7,889  | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Adjustments to reconcile net loss to net cash used by operating activities: |                                                    |        |                  |        |                  |        |         |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | Depreciation, depletion and amortization           |        |                  | 9,982  |                  |        |         | 9,982  |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | Equity in net losses of affiliates                 |        |                  | 359    |                  |        |         | 359    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | Deferred income taxes                              |        |                  | (3,201 | )                |        |         | (4,529 | )
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | (Gain)/loss on sale of property and equipment      |        |                  | (3,215 | )                |        |         | 690    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | Extraordinary loss on debt refinancing, net of tax |        |                  | 111    |                  |        |         | 111    |  
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  |                                                                             | Interest income on long-term investments           |        |                  | (429   | )                |        |         | (429   | )
|                                                                  |                                                                             |                                                    |        |                  |        |                  |        |        
|Cash used by operations, before changes in assets and liabilities |                                                                             |                                                    | (1,705 | )                |        |                  | (1,705 | )      
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net cash used by operating activities                                       |                                                    |        | (23,995          | )      |                  |        | (23,995 | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net cash provided by investing activities                                   |                                                    |        | 28,548           |        |                  |        | 28,548  |       
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net cash used for financing activities                                      |                                                    |        | (4,634           | )      |                  |        | (4,634  | )     
|                                                                 
|                                                                 
|                                                                 
|                                                                 
|                                                                  | Net decrease in cash                                                        |                                                    |        | (81              | )      |                  |        | (81     | )     
|                                                                  |                                                                             |                                                    |        |                  |        |                  |        |        

NOTE 2-SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

Investments in affiliated enterprises in which the Company owns less than
a controlling interest are presented under the equity basis of accounting
representing the Companys investment in affiliates, reduced by goodwill
amortization and increased (decreased) by the Companys proportionate equity in
net income (losses) of the unconsolidated affiliates.

Change in Accounting Principle

During the six months ended June 30, 2000, the Company changed its method
of accounting for supply parts inventory from expensing upon purchase to
capitalization upon purchase and expensing upon usage. In prior years, the
Company has had a relatively even mix of operations in underground mining and
surface mining. However, the Company started two new underground mines in
2000. The underground mining process requires a large amount of mining supplies
and supply parts inventory. The anticipated tons to be produced from
underground mining is projected to increase to over 75% of the Companys
production in the next few years. Accordingly, the Company believes that the
capitalization of supply parts inventory will result in a better measurement of
operating results by matching revenues with related expenses. The $1,137,000
cumulative effect of the change on prior years (after reduction for income
taxes of $586,000) is included in income of the three and six months ended June
30, 2000. The supplies inventory balance at December 31, 1999 was $1,723,000.
The pro forma effect of the adoption for periods prior to January 1, 2000 could
not be determined as the Company did not separately track inventory supplies
for such prior periods.

Interim Financial Information

The accompanying interim financial statements have been prepared without
audit, and certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted, although the Company believes that
the disclosures herein are adequate to make information presented not
misleading. These statements should be read in conjunction with the Companys
financial statements for the year ended December 31, 2000, which are included
in the Companys Form 10-K for the year ended December 31, 2000, as filed with
the Securities and Exchange Commission on April 30, 2001. The results of
operations for the three or six month periods are not necessarily indicative of
results for the full year. Certain prior year amounts have been re-classified
for comparative purposes.

In the opinion of management, the accompanying interim financial
statements contain all adjustments of a normal and recurring nature necessary
for a fair presentation of the Companys financial position as of June 30,
2001, its results of operations for three and six months ended June 30, 2001
and 2000, and its cash flows for the six months ended June 30, 2001 and 2000.

8



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##### Table of Contents



NOTE 3-INVENTORIES:

Inventories consist of the following (in thousands):

|         |  |          |       |              |  |   |       | 
|-------- |  | -------- | ----- | ------------ |  | - | ----- | 
|         |  | June 30, |       | December 31,
|         |  | 2001     |       | 2000        
|         |  |          |       |             
|Coal     |  | $        | 1,997 |              |  | $ | 1,604 | 
|        
|        
|        
|        
|Supplies |  |          | 1,274 |              |  |   | 1,400 | 
|         |  |          |       |              |  |   |       | 
|         |  | $        | 3,271 |              |  | $ | 3,004 | 
|         |  |          |       |              |  |   |       | 

See Note 2 for change in accounting principle related to supplies
inventory.

