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


                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-Q




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

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001

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

                         COMMISSION FILE NUMBER 1-14521

                                   CONOCO INC.
             (Exact name of registrant as specified in its charter)

             DELAWARE                                            51-0370352
  (State or other jurisdiction                                (I.R.S. Employer
of incorporation or organization)                            Identification No.)


                          600 NORTH DAIRY ASHFORD ROAD
                              HOUSTON, TEXAS 77079
              (Address of principal executive offices and zip code)


                                 (281) 293-1000
              (Registrant's telephone number, including area code)

                                   ----------

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

         187,452,228 shares of Class A common stock, $.01 par value, and
437,421,355 shares of Class B common stock, $.01 par value, were outstanding as
of August 3, 2001.


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



<PAGE>   2

                                   CONOCO INC.

                                TABLE OF CONTENTS

<Table>
<Caption>
                                                                                                            PAGE(S)
                                                                                                            -------
<S>                                                                                                         <C>
Part I - Financial Information

   Item 1. Financial Statements
     Consolidated Statement of Income.....................................................................     1
     Consolidated Balance Sheet...........................................................................     2
     Consolidated Statement of Cash Flows.................................................................     3
     Notes to Consolidated Financial Statements...........................................................     4

   Item 2. Management's Discussion and Analysis of Financial Condition and Results of
     Operations
      (a)  Financial Condition............................................................................    12
      (b)  Results of Operations..........................................................................    15

   Item 3. Quantitative and Qualitative Disclosures About Market Risk.....................................    22

Part II - Other Information

   Item 1. Legal Proceedings..............................................................................    25

   Item 4. Submission of Matters to a Vote of Security Holders............................................    25

   Item 5. Other Information
      (a)  Disclosure Regarding Forward-Looking Information...............................................    26
      (b)  Other Events...................................................................................    26

   Item 6. Exhibits and Reports on Form 8-K...............................................................    26

Signature.................................................................................................    27

Exhibit Index.............................................................................................    28
</Table>



                                        i
<PAGE>   3

                                     PART I

                              FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                                   CONOCO INC.

                    CONSOLIDATED STATEMENT OF INCOME (NOTE 1)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                 THREE MONTHS ENDED     SIX MONTHS ENDED
                                                                                      JUNE 30               JUNE 30
                                                                                 -------------------   -------------------
                                                                                   2001       2000       2001       2000
                                                                                 --------   --------   --------   --------
                                                                                       (IN MILLIONS, EXCEPT PER SHARE)
<S>                                                                              <C>        <C>        <C>        <C>
Revenues
    Sales and other operating revenues* ......................................   $ 10,260   $  9,357   $ 20,795   $ 17,881
    Equity in earnings of affiliates (note 5) ................................         59         77         80        157
    Other income .............................................................        114         72        145        159
                                                                                 --------   --------   --------   --------
          Total revenues .....................................................     10,433      9,506     21,020     18,197
                                                                                 --------   --------   --------   --------
Cost and expenses
    Cost of goods sold .......................................................      6,227      5,758     12,756     10,882
    Operating expenses .......................................................        700        547      1,314      1,053
    Selling, general and administrative expenses .............................        208        193        404        381
    Exploration expenses .....................................................         56         58         93         95
    Depreciation, depletion and amortization .................................        338        309        691        648
    Taxes other than on income* ..............................................      1,736      1,778      3,374      3,480
    Interest and debt expense ................................................         67         89        142        172
                                                                                 --------   --------   --------   --------
          Total costs and expenses ...........................................      9,332      8,732     18,774     16,711
                                                                                 --------   --------   --------   --------
Income before income taxes and accounting change .............................      1,101        774      2,246      1,486
Provision for income taxes ...................................................        549        318      1,078        631
                                                                                 --------   --------   --------   --------
Income before accounting change ..............................................        552        456      1,168        855
Cumulative effect of accounting change, net of income taxes of $22 (note 4) ..         --         --         37         --
                                                                                 --------   --------   --------   --------
Net income (note 12) .........................................................   $    552   $    456   $  1,205   $    855
                                                                                 ========   ========   ========   ========
Earnings per share (note 6)
  Basic
    Before accounting change .................................................   $    .88   $    .73   $   1.87   $   1.37
    Cumulative effect of accounting change ...................................         --         --        .06         --
                                                                                 --------   --------   --------   --------
                                                                                 $    .88   $    .73   $   1.93   $   1.37
                                                                                 ========   ========   ========   ========
  Diluted
    Before accounting change .................................................   $    .87   $    .72   $   1.84   $   1.35
    Cumulative effect of accounting change ...................................         --         --        .06         --
                                                                                 --------   --------   --------   --------
                                                                                 $    .87   $    .72   $   1.90   $   1.35
                                                                                 ========   ========   ========   ========
Weighted-average shares outstanding (note 6)
    Basic ....................................................................        625        625        625        625
    Diluted ..................................................................        636        634        636        633

Dividends per share of common stock (note 7) .................................   $    .19   $    .19   $    .38   $    .38

----------

*Includes petroleum excise taxes .............................................   $  1,676   $  1,727   $  3,240   $  3,384
</Table>



          See accompanying notes to consolidated financial statements.



                                       1
<PAGE>   4

                                   CONOCO INC.

                       CONSOLIDATED BALANCE SHEET (NOTE 1)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                          JUNE 30,      DECEMBER 31,
                                                                                            2001            2000
                                                                                        ------------    ------------
                                                                                               (IN MILLIONS)
<S>                                                                                     <C>             <C>
                                                         ASSETS
Current assets
   Cash and cash equivalents ........................................................   $        593    $        342
   Accounts and notes receivable ....................................................          1,767           1,837
   Inventories (note 8) .............................................................            977             791
   Prepaid expenses and other current assets ........................................            663             441
                                                                                        ------------    ------------
         Total current assets .......................................................          4,000           3,411
Property, plant and equipment .......................................................         24,116          23,890
Less: accumulated depreciation, depletion and amortization ..........................        (12,027)        (11,683)
                                                                                        ------------    ------------
Net property, plant and equipment ...................................................         12,089          12,207
Investment in affiliates ............................................................          1,897           1,831
Other assets ........................................................................            639             678
                                                                                        ------------    ------------
Total assets ........................................................................   $     18,625    $     18,127
                                                                                        ============    ============

                                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
   Accounts payable .................................................................   $      1,668    $      1,723
   Short-term borrowings and capital lease obligations ..............................             63             256
   Income taxes .....................................................................            682             665
   Other accrued liabilities ........................................................          1,290           1,543
                                                                                        ------------    ------------
         Total current liabilities ..................................................          3,703           4,187
Long-term borrowings and capital lease obligations ..................................          4,300           4,138
Deferred income taxes ...............................................................          2,089           1,911
Other liabilities and deferred credits ..............................................          1,910           1,926
                                                                                        ------------    ------------
         Total liabilities ..........................................................         12,002          12,162
                                                                                        ------------    ------------

Commitments and contingent liabilities (note 9)
Minority interests (note 10) ........................................................            154             337
Stockholders' equity
   Preferred stock, $.01 par value
     250,000,000 shares authorized; none issued .....................................             --              --
   Class A common stock, $.01 par value
     3,000,000,000 shares authorized; 191,497,821 shares issued with 187,385,100
       shares outstanding at June 30, 2001 and 186,646,358 shares outstanding at
       December 31, 2000 ............................................................              2               2
   Class B common stock, $.01 par value
     1,599,768,771 shares authorized, 437,413,155 shares issued with
       437,389,955 shares outstanding at June 30, 2001; 1,599,776,271 shares
       authorized, 436,786,482 shares issued and outstanding at December 31, 2000 ...              4               4
   Additional paid-in capital .......................................................          4,948           4,932
   Retained earnings ................................................................          2,402           1,460
   Accumulated other comprehensive loss (note 11) ...................................           (782)           (653)
   Treasury stock, at cost
     4,112,721 and 4,851,463 Class A shares at June 30, 2001 and December 31,
       2000, respectively and 23,200 Class B shares at June 30, 2001 ................           (105)           (117)
                                                                                        ------------    ------------
         Total stockholders' equity .................................................          6,469           5,628
                                                                                        ------------    ------------
Total liabilities and stockholders' equity ..........................................   $     18,625    $     18,127
                                                                                        ============    ============
</Table>

          See accompanying notes to consolidated financial statements.



                                       2
<PAGE>   5

                                   CONOCO INC.

                  CONSOLIDATED STATEMENT OF CASH FLOWS (NOTE 1)
                                   (UNAUDITED)

<Table>
<Caption>
                                                                                SIX MONTHS ENDED
                                                                                    JUNE 30
                                                                              --------------------
                                                                                2001        2000
                                                                              --------    --------
                                                                                 (IN MILLIONS)
<S>                                                                           <C>         <C>
Cash provided by operations
    Net income ............................................................   $  1,205    $    855
    Adjustments to reconcile net income to cash provided by operations
      Depreciation, depletion and amortization ............................        691         648
      Dry hole costs and impairment of unproved properties ................         15          33
      Deferred income taxes ...............................................        280          56
      Income applicable to minority interests .............................         11          10
      Gain on asset dispositions ..........................................        (18)        (50)
      Undistributed equity earnings .......................................         (4)       (103)
      Other non-cash charges and credits - net ............................        (10)        (85)
      Decrease (increase) in operating assets
        Accounts and notes receivable .....................................        104        (120)
        Inventories .......................................................       (204)       (292)
        Other operating assets ............................................       (272)       (160)
      Increase (decrease) in operating liabilities
        Accounts and other operating payables .............................       (173)        272
        Income and other taxes payable ....................................         (2)         50
                                                                              --------    --------
           Cash provided by operations ....................................      1,623       1,114
                                                                              --------    --------
Investing activities
    Purchases of property, plant and equipment ............................       (867)       (902)
    Purchase of businesses - net of cash acquired .........................         --         (31)
    Investments in affiliates - net .......................................        (89)       (117)
    Proceeds from sales of assets and subsidiaries ........................         98         125
    Net increase in short-term financial instruments ......................         (1)         (1)
                                                                              --------    --------
           Cash used in investing activities ..............................       (859)       (926)
                                                                              --------    --------
Financing activities
    Short-term borrowings - net ...........................................       (189)        105
    Long-term borrowings - net ............................................         (9)         --
    Treasury stock purchases - net ........................................        (15)        (67)
    Cash dividends (note 7) ...............................................       (237)       (237)
    Decrease in minority interests (note 10) ..............................        (23)        (12)
                                                                              --------    --------
           Cash used in financing activities ..............................       (473)       (211)
                                                                              --------    --------
Effect of exchange rate changes on cash ...................................        (40)        (37)
                                                                              --------    --------
Increase (decrease) in cash and cash equivalents ..........................        251         (60)
Cash and cash equivalents at beginning of year ............................        342         317
                                                                              --------    --------
Cash and cash equivalents at June 30 ......................................   $    593    $    257
                                                                              ========    ========
</Table>



          See accompanying notes to consolidated financial statements.



