SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 - For the fiscal year ended December 31, 2000

                                       OR

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

                          Commission file number 1-640

                               NL INDUSTRIES, INC.
--------------------------------------------------------------------------------

             (Exact name of registrant as specified in its charter)

           New Jersey                                        13-5267260
-------------------------------                         -------------------
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                          Identification No.)

16825 Northchase Drive, Suite 1200, Houston, Texas           77060-2544
--------------------------------------------------           ----------
     (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:      (281)  423-3300
                                                       ---------------------
Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
     Title of each class                                   which registered
------------------------------                         ------------------------
Common stock ($.125 par value)                         New York Stock Exchange
                                                       Pacific Exchange

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

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant at March 9, 2001 approximated $191 million.

There were 50,086,684 shares of common stock outstanding at March 9, 2001.

                      Documents incorporated by reference:

The  information  required by Part III is  incorporated  by  reference  from the
Registrant's  definitive  proxy  statement to be filed with the  Securities  and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.


<PAGE>



Forward-Looking Information.

        The  statements  contained in this Annual  Report on Form 10-K  ("Annual
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements found (i) under the captions  "Industry,"  "Products and operations,"
"Manufacturing   process  and  raw  materials,"   "Competition,"   "Patents  and
Trademarks," "Foreign  Operations," and "Regulatory and Environmental  Matters,"
all  contained  in Item 1.  Business;  (ii)  under the  captions  "Lead  pigment
litigation," "Environmental matters and litigation," and "Other Litigation," all
contained in Item 3. Legal  Proceedings;  (iii) under the  captions  "Results of
Operations"  and  "Liquidity and Capital  Resources,"  both contained in Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations;  and (iv) under the captions "Currency exchange rates,"  "Marketable
equity security prices," and "Other," all contained in Item 7A. Quantitative and
Qualitative  Disclosures About Market Risk, are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes,"   "intends,"  "may,"  "will,"   "should,"   "anticipates,"
"expects," or comparable  terminology  or by  discussions of strategy or trends.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  risks  and  uncertainties  that  could  significantly  affect  expected
results,  and actual future results could differ materially from those described
in such forward-looking statements.

        Among the  factors  that could  cause  actual  future  results to differ
materially are the risks and  uncertainties  discussed in this Annual Report and
those  described  from  time to time in the  Company's  other  filings  with the
Securities  and  Exchange  Commission.  While it is not possible to identify all
factors,  the Company continues to face many risks and uncertainties  including,
but not limited to, the  cyclicality of the titanium  dioxide  industry,  global
economic  and  political  conditions,   global  productive  capacity,   customer
inventory levels, changes in product pricing,  competitive technology positions,
operating interruptions  (including,  but not limited to, labor disputes, leaks,
fires, explosions,  unscheduled downtime and transportation interruptions),  the
ultimate  resolution of pending or possible  future lead pigment  litigation and
legislative  developments  related to the lead paint litigation,  the outcome of
other litigation,  and other risks and  uncertainties  included in the Company's
filings with the Securities and Exchange Commission. Should one or more of these
risks materialize (or the consequences of such a development  worsen), or should
the  underlying  assumptions  prove  incorrect,   actual  results  could  differ
materially  from those  forecasted or expected.  The Company  assumes no duty to
update any  forward-looking  statements  whether as a result of new information,
future events or otherwise.



<PAGE>



                                            PART I

ITEM 1.        BUSINESS

General

        NL  Industries,  Inc.,  organized as a New Jersey  corporation  in 1891,
conducts  its  continuing   operations   through  its  principal   wholly  owned
subsidiary,  Kronos,  Inc.  Kronos is the  world's  fifth  largest  producer  of
titanium dioxide pigments ("TiO2") with an estimated 12% share of worldwide TiO2
sales volume in 2000. Approximately one-half of Kronos' 2000 sales volume was in
Europe,  where  Kronos  is the  second  largest  producer  of  TiO2.  NL and its
consolidated  subsidiaries are sometimes referred to herein  collectively as the
"Company."