NOTE 4-COAL RESERVES AND MINE DEVELOPMENT COSTS:

Coal reserves and mine development costs consist of the following (in
thousands):

|                             |  |           |         |              |  |   |         |  
|---------------------------- |  | --------- | ------- | ------------ |  | - | ------- | -
|                             |  | June 30,  |         | December 31,
|                             |  | 2001      |         | 2000        
|                             |  |           |         |             
|                             |  | (Revised) |         |              |  |  
|Coal reserves                |  | $         | 134,967 |              |  | $ | 153,967 |  
|                            
|                            
|                            
|                            
|Other mine development costs |  |           | 31,999  |              |  |   | 31,625  |  
|                             |  |           |         |              |  |   |         |  
|                             |  |           | 166,966 |              |  |   | 185,592 |  
|                            
|                            
|                            
|                            
|Accumulated depletion        |  |           | (36,426 | )            |  |   | (33,747 | )
|                             |  |           |         |              |  |   |         |  
|                             |  | $         | 130,540 |              |  | $ | 151,845 |  
|                             |  |           |         |              |  |   |         |  

NOTE 5-PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following (in thousands):

|                         |  |          |         |              |  |   |         |  
|------------------------ |  | -------- | ------- | ------------ |  | - | ------- | -
|                         |  | June 30, |         | December 31,
|                         |  | 2001     |         | 2000        
|                         |  |          |         |             
|Machinery and equipment  |  | $        | 99,070  |              |  | $ | 99,160  |  
|                        
|                        
|                        
|                        
|River terminals          |  |          | 12,132  |              |  |   | 11,633  |  
|                        
|                        
|                        
|                        
|Buildings                |  |          | 8,396   |              |  |   | 8,135   |  
|                        
|                        
|                        
|                        
|Coal preparation plant   |  |          | 21,625  |              |  |   | 20,042  |  
|                        
|                        
|                        
|                        
|Other                    |  |          | 3,249   |              |  |   | 3,713   |  
|                         |  |          |         |              |  |   |         |  
|                         |  |          | 144,472 |              |  |   | 142,683 |  
|                        
|                        
|                        
|                        
|Accumulated depreciation |  |          | (62,154 | )            |  |   | (56,912 | )
|                         |  |          |         |              |  |   |         |  
|                         |  | $        | 82,318  |              |  | $ | 85,771  |  
|                         |  |          |         |              |  |   |         |  

NOTE 6-REVOLVING LINES OF CREDIT:

Effective May 31, 2001 the Company entered into the Amended Credit
Agreement. Under the original credit facility, the Company had a principal
borrowing limit of $40,000,000. The amended credit facility provides up to
$32,000,000 in term loans and a maximum revolving line of credit of
$15,000,000. The Amended Credit Agreement expires in June 2003. Availability
under the line of credit in the Amended Credit Agreement is based on a formula
of eligible accounts receivable and eligible inventory not to exceed
$15,000,000. Borrowings bear interest at a variable rate based upon a stated
reference rate (an effective rate of 8.50% at June 30, 2001). The revolving
line of credit had an amount outstanding of $4,000 and $31,936,000 at June 30,
2001 and December 31, 2000 respectively. Additionally, $4,360,000 was committed
for outstanding letters of credit at December 31, 2000. The Amended Credit
Agreement contains financial and operational covenants.

9



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##### Table of Contents



NOTE 7-LONG TERM DEBT:

Long-term debt consists of the following:

| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                |         |                |  |   |          |  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------- |  | - | -------- | -
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | June 30,       |         | December 31,  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 2001           |         | 2000          
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                |         |               
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | (in thousands) |         | (in thousands)
| |  | Senior 9-7/8% Notes (the Senior Notes) due 2008 in the aggregate
principal amount of $100,000,000. On June 8, 1998, Pen Holdings issued
the Senior Notes which accrue interest at 9-7/8%, payable semi-annually
in June and December through the maturity date of June 15, 2008. The
entire principal amount is due at the maturity date. The Senior Notes
were issued with an aggregate original issue discount of $784,000,
which is being amortized over the ten year term of the Senior Notes.
The Senior Notes are general unsecured obligations of Pen Holdings
ranking generally the same in priority of payment with all existing and
future unsubordinated indebtedness of the Company. The Senior Notes are
unconditionally guaranteed (the Guarantees) on a senior unsecured
basis, as to the payment of principal, premium, if any, and interest,
fully and unconditionally, joint and severally, by certain of Pen
Holdings subsidiaries (the Guarantors). The Guarantees rank
generally the same in priority of payment with all existing and future
unsubordinated indebtedness of the Guarantors and senior in right of
payment to all existing and future indebtedness of the Guarantors. The
Senior Notes are redeemable at the option of Pen Holdings, in whole or
in part, at any time on or after June 15, 2003 at premiums to face
value identified in the Indenture by and among Pen Holdings, the
Guarantors, and The Bank of New York, as Trustee, dated June 8, 1998
(the Indenture), relating to the Senior Notes |  | $              | 99,458  |                |  | $ | 99,419   |  
|
| |  | Term debt secured by certain of the Companys assets with a net book
value of $175,917,000 at June 30, 2001. Effective May 31, the Company
entered into the Amended Credit Agreement, which provides for term
loans up to $32,000,000 of which $29,500,000 has been advanced as of
June 30, 2001, the remainder is contingent upon a updated appraisal of
collateral assets. The Amended Credit Agreement provides for monthly
interest payments based upon a stated reference rate plus the
applicable margin (10.25% as of June 30, 2001) and principle reductions
of $500,000 in February and May of 2002 and $1,000,000 in August and
November 2002 and in February 2003 with the balance due by May 31, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                | 29,500  |                |  |   |          |  
|
| |  | Notes payable secured by a lien on an office building which serves as
the Companys headquarters, with a net book value of $2,741,000 at June
30, 2001, payable in monthly installments of $37,000 through 2016.
Interest included in the monthly installments is a fixed rate of 8.33%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                | 3,833   |                |  |   | 3,893    |  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                |         |                |  |   |          |  
| |  | Total long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                | 132,791 |                |  |   | 103,312  |  
|
|
|
|
| |  | Current maturities of long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |                | (1,128) |                |  |   | (103,312 | )
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                |         |                |  |   |          |  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | $              | 131,663 |                |  | $ |         |  
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                |         |                |  |   |          |  