                                       3
<PAGE>   6

                                   CONOCO INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


1.   BASIS OF PRESENTATION AND ACCOUNTING POLICY

     These consolidated interim financial statements are unaudited, but reflect
all adjustments that, in the opinion of management, are necessary to provide a
fair presentation of the financial position, results of operations and cash
flows for the dates and periods covered. All such adjustments are of a normal
recurring nature. Interim period results are not necessarily indicative of
results of operations or cash flows for a full-year period. These interim
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in Conoco's 2000 Annual Report
on Form 10-K.

2.   GULF CANADA ACQUISITION

     On July 16, 2001, Conoco purchased Gulf Canada Resources Limited (Gulf
Canada) for approximately $4,500 in cash. Conoco arranged a $4,500 bridge credit
facility to finance the transaction. Conoco assumed approximately $2,000 of Gulf
Canada's net debt, preferred stock and minority interests. The total purchase
price was approximately $6,500.

3.   RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

     In early July, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." The
standards revise the accounting for business combinations by:

     o    prohibiting the "pooling-of-interest" method of accounting and
          requiring the purchase method of accounting to be used on all business
          combinations initiated after June 30, 2001;

     o    requiring that separately identifiable intangible assets, other than
          goodwill, be recorded as assets. These intangible assets must either
          be amortized over their useful lives or, if they have indefinite
          useful lives, not amortized and periodically tested for impairment;
          and

     o    ceasing all amortization of goodwill, instead requiring it be tested
          at least annually for impairment. In addition, existing goodwill on
          business combinations completed before July 1, 2001 will no longer be
          amortized after December 31, 2001 and should be tested for impairment
          by January 1, 2002.

     These new standards are applicable to our acquisition of Gulf Canada. The
impact of these standards on existing goodwill from previous acquisitions will
be evaluated, but is not expected to be material.

     The FASB also recently issued SFAS No. 143, "Accounting of Asset Retirement
Obligations." This statement significantly changes the method of accruing for
costs associated with the retirement of fixed assets (e.g. oil & gas production
facilities, etc.) for which an entity is legally obligated to incur. We will
further evaluate the impact and timing of implementing SFAS No. 143.
Implementation of this standard is required no later than January 1, 2003, with
earlier adoption encouraged.

4.   ACCOUNTING CHANGE

     In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which made amendments to
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(the Standards). The Standards, adopted by Conoco on January 1, 2001, modify the
criteria for identifying derivative instruments and require that derivatives,
whether in stand-alone contracts or, in certain cases, those embedded into other
contracts, be recorded at their fair value as assets or liabilities on the
balance sheet. In addition, the Standards prescribe the accounting for the gain
or loss resulting from changes in the fair value of derivatives designated as
hedging instruments, as set forth in note 2 to the consolidated financial
statements presented in Conoco's 2000 Annual Report on Form 10-K.



                                       4
<PAGE>   7

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


     Consistent with its Risk Management Policy, Conoco intends to use
stand-alone derivative instruments to manage its commodity price, foreign
currency rate and interest rate risks. In addition, Conoco intends to continue
to conduct limited amounts of trading for profit unrelated to its underlying
physical business using stand-alone commodity derivative instruments. Additional
details of Conoco's risk management activities are disclosed in note 25 to the
consolidated financial statements presented in Conoco's 2000 Annual Report on
Form 10-K and in Item 3 of this quarterly report.

     Pursuant to the Standards, such derivative instruments will be reported on
the balance sheet at fair value. Hedge accounting will be adopted for reporting
gains and losses from changes in the fair value of these instruments when the
impact is material and the hedging instruments meet the criteria for hedge
accounting, as defined in the Standards. Such gains or losses are reported in
the same income statement caption as the hedged item. Gains or losses from
derivative instruments for which hedge accounting is not applied are reported in
other income. When a derivative instrument is designated for hedge accounting,
prior to executing the hedge, formal documentation is developed that defines:

     o    the company's risk-management objectives and strategies for
          undertaking the hedging transaction;

     o    the instruments that will be used for hedging; and

     o    the methods that will be used for measuring the effectiveness of these
          hedging instruments.

     Conoco formally assesses, both at inception of the hedge and on an ongoing
basis, the effectiveness of the hedging instrument. If it is determined that a
hedging instrument has not been highly effective in offsetting gains or losses
on the hedged transaction, hedge accounting will be discontinued on a
prospective basis. Hedge accounting was not discontinued during the period for
any hedging instruments.

     In accordance with the transition provisions of the Standards, Conoco
recorded the following after-tax cumulative adjustments into earnings on January
1, 2001.

<Table>
<S>                                                                                                        <C>
Previously designated fair value hedging relationships:(1)
   Fair value of hedging instruments...............................................................        $    27
   Offsetting changes in fair value of hedged items................................................            (25)
Hedging instruments not designated for hedge accounting under the Standards(2).....................             36
Contracts previously not designated as derivative instruments prior to the Standards...............             (1)
                                                                                                           -------
Total cumulative effect of adoption on earnings, after-tax.........................................        $    37
                                                                                                           =======
</Table>

     The total cumulative effect is shown on the Consolidated Statement of
Income as "Cumulative effect of accounting change."

----------

     (1)  These fair value hedging relationships reflect conversions of certain
          commodity contracts from fixed prices to market prices, in accordance
          with Conoco's Risk Management Policy. During the first six months of
          2001, the ineffective portions of these hedges were immaterial.

     (2)  Primarily reflects a pretax gain of $64 ($40 after-tax) related to
          changes in the fair value of certain crude oil put options from their
          purchase date to the January 1, 2001 adoption date of the Standards.
          Included in income before accounting change on the Consolidated
          Statement of Income is a $83 pretax expense ($52 after-tax) related to
          changes in the fair value of these same crude oil put options from
          January 1, 2001 to June 30, 2001.

     During the first six months of 2001, Conoco recorded an after-tax gain of
$20 ($32 pretax) into other comprehensive income. This gain includes an
after-tax gain of $21 related to derivative instruments designated as cash flow
hedges of certain forecasted sales of crude oil and natural gas. During the next
twelve-month period, $9 of the $21 after-tax gain associated with the forecasted
sales of crude oil and natural gas is expected to be reclassified into income.

     The Standards are complex and subject to a potentially wide range of
interpretations in their application. The FASB continues to consider several
issues, and the potential exists for additional issues to be brought under its



                                       5
<PAGE>   8

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


review. Therefore, if subsequent FASB interpretations of the Standards are
different than Conoco's initial application, it is possible that the impact of
Conoco's application of the Standards, as described above, will be modified.

5.   SUMMARIZED FINANCIAL INFORMATION FOR PETROZUATA

     Summarized below is the consolidated financial information for Petrozuata
C.A. on a 100 percent basis. We use the equity method to account for our
noncontrolling 50.1 percent equity interest in Petrozuata.

<Table>
<Caption>
                                        THREE MONTHS ENDED         SIX MONTHS ENDED
                                              JUNE 30                   JUNE 30
                                      -----------------------   -----------------------
                                         2001         2000         2001         2000
                                      ----------   ----------   ----------    ---------
<S>                                   <C>          <C>          <C>           <C>
RESULTS OF OPERATIONS
Sales .............................   $      150   $      128   $      258    $     290
Earnings before income taxes ......           22           80          (10)         198
Net income ........................           32           70           14          182
</Table>

     Conoco's equity in Petrozuata's earnings was $16 for the three months ended
June 30, 2001 and $7 for the six months ended June 30, 2001. Conoco's equity in
Petrozuata's earnings was $35 for the three months ended June 30, 2000 and $91
for the six months ended June 30, 2000.

6.   EARNINGS PER SHARE

     Basic earnings per share (EPS) is computed by dividing net income (the
numerator) by the weighted-average number of common shares outstanding plus the
effects of certain Conoco employee and director awards and fee deferrals that
are invested in Conoco stock units (the denominator). Diluted EPS is similarly
computed, except that the denominator is increased to include the dilutive
effect of outstanding stock options awarded under Conoco's compensation plans.

     For the three months and six months ended June 30, 2001 and June 30, 2000,
basic EPS reflected the weighted-average number of shares of Class A and Class B
common stock and deferred award units outstanding. Corresponding diluted EPS for
the second quarter of 2001 and the first six months of 2001 included an
additional 10,797,008 and 10,474,296 shares, respectively, while the second
quarter of 2000 and first six months of 2000 included an additional 9,072,029
and 8,264,459 shares, respectively.

     The denominator is based on the following weighted-average number of common
shares outstanding:

<Table>
<Caption>
                      THREE MONTHS ENDED              SIX MONTHS ENDED
                            JUNE 30                       JUNE 30
                  ---------------------------   ---------------------------
                      2001           2000           2001           2000
                  ------------   ------------   ------------   ------------
<S>               <C>            <C>            <C>            <C>
Basic .........    625,428,654    624,592,364    625,066,622    625,104,421
Diluted .......    636,225,662    633,664,393    635,540,918    633,368,880
</Table>

     Variable stock options for 1,331,300 shares of Class A and Class B common
stock were outstanding for the three months and six months ended June 30, 2001.
Variable stock options for 3,124,146 shares of Class A and Class B common stock
were outstanding for the three months and six months ended June 30, 2000. These
options were not included in the computation of diluted EPS because the
threshold price required for these options to be vested had not been reached.

     For the three months and six months ended June 30, 2001, fixed stock
options for 33,036 and 6,675,749 shares of Class A and Class B common stock were
not included in the diluted earnings per share calculation. For the three months
and six months ended June 30, 2000, fixed stock options for 72,454 and 77,194
shares of Class A and Class B common stock were not included in the diluted
earnings per share calculation. The fixed options were not included in the
diluted earnings per share calculation because the exercise price was greater
than the average market price.