        The Company's primary objective is to maximize total shareholder return.
The  Company  has  taken a number  of steps  towards  achieving  its  objective,
including (i) increasing its regular quarterly  dividend to $.20 per share, (ii)
controlling  costs,  (iii)  investing in certain cost effective  debottlenecking
projects to increase TiO2 production capacity and efficiency, and (iv) improving
its  capital   structure.   The  Company   periodically   considers  mergers  or
acquisitions  within the chemical  industry and  acquisitions of additional TiO2
production capacity to meet its objective.

Industry

        Titanium  dioxide  pigments are  chemical  products  used for  imparting
whiteness, brightness and opacity to a wide range of products, including paints,
plastics,  paper,  fibers and ceramics.  TiO2 is considered a  "quality-of-life"
product with demand affected by gross domestic product in various regions of the
world.

        Pricing  within the global  TiO2  industry is  cyclical,  and changes in
industry economic conditions can significantly impact the Company's earnings and
operating  cash flows.  The  Company's  average TiO2 selling  price on a billing
currency basis increased from the preceding quarter during each quarter of 2000,
continuing  the upward trend in prices that began in the fourth quarter of 1999.
Industry-wide  demand for TiO2 was strong  throughout most of 2000, but weakened
in the fourth  quarter of 2000.  The Company  believes that the weaker demand in
the fourth  quarter  was due to a  softening  worldwide  economy  and  customers
reducing inventory levels.

        Kronos has an estimated  18% share of European  TiO2 sales volume and an
estimated 12% share of North American TiO2 sales volume.  Per capita consumption
of TiO2 in the United States and Western  Europe far exceeds that in other areas
of the world and these  regions  are  expected  to  continue  to be the  largest
consumers  of TiO2.  Significant  regions for TiO2  consumption  could emerge in
Eastern Europe,  the Far East or China if the economies in these regions develop
to the point  that  quality-of-life  products,  including  TiO2,  are in greater
demand.  Kronos believes that, due to its strong presence in Western Europe,  it
is well  positioned to  participate  in growth in consumption of TiO2 in Eastern
Europe.   Geographic  segment   information  is  contained  in  Note  3  to  the
Consolidated Financial Statements.

Products and operations

        TiO2 is produced in two crystalline  forms:  rutile and anatase.  Rutile
TiO2 is a more tightly  bound  crystal that has a higher  refractive  index than
anatase TiO2 and, therefore, better opacification and tinting

                                            -1-

<PAGE>



strength in many applications. Although many end-use applications can use either
form of TiO2,  rutile TiO2 is the preferred  form for use in coatings,  plastics
and ink.  Anatase TiO2 has a bluer  undertone  and is less  abrasive than rutile
TiO2, and it is often preferred for use in paper, ceramics,  rubber and man-made
fibers.

        The Company  believes that there are no effective  substitutes for TiO2.
However,  extenders  such as  kaolin  clays,  calcium  carbonate  and  polymeric
opacifiers  are used in a number of Kronos'  markets.  Generally,  extenders are
used to reduce to some extent the  utilization of  higher-cost  TiO2. The use of
extenders has not  significantly  changed TiO2  consumption over the past decade
because,  to date,  extenders  generally  have  failed to match the  performance
characteristics  of TiO2.  As a result,  the  Company  believes  that the use of
extenders  will not  materially  alter the  growth of the TiO2  business  in the
foreseeable future.

        Kronos currently produces over 40 different TiO2 grades,  sold under the
Kronos  trademark,  which  provide a variety of  performance  properties to meet
customers' specific  requirements.  Kronos' major customers include domestic and
international paint, plastics and paper manufacturers.

        Kronos is one of the world's  leading  producers  and marketers of TiO2.
Kronos and its distributors and agents sell and provide  technical  services for
its  products to over 4,000  customers  with the majority of sales in Europe and
North America.  TiO2 is  distributed by rail,  truck and ocean carrier in either
dry or slurry form.  Kronos'  manufacturing  facilities  are located in Germany,
Canada,  Belgium  and  Norway  and Kronos  owns a  one-half  interest  in a TiO2
manufacturing  joint venture located in Louisiana,  U.S.A.  Kronos has sales and
marketing   activities  in  over  100  countries   worldwide.   Kronos  and  its
predecessors  have  produced and marketed  TiO2 in North  America and Europe for
over 80 years. As a result,  Kronos believes that it has developed  considerable
expertise and efficiency in the manufacture,  sale,  shipment and service of its
products  in  domestic  and  international  markets.  By  volume,  approximately
one-half of Kronos'  2000 TiO2 sales were to Europe,  with 37% to North  America
and the balance to export markets.