The Indenture for the Senior Notes contains various covenants, the most
significant of which restricts the Companys ability to incur certain forms of
additional indebtedness, pay dividends or transfer or sell assets except in the
ordinary course of business. Certain of the Companys other loan agreements
contain minimum operating and financial ratios and covenants as defined in the
separate agreements. See additional information in NOTE 1.

NOTE 8- CONTINGENCIES:

There are legal proceedings pending against the Company arising from the
normal course of business. Management of the Company and its legal counsel
handling such matters do not expect any of these matters to have a material
effect on the Companys financial position or results of operations or cash
flows.

The Company is a guarantor of $2,429,000 of debt that the purchaser of Pen
Cotton of South Carolina, Inc. incurred in connection with the purchase
transaction. The Company is a guarantor of $81,000 of debt that its partner in
Camden Hardwood Company used for its investment. This partnership is reflected
as part of the discontinued operations. Both of the loans for which the
Company is a guarantor are performing according to their terms.

10



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##### Table of Contents



|        |  |                                                                                                                                                         
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|ITEM 2. |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                                                                   
|       
|       
|       
|       
|        |  | (All amounts for the three months and six months ended June 30,
2001 have been revised as set forth in Note 1A to the consolidated
financial statements)

The statements contained in this Report that are not historical facts are
forward looking statements (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which statements can be identified by the use
of forward looking terminology such as believes, expects, may, will,
should, intends or anticipates or the negative thereof or other
variations thereon or comparable terminology, or by discussions of strategy
that involve risks and uncertainties. Management cautions the reader that
these forward looking statements are only predictions. No assurance can be
given that future results will be achieved; actual events or results may differ
materially as a result of risks facing the Company. Such risks include, but
are not limited to the Companys reliance on long-term sales contracts, the
Companys reliance on long-term mineral leases, the competitive environment in
which the Company operates, the risks inherent to the mining industry,
acquisitions, government regulation, reclamation and mine closure accruals, the
effects of Clean Air Act Amendments on the coal industry, replacement and
recoverability of coal reserves, economic conditions in the coal industry
generally and technological developments. Such risks are described in more
detail in Pen Holdings Annual Report on Form 10-K for the year ended December
31, 2000, filed with the U.S. Securities and Exchange Commission on April 30,
2001. See ITEM 1. BUSINESS-RISK FACTORS. Such risks could cause actual
results to vary materially from the future results indicated, expressed or
implied, in such forward looking statements.

General

The Company is engaged in the mining, preparation, marketing and leasing
of primarily compliance and low-sulfur coal from mines located in the Central
Appalachian region of eastern Kentucky and southern West Virginia. Based on
the reserve information compiled by third-parties, management believes it
controls the mineral rights to approximately 201 million tons of coal reserves,
of which management believes 52% is owned in fee. On June 4, 2001, Elk Horn, a
wholly owned subsidiary of Pen Holdings sold the coal and related real estate
interests, rights and other assets commonly referred to as the Fork Creek
Properties, to an unrelated party for an aggregate sales price of $33,000,000.
The Company has acquired the right to mine the property subject to one of Pen
Holdings subsidiaries paying specified royalties which will be paid on each
ton of Fork Creek coal mined and sold. In the three and six months ended June
30, 2001, the Company sold approximately 1,507,000 and 2,874,000 tons of coal,
respectively, approximately 98.9% and 98.7% of which were generated from
captive production, respectively, with the remainder purchased from other coal
mine operators. During the three and six months ended June 30, 2001,
approximately 72.8% and 72.2% respectively of the tonnage was sold to eight
long-term sales contract customers. The Company sells coal primarily to
domestic public utilities and industrial customers. Coal sales under long-term
sales contracts (contracts with a term longer than one year) are the primary
source of revenues for the Company.