                                       6
<PAGE>   9

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


     Common shares held as treasury stock are deducted in determining the number
of shares outstanding.

7.   DIVIDENDS

     Dividends per share paid through June 30 are as follows:

<Table>
<Caption>
                                                          2001   2000
                                                          ----   ----
<S>                                                       <C>    <C>
First quarter .........................................   $.19   $.19
Second quarter ........................................    .19    .19
                                                          ----   ----
Dividends per share paid through June 30 ..............   $.38   $.38
                                                          ====   ====
</Table>

     On July 23, 2001, Conoco declared a third quarter cash dividend of $.19 per
share on each outstanding share of Class A and Class B common stock, payable on
September 10, 2001, to shareholders of record on August 10, 2001.

8.   INVENTORIES

<Table>
<Caption>
                                             JUNE 30,     DECEMBER 31,
                                               2001           2000
                                           ------------   ------------
<S>                                        <C>            <C>
Crude oil and petroleum products .......   $        825   $        643
Other merchandise ......................             26             27
Materials and supplies .................            126            121
                                           ------------   ------------
Inventories ............................   $        977   $        791
                                           ============   ============
</Table>

9.   COMMITMENTS AND CONTINGENT LIABILITIES

     Conoco has various purchase commitments for materials, supplies, services
and items of permanent investment incident to the ordinary conduct of business.
Such commitments are not at prices in excess of current market. Additionally,
Conoco has obligations under international contracts to purchase natural gas
over periods up to 19 years. These long-term purchase obligations are at prices
on par with June 30, 2001 quoted market prices. No material annual gain or loss
is expected from these long-term commitments.

     Conoco is subject to various lawsuits and claims involving a variety of
matters including, along with other oil companies, actions challenging oil and
gas royalty and severance tax payments; actions related to gas measurement and
valuation methods; actions related to joint interest billings to operating
agreement partners; and claims for damages resulting from leaking underground
storage tanks. As a result of the separation agreement with DuPont, Conoco has
also assumed responsibility for current and future claims related to certain
discontinued chemicals and agricultural chemicals businesses operated by Conoco
in the past. In general, the effect on future financial results is not subject
to reasonable estimation because considerable uncertainty exists. The ultimate
liabilities resulting from such lawsuits and claims may be material to results
of operations in the period in which they are recognized.

     On May 2, 2000, a jury in federal court in Virginia found that Conoco
infringed patents of General Technology Applications (GTA) involving part of a
process for manufacturing a flow improver product. The amount awarded as damages
was $55. We have appealed the verdict. Conoco remains convinced that the
evidence clearly demonstrates that Conoco's process does not infringe the GTA
patents, and that the trial court decision will be reversed.

     Conoco also is subject to contingencies pursuant to environmental laws and
regulations that in the future may require further action to correct the effects
on the environment of prior disposal practices or releases of petroleum
substances by Conoco or other parties. Conoco has accrued for certain
environmental remediation activities consistent with the policy set forth in
note 2 to the consolidated financial statements presented in Conoco's 2000
Annual Report on Form 10-K. Conoco assumed environmental remediation liabilities
from DuPont related to certain discontinued chemicals and agricultural chemicals
businesses operated by Conoco in the past that are included in the environmental
accrual. At June 30, 2001, the environmental accrual was $115. In management's
opinion, this accrual was appropriate based on existing facts and circumstances.
Under adverse changes in circumstances, potential liability may exceed amounts
accrued. In the event future monitoring and remediation expenditures are in
excess of amounts accrued, they may be significant to results of operations in
the period



                                       7
<PAGE>   10

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


recognized. However, management does not anticipate they will have a material
adverse effect on the consolidated financial position of Conoco.

     At June 30, 2001, Conoco or DuPont, on behalf of and indemnified by Conoco,
had directly guaranteed $1,120 of the obligations of certain affiliated
companies and others. No material loss is anticipated as a result of such
agreements and guarantees. Conoco had no indirect guarantees as of June 30,
2001.

10.  MINORITY INTERESTS

     In March 2001, Conoco acquired the minority interest in Conoco Gas Holdings
L.L.C. from Armadillo L.L.C. The acquisition resulted in a reduction of minority
interest of $185, an increase in debt of $171 and a reduction in cash of $14.
Conoco assumed the $171 debt from Armadillo L.L.C. and in the second quarter
2001, this debt was reclassified from short-term to long-term.

11.  COMPREHENSIVE INCOME

     The following sets forth Conoco's comprehensive income for the periods
shown:

<Table>
<Caption>
                                                      THREE MONTHS ENDED      SIX MONTHS ENDED
                                                           JUNE 30                 JUNE 30
                                                     --------------------    --------------------
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    --------
<S>                                                  <C>         <C>         <C>         <C>
Net income .......................................   $    552    $    456    $  1,205    $    855
Other comprehensive income (loss)
  Foreign currency translation adjustment ........        (32)       (175)       (149)       (220)
  Hedging activities .............................         22          --          20          --
                                                     --------    --------    --------    --------
Comprehensive income .............................   $    542    $    281    $  1,076    $    635
                                                     ========    ========    ========    ========
</Table>

12.  OPERATING SEGMENT AND GEOGRAPHIC INFORMATION

     Conoco has three operating segments that comprise the structure used by
senior management to make key operating decisions and assess performance. These
are the upstream, downstream and emerging businesses segments. Upstream
operating segment activities include exploring for, developing, producing and
selling crude oil, natural gas and natural gas liquids. Downstream operating
segment activities include refining crude oil and other feedstocks into
petroleum products; buying and selling crude oil and refined products; and
transporting, distributing and marketing petroleum products. Activities of the
emerging businesses operating segment include the development of new businesses
beyond our traditional operations. Conoco has five reporting segments. Four
reporting segments reflect the geographic division between the United States and
international operations of its upstream and downstream businesses. One
reporting segment is for emerging businesses. Corporate includes general
corporate expenses, financing costs and other non-operating items and captive
insurance operations.

     Conoco sells its products worldwide. Major products include crude oil,
natural gas and refined products that are sold primarily in the energy and
transportation markets. Conoco's sales are not materially dependent on a single
customer or small group of customers. Transfers between segments are on the
basis of estimated market values.



                                       8
<PAGE>   11

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


<Table>
<Caption>
                                                    UPSTREAM         DOWNSTREAM
                                                ---------------   ---------------    EMERGING                ELIMINA-   CONSOLI-
SEGMENT INFORMATION                              U.S.    INT'L.    U.S.    INT'L.   BUSINESSES   CORPORATE     TION      DATED
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
<S>                                             <C>      <C>      <C>      <C>      <C>          <C>         <C>        <C>
THREE MONTHS ENDED JUNE 30, 2001
Sales and other operating revenues ...........  $1,890   $  979   $4,575   $2,816   $       --   $      --   $     --   $ 10,260
Transfers between segments ...................     213      110       53       97           --          --       (473)        --
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Total operating revenues .....................  $2,103   $1,089   $4,628   $2,913   $       --   $      --   $   (473)  $ 10,260
                                                ======   ======   ======   ======   ==========   =========   ========   ========

Operating profit .............................  $  376   $  541   $  323   $  (45)  $      (25)  $     (47)  $     --   $  1,123

Equity in earnings of affiliates .............       6       29       24        1           (1)         --         --         59
Corporate non-operating items
   Interest and debt expense .................      --       --       --       --           --         (67)        --        (67)
   Interest income (net of misc.
    interest expense) ........................      --       --       --       --           --           5         --          5
   Other .....................................      --       --       --       --           --         (19)        --        (19)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Income before income taxes ...................     382      570      347      (44)         (26)       (128)        --      1,101
Provision for income taxes ...................    (133)    (326)    (126)      (4)           9          31         --       (549)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Net income (loss)(1) .........................  $  249   $  244   $  221   $  (48)  $      (17)  $     (97)  $     --   $    552
                                                ======   ======   ======   ======   ==========   =========   ========   ========
THREE MONTHS ENDED JUNE 30, 2000
Sales and other operating revenues ...........  $1,129   $  803   $4,507   $2,918   $       --   $      --   $     --   $  9,357
Transfers between segments ...................     169      163       51      150           --          --       (533)        --
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Total operating revenues .....................  $1,298   $  966   $4,558   $3,068   $       --   $      --   $   (533)  $  9,357
                                                ======   ======   ======   ======   ==========   =========   ========   ========

Operating profit .............................  $  198   $  434   $  137   $   50   $      (13)  $     (47)  $     --   $    759

Equity in earnings of affiliates .............       2       52       20        3           --          --         --         77
Corporate non-operating items
   Interest and debt expense .................      --       --       --       --           --         (89)        --        (89)
   Interest income (net of misc.
    interest expense) ........................      --       --       --       --           --          12         --         12
   Other .....................................      --       --       --       --           --          15         --         15
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Income before income taxes ...................     200      486      157       53          (13)       (109)        --        774
Provision for income taxes ...................     (64)    (223)     (55)     (14)           2          36         --       (318)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Net income (loss)(1) .........................  $  136   $  263   $  102   $   39   $      (11)  $     (73)  $     --   $    456
                                                ======   ======   ======   ======   ==========   =========   ========   ========
SIX MONTHS ENDED JUNE 30, 2001
Sales and other operating revenues ...........  $4,576   $2,219   $8,378   $5,617   $        5   $      --   $     --   $ 20,795
Transfers between segments ...................     466      360      106      227           24          --     (1,183)        --
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Total operating revenues .....................  $5,042   $2,579   $8,484   $5,844   $       29   $      --   $ (1,183)  $ 20,795
                                                ======   ======   ======   ======   ==========   =========   ========   ========

Operating profit .............................  $  860   $1,109   $  428   $   41   $      (47)  $     (84)  $     --   $  2,307

Equity in earnings of affiliates .............      22       39       29       (5)          (5)         --         --         80
Corporate non-operating items
   Interest and debt expense .................      --       --       --       --           --        (142)        --       (142)
   Interest income (net of misc.
    interest expense) ........................      --       --       --       --           --          15         --         15
   Other .....................................      --       --       --       --           --         (14)        --        (14)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Income before income taxes and accounting
    change ...................................     882    1,148      457       36          (52)       (225)        --      2,246
Provision for income taxes ...................    (309)    (648)    (165)     (31)          18          57         --     (1,078)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Income before accounting change ..............     573      500      292        5          (34)       (168)        --      1,168
Cumulative effect of accounting change, net
    of income taxes ..........................       8       32       (3)      --           --          --         --         37
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Net income (loss)(1) .........................  $  581   $  532   $  289   $    5   $      (34)  $    (168)  $     --   $  1,205
                                                ======   ======   ======   ======   ==========   =========   ========   ========
</Table>