        Kronos is also  engaged in the mining  and sale of  ilmenite  ore (a raw
material used as a feedstock by  sulfate-process  TiO2 plants) and has estimated
ilmenite  reserves  that are expected to last at least 20 years.  Kronos is also
engaged in the  manufacture  and sale of iron-based  water  treatment  chemicals
(derived from co-products of the pigment production processes).  Water treatment
chemicals are used as treatment and conditioning agents for industrial effluents
and municipal wastewater, and in the manufacture of iron pigments.

Manufacturing process and raw materials

        TiO2 is manufactured  by Kronos using both the chloride  process and the
sulfate process. Approximately two-thirds of Kronos' current production capacity
is based on its chloride  process  which  generates  less waste than the sulfate
process. The sulfate process is a batch chemical process that uses sulfuric acid
to extract TiO2. Sulfate  technology  normally produces either anatase or rutile
pigment.  The chloride process is a continuous process in which chlorine is used
to extract rutile TiO2. In general,  the chloride process is also less intensive
than the  sulfate  process in terms of  capital  investment,  labor and  energy.
Because  much  of  the  chlorine  is  recycled  and  higher  titanium-containing
feedstock  is  used,  the  chloride  process   produces  less  waste.   Once  an
intermediate  TiO2  pigment has been  produced by either the chloride or sulfate
process,   it  is   `finished'   into   products   with   specific   performance
characteristics   for  particular  end-use   applications   through  proprietary
processes  involving  various chemical surface  treatments and intensive milling
and micronizing.


                                            -2-

<PAGE>



        Due to environmental factors and customer considerations, the proportion
of TiO2 industry sales  represented by  chloride-process  pigments has increased
relative to sulfate-process pigments and, in 2000,  chloride-process  production
facilities represented almost 60% of industry capacity.

        Kronos  produced a record 441,000 metric tons of TiO2 in 2000,  compared
to 411,000  metric tons produced in 1999 and its previous  record 434,000 metric
tons in 1998. Kronos' average production  capacity  utilization rate in 2000 was
near full capacity, up from 93% in 1999, primarily due to the Company's decision
to  return to  higher  production  levels  to meet  strengthening  demand  after
curtailing  production  volume at the  beginning of the first quarter of 1999 to
manage  inventory   levels.   Kronos  believes  its  current  annual  attainable
production capacity is approximately 450,000 metric tons, including its one-half
interest in the joint  venture-owned  Louisiana  plant (see "TiO2  manufacturing
joint venture").  The Company expects its production  capacity will be increased
by approximately 15,000 metric tons primarily at its chloride  facilities,  with
moderate  capital  expenditures,  bringing  Kronos'  capacity  to  approximately
465,000 metric tons during 2002.

        The primary raw materials used in the TiO2 chloride  production  process
are  titanium-containing  feedstock  derived from beach sand  ilmenite,  natural
rutile ore, chlorine and coke.  Chlorine and coke are available from a number of
suppliers.  Titanium-containing  feedstock  suitable  for  use in  the  chloride
process  is  available  from a limited  number of  suppliers  around  the world,
principally in Australia, South Africa, Canada, India and the United States.

        Kronos purchases slag refined from beach sand ilmenite from Richards Bay
Iron and Titanium  (Proprietary)  Limited (South Africa), a 51%-owned subsidiary
of Rio Tinto plc (U.K.),  under a long-term  supply contract that expires at the
end of 2003.  Natural rutile ore is purchased  primarily  from Iluka  Resources,
Inc.  (Australia),  a  wholly  owned  subsidiary  of  Westralian  Sands  Limited
(Australia),  under a long-term supply contract that expires at the end of 2005.
The  Company  does not  expect to  encounter  difficulties  obtaining  long-term
extensions  to  existing  supply  contracts  prior  to  the  expiration  of  the
contracts.  Raw materials purchased under these contracts and extensions thereof
are  expected to meet  Kronos'  chloride  feedstock  requirements  over the next
several years.