The Company also generates revenues by leasing portions of its mineral
rights to independent coal producers in exchange for revenue-based lease
royalties. Generally, the lease terms provide the Company with a royalty fee
of up to 10% of the sales price of the coal with a minimum of $1.75 to $2.50
per ton. The term of such leases varies from five years to the life of the
reserves. A minimum advance annual royalty is required whether or not the
property is mined. Such minimum royalty can be recouped by the lessee as a
credit against royalties owed on production if such production is within a
specified period of time after a minimum advance royalty is paid by the lessee.

The Companys cost of sales is primarily composed of expenses related to
coal operations and coal leasing. Cost of coal sales are principally related
to (i) costs associated with production, (ii) contract mining fees, (iii) coal
purchases, (iv) royalties, and (v) upriver loading charges. The Companys costs
associated with production include labor, haulage, depreciation and depletion,
coal preparation plant costs, coal fees and taxes, supplies, and repairs and
maintenance. The Companys other costs of sales vary due to the level of
contract mining production, the quantity and quality of tonnage purchased, tons
mined on leased land, and spot market coal prices. The Companys costs of
sales related to its lease operations consist primarily of depletion and
administrative costs.

11



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated, certain
operating and other data of the Company presented as a percent of revenues
(numbers may not add due to rounding).

|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |      |  
|---------------------------------------------------------------------- | ----------------------------------- |  | ------------------ | ---- | ---------------- |  | ----- | ---- | --------- |  | ----- | ----- | - |  | ----- | ---- | -
|                                                                       |                                     |  | Three Months Ended |      | Six Months Ended
|                                                                       |                                     |  | June 30,           |      | June 30,        
|                                                                       |                                     |  |                    |      |                 
|                                                                       |                                     |  | 2001               |      | 2000             |  | 2001  |      | 2000     
|                                                                       |                                     |  |                    |      |                  |  |       |      |          
|                                                                       |                                     |  | (Revised)          |      |                  |  |       |      | (Revised) |  |       |       |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Revenues                                                               |                                     |  | 100.0              | %    |                  |  | 100.0 | %    |           |  | 100.0 | %     |   |  | 100.0 | %   
|                                                                      
|Expenses (income):                                                     |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Cost of sales                       |  |                    | 97.3 |                  |  |       | 92.9 |           |  |       | 100.4 |   |  |       | 93.5 |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Selling, general and administrative |  |                    | 5.3  |                  |  |       | 4.2  |           |  |       | 5.0   |   |  |       | 3.9  |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Interest expense                    |  |                    | 9.5  |                  |  |       | 5.3  |           |  |       | 9.7   |   |  |       | 5.2  |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Interest income                     |  |                    | (0.1 | )                |  |       | (0.9 | )         |  |       | (0.1  | ) |  |       | (0.5 | )
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Litigation settlement               |  |                    | 0.8  |                  |  |       | 0.0  |           |  |       | 1.0   |   |  |       | 0.0  |  
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Other (income) expense              |  |                    | (1.8 | )                |  |       | 2.1  |           |  |       | (0.8  | ) |  |       | 1.2  |  
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|Loss from continuing operations before income taxes                    |                                     |  | (11.1              | )    |                  |  | (3.6  | )    |           |  | (15.3 | )     |   |  | (3.3  | )   
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Provision (benefit) for income taxes                                   |                                     |  | (3.8               | )    |                  |  | (1.9  | )    |           |  | (5.5  | )     |   |  | (1.5  | )   
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|Net loss before results of discontinued operations                     |                                     |  | (7.3               | )    |                  |  | (1.7  | )    |           |  | (9.9  | )     |   |  | (1.8  | )   
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Income from discontinued operations, net of tax                        |                                     |  | 0.0                |      |                  |  | 1.5   |      |           |  | 0.0   |       |   |  | 0.7   |     
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|Net loss before extraordinary items and change in accounting
principle |                                     |  | (7.3               | )    |                  |  | (0.2  | )    |           |  | (9.9  | )     |   |  | (1.1  | )   
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Extraordinary loss, net of tax                                         |                                     |  | (0.3               | )    |                  |  | 0.0   |      |           |  | (0.1  | )     |   |  | 0.0   |     
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|Income (loss) before change in accounting principle                    |                                     |  | (7.6               | )    |                  |  | (0.2  | )    |           |  | (10.0 | )     |   |  | (1.1  | )   
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Change in accounting principle, net of tax                             |                                     |  | 0.0                |      |                  |  | 2.7   |      |           |  | 0.0   |       |   |  | 1.3   |     
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     
|Net income (loss)                                                      |                                     |  | (7.6               | )%   |                  |  | 2.5   | %    |           |  | (10.0 | )%    |   |  | 0.2   | %   
|                                                                       |                                     |  |                    |      |                  |  |       |      |           |  |       |       |   |  |       |     

Three Months Ended June 30, 2001 Compared to the Three Months Ended June 30,
2000

Revenues

Coal sales. Coal sales revenues were $40,762,000 for the three months
ended June 30, 2001 compared to $35,096,000 for the three months ended June 30,
2000, an increase of 16.1%. The increase is primarily attributable to an
increase in the volume of coal shipped. Coal sales volume increased to
1,507,000 tons for the three months ended June 30, 2001 from 1,364,000 tons for
the three months ended June 30, 2000, an increase of 10.5%. The increase in
coal sales revenues is primarily attributable to the additional volume
generated by the Fork Creek development, which began coal shipments in
September 2000. Shipments from Fork Creek were 456,000 tons in the three
months ended June 30, 2001. Additionally, improved market conditions have
contributed to increased coal sales revenues.

