<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

                                   (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                                   62-0852576
(STATE OR OTHER JURISDICTION OF           (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

                          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.
<PAGE>   2

                               PEN HOLDINGS, INC.

                                      INDEX

<TABLE>
<CAPTION>
                                                                                                        PAGE
                                                                                                       NUMBER
<S>                                                                                                    <C>
PART I -  FINANCIAL INFORMATION
Item 1.  Financial Statements
   Consolidated Balance Sheet - June 30, 2001 (unaudited) and December 31, 2000                           1
   Consolidated Statement of Income - Three Months Ended June 30, 2001 and 2000
     and Six Months Ended June 30, 2001 and 2000 (unaudited)                                              2
   Consolidated Statement of Changes In Shareholders' Equity                                              3
   Consolidated Statement of Cash Flows - Six Months Ended June 30, 2001 and 2000 (unaudited)             4
   Notes to Consolidated Financial Statements                                                             5
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations            9
Item 3.  Quantitative and Qualitative Disclosures about Market Risk                                      14

PART II - OTHER INFORMATION
Item 1.  Legal Proceedings                                                                               15
Item 2.  Changes in Securities and Use of Proceeds                                                       15
Item 3.  Defaults Upon Senior Securities                                                                 15
Item 4.  Submission of Matters to a Vote of Security Holders                                             15
Item 5.  Other Information                                                                               15
Item 6.  Exhibits and Reports on Form 8-K                                                                15

Signatures                                                                                               16
</TABLE>


                                       i
<PAGE>   3

PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                               PEN HOLDINGS, INC.

                           CONSOLIDATED BALANCE SHEET
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                         JUNE 30,     DECEMBER 31,
                                                                                                           2001          2000
                                                                                                         --------     ------------
                                                                                                        (UNAUDITED)
<S>                                                                                                      <C>          <C>
                                     ASSETS
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 ....................................................        134,445        151,845
Property, plant and equipment, net ...............................................................         82,318         85,771
Long-term investments ............................................................................          9,842         16,960
Other assets .....................................................................................         11,532          6,281
                                                                                                         --------       --------

                                                                                                         $279,075       $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 ............................................................................         48,579         51,780
Long-term deferred gain ..........................................................................         12,557             --
Other liabilities ................................................................................          5,504          5,404
                                                                                                         --------       --------
   Total liabilities .............................................................................        231,767        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 .............................................................................         32,588         38,446
                                                                                                         --------       --------
   Total shareholders' equity ....................................................................         32,652         38,510
                                                                                                         --------       --------

                                                                                                         $279,075       $291,978
                                                                                                         ========       ========
</TABLE>

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


                                       1
<PAGE>   4

                               PEN HOLDINGS, INC.

                        CONSOLIDATED STATEMENT OF INCOME
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                THREE MONTHS ENDED         SIX MONTHS ENDED
                                                                                      JUNE 30,                 JUNE 30,
                                                                               ---------------------     ---------------------
                                                                                 2001         2000         2001         2000
                                                                               --------     --------     --------     --------
                                                                                    (UNAUDITED)               (UNAUDITED)
<S>                                                                            <C>          <C>          <C>          <C>
Revenues ..................................................................    $ 42,520     $ 37,750     $ 78,778     $ 77,507
Operating expenses:
   Cost of sales ..........................................................      41,352       35,070       79,085       72,460
   Selling, general and administrative ....................................       2,267        1,598        3,942        3,039
                                                                               --------     --------     --------     --------
Operating income (loss) ...................................................      (1,099)       1,082       (4,249)       2,008

Other (income) expense:
   Interest expense .......................................................       4,073        2,008        7,715        4,036
   Interest income ........................................................         (32)        (355)         (66)        (388)
   Litigation settlement ..................................................         361           --          814           --
   Other (income) expense .................................................      (4,675)         802       (4,527)         930
                                                                               --------     --------     --------     --------

Loss from continuing operations before income taxes .......................        (826)      (1,373)      (8,185)      (2,570)
Provision (benefit) for income taxes ......................................        (287)        (709)      (2,984)      (1,165)
                                                                               --------     --------     --------     --------