        The primary raw materials  used in the TiO2 sulfate  production  process
are  titanium-containing  feedstock  derived  primarily from rock and beach sand
ilmenite  and  sulfuric  acid.  Sulfuric  acid is  available  from a  number  of
suppliers. Titanium-containing feedstock suitable for use in the sulfate process
is available from a limited number of suppliers around the world. Currently, the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South  Africa.   As  one  of  the  few   vertically   integrated   producers  of
sulfate-process  pigments, Kronos operates a rock ilmenite mine in Norway, which
provided  all of Kronos'  feedstock  for its  European  sulfate-process  pigment
plants in 2000. For its Canadian  sulfate-process  plant,  Kronos also purchases
sulfate  grade slag from Q.I.T.  Fer et Titane  Inc.  (Canada),  a wholly  owned
subsidiary  of Rio Tinto,  under a long-term  supply  contract  which expires in
2003.

        Kronos believes the  availability of  titanium-containing  feedstock for
both the chloride and sulfate  processes is adequate for the next several years.
Kronos  does not expect to  experience  any  interruptions  of its raw  material
supplies  because of its  long-term  supply  contracts.  However,  political and
economic  instability in certain  countries from which the Company purchases its
raw material supplies could adversely affect the availability of such feedstock.
Should  Kronos'  vendors not be able to meet their  contractual  obligations  or
should Kronos be otherwise unable to obtain necessary raw materials, the Company
may incur higher costs for raw materials or may be required to reduce production
levels,  which may have a material  adverse  effect on the  Company's  financial
position, results of operations or liquidity.

                                            -3-

<PAGE>



TiO2 manufacturing joint venture

        Subsidiaries of Kronos and Huntsman ICI Holdings ("Huntsman") each own a
50%-interest  in  a  manufacturing  joint  venture,  Louisiana  Pigment  Company
("LPC").  LPC owns and operates a  chloride-process  TiO2 plant  located in Lake
Charles,  Louisiana.  Production  from the plant is shared equally by Kronos and
Huntsman (the "Partners") pursuant to separate offtake agreements.

        A  supervisory  committee,  composed  of four  members,  two of whom are
appointed by each  Partner,  directs the  business and affairs of LPC  including
production  and output  decisions.  Two  general  managers,  one  appointed  and
compensated  by each Partner,  manage the operations of the joint venture acting
under the direction of the supervisory committee.

        The  manufacturing  joint  venture  operates on a break-even  basis and,
accordingly,  the Company  reports no equity in  earnings of the joint  venture.
Kronos'  cost for its  share of the TiO2  produced  is equal to its share of the
joint venture's costs.  Kronos' share of the joint venture's interest expense in
1998 was reported as a component of interest expense. Kronos' share of all other
net costs is  reported as cost of sales as the related  TiO2  acquired  from the
joint venture is sold.

Competition

        The TiO2 industry is highly  competitive.  Kronos competes  primarily on
the basis of price,  product quality and technical service, and the availability
of high performance pigment grades.  Although certain TiO2 grades are considered
specialty  pigments,  the majority of Kronos'  grades and  substantially  all of
Kronos' production are considered  commodity pigments with price generally being
the most significant competitive factor. During 2000 Kronos had an estimated 12%
share of worldwide TiO2 sales volume, and Kronos believes that it is the leading
seller of TiO2 in a number of countries, including Germany and Canada.

        Kronos'  principal  competitors  are  E.I.  du  Pont  de  Nemours  & Co.
("DuPont");  Millennium Chemicals, Inc.; Huntsman;  Kerr-McGee Corporation;  and
Ishihara Sangyo Kaisha,  Ltd.  Kronos' five largest  competitors  have estimated
individual  shares of TiO2  production  capacity  ranging from 23% to 5%, and an
estimated  aggregate 70% share of worldwide TiO2 production  volume.  DuPont has
about one-half of total U.S. TiO2 production  capacity and is Kronos'  principal
North American competitor. In 2000 Kerr-McGee acquired Kemira Pigments Oy's TiO2
businesses in the Netherlands and the U.S.