                                       9
<PAGE>   12

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)

<Table>
<Caption>
                                                   UPSTREAM         DOWNSTREAM
                                                ---------------   ---------------    EMERGING                ELIMINA-   CONSOLI-
SEGMENT INFORMATION                              U.S.    INT'L.    U.S.    INT'L.   BUSINESSES   CORPORATE     TION      DATED
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
<S>                                             <C>      <C>      <C>      <C>      <C>          <C>         <C>        <C>
SIX MONTHS ENDED JUNE 30, 2000
Sales and other operating revenues ...........  $2,136   $1,698   $8,224   $5,822   $        1   $      --   $     --   $ 17,881
Transfers between segments ...................     346      331       88      285           --          --     (1,050)        --
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Total operating revenues .....................  $2,482   $2,029   $8,312   $6,107   $        1   $      --   $ (1,050)  $ 17,881
                                                ======   ======   ======   ======   ==========   =========   ========   ========

Operating profit .............................  $  408   $  937   $  102   $  115   $      (23)  $     (79)  $     --   $  1,460
Equity in earnings of affiliates .............       7      124       27       (1)          --          --         --        157
Corporate non-operating items
   Interest and debt expense .................      --       --       --       --           --        (172)        --       (172)
   Interest income (net of misc.
    interest expense) ........................      --       --       --       --           --          23         --         23
   Other .....................................      --       --       --       --           --          18         --         18
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Income before income taxes ...................     415    1,061      129      114          (23)       (210)        --      1,486
Provision for income taxes ...................    (136)    (501)     (38)     (26)           5          65         --       (631)
                                                ------   ------   ------   ------   ----------   ---------   --------   --------
Net income (loss)(1) .........................  $  279   $  560   $   91   $   88   $      (18)  $    (145)  $     --   $    855
                                                ======   ======   ======   ======   ==========   =========   ========   ========

TOTAL ASSETS
   At June 30, 2001 ..........................  $3,978   $7,095   $3,646   $2,932   $      165   $     809   $     --   $ 18,625
   At December 31, 2000 ......................  $3,733   $7,195   $3,461   $2,925   $       88   $     725   $     --   $ 18,127
</Table>

----------
(1)  Includes after-tax benefits (charges) from special items:

<Table>
<S>                                             <C>     <C>     <C>      <C>      <C>         <C>         <C>       <C>
THREE MONTHS ENDED JUNE 30, 2001
Humber impairments ...........................  $   --  $   --  $   --   $  (54)  $       --  $      --   $     --  $    (54)
                                                ------  ------  ------   ------   ----------  ---------   --------  --------
Total special items ..........................  $   --  $   --  $   --   $  (54)  $       --  $      --   $     --  $    (54)
                                                ======  ======  ======   ======   ==========  =========   ========  ========
THREE MONTHS ENDED JUNE 30, 2000
Discontinued businesses ......................  $   --  $   --  $   --   $   --   $       --  $      (4)  $     --  $     (4)
                                                ------  ------  ------   ------   ----------  ---------   --------  --------
Total special items ..........................  $   --  $   --  $   --   $   --   $       --  $      (4)  $     --  $     (4)
                                                ======  ======  ======   ======   ==========  =========   ========  ========
SIX MONTHS ENDED JUNE 30, 2001
Cumulative effect of accounting change........  $    8  $   32  $   (3)  $   --   $       --  $      --   $     --  $     37
Humber impairments ...........................      --      --      --      (54)          --         --         --       (54)
                                                ------  ------  ------   ------   ----------  ---------   --------  --------
Total special items ..........................  $    8  $   32  $   (3)  $  (54)  $       --  $      --   $     --  $    (17)
                                                ======  ======  ======   ======   ==========  =========   ========  ========
SIX MONTHS ENDED JUNE 30, 2000
Asset sales ..................................  $   27  $   --  $   --   $   --   $       --  $      --   $     --  $     27
Litigation ...................................      --      --     (16)      --           --         --         --       (16)
Discontinued businesses ......................      --      --      --       --           --         (4)        --        (4)
Property impairments .........................      --      --      (3)      --           --         --         --        (3)
                                                ------  ------  ------   ------   ----------  ---------   --------  --------
Total special items ..........................  $   27  $   --  $  (19)  $   --   $       --  $      (4)  $     --  $      4
                                                ======  ======  ======   ======   ==========  =========   ========  ========
</Table>



                                       10
<PAGE>   13

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                   (UNAUDITED)
                     (DOLLARS IN MILLIONS, EXCEPT PER SHARE)


     Special items for the second quarter 2001 included a charge of $54 to
record repairs and other costs associated with the April 16, 2001 explosion and
fire at our Humber refinery in North Lincolnshire, U.K.

     In addition to the special item set forth in the previous paragraph,
special items for the first six months of 2001 included a cumulative transition
gain of $37 recorded on January 1, 2001 upon initial adoption of SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities."
This cumulative transition gain included a $40 gain in upstream related to
changes in the fair value of certain crude oil put options from their purchase
date to the January 1, 2001 adoption of the Standards and a $3 charge in U.S.
downstream associated with various derivatives.

     The $40 upstream gain consisted of $8 that was U.S. related and $32 that
was related to international operations. Also included in net income for
upstream was a $9 expense for the second quarter of 2001 and a $52 expense for
the first six months of 2001 related to changes in the fair value of these same
crude oil put options. The $9 expense for the second quarter of 2001 consisted
of $1 for U.S. operations and $8 for international operations while the $52 for
the first six months of 2001 consisted of $10 for U.S. operations and $42 for
international operations.

     Special items for the second quarter of 2000 included a loss of $4 for
settlement costs associated with the separation agreement from DuPont related to
discontinued business.

     In addition to the special item set forth in the previous paragraph,
special items for the first six months of 2000 included a $27 gain from the sale
of natural gas processing assets in the U.S., a $16 loss for litigation
provisions and $3 for the write-off of related refinery assets.



                                       11
<PAGE>   14

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

(a) FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

     CASH PROVIDED BY OPERATIONS

     Cash provided by operations in the first six months of 2001 increased $509
million to $1,623 million from $1,114 million in the first six months of 2000.
Cash provided by operations before changes in operating assets and liabilities
increased $806 million compared to the first six months of 2000, primarily due
to strong natural gas prices and refining margins along with higher crude oil
sales volumes. Negative changes to net operating assets and liabilities of $297
million were primarily due to decreased payables, partially offset by decreased
receivables.

INVESTING ACTIVITIES

     CAPITAL EXPENDITURES AND INVESTMENTS

<Table>
<Caption>
                                                       SIX MONTHS ENDED
                                                           JUNE 30
                                                     -------------------
                                                       2001       2000
                                                     --------   --------
                                                        (IN MILLIONS)
<S>                                                  <C>        <C>
Upstream
    United States ................................   $    287   $    253
    International ................................        413        501
                                                     --------   --------
        Total upstream ...........................        700        754
Downstream
    United States ................................         67        114
    International ................................        103        114
                                                     --------   --------
        Total downstream .........................        170        228
Emerging businesses ..............................         90         68
Corporate ........................................         11         11
                                                     --------   --------
Total capital expenditures and investments .......   $    971   $  1,061
                                                     ========   ========

United States ....................................   $    446   $    446
International ....................................        525        615
                                                     --------   --------
Total capital expenditures and investments .......   $    971   $  1,061
                                                     ========   ========
</Table>

     Total capital expenditures and investments were $971 million for the first
six months of 2001, a decrease of $90 million, or 8 percent, versus capital
expenditures and investments of $1,061 million for the first six months of 2000.
The decrease was primarily due to lower spending on international upstream
acquisitions and lower expenditures on U.S. refining operations. A more detailed
description and analysis of capital expenditures and investments by operating
segment within the U.S. and international follows below. Capital expenditures
and investments include capitalized exploratory wells but do not include
expensed exploration costs.

     Upstream

     Upstream capital expenditures and investments totaled $700 million for the
first six months of 2001 compared to $754 million for the first six months of
2000. The decrease of $54 million, or approximately 7 percent, was primarily the
result of lower spending on international acquisitions. Expenditures in 2000
included the acquisition of Canadian natural gas processing and gathering
assets.

     United States

     During the first six months of 2001, Conoco spent $287 million on U.S.
capital projects, an increase of $34 million, or 13 percent, from $253 million
in the first six months of 2000. The increase in expenditures in 2001 versus
2000 was primarily due to higher development drilling costs resulting from
higher commodity prices.



                                       12
<PAGE>   15

     International

     International upstream capital expenditures and investments totaled $413
million in the first six months of 2001, a decrease of $88 million, or 18
percent, from $501 million in the first six months of 2000. The decrease was
primarily the result of lower spending on acquisitions. Expenditures in 2000
included the acquisition of Canadian natural gas processing and gathering
assets.

     On July 16, 2001, Conoco purchased Gulf Canada Resources Limited (Gulf
Canada) for approximately $4,500 million in cash. Conoco arranged a $4,500
million bridge credit facility to finance the transaction. Conoco assumed
approximately $2,000 million of Gulf Canada's net debt, preferred stock and
minority interests. The total purchase price was approximately $6,500 million.

     On July 2, 2001, Conoco purchased for approximately $70 million a 6.4
percent equity interest in the Grane oil field located in the Norwegian North
Sea.

     Downstream

     Downstream capital expenditures and investments totaled $170 million in the
first six months of 2001, a decrease of $58 million, or 25 percent, versus $228
million in the first six months of 2000, primarily reflecting decreased
expenditures on U.S. refining operations.

     United States

     During the first six months of 2001, Conoco spent $67 million on downstream
U.S. capital projects, down $47 million, or 41 percent, from $114 million in the
first six months of 2000. Expenditures in the first six months of 2001 were
principally related to several small investments in our pipeline and refining
operations. Capital expenditures and investments in the first six months of 2000
were primarily related to the new units being installed at our Lake Charles,
Louisiana refinery to process synthetic crude from Petrozuata, our Venezuelan
joint venture, as well as our ongoing refining and marketing operations.