Net loss before results of discontinued operations ........................        (539)        (952)      (5,201)      (1,693)

Income from discontinued operations, net of tax ...........................          --          563           --          542
                                                                               --------     --------     --------     --------

Net loss before extraordinary items and change in accounting principle ....        (539)        (101)      (5,201)        (863)

Extraordinary item - loss related to early retirement of debt, less
applicable income tax of $57 ..............................................        (111)          --         (111)          --
                                                                               --------     --------     --------     --------

Loss before change in accounting principle ................................        (650)        (101)      (5,312)        (863)

Change in accounting principle, net of tax ................................          --        1,026           --        1,026
                                                                               --------     --------     --------     --------

Net income (loss) .........................................................        (650)         925       (5,312)         163
Accretion of mandatorily redeemable preferred stock .......................         273          278          546          546
                                                                               --------     --------     --------     --------
Net income (loss) available to common shareholders ........................    $   (923)    $    647     $ (5,858)    $   (383)
                                                                               ========     ========     ========     ========
</TABLE>

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


                                       2
<PAGE>   5

                               PEN HOLDINGS, INC.

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

<TABLE>
<CAPTION>
                                                  CLASS I               CLASS II
                                                COMMON STOCK           COMMON STOCK      ADDITIONAL
                                          ---------------------    --------------------    PAID-IN     RETAINED
                                           SHARES       AMOUNTS     SHARES     AMOUNTS     CAPITAL      EARNINGS       TOTAL
                                          ---------     -------     -------    --------  -----------   ---------      -------
<S>                                       <C>           <C>         <C>        <C>       <C>           <C>            <C>
Balance at December 31, 2000 ......       4,290,000       $43       177,550       $2          $19         $38,446     $38,510

Accretion of redeemable
preferred stock (unaudited) .......                                                                          (546)       (546)
Net income (loss) (unaudited) .....                                                                        (5,312)     (5,312)
                                          ---------       ---       -------       --          ---         -------     -------

Balance at June 30, 2001
   (unaudited) ....................       4,290,000       $43       177,550       $2          $19         $32,588     $32,652
                                          =========       ===       =======       ==          ===         =======     =======
</TABLE>

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


                                       3
<PAGE>   6

                               PEN HOLDINGS, INC.

                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                                                            SIX MONTHS ENDED
                                                                                                                JUNE 30,
                                                                                                         ------------------------
                                                                                                                        RESTATED
                                                                                                           2001           2000
                                                                                                         --------       ---------
                                                                                                               (UNAUDITED)
<S>                                                                                                      <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss) ................................................................................     $ (5,312)      $    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 .........................................................................       (3,201)          (161)
     Loss on sale of investment ....................................................................           --           (856)
     (Gain)/loss on sale of equipment ..............................................................       (3,215)            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 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.
</TABLE>

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


                                       4
<PAGE>   7
                               PEN HOLDINGS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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


                                       5
<PAGE>   8

         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.


                                       6
<PAGE>   9

NOTE 3-INVENTORIES:

         Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                              JUNE 30,        DECEMBER 31,
                                               2001               2000
                                              -------         ------------
               <S>                            <C>             <C>
               Coal ...............           $ 1,997           $ 1,604
               Supplies ...........             1,274             1,400
                                              -------           -------
                                              $ 3,271           $ 3,004
                                              =======           =======
</TABLE>

         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):

<TABLE>
<CAPTION>
                                                              JUNE 30,           DECEMBER 31,
                                                                2001                 2000
                                                             ----------          ------------
               <S>                                           <C>                 <C>
               Coal reserves .....................           $  138,872           $  153,967
               Other  mine development costs .....               31,999               31,625
                                                             ----------           ----------
                                                                170,871              185,592
               Accumulated depletion .............              (36,426)             (33,747)
                                                             ----------           ----------
                                                             $  134,445           $  151,845
                                                             ==========           ==========
</TABLE>

NOTE 5-PROPERTY, PLANT AND EQUIPMENT:

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

<TABLE>
<CAPTION>
                                                              JUNE 30,           DECEMBER 31,
                                                                2001                 2000
                                                             ----------          ------------
               <S>                                           <C>                 <C>
               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
                                                             ==========           ==========
</TABLE>

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.