        Capacity  additions  that are the result of  construction  of greenfield
plants in the worldwide TiO2 market require  significant capital and substantial
lead  time,  typically  three to five  years  in the  Company's  experience.  No
greenfield plants have been announced,  but industry capacity can be expected to
increase as Kronos and its competitors  debottleneck  existing plants.  Based on
the factors  described under the caption  "Industry"  above, the Company expects
that  the  average   annual   increase  in  industry   capacity  from  announced
debottlenecking  projects will be less than the average annual demand growth for
TiO2 over the next three to five years.

        No assurance  can be given that future  increases  in the TiO2  industry
production  capacity and future average annual demand growth rates for TiO2 will
conform to the Company's  expectations.  If actual  developments differ from the
Company's expectations, the Company and the TiO2 industry's performance could be
unfavorably affected.


                                            -4-

<PAGE>



Discontinued operations

        On January 30, 1998, the Company sold its specialty  chemicals  business
for $465 million.  The Company has reported its specialty  chemicals business as
discontinued operations.

Research and Development

        The  Company's  expenditures  for research and  development  and certain
technical support programs,  excluding  discontinued  operations,  have averaged
approximately  $6 million  annually  during the past three  years.  Research and
development  activities  are conducted  principally at the  Leverkusen,  Germany
facility.  Such  activities  are directed  primarily  toward  improving both the
chloride  and  sulfate  production  processes,  improving  product  quality  and
strengthening   Kronos'   competitive   position  by   developing   new  pigment
applications.

Patents and Trademarks

        Patents held for products and  production  processes  are believed to be
important to the Company and to the  continuing  business  activities of Kronos.
The Company continually seeks patent protection for its technical  developments,
principally  in the  United  States,  Canada and  Europe,  and from time to time
enters into licensing arrangements with third parties.

        The  Company's  major  trademarks,  including  Kronos,  are protected by
registration  in the United States and elsewhere  with respect to those products
it manufactures and sells.

Foreign Operations

        The Company's  chemical  businesses  have  operated in non-U.S.  markets
since the  1920s.  Most of Kronos'  current  production  capacity  is located in
Europe and Canada with  non-U.S.  net property and  equipment  aggregating  $316
million at December 31, 2000. Net property and equipment in the U.S.,  including
50% of the property and equipment of the TiO2 manufacturing  joint venture,  was
$140  million  at  December  31,  2000.  Kronos'  European   operations  include
production facilities in Germany, Belgium and Norway. Approximately $639 million
of the Company's 2000 consolidated sales were to non-U.S.  customers,  including
$106  million to  customers  in areas  other than  Europe and  Canada.  Sales to
customers in the U.S.  aggregated $283 million in 2000.  Foreign  operations are
subject to, among other  things,  currency  exchange rate  fluctuations  and the
Company's  results of  operations  have,  in the past,  been both  favorably and
unfavorably  affected by  fluctuations in currency  exchange  rates.  Effects of
fluctuations in currency  exchange rates on the Company's  results of operations
are  discussed  in Item 7.  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" and Item 7A.  "Quantitative and Qualitative
Disclosures about Market Risk."

        Political  and  economic  uncertainties  in certain of the  countries in
which the Company  operates may expose it to risk of loss.  The Company does not
believe  that  there is  currently  any  likelihood  of  material  loss  through
political or economic  instability,  seizure,  nationalization or similar event.
The Company cannot predict,  however,  whether events of this type in the future
could have a material effect on its operations.  The Company's manufacturing and
mining  operations  are also  subject to  extensive  and  diverse  environmental
regulation  in  each  of the  foreign  countries  in  which  they  operate.  See
"Regulatory and Environmental Matters."

                                            -5-

<PAGE>



Customer Base and Seasonality

        The Company  believes that neither its aggregate  sales nor those of any
of its principal product groups are concentrated in or materially dependent upon
any single  customer or small group of customers.  Kronos' largest ten customers
accounted  for 24% of net sales in 2000.  Neither  the  Company's  business as a
whole  nor  that of any of its  principal  product  groups  is  seasonal  to any
significant  extent.  Due in part to the  increase  in paint  production  in the
spring to meet the spring  and summer  painting  season  demand,  TiO2 sales are
generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters.