     International

     Conoco spent $103 million on downstream international capital projects
during the first six months of 2001, down $11 million, or 10 percent, from $114
million in the first six months of 2000. The majority of the funds in 2001 were
directed towards our ongoing refining and marketing operations as well as
continuing clean fuels investments. In the first six months of 2000, a major
portion of capital expenditures and investments reflected upgrades to meet clean
fuels specifications in Europe and our ongoing refining and marketing
operations.

     Emerging Businesses

     Emerging businesses capital expenditures and investments totaled $90
million in the first six months of 2001, an increase of $22 million, or 32
percent, compared to $68 million in the first six months of 2000. The increased
expenditures during the first six months of 2001 were primarily related to the
continued construction of our carbon fibers manufacturing plant in Ponca City,
Oklahoma and project costs associated with our power business.

     Corporate

     Corporate capital expenditures and investments totaled $11 million in the
first six months of 2001 unchanged as compared to $11 million in the first six
months of 2000. Expenditures during the first six months of 2001 were largely
for computer infrastructure.

PROCEEDS FROM SALES OF ASSETS AND SUBSIDIARIES

     Proceeds from asset sales amounted to $98 million for the first six months
of 2001, a decrease of $27 million, or 22 percent, from $125 million in the
first six months of 2000. Proceeds in the first six months of 2001 were
primarily the result of the sale of our interest in Arkhangelskgeoldobycha, a
Russian oil company, the sale of retail units and natural gas facilities in the
United States and exiting our downstream operation in Spain. Proceeds in the
first six months of 2000 were primarily the result of the sale of non-strategic
natural gas processing assets in the U.S.



                                       13
<PAGE>   16

FINANCING ACTIVITIES

     Conoco's ability to maintain and grow its operating income and cash flow is
dependent upon continued capital spending to replace depleting assets. Conoco
believes its future cash flow from operations and its borrowing capacity should
be sufficient to fund its payments of dividends, if any, capital expenditures
and working capital requirements and to service debt.

     At June 30, 2001, Conoco had an unsecured $2,000 million revolving credit
facility with a syndicate of U.S. and international banks. The terms consist of
a 364-day committed facility in the amount of $1,350 million and a five-year
committed facility, with over two years remaining, in the amount of $650
million. Conoco had no outstanding borrowings under the credit facility at June
30, 2001.

     Conoco maintains a $2,000 million U.S. commercial paper program and a euro
500 million European commercial paper program that are fully supported by the
credit facility. Conoco has the ability to issue commercial paper at any time
with maturities not to exceed 270 days. At June 30, 2001, there was no
commercial paper outstanding.

     In March 2001, Conoco acquired the minority interest in Conoco Gas Holdings
L.L.C. from Armadillo L.L.C. The acquisition resulted in a reduction of minority
interest of $185 million, an increase in debt of $171 million and a reduction in
cash of $14 million. Conoco assumed the $171 million debt from Armadillo L.L.C.
and in the second quarter 2001, this debt was reclassified from short-term to
long-term.

     Total Conoco debt was $4,363 million at June 30, 2001, down $31 million
versus $4,394 million at December 31, 2000. The total debt-to-capitalization
ratio was 40.3 percent at June 30, 2001 and 43.8 percent at December 31, 2000.

     In order to fund the Gulf Canada acquisition, Conoco executed a $4,500
million senior unsecured 364-day bridge credit facility on June 29, 2001. The
total amount of the facility was drawn on July 16, 2001. Based on the tenor of
the loan, funds advanced under this facility are based on LIBOR or prime
interest. We intend to refinance this facility in the capital markets prior to
expiration.

     We intend to reduce total debt between $2,000 million and $2,500 million by
the end of 2002 by a combination of cash flow from operations, asset
dispositions, rationalization of our capital spending program and suspension of
our previously announced stock buyback program.



                                       14
<PAGE>   17

(b) RESULTS OF OPERATIONS

CONSOLIDATED RESULTS

<Table>
<Caption>
                                                                THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                      JUNE 30                JUNE 30
                                                               --------------------    --------------------
                                                                 2001        2000        2001        2000
                                                               --------    --------    --------    --------
                                                                              (IN MILLIONS)
<S>                                                            <C>         <C>         <C>         <C>
SALES AND OTHER OPERATING REVENUES
   Upstream
     United States .........................................   $  1,890    $  1,129    $  4,576    $  2,136
     International .........................................        979         803       2,219       1,698
                                                               --------    --------    --------    --------
           Total upstream ..................................      2,869       1,932       6,795       3,834
   Downstream
     United States .........................................      4,575       4,507       8,378       8,224
     International .........................................      2,816       2,918       5,617       5,822
                                                               --------    --------    --------    --------
           Total downstream ................................      7,391       7,425      13,995      14,046
   Emerging businesses .....................................         --          --           5           1
   Corporate ...............................................         --          --          --          --
                                                               --------    --------    --------    --------
Sales and other operating revenues .........................   $ 10,260    $  9,357    $ 20,795    $ 17,881
                                                               ========    ========    ========    ========

AFTER-TAX OPERATING INCOME
   Upstream
     United States .........................................   $    249    $    136    $    581    $    279
     International .........................................        244         263         532         560
                                                               --------    --------    --------    --------
           Total upstream ..................................        493         399       1,113         839
   Downstream
     United States .........................................        221         102         289          91
     International .........................................        (48)         39           5          88
                                                               --------    --------    --------    --------
           Total downstream ................................        173         141         294         179
   Emerging businesses .....................................        (17)        (11)        (34)        (18)
   Corporate ...............................................        (31)        (29)        (55)        (51)
                                                               --------    --------    --------    --------
           Total after-tax operating income ................        618         500       1,318         949
Interest and other non-operating expenses net of tax .......        (66)        (44)       (113)        (94)
                                                               --------    --------    --------    --------
Net income .................................................   $    552    $    456    $  1,205    $    855
                                                               ========    ========    ========    ========
</Table>

SPECIAL ITEMS

     Net income includes the following non-recurring items (special items) on an
after-tax basis:

<Table>
<Caption>
                                                      THREE MONTHS ENDED       SIX MONTHS ENDED
                                                           JUNE 30                 JUNE 30
                                                     --------------------    --------------------
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    --------
                                                                    (IN MILLIONS)
<S>                                                  <C>         <C>         <C>         <C>
UPSTREAM
   Cumulative effect of accounting change ........   $     --    $     --    $     40    $     --
   Asset sales ...................................         --          --          --          27
                                                     --------    --------    --------    --------
        Total upstream special items .............         --          --          40          27
DOWNSTREAM
   Cumulative effect of accounting change ........         --          --          (3)         --
   Humber impairments ............................        (54)         --         (54)         --
   Property impairments ..........................         --          --          --          (3)
   Litigation ....................................         --          --          --         (16)
                                                     --------    --------    --------    --------
        Total downstream special items ...........        (54)         --         (57)        (19)
CORPORATE
   Discontinued businesses .......................         --          (4)         --          (4)
                                                     --------    --------    --------    --------
         Total corporate special items ...........         --          (4)         --          (4)
                                                     --------    --------    --------    --------
Total special items ..............................   $    (54)   $     (4)   $    (17)   $      4
                                                     ========    ========    ========    ========
</Table>



                                       15
<PAGE>   18

     Special items for the second quarter 2001 included a charge of $54 million
to record repairs and other costs associated with the April 16, 2001 explosion
and fire at our Humber refinery in North Lincolnshire, U.K.

     In addition to the special item set forth in the previous paragraph,
special items for the first six months of 2001 included a cumulative transition
gain of $37 million recorded on January 1, 2001 upon initial adoption of SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities." This cumulative transition gain included a $40 million gain in
upstream related to changes in the fair value of certain crude oil put options
from their purchase date to the January 1, 2001 adoption of the Standards and a
$3 million charge in U.S. downstream associated with various derivatives.

     The $40 million upstream gain consisted of $8 million that was U.S. related
and $32 million that was related to international operations. Also included in
net income for upstream was a $9 million expense for the second quarter of 2001
and a $52 million expense for the first six months of 2001 related to changes in
the fair value of these same crude oil put options. The $9 million expense for
the second quarter of 2001 consisted of $1 million for U.S. operations and $8
million for international operations while the $52 million for the first six
months of 2001 consisted of $10 million for U.S. operations and $42 million for
international operations.

     Special items for the second quarter of 2000 included a loss of $4 million
for settlement costs associated with the separation agreement from DuPont
related to a discontinued business.

     In addition to the special item set forth in the previous paragraph,
special items for the first six months of 2000 included a $27 million gain from
the sale of natural gas processing assets in the U.S., a $16 million loss for
litigation provisions and $3 million for the write-off of related refinery
assets.

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     Net income was $552 million in the second quarter of 2001, up 21 percent
from $456 million in the second quarter of 2000. Net income before special items
was $606 million in the second quarter of 2001, up 32 percent from $460 million
in the second quarter of 2000. These increases predominantly reflected strong
refining margins and natural gas prices, as well as higher crude oil sales
volumes, partly offset by increased overhead and operating expenses.

     Sales and other operating revenues for the second quarter of 2001 were
$10,260 million, up 10 percent from $9,357 million in the second quarter of
2000, primarily due to higher natural gas prices. Crude oil and refined product
buy/sell and natural gas resale activities in the second quarter of 2001 totaled
$2,743 million, up 24 percent compared to $2,218 million in the second quarter
of 2000, principally due to higher natural gas prices.

     Income from equity affiliates for the second quarter of 2001 was $59
million, down $18 million, or 23 percent, compared to $77 million in the second
quarter of 2000. This decrease resulted primarily from increased costs during
the start-up phase at Petrozuata and lower prices for heavy crude, which reduced
our second quarter earnings from Petrozuata by $18 million.

     Other income for the second quarter of 2001 was $114 million, up 58 percent
from $72 million in the second quarter of 2000. Other income included a gain of
$38 million generated by the natural gas and crude oil derivative instruments
initiated in anticipation of the Gulf Canada acquisition. Other income also
included losses of $15 million related to the change during the quarter in the
market value of crude oil put options.

     Cost of goods sold for the second quarter of 2001 totaled $6,227 million,
an increase of $469 million, or 8 percent, compared to $5,758 million in the
second quarter of 2000, primarily attributable to the increase in natural gas
prices and higher refinery feedstock costs.