Coal leasing. Coal leasing revenues were $1,758,000 for the three months
ended June 30, 2001 compared to $2,047,000 for the three months ended June 30,
2000, a decrease of 14.1%. The decrease is primarily attributable to a
decrease in the volume of production from lessees. Production from lessees
mining operations was 590,000 tons for the three months ended June 30, 2001
compared to 985,000 for the three months ended June 30, 2000, a decrease of
40.1%. This decrease is primarily attributable to the sale of a mineral tract
which had previously been leased. This sale, which was consummated in April
2001, generated approximately $3,000,000 in cash. Lessee production for the
three months ended June 30, 2000 for the property which was sold totaled
112,000 tons.

Other.The Company had no other revenues for the three months ended June
30, 2001 compared to $607,000 for the three months ended June 30, 2000. Other
revenues for the three months ended June 30, 2000 primarily include timber
sales.

Cost of Sales

Cost of sales-Coal sales. Cost of coal sales totaled $40,435,000 for the
three months ended June 30, 2001 compared to $33,919,000 for the three months
ended June 30, 2000, an increase of 19.2% during a period in which tons sold
increased 10.5%. The

12



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##### Table of Contents



increase resulted primarily from higher than expected costs at the Companys
Fork Creek mines, which are due primarily from adverse initial mining
conditions and development issues at the Fork Creek mines. The development
issues were created because of a highly competitive labor market and the
inability to fund planned capital expenditures due to a lack of liquidity prior
to the refinancing.

During the three months ended June 30, 2000, the Company recorded a
receivable for Black Lung Excise Tax payments on export shipments for the
periods 1995 through 1999. This tax has been declared to be unconstitutional
by the United States Supreme Court and the Internal Revenue Service is
preparing to process refund claims for tax periods not closed by the three year
statute of limitations. The refund totals $1,504,000 and was credited to cost
of sales in the three months ended June 30, 2000. During the three months
ended June 30, 2001, the Supreme Court ruled in favor of another coal company
by allowing a previous decision enabling companies to apply for six years of
back tax refunds rather than the three years refund that the Justice
Department had been seeking. Therefore, in the three months ended June 30,
2001, the Company recorded an additional receivable for Black Lung Excise Tax
payments made in 1994 and 1995. The refund totals $898,000 and was credited to
costs of sales in the three months ended June 30, 2001. In the three months
ended June 30, 2001, the Company also recorded a receivable of $570,000
relating to expected refunds of Harbor Maintenance Fees which it paid on export
shipments from 1987 through 1993. This fee had previously been declared
unconstitutional and the Company had previously collected refunds for the
periods 1994 through 1999. The U.S. Customs Service recently issued final
regulations relating to the processing of the refund claims for these earlier
years.

Cost of sales-Leasing.Cost of coal lease revenues totaled $917,000 for
the three months ended June 30, 2001 compared to $1,151,000 for the three
months ended June 30, 2000, a decrease of 20.3%. The decrease primarily
resulted from a decrease in the volume of coal mined by lessees.

Other

Selling, general and administrative expenses totaled $2,267,000 for the
three months ended June 30, 2001 compared to $1,598,000 for the three months
ended June 30, 2000, an increase of 41.9%. Selling, general and administrative
expenses were 5.3% and 4.2% of revenues for the three months ended June 30,
2001 and 2000, respectively. The increase primarily results from increased
professional fees.

As a result, EBITDA
(EBITDA as defined to mean operating income (revenues
less cost of sales and selling, general and administrative expenses) plus
depreciation, depletion and amortization; EBITDA is not intended to represent
cash flow from operations as defined by generally accepted accounting
principles and should not be used as an alternative to net income or as an
indicator of operating performance or to cash flows as a measure of liquidity)
totaled $3,791,000 for the three months ended June 30, 2001 compared to
$5,027,000 for the three months ended June 30, 2000, a decrease of 24.6%. This
decrease is primarily attributable to increased mining costs at the Companys
operations.

Interest expense totaled $4,073,000 for the three months ended June 30,
2001 compared to $2,008,000 for the three months ended June 30, 2000, an
increase of 102.8%. This increase primarily resulted from increased line of
credit borrowings and no capitalization of interest related to the Fork Creek
development for the three months ended June 30, 2001.