Employees

        As of December  31,  2000,  the  Company  employed  approximately  2,500
persons, excluding the joint venture employees, with approximately 100 employees
in the United States and approximately 2,400 at sites outside the United States.
Hourly  employees  in  production  facilities  worldwide,   including  the  TiO2
manufacturing joint venture,  are represented by a variety of labor unions, with
labor agreements having various expiration dates. The Company believes its labor
relations are good.

Regulatory and Environmental Matters

        Certain of the  Company's  businesses  are and have been  engaged in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other  companies  engaged  in  similar  businesses,  certain  past  and  current
operations and products of the Company have the potential to cause environmental
or other damage.  The Company has implemented and continues to implement various
policies  and programs in an effort to minimize  these risks.  The policy of the
Company  is to  maintain  compliance  with  applicable  environmental  laws  and
regulations  at all its  facilities  and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely   affect   the   Company's   production,   handling,   use,   storage,
transportation,  sale or disposal of such  substances  as well as the  Company's
consolidated financial position, results of operations or liquidity.

        The  Company's  U.S.  manufacturing  operations  are governed by federal
environmental and worker health and safety laws and regulations, principally the
Resource  Conservation and Recovery Act ("RCRA"),  the  Occupational  Safety and
Health Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act,
the Toxic Substances Control Act and the Comprehensive  Environmental  Response,
Compensation  and  Liability  Act, as amended by the  Superfund  Amendments  and
Reauthorization  Act  ("CERCLA"),  as well as the  state  counterparts  of these
statutes.  The Company  believes the  Louisiana  plant owned and operated by the
joint  venture and a slurry  facility  owned by the  Company are in  substantial
compliance  with  applicable  requirements  of these laws or  compliance  orders
issued thereunder.  The Company has no other U.S. plants. From time to time, the
Company's  facilities  may be subject to  environmental  regulatory  enforcement
under  such  statutes.   Resolution  of  such  matters  typically  involves  the
establishment of compliance programs. Occasionally, resolution may result in the
payment of  penalties,  but to date such  penalties  have not  involved  amounts
having  a  material  adverse  effect  on the  Company's  consolidated  financial
position, results of operations or liquidity.


                                            -6-

<PAGE>



        The Company's European and Canadian production  facilities operate in an
environmental  regulatory framework in which governmental  authorities typically
are granted  broad  discretionary  powers  which  allow them to issue  operating
permits  required for the plants to operate.  The Company  believes that all its
plants are in substantial compliance with applicable environmental laws.

        While the laws regulating  operations of industrial facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory actions after the EU. The Company believes that Kronos
is in substantial  compliance with agreements  reached with European  regulatory
authorities  and with an EU directive to control the effluents  produced by TiO2
production facilities.

        The Company has a contract with a third party to treat certain effluents
of its German  sulfate-process  plants.  Either party may terminate the contract
after giving four years  advance  notice with regard to its  Nordenham,  Germany
plant.  Under certain  circumstances,  Kronos may  terminate the contract  after
giving  six months  notice  with  respect to  treatment  of  effluents  from the
Leverkusen, Germany plant.

        The Company  completed in 2000 an $8 million landfill  expansion for its
Belgian  plant  which is  expected  to provide  the plant with  twenty  years of
storage space for neutralized chloride-process solids.

        The Company's capital expenditures related to its ongoing  environmental
protection and improvement  programs are currently  expected to be approximately
$6 million in 2001 and $5 million in 2002.

        The Company has been named as a defendant, potentially responsible party
("PRP"),  or both, pursuant to CERCLA and similar state laws in approximately 75
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by the
Company, or its subsidiaries, or their predecessors, certain of which are on the
U.S.   Environmental   Protection   Agency's  ("U.S.  EPA")  Superfund  National
Priorities List or similar state lists. See Item 3. "Legal Proceedings."

Principal Shareholders

        At  December  31,  2000,  Valhi,  Inc.  and  Tremont  Corporation,  each
affiliates of Contran Corporation, held approximately 60% and 20%, respectively,
of NL's  outstanding  common  stock.  At  December  31,  2000,  Contran  and its
subsidiaries held  approximately 93% of Valhi's  outstanding common stock, and a
subsidiary  of Valhi  and NL held  approximately  80% of  Tremont's  outstanding
common stock. Substantially all of Contran's outstanding voting stock is held by
trusts  established  for the benefit of certain  children and  grandchildren  of
Harold C. Simmons,  of which Mr. Simmons is the sole trustee.  Mr. Simmons,  the
Chairman of the Board of NL and the  Chairman  of the Board and Chief  Executive
Officer of Contran and Valhi and a director of Tremont, may be deemed to control
each of such companies.

ITEM 2.        PROPERTIES

        Kronos currently operates four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany;  Langerbrugge,  Belgium; and Fredrikstad,  Norway). In North
America,  Kronos has a facility in  Varennes,  Quebec,  Canada and,  through the
manufacturing  joint venture  described above, a one-half interest in a plant in
Lake Charles,  Louisiana.  The Company also owns a slurry plant in Lake Charles,
Louisiana. The

                                            -7-

<PAGE>



Company's  Fredrikstad  TiO2  plant  has a lien on it that  secures  a claim  by
Norwegian tax  authorities,  pending  resolution of certain tax litigation.  See
Notes 9 and 12 to the Consolidated Financial Statements.

        Kronos' principal German operating  subsidiary leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with about  one-third of Kronos'  current TiO2 production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG. Kronos is the only unrelated  party so situated.  Under a separate  supplies
and services  agreement  expiring in 2011,  Bayer  provides some raw  materials,
auxiliary and operating  materials and utilities  services  necessary to operate
the Leverkusen facility.  Both the lease and the supplies and services agreement
have certain restrictions regarding Kronos' ability to transfer ownership or use
of the Leverkusen facility.

        All of  Kronos'  principal  production  facilities  described  above are
owned,  except  for  the  land  under  the  Leverkusen  facility.  Kronos  has a
governmental  concession  with an unlimited term to operate its ilmenite mine in
Norway.

        The Company has under lease various corporate and administrative offices
located in the U.S. and various sales offices located in the U.S.,  France,  the
Netherlands, Denmark and the U.K.

ITEM 3.        LEGAL PROCEEDINGS

Lead pigment litigation

        The Company was formerly  involved in the  manufacture  of lead pigments
for use in paint and lead-based paint. The Company has been named as a defendant
or third party defendant in various legal proceedings  alleging that the Company
and other manufacturers are responsible for personal injury, property damage and
governmental  expenditures  allegedly  associated with the use of lead pigments.
The Company is vigorously  defending such litigation.  Considering the Company's
previous involvement in the lead pigment and lead-based paint businesses,  there
can be no assurance that additional litigation, similar to that described below,
will not be filed. In this regard, the Company is aware that the City Council of
the City of Milwaukee, Wisconsin has authorized the filing of litigation against
former lead pigment  manufacturers.  While the suit has not yet been filed,  the
Company  believes  that  the  suit may seek to  recover  costs  associated  with
diagnosing and treating  children who have been exposed to lead-based  paint and
the cost of abating lead-based paint in the City's public housing.  In addition,
it is possible that other  governmental  entities may take similar action in the
future.

        In addition,  various  legislation and administrative  regulations have,
from time to time,  been  enacted or  proposed  that seek to (a) impose  various
obligations on present and former  manufacturers  of lead pigment and lead-based
paint with respect to asserted health  concerns  associated with the use of such
products and (b)  effectively  overturn court decisions in which the Company and
other  pigment  manufacturers  have been  successful.  Examples of such proposed
legislation  include bills which would permit civil liability for damages on the
basis of market  share,  rather  than  requiring  plaintiffs  to prove  that the
defendant's  product  caused the alleged  damage,  and bills which would  revive
actions  barred  by  the  statute  of  limitations.   While  no  legislation  or
regulations  have been  enacted  to date which are  expected  to have a material
adverse  effect on the Company's  consolidated  financial  position,  results of
operations  or  liquidity,  the  imposition  of market share  liability or other
legislation could have such an effect.


                                            -8-

<PAGE>



        The Company has not accrued any amounts for the pending lead pigment and
lead-based  paint  litigation.  There is no assurance  that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
lead-based paint litigation is without merit. Liability that may result, if any,
cannot reasonably be estimated.

        In 1989 and 1990 the Housing  Authority  of New Orleans  ("HANO")