     Operating expenses for the second quarter of 2001 were $700 million, up 28
percent, compared to $547 million for the second quarter of 2000. This increase
was mainly due to the higher energy costs experienced by our downstream
operations, and higher volume-related and price-related operating costs and
higher transportation charges experienced by our upstream operations.



                                       16
<PAGE>   19

     Selling, general and administrative expenses for the second quarter 2001
were $208 million, an increase of $15 million, or 8 percent, compared to $193
million for the second quarter of 2000. The increase was primarily related to
higher computer services expenses and expenses associated with an employee
compensation program.

     Exploration expenses for the second quarter of 2001 totaled $56 million,
down $2 million, or 3 percent, from $58 million in the second quarter of 2000,
as higher exploration expenditures were more than offset by lower dry hole
costs.

     Depreciation, depletion and amortization (DD&A) for the second quarter of
2001 totaled $338 million, an increase of $29 million, or 9 percent, compared to
$309 million in the second quarter of 2000. The increase was principally due to
changes in rates and field mix.

     Provision for income taxes for the second quarter of 2001 totaled $549
million, up 73 percent, compared to $318 million for the second quarter of 2000,
as a result of significantly higher pretax income. The effective tax rate,
approximately 50 percent in the second quarter of 2001 compared to 41 percent in
the second quarter of 2000, was higher due to a greater portion of 2001 earnings
being generated by operations in countries with higher effective tax rates and
the reduced impact of U.S. alternative fuels tax credits on higher pretax income
in 2001.

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     Conoco had net income of $1,205 million in the first six months of 2001, up
41 percent from $855 million in the first six months of 2000. Net income before
special items was $1,222 million in the first six months of 2001, up 44 percent
from $851 million in the first six months of 2000. These increases predominantly
reflected higher global natural gas prices, stronger refining margins and
increased crude oil sales volumes. Partly offsetting these increases were lower
equity earnings from affiliates and higher overhead and operating expenses.

     Sales and other operating revenues for the first six months of 2001 were
$20,795 million, up 16 percent from $17,881 million in the first six months of
2000, principally due to higher natural gas prices. Crude oil and refined
product buy/sell and natural gas resale activities in the first six months of
2001 totaled $5,575 million, up 37 percent compared to $4,078 million in the
first six months of 2000, primarily due to higher natural gas prices.

     Income from equity affiliates for the first six months of 2001 was $80
million, down $77 million, or 49 percent, compared to $157 million in the first
six months of 2000. Increased costs during the start-up phase at Petrozuata and
lower prices for heavy crude reduced our first six months earnings from
Petrozuata by $83 million. This was partially offset by an increase in our
earnings from the Pocahontas Gas partnership due to strong U.S. natural gas
prices.

     Other income for the first six months of 2001 was $145 million, down 9
percent from $159 million in the first six months of 2000. Other income included
a gain of $38 million generated by the natural gas and crude oil derivative
instruments initiated in anticipation of the Gulf Canada acquisition. Other
income also included losses of $83 million related to the change during the six
month period in the market value of crude oil put options.

     Cost of goods sold for the first six months of 2001 totaled $12,756
million, an increase of $1,874 million, or 17 percent, compared to $10,882
million in the first six months of 2000, primarily due to the increase in
natural gas prices and higher refinery feedstock costs.

     Operating expenses for the first six months of 2001 were $1,314 million, up
25 percent, compared to $1,053 million for the first six months of 2000. This
increase was primarily attributable to the higher energy costs experienced by
our downstream operations, higher volume-related and price-related operating
costs, and higher transportation and tariff charges experienced by our upstream
operations.

     Selling, general and administrative expenses for the first six months of
2001 were $404 million, an increase of $23 million, or 6 percent, compared to
$381 million for the first six months of 2000. The increase was related to
higher computer services expenses and expenses associated with an employee
compensation program.

     Exploration expenses for the first six months of 2001 totaled $93 million,
down $2 million, or 2 percent, from $95 million for the first six months of
2000, reflecting higher exploration expenditures more than offset by lower dry
hole costs.



                                       17
<PAGE>   20

     DD&A for the first six months of 2001 totaled $691 million, an increase of
$43 million, or 7 percent, compared to $648 million in the first six months of
2000. The increase was principally due to changes in rates and field mix.

     Provision for income taxes for the first six months of 2001 totaled $1,078
million, up 71 percent, compared to $631 million for the first six months of
2000, as a result of significantly higher pretax income. The effective tax rate,
approximately 48 percent in the first six months of 2001 compared to 42 percent
in the first six months of 2000, was higher due to a greater portion of 2001
earnings being generated by operations in countries with higher effective tax
rates and the reduced impact of U.S. alternative fuels tax credits on higher
pretax income in 2001.

UPSTREAM SEGMENT RESULTS

<Table>
<Caption>
                                           THREE MONTHS ENDED     SIX MONTHS ENDED
                                                JUNE 30               JUNE 30
                                          -------------------   --------------------
                                            2001       2000       2001        2000
                                          --------   --------   --------    --------
                                                       (IN MILLIONS)
<S>                                       <C>        <C>        <C>         <C>
After-tax operating income
  United States .......................   $    249   $    136   $    581    $    279
  International .......................        244        263        532         560
                                          --------   --------   --------    --------
    After-tax operating income ........        493        399      1,113         839
Special items
  United States .......................         --         --         (8)        (27)
  International .......................         --         --        (32)         --
                                          --------   --------   --------    --------
    Special items .....................         --         --        (40)        (27)
Earnings before special items
  United States .......................        249        136        573         252
  International .......................        244        263        500         560
                                          --------   --------   --------    --------
Earnings before special items .........   $    493   $    399   $  1,073    $    812
                                          ========   ========   ========    ========
</Table>

     The following tables set forth for Conoco (including equity affiliates),
Conoco (excluding equity affiliates) and its equity affiliates, average sales
prices per barrel of crude oil and condensate sold and average sales prices per
thousand cubic feet (mcf) of natural gas sold.

<Table>
<Caption>
                                                            TOTAL     UNITED
                                                          WORLDWIDE   STATES   INT'L.
                                                          ---------   ------   ------
                                                            (UNITED STATES DOLLARS)
<S>                                                       <C>         <C>      <C>
TOTAL CONOCO
  For the quarter ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......   $   23.82   $24.21   $23.75
     Per mcf of natural gas sold ......................        3.89     4.47     3.33
  For the quarter ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       25.16    26.20    24.93
     Per mcf of natural gas sold ......................        2.56     2.66     2.46
  For the first six months ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       23.51    24.75    23.29
     Per mcf of natural gas sold ......................        4.61     5.62     3.73
  For the first six months ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       25.25    26.39    25.04
     Per mcf of natural gas sold ......................        2.44     2.39     2.48
</Table>



                                       18
<PAGE>   21

<Table>
<Caption>
                                                            TOTAL     UNITED
                                                          WORLDWIDE   STATES   INT'L.
                                                          ---------   ------   ------
                                                            (UNITED STATES DOLLARS)
<S>                                                       <C>         <C>      <C>

CONSOLIDATED COMPANIES
  For the quarter ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......   $   25.92   $24.21   $26.29
     Per mcf of natural gas sold ......................        3.87     4.45     3.33
  For the quarter ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       26.11    26.20    26.09
     Per mcf of natural gas sold ......................        2.56     2.66     2.46
  For the first six months ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       25.32    24.75    25.46
     Per mcf of natural gas sold ......................        4.59     5.60     3.73
  For the first six months ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       26.20    26.39    26.16
     Per mcf of natural gas sold ......................        2.44     2.39     2.48
EQUITY AFFILIATES
  For the quarter ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......   $   14.51   $   --   $14.51
     Per mcf of natural gas sold ......................        5.28     5.28       --
  For the quarter ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       20.03       --    20.03
     Per mcf of natural gas sold ......................        2.91     2.91       --
  For the first six months ended June 30, 2001
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       13.61       --    13.61
     Per mcf of natural gas sold ......................        6.36     6.36       --
  For the first six months ended June 30, 2000
   Average sales prices of produced petroleum
     Per barrel of crude oil and condensate sold ......       20.40       --    20.40
     Per mcf of natural gas sold ......................        2.75     2.75       --
</Table>

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     Upstream earnings before special items were $493 million in the second
quarter of 2001, up 24 percent from $399 million in the second quarter of 2000,
driven by stronger natural gas prices and increased crude oil volumes. U.S.
upstream earnings before special items totaled $249 million in the second
quarter of 2001, up 83 percent from $136 million in the comparable period of
2000, reflecting higher natural gas prices, partly offset by increased overhead
and operating costs. International upstream earnings before special items were
$244 million, a decrease of 7 percent from $263 million in the comparable period
in 2000. The decline was primarily attributable to lower equity earnings from
Petrozuata, higher overhead and operating costs, and tax benefits realized in
the same period in 2000. These decreases were partly offset by higher natural
gas prices and higher crude oil volumes.

     Conoco's worldwide net realized crude oil price, including equity
affiliates, was $23.82 per barrel for the quarter, down $1.34 per barrel, or 5
percent, from $25.16 per barrel in the second quarter of 2000. Worldwide net
realized natural gas prices, including equity affiliates, averaged $3.89 per mcf
for the quarter, compared with $2.56 per mcf in the same period in 2000, an
increase of 52 percent.

     Worldwide petroleum liquids production, including our share of equity
affiliates, in the second quarter of 2001 was 384,000 barrels per day versus
361,000 barrels per day in the second quarter of 2000, a 6 percent increase.
U.S. petroleum liquids production was down 13 percent as a result of natural gas
liquids production decreases and natural field decline in the mid-continent
region and the Gulf of Mexico. International petroleum liquids production
increased 12 percent to 312,000 barrels per day due to increases in Vietnam,
Indonesia, Petrozuata and the U.K.



                                       19
<PAGE>   22

     Worldwide natural gas production, including our share of equity affiliates,
in the second quarter of 2001 was up 1 percent at 1,716 million cubic feet
(mmcf) per day from 1,703 mmcf per day in the second quarter of 2000. U.S.
natural gas production was down 1 percent while international natural gas
production was 2 percent higher. The international increase was mainly due to
increases in our U.K. Britannia and Viking fields.