Interest income totaled $32,000 for the three months ended June 30, 2001
compared to $355,000 for the three months ended June 30, 2000 a decrease of
91.0%. Interest income for the three months ended June 30, 2000 primarily
related to Black Lung Excise Tax refunds that were recognized in that period.

The litigation settlement expense of $361,000 for the three months ended
June 30, 2001 relates to interest accrued on the Cheyenne Litigation. The
amounts owed by Elk Horn as a result of this litigation were paid in full on
June 4, 2001.

Other (income) expense was other income of $770,000 for the three months
ended June 30, 2001 compared to other expense of $802,000 for the three months
ended June 30, 2000. Other income for the three months ended June 30, 2001 was
primarily due to net gains on the sales of coal reserves and mineral rights.
Other expense for the three months ended June 30, 2000 was primarily due to the
Companys share of the loss from its one-third partnership interest in
International Marine Terminals (IMT), a loading facility for ocean-going bulk
cargo vessels located along the Mississippi River.

Income taxes were a benefit of $1,615,000 for the three months ended June
30, 2001 compared to a benefit of $709,000 for the three months ended June 30,
2000, an increase of 127.8%. The increase is a result of an increased loss in
the three months ended June 30, 2001 than in the three months ended June 30,
2000. The decrease in the effective tax rate from 51.6% for the three months
ended June 30, 2000 to 34.1 % for the three months ended June 30, 2001 results
primarily from a reduced benefit of statutory depletion quarter compared to the
previous quarter.

Six Months Ended June 30, 2001 Compared to the Six Months Ended June 30, 2000

Revenues

Coal sales. Coal sales revenues were $75,201,000 for the six months ended
June 30, 2001 compared to $72,137,000 for the six months ended June 30, 2000,
an increase of 4.3%. This increase is primarily attributable to an increase in
the volume of coal shipped. Coal sales volume was 2,875,000 tons for the six
months ended June 30, 2001 compared to 2,731,000 tons for the six months ended
June 30, 2000, an increase of 5.3%. The increased volume is primarily
attributable to additional tonnage from the Companys Fork Creek

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mines which began coal shipments in September 2000, offset by reduced sale of
coal purchased from other coal producers. Shipments from Fork Creek were
788,000 in the six months ended June 30, 2001.

Coal leasing. Coal leasing revenues were $3,575,000 for the six months
ended June 30, 2001 compared to $3,873,000 for the six months ended June 30,
2000, a decrease of 7.7%. The decrease is primarily attributable to a decrease
in the volume of production from lessees, which is primarily attributable to
the sale of a mineral tract which had previously been leased. Production from
the Companys lessees was 1,354,000 tons for the six months ended June 30, 2001
compared to 1,946,000 for the six months ended June 30, 2000, a decrease of
30.4%. A greatly improved coal sales market has increased the revenues
generated per ton of coal leased as the royalties are based on the lessors
revenues.

Other.The Company had no other revenues for the six months ended June 30,
2001 compared to $1,497,000 for the six months ended June 30, 2000. Other
revenues primarily include revenues from timber sales for the six months ended
June 30, 2000.

Cost of Sales

Cost of sales-Coal sales.Cost of coal sales totaled $77,005,000 for the
six months ended June 30, 2001 compared to $70,338,000 for the six months ended
June 30, 2000, an increase of 9.5%, while tons sold increased 5.3%. The
increase resulted primarily from higher than expected costs at the Companys
Fork Creek mines, which are due primarily from adverse initial mining
conditions and development issues at the Fork Creek mines. The development
issues were created because of a highly competitive labor market and the
inability to fund planned capital expenditures due to a lack of liquidity prior
to the refinancing.

Cost of sales-Leasing.Cost of coal lease revenues totaled $2,080,000 for
the six months ended June 30, 2001 compared to $2,122,000 for the six months
ended June 30, 2000, a decrease of 2.0%. The decrease primarily resulted from
a decrease in the volume of coal mined by lessees.

Other

Selling, general and administrative expenses totaled $3,942,000 for the
six months ended June 30, 2001 compared to $3,039,000 for the six months ended
June 30, 2000, an increase of 29.7%. Selling, general, and administrative
expenses were 5.0% of revenues for the six months ended June 30, 2001 and 3.9%
of revenues for the six months ended June 30, 2000. The increase primarily
results from increased professional fees.

As a result, EBITDA totaled $5,170,000 for the six months ended June 30,
2001 compared to $9,794,000 for the six months ended June 30, 2000, a decrease
of 47.2%. This decrease is primarily attributable to increased mining costs at
the Companys operations.

Interest expense totaled $7,715,000 for the six months ended June 30, 2001
compared to $4,036,000 for the six months ended June 30, 2000, an increase of
83.0%. This increase primarily resulted from increased line of credit
borrowing for the six months ended June 30, 2001.

Interest income totaled $66,000 for the six months ended June 30, 2001
compared to $388,000 for the six months ended June 30, 2000, a decrease of
92.8%. Interest income for the six months ended June 30, 2000 primarily
related to Black Lung Excise Tax refunds that were recognized in that period.

The Litigation settlement expense of $814,000 for the six months ended
June 30, 2001 relates to interest accrued on the Cheyenne Litigation.

Other (income) expense was other income of $622,000 for the six months
ended June 30, 2001 compared to $930,000 of expense for the six months ended
June 30, 2000. Other income for the six months ended June 30, 2001 was
primarily due to net gains on the sales of coal reserves and mineral rights.
Other expense for the six months ended June 30, 2000 was primarily due to the
Companys share of the loss from its one-third partnership interest in IMT.

Income taxes were a benefit of $4,312,000 for the six months ended June
30, 2001 compared to a benefit of $1,165,000 for the six months ended June 30,
2000, an increase of 270.1%. The increase is a result of higher net loss in
the six months ended June 30, 2001. The decrease in the effective tax rate from
45.3% for the six months ended June 30, 2000 to 35.7% for the six months ended
June 30, 2001 results primarily from a reduced benefit of statutory depletion
for the year compared to the previous year.

Inflation

Inflation has not had a significant effect on the Companys business;
however, the Companys revenues and costs have been and are expected to
continue to be affected by fluctuations in the coal market prices and diesel
fuel costs.

Liquidity and Capital Resources

At June 30, 2001, the Company had total indebtedness including capital
leases, revolving credit loans, and current maturities of $144,615,000. On
June 8, 1998, Pen Holdings issued the Senior Notes (the Offering). Interest
on the Senior Notes is payable

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semiannually on June 15 and December 15 of each year, commencing December 15,
1998. As a result of the Offering, the Company has significant indebtedness and
debt service requirements. The Indenture for the Senior Notes permits the
Company to incur additional indebtedness, subject to certain limitations. The
Indenture also includes certain covenants that, among other things: (i) limit
the incurrence by the Company of additional indebtedness; (ii) restrict the
ability of the Company to pay dividends or make certain other payments; (iii)
limit transactions by the Company with affiliates; (iv) limit the ability of
the Company to incur certain liens; (v) limit the ability of the Company to
consolidate or merge with or into, or to transfer all or substantially all of
its assets to, another person; and (vi) limit the ability of the Company to
engage in other lines of business.

In connection with the Offering, Pen Holdings refinanced its senior
secured indebtedness and entered into an Amended and Restated Credit Agreement,
dated June 8, 1998, among Pen Holdings, certain of its subsidiaries and the
lenders named therein (the Credit Facility), which provided for aggregate
borrowings of up to $40,000,000 in principal. On May 31, 2001, the Company
entered into the Amended Credit Agreement by and among Pen Holdings and certain
financial institutions party thereto (the Lenders). The Amended Credit
Agreement provides for (a) revolving loans the aggregate outstanding principal
amount of which shall not exceed $15,000,000 at any one time, and (b) term
loans in an aggregate principal amount of up to $32,000,000 of which
$29,500,000 has been advanced and the remaining portion is subject to meeting
certain borrowing base criteria, all on the terms and conditions of the Amended
Credit Agreement. The Lenders are the successor to the former lenders under
the Amended Credit Agreement. The Lenders have taken assignment to, and the
assumption of, all of the rights and obligations of the prior lenders under the
Amended Credit Agreement and the assignment to the agents, for the ratable
benefit of the Lenders, of all rights of the prior agent under the former
Amended Credit Agreement and related loan documents in the collateral securing
the indebtedness. As a result of entering into the Amended Credit Agreement,
the outstanding indebtedness obtained was converted into revolving loans and
term loans under and subject to the terms and conditions of the Amended Credit
Agreement. The Lenders have guarantees from each of the subsidiaries of Pen
Holdings and have security interests and mortgages on substantially all of Pen
Holdings and its subsidiaries properties to secure obligations under the
Amended Credit Agreement. Borrowings bear interest at a variable rate equal
to the Reference Rate (as defined therein) plus a margin which increases in
accordance with a schedule described in the Credit Agreement. At June 30, 2001
the margins were 1.5% and 3.25% on the outstanding balances on the line of
credit and term loan respectively. The Credit Agreement contains certain
restrictions and limitations, including financial and operational covenants
that require the Company to maintain and achieve certain levels of financial
performance and limit the payment of cash dividends and similar payments.

Additionally, on June 4, 2001, Elk Horn, a wholly owned subsidiary of Pen
Holdings sold the coal and related real estate interests, rights and other
assets commonly referred to as the Fork Creek Properties, to an unrelated
party for an aggregate sales price of $33,000,000 in cash. The Company has
acquired the right to mine the property subject to one of Pen Holdings
subsidiaries paying specified royalties which will be paid on each ton of Fork
Creek coal mined and sold.

The Companys principal liquidity requirements are for debt service
requirements under the Senior Notes, and other outstanding indebtedness, and
for working capital needs and capital expenditures. Historically, the Company
has funded its capital and operating requirements with a combination of cash on
hand, operating cash flow and borrowings under credit facilities and capital
leases. The Company has utilized these sources of funds to make acquisitions,
fund significant capital investments in its properties, fund operations and
service debt under credit facilities.

For the quarter ended June 30, 2001, the Company made capital expenditures
of $2,477,000. Capital expenditures were primarily related to continued
expansion of the Fork Creek development. The Fork Creek infrastructure was
completed in September 2000 and the Company began shipping coal from that
location at that time. Management currently believes the level of tonnage
shipped from Fork Creek will continue to increase until it reaches
approximately 3 to 4 million tons per year.

Management currently believes that the Company will have sufficient
sources of liquidity to fund capital expenditures and its working capital needs
from borrowings under the Amended Credit Agreement, operating cash flow, and
from negotiating and entering into borrowings or leases with equipment finance
companies or other borrowings up to amounts permitted by the Amended Credit
Agreement and Indenture for next twelve months.

Net cash used by operating activities was $23,995,000 for the six months
ended June 30, 2001 compared to $5,432,000 net cash generated by operating
activities for the six months ended June 30, 2000. The $29,427,000 increase in
net cash used by operating activities is related to increased mining costs at
the Companys mining operations and a significant reduction in the Companys
level of accounts payable and accrued expenses. These accounts payable and
accrued expenses were reduced as a result of paying the Companys semi-annual
bond payment, satisfying the judgment held by an affiliate of Travelers
Casualty and Surety Company of America issued in connection with the Cheyenne
Litigation and making payments to its vendors after closing on the Amended
Credit Agreement.

Net cash provided by investing activities was $28,548,000 for the six
months ended June 30, 2001 compared to $10,138,000 net cash used by investing
activities for the six months ended June 30, 2000. The $38,686,000 increase in
net cash provided by investing activities is primarily the result of reduced
capital expenditures and proceeds from the Companys sale of its Fork Creek
reserves.

Net cash used for financing activities of $4,634,000 for the six months
ended June 30, 2001 compared to $4,199,000 provided by financing activities in
the six months ended June 30, 2000. The increase of $8,833,000 in cash used
for financing activities is a result of the Company using part of the proceeds
from its sale of the Fork Creek reserves to pay down debt.

The Company has issued 10,000 shares of Convertible Preferred Stock in
connection with the recapitalization of the Company in 1995. The liquidation
value of $8,649,000 (which is net of a $1,588,000 reduction and a $3,413,000
reduction for settlement of the

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Companys tax matters in 1999 and 1998, respectively) plus accrued
dividends of $10,920,000 will be due in January 2006. The Convertible
Preferred Stock will be redeemed at that time by the issuance of a note payable
which amortizes over the 10 years following the redemption, unless converted to
Class I common stock in accordance with its terms.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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PART II  OTHER INFORMATION




ITEM 1. LEGAL PROCEEDINGS

Not Applicable.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not Applicable.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not Applicable.




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.




ITEM 5. OTHER INFORMATION

Not Applicable.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

Exhibit 99.1. Asset Purchase And Sale Agreement dated as of June 4, 2001, by
and among Pen Holdings, Inc., Pen Coal Corporation D/B/A Fork Creek Mining
Company, The Elk Horn Coal Corporation and Penn Virginia Coal Company*

Exhibit 99.2. Lease dated as of June 4, 2001 by and between Penn Virginia Coal
Company and Pen Land Company*

Exhibit 99.3. Sublease dated as of June 4, 2001 by and between Penn Virginia
Coal Company and Pen Land Company*

Exhibit 99.4. Second Amended and Restated Credit Agreement, dated as of May
31, 2001, by and among Pen Holdings, Inc., the financial institutions from time
to time party hereto, Ableco Finance LLC, as collateral agent for the Lenders
and Foothill Capital Corporation, as funding agent for the Lenders*

*Incorporated by reference from the Pen Holdings Form 8-K for the event dated
June 4, 2001.

(b)  Report on Form 8-K:

During the quarter ended June 30, 2001, Pen Holdings filed Forms 8-K for the
events dated April 16, 23 and 30 and May 7 and 21 and June 4, 2001. Each of
the Forms 8-K reported Item 5 events. No financial statements were filed with
such reports.

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned thereunto duly authorized.

|                        |  |                    |  |                                                                                                          
|----------------------- |  | ------------------ |  | ---------------------------------------------------------------------------------------------------------
|Dated November 29, 2001 |  |                    |  |                                                                                                          
|                       
|                        |  | PEN HOLDINGS, INC.
|                       
|                        |  | By:                |  | /s/ William E. Beckner
William E. Beckner
President and Chief Executive Officer                          
|                       
|                        |  | By:                |  | /s/ Mark A. Oldham
Mark A. Oldham
Senior Vice President, Secretary, Treasurer and Chief
Financial Officer

18