                                       7
<PAGE>   10

NOTE 7-LONG TERM DEBT:

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                                  JUNE 30,       DECEMBER 31,
                                                                                                    2001             2000
                                                                                               --------------   --------------
                                                                                               (IN THOUSANDS)   (IN THOUSANDS)
<S>                                                                                            <C>              <C>
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         $       --
                                                                                                ===========         ==========
</TABLE>

         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.


                                       8
<PAGE>   11

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

         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
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. 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.


                                       9
<PAGE>   12

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.

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED          SIX MONTHS ENDED
                                                                                JUNE 30,                   JUNE 30,
                                                                         --------------------        --------------------
                                                                          2001          2000          2001          2000
                                                                         ------        ------        ------        ------
<S>                                                                      <C>           <C>           <C>           <C>
Revenues                                                                  100.0%        100.0%        100.0%        100.0%
Operating expenses:
   Cost of sales                                                           97.3          92.9         100.4          93.5
   Selling, general and administrative                                      5.3           4.2           5.0           3.9
                                                                         ------        ------        ------        ------
Operating income (loss)                                                    (2.6)          2.9          (5.4)          2.6

Other (income) expense:
   Interest expense                                                         9.5           5.3           9.7           5.2
   Interest income                                                          0.0          (0.9)          0.0          (0.5)
   Litigation settlement                                                    0.8           0.0           1.0           0.0
Other (income) expense                                                    (11.0)          2.1          (5.7)          1.2
                                                                         ------        ------        ------        ------
Loss from continuing operations before income taxes                        (1.9)         (3.6)        (10.4)         (3.3)

Provision (benefit) for income taxes                                       (0.7)         (1.9)         (3.8)         (1.5)
                                                                         ------        ------        ------        ------

Net loss before results of discontinued operations                         (1.2)         (1.7)         (6.6)         (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     (1.2)         (0.2)         (6.6)         (1.1)

Extraordinary loss, net of tax                                             (0.3)          0.0          (0.1)          0.0
                                                                         ------        ------        ------        ------

Income (loss) before change in accounting principle                        (1.5)         (0.2)          6.7          (1.1)

Change in accounting principle, net of tax                                  0.0           2.7           0.0           1.3
                                                                         ------        ------        ------        ------

Net income (loss)                                                          (1.5)%         2.5%         (6.7)%         0.2%
                                                                         ======        ======        ======        ======
</TABLE>

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 increase resulted primarily from higher than expected
costs at the Company's Fork Creek mines, which are due primarily from


                                       10
<PAGE>   13

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 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 $4,675,000 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 gains on sale 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 $287,000 for the three months ended June
30, 2001 compared to a benefit of $421,000 for the three months ended June 30,
2000, a decrease of 31.8%. The decrease is a result of lower loss in the three
months ended June 30, 2001 than in the three months ended June 30, 2000. The
increase in the effective tax rate from 30.7% for the three months ended June
30, 2000 to 34.7% for the three months ended June 30, 2001 results primarily
from the favorable impact of the amount of tax over book depletion expense in
relation to the amount of pre-tax income.

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 4.2%. 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 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 tons in the
six months ended June 30, 2001.


                                       11
<PAGE>   14

         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 $4,527,000 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 gains on sale 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 $2,984,000 for the six months ended June
30, 2001 compared to a benefit of $877,000 for the six months ended June 30,
2000, an increase of 240.3%. The increase is a result of higher net loss in the
six months ended June 30, 2001. The increase in the effective tax rate from
34.1% for the six months ended June 30, 2000 to 36.5% for the six months ended
June 30, 2001 results primarily from a higher expected 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 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


                                       12
<PAGE>   15

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.


                                       13
<PAGE>   16

         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 the 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 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.


                                       14
<PAGE>   17

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.

                                       15
<PAGE>   18

SIGNATURES


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

         Dated August 14, 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


                                       16