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     Upstream earnings before special items were $1,073 million in the first six
months of 2001, up 32 percent from $812 million in the first six months of 2000,
driven by stronger natural gas prices and increased crude oil volumes. U.S.
upstream earnings before special items totaled $573 million in the first six
months of 2001, up 127 percent from $252 million in the comparable period of
2000, reflecting higher natural gas prices, partly offset by increased overhead
and operating costs. International upstream earnings before special items were
$500 million, a decrease of 11 percent from $560 million in the comparable
period in 2000. The decline was primarily attributable to lower equity earnings
from Petrozuata, higher overhead and operating costs, and tax benefits realized
in the same period in 2000. These decreases were partly offset by higher natural
gas prices and higher crude oil volumes.

     Conoco's worldwide net realized crude oil price, including equity
affiliates, was $23.51 per barrel for the first six months of 2001, down $1.74
per barrel, or 7 percent, from $25.25 per barrel in the first six months of
2000. Worldwide net realized natural gas prices, including equity affiliates,
averaged $4.61 per mcf for the first six months of 2001, compared with $2.44 per
mcf in the same period in 2000, an increase of 89 percent.

     Worldwide petroleum liquids production, including our share of equity
affiliates, for the first six months of 2001 was 382,000 barrels per day versus
368,000 barrels per day for the first six months of 2000, a 4 percent increase.
U.S. petroleum liquids production was down 8 percent as a result of natural gas
liquids production decreases, and natural field decline in the mid-continent
region and the Gulf of Mexico. International petroleum liquids production
increased 7 percent to 309,000 barrels per day due to increases in Vietnam,
Indonesia, Petrozuata and the U.K. resulting from our Saga U.K. Ltd.
acquisition.

     Worldwide natural gas production, including our share of equity affiliates,
in the first six months of 2001 was essentially unchanged at 1,768 mmcf per day
from 1,773 mmcf per day in the first six months of 2000. U.S. natural gas
production was up only slightly while international natural gas production was 1
percent lower. The international decrease was mainly attributable to natural
field decline in several U.K. fields.

DOWNSTREAM SEGMENT RESULTS

<Table>
<Caption>
                                       THREE MONTHS ENDED     SIX MONTHS ENDED
                                            JUNE 30                JUNE 30
                                      --------------------   -------------------
                                        2001        2000       2001       2000
                                      --------    --------   --------   --------
                                                    (IN MILLIONS)
<S>                                   <C>         <C>        <C>        <C>
After-tax operating income
  United States ...................   $    221    $    102   $    289   $     91
  International ...................        (48)         39          5         88
                                      --------    --------   --------   --------
    After-tax operating income ....        173         141        294        179
Special items
  United States ...................         --          --          3         19
  International ...................         54          --         54         --
                                      --------    --------   --------   --------
    Special items .................         54          --         57         19
Earnings before special items
  United States ...................        221         102        292        110
  International ...................          6          39         59         88
                                      --------    --------   --------   --------
Earnings before special items .....   $    227    $    141   $    351   $    198
                                      ========    ========   ========   ========
</Table>

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     Downstream earnings before special items were $227 million for the second
quarter of 2001, an increase of 61 percent from $141 million in the comparable
period in 2000. U.S. downstream earnings before special items were $221 million
for the second quarter of 2001, up $119 million, or 117 percent, from $102
million in the second quarter of 2000. The increase was primarily attributable
to the impact of stronger refining margins, partly offset by lower refining
volumes and higher overhead and operating expenses, mostly energy costs.
International downstream



                                       20
<PAGE>   23

earnings before special items were $6 million for the second quarter of 2001,
down 85 percent from $39 million in the comparable period in 2000, mainly
reflecting a decrease in refinery throughputs due to the fire at the U.K. Humber
refinery, partly offset by improved marketing margins in Germany. Worldwide
refined product sales in the second quarter of 2001 were 1,464,000 barrels per
day, down 9 percent from the second quarter of 2000, generally due to lower
refinery volumes in Europe.

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     Downstream earnings before special items were $351 million for the first
six months of 2001, an increase of 77 percent from $198 million in the
comparable period in 2000. U.S. downstream earnings before special items were
$292 million for the first six months of 2001, up $182 million, or 165 percent,
from $110 million in the first six months of 2000. The increase was largely
attributable to the impact of stronger refining margins, partly offset by higher
overhead and operating expenses, primarily energy costs. International
downstream earnings before special items were $59 million for the first six
months of 2001, down 33 percent from $88 million in the comparable period in
2000, primarily reflecting a decrease in refinery throughputs due to the fire at
the U.K. Humber refinery, partly offset by improved marketing margins. Worldwide
refined product sales in the first six months of 2001 were 1,471,000 barrels per
day, slightly lower than the 1,486,000 barrels per day in the first six months
of 2000.

EMERGING BUSINESSES SEGMENT RESULTS

<Table>
<Caption>
                                       THREE MONTHS ENDED       SIX MONTHS ENDED
                                             JUNE 30                JUNE 30
                                      --------------------    --------------------
                                        2001        2000        2001        2000
                                      --------    --------    --------    --------
                                                     (IN MILLIONS)
<S>                                   <C>         <C>         <C>         <C>
After-tax operating loss ..........   $    (17)   $    (11)   $    (34)   $    (18)
Special items .....................         --          --          --          --
                                      --------    --------    --------    --------
Losses before special items .......   $    (17)   $    (11)   $    (34)   $    (18)
                                      ========    ========    ========    ========
</Table>

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     Emerging businesses operating losses were $17 million for the second
quarter of 2001, an increase of $6 million compared to the second quarter of
2000, principally resulting from higher research and development costs for our
natural gas refining and carbon fibers ventures.

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     For the first six months of 2001, emerging businesses operating losses were
$34 million, an increase of $16 million compared to the first six months of
2000, predominantly resulting from higher research and development costs for our
natural gas refining and carbon fibers ventures.

CORPORATE SEGMENT RESULTS

<Table>
<Caption>
                                       THREE MONTHS ENDED       SIX MONTHS ENDED
                                            JUNE 30                  JUNE 30
                                      --------------------    --------------------
                                        2001        2000        2001        2000
                                      --------    --------    --------    --------
                                                     (IN MILLIONS)
<S>                                   <C>         <C>         <C>         <C>
After-tax operating loss ..........   $    (31)   $    (29)   $    (55)   $    (51)
Special items .....................         --           4          --           4
                                      --------    --------    --------    --------
Losses before special items .......   $    (31)   $    (25)   $    (55)   $    (47)
                                      ========    ========    ========    ========
</Table>

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     For the second quarter of 2001, corporate operating expenses totaled $31
million, an increase of $6 million compared to the second quarter of 2000,
mainly due to higher technology and compensation costs.



                                       21
<PAGE>   24

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     Corporate operating expenses totaled $55 million for the first six months
of 2001, an increase of $8 million compared to the first six months of 2000,
mostly due to higher technology, advertising and compensation costs.

INTEREST AND OTHER NON-OPERATING EXPENSES NET OF TAX

<Table>
<Caption>
                                                                THREE MONTHS ENDED       SIX MONTHS ENDED
                                                                      JUNE 30                 JUNE 30
                                                               --------------------    --------------------
                                                                 2001        2000        2001        2000
                                                               --------    --------    --------    --------
                                                                              (IN MILLIONS)
<S>                                                            <C>         <C>         <C>         <C>
Interest expense on debt ...................................   $    (65)   $    (70)   $   (132)   $   (136)
Interest income ............................................         14          10          25          18
Exchange gains (losses) ....................................        (12)         16          (3)         24
Other ......................................................         (3)         --          (3)         --
                                                               --------    --------    --------    --------
Interest and other non-operating expenses net of tax .......   $    (66)   $    (44)   $   (113)   $    (94)
                                                               ========    ========    ========    ========
</Table>

     SECOND QUARTER 2001 VERSUS SECOND QUARTER 2000

     Interest and other non-operating expenses for the second quarter of 2001
amounted to $66 million, an increase of $22 million, or 50 percent, compared to
$44 million in the comparable period in 2000. This impairment is primarily
attributable to foreign currency exchange losses.

     FIRST SIX MONTHS 2001 VERSUS FIRST SIX MONTHS 2000

     For the first six months of 2001, interest and other non-operating expenses
amounted to $113 million, an increase of $19 million, or 20 percent, compared to
$94 million in the comparable period in 2000. This impairment is mostly due to
foreign currency exchange losses.

TAX MATTERS

     During the period ended June 30, 2001, Conoco recorded a reduction in
deferred tax assets of $43 million due to the utilization of prior year U.S.
alternative minimum tax credit carry forwards. Conoco continues to believe it is
more likely than not that the deferred tax asset based on remaining U.S.
alternative minimum tax credit carry forwards will be realized in future years.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS

     Information about interest rate risk for the period ended June 30, 2001 did
not differ materially from that discussed under "Quantitative and Qualitative
Disclosures About Market Risk" in Item 7A of Conoco's 2000 Annual Report on Form
10-K.

     Changes in commodity price risk and foreign currency risk for the period
ended June 30, 2001, are summarized below.

     COMMODITY PRICE RISK

Conoco enters into energy-related futures, forwards, swaps and options in
various markets:

     o    to balance its physical systems;

     o    to meet customer needs; and

     o    to manage its price exposure on anticipated crude oil, natural gas,
          refined product and electric power transactions.



                                       22
<PAGE>   25

     These instruments provide a natural extension of the underlying cash market
and are used to physically acquire a portion of supply requirements. The
commodity futures market has greater liquidity and longer trading periods than
the cash market, and is one method of managing price risk in the energy
business.

     Conoco's policy is generally to be exposed to market pricing for commodity
purchases and sales. From time to time, management may use derivatives to
establish longer-term positions to hedge the price risk for Conoco's equity
crude oil and natural gas production, as well as its refinery margins.
Specifically, in conjunction with our recently completed $6,500 million
acquisition of Gulf Canada, we have initiated an extensive hedging program to
mitigate our exposure to volatile crude oil and natural gas prices through the
purchase of derivative instruments.

     Conoco does limited amounts of trading for profit unrelated to its
underlying physical business. After-tax gain or loss from trading for profit
activities has not been material.

     The fair value gain or loss of outstanding derivative commodity instruments
and the change in fair value that would be expected from a 10 percent adverse
price change are shown in the table as follows:

<Table>
<Caption>
                                                        CHANGE IN FAIR VALUE
                                                          FROM 10% ADVERSE
                                           FAIR VALUE       PRICE CHANGE
                                           ----------   --------------------
<S>                                        <C>          <C>
COMMODITY DERIVATIVES(1)

AT JUNE 30, 2001
Crude Oil and Refined Products
   Trading .............................   $       --        $       (1)
   Non-trading(2)(3) ...................           26               (66)
                                           ----------        ----------
Combined ...............................   $       26        $      (67)
                                           ==========        ==========

Natural Gas
   Trading .............................   $        3        $       --
   Non-trading(4) ......................           19               (13)
                                           ----------        ----------
Combined ...............................   $       22        $      (13)
                                           ==========        ==========

AT DECEMBER 31, 2000
Crude Oil and Refined Products
   Trading .............................   $        1        $        1
   Non-trading(2) ......................           92               (29)
                                           ----------        ----------
Combined ...............................   $       93        $      (28)
                                           ==========        ==========

Natural Gas
   Trading .............................   $        3        $        2
   Non-trading .........................          103               (33)
                                           ----------        ----------
Combined ...............................   $      106        $      (31)
                                           ==========        ==========
</Table>

----------

(1)  Includes derivative instruments that can be settled in cash or by physical
     delivery of the commodity.

(2)  Includes purchased crude oil put options with a strike price of $22.00
     (West Texas Intermediate equivalent) per barrel on 63 million barrels
     during the period of April through December 2001.

(3)  Includes collars with a $25.00 floor price and a $27.77 cap price (West
     Texas Intermediate equivalent) on 17.3 million barrels for the period
     October 2001 through December 2002.

     Includes swaps at $25.30 on 15.3 million barrels for the period October
     2001 through December 2002.

(4)  Includes collars with a $4.00 floor price and a $4.60 cap price (NYMEX
     equivalent) on approximately 54.8 billion cubic feet for the period October
     2001 through December 2002.

     Includes swaps at $4.02 on approximately 91.4 billion cubic feet for the
     period October 2001 through December 2002.

     The fair values of the futures contracts are based on quoted market prices
obtained from the New York Mercantile Exchange (NYMEX) or the International
Petroleum Exchange of London. The fair values of swaps and



                                       23
<PAGE>   26

other over-the-counter instruments are estimated based on quoted market prices
of comparable contracts and approximate the gain or loss that would have been
realized if the contracts had been closed out at the end of the period.

     Price-risk sensitivities were calculated by assuming an across-the-board 10
percent adverse change in prices regardless of term or historical relationships
between the contractual price of the instrument and the underlying commodity
price. In the event of an actual 10 percent change in prompt month crude or
natural gas prices, the fair value of Conoco's derivative portfolio would
typically change less than that shown in the table due to lower volatility in
out-month prices.

     FOREIGN CURRENCY RISK

     At June 30, 2001, Conoco had no foreign currency swaps associated with our
European commercial paper program.

     At June 30, 2001, Conoco had open foreign currency exchange derivative
instruments related to the anticipated Gulf Canada acquisition with a fair value
of $1 million. A 10 percent adverse change in foreign currency exchange rates
would change the fair value of the derivative instruments by $180 million.



                                       24
<PAGE>   27

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     There have been no material developments with respect to the legal
proceedings previously reported in the 2000 Annual Report on Form 10-K and the
first quarter 2001 report on Form 10-Q.

     During June 2001, the New Mexico Environmental Department (NMED) issued two
Compliance Orders to Conoco, one related to the Maljamar Gas Plant and the other
related to the San Juan Basin Gas Plant. The NMED alleges that the Maljamar Gas
Plant exceeded air quality emission limits and failed to complete compliance
tests within the specified time period. The NMED further alleges that the San
Juan Basin Gas Plant failed to design and operate a flare with no visible
emissions. Governmental monetary sanctions resulting from each of these matters
will likely exceed $100,000.

     Conoco has responded to information requests from the United States
Environmental Protection Agency (EPA) regarding New Source Review compliance at
each of its Billings, Denver, Lake Charles and Ponca City refineries. Although
Conoco has not been notified of any formal findings or violations arising from
these information requests, Conoco has been informed that the EPA is
contemplating the filing of a civil proceeding against Conoco for alleged
violations of the Clear Air Act. Conoco currently seeks a negotiated resolution
of these matters which will likely result in increased environmental capital
expenditures and governmental monetary sanctions.

     Conoco is subject to various lawsuits and claims involving a variety of
matters including, along with other oil companies, actions challenging oil and
gas royalty and severance tax payments; actions related to gas measurement and
valuation methods; actions related to joint interest billings to operating
agreement partners; and claims for damages resulting from leaking underground
storage tanks. As a result of the separation agreement with DuPont, Conoco has
also assumed responsibility for current and future claims related to certain
discontinued chemicals and agricultural chemicals businesses operated by Conoco
in the past. In general, the effect on future financial results is not subject
to reasonable estimation because considerable uncertainty exists. The ultimate
liabilities resulting from such lawsuits and claims may be material to results
of operations in the period in which they are recognized.

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

     Conoco's annual meeting of stockholders was held on May 8, 2001 for the
purpose of (1) electing three directors and (2) ratifying the appointment of
PricewaterhouseCoopers LLP as Conoco's independent public accountants for 2001.

          1.   Election of Directors

     Stockholders elected Kenneth M. Duberstein, William R. Rhodes and A. R.
"Tony" Sanchez, Jr., each for a three-year term expiring at the 2004 Annual
Meeting. The vote tabulation for each individual director was as follows:


<Table>
<Caption>
DIRECTOR                                             FOR            WITHHELD
--------                                             ---            --------
<S>                                             <C>                <C>
Kenneth M. Duberstein...................        2,120,188,409      11,403,269
William R. Rhodes.......................        2,120,380,098      11,211,580
A. R. "Tony" Sanchez, Jr. ..............        2,119,942,650      11,649,028
</Table>

     Directors continuing in office were Ruth R. Harkin, Charles C. Krulak,
Frank A. McPherson, Archie W. Dunham, William K. Reilly and Franklin A. Thomas.

          2.   Proposal ratifying the appointment of PricewaterhouseCoopers LLP
               as Conoco's independent public accountants for 2001.

<Table>
<S>                                                             <C>
For..........................................................   2,107,633,269
Against......................................................      16,091,004
Abstain......................................................       7,867,405
</Table>



                                       25
<PAGE>   28

ITEM 5. OTHER INFORMATION

(a) DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION

     This quarterly report on Form 10-Q includes forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. You can identify our forward-looking
statements by the words "expects," "intends," "plans," "projects," "believes,"
"estimates" and similar expressions.

     We have based the forward-looking statements related to our operations on
our current expectations, estimates and projections about Conoco and the
petroleum industry in general. We caution you that these statements are not
guarantees of future performance and involve risks, uncertainties and
assumptions that we cannot predict. In addition, we have based many of these
forward-looking statements on assumptions about future events that may prove to
be inaccurate. Accordingly, our actual outcomes and results may differ
materially from what we have expressed or forecasted in the forward-looking
statements. Any differences could result from a variety of factors including the
following:

     o    fluctuations in crude oil and natural gas prices and refining and
          marketing margins;

     o    potential failure or delays in achieving expected reserve or
          production levels from existing and future oil and gas development
          projects due to operating hazards, drilling risks and the inherent
          uncertainties in predicting oil and gas reserves and oil and gas
          reservoir performance;

     o    unsuccessful exploratory drilling activities;

     o    failure of new products and services to achieve market acceptance;

     o    unexpected cost increases or technical difficulties in constructing or
          modifying company manufacturing and refining facilities;

     o    unexpected difficulties in manufacturing, transporting or refining
          synthetic crude oil;

     o    ability to meet government regulations;

     o    potential disruption or interruption of our production facilities due
          to accidents or political events;

     o    international monetary conditions and exchange controls;

     o    liability for remedial actions under environmental regulations;

     o    liability resulting from litigation;

     o    general domestic and international economic and political conditions;
          or

     o    changes in tax and other laws applicable to our business.

(b) OTHER EVENTS

     On July 17, 2001, we announced that our board of directors had approved,
and recommended to the stockholders for approval, the elimination of our dual
class capital structure by combining our Class A common stock and Class B common
stock into a single class of new common stock on a one-for-one basis. We will
hold a special meeting on September 21, 2001 to obtain the approval of our
stockholders.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) EXHIBITS

     The exhibit index filed with this Form 10-Q is on page 28.

(b) REPORTS ON FORM 8-K

     1.   A current report on Form 8-K dated May 29, 2001 was filed by Conoco on
          May 30, 2001. In this report, we filed a press release and slide
          presentation that announced our proposed acquisition of Gulf Canada
          Resources Limited.



                                       26
<PAGE>   29

                                    SIGNATURE

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


                                       CONOCO INC.
                                       (Registrant)





                                       By:         /s/ W. DAVID WELCH
                                          --------------------------------------
                                             (As Duly Authorized Officer and
                                              Principal Accounting Officer)


     Date: August 8, 2001



                                       27
<PAGE>   30

                                  EXHIBIT INDEX


<Table>
<Caption>
      EXHIBIT
      NUMBER                                 DESCRIPTION
      -------                                -----------
<S>                        <C>
         2.1               Support Agreement among Conoco, Conoco Northern and
                           Conoco Canada Resources Limited dated May 28, 2001
                           (incorporated by reference to Exhibit 1 of the
                           Schedule 13D filed by Conoco and Conoco Canada
                           Resources Limited on July 26, 2001 with respect to
                           common shares of Gulf Indonesia Resources Limited,
                           SEC File No. 5-61793).

         10.1              Credit Agreement among Conoco, Conoco Funding
                           Company, The Chase Manhattan Bank, Bank of America,
                           N.A., Citibank, N.A., Deutsche Bank AG New York
                           Branch, Deutsche Bank AG New York Branch and/or
                           Cayman Islands Branch, The Royal Bank of Scotland plc
                           and Credit Suisse First Boston dated June 29, 2001
                           (incorporated by reference to Exhibit 2 of the
                           Schedule 13D filed by Conoco and Conoco Canada
                           Resources Limited on July 26, 2001 with respect to
                           common shares of Gulf Indonesia Resources Limited,
                           SEC File No. 5-61793).

         12                Computation of Ratio of Earnings to Fixed Charges*
</Table>


     *  File herein.



                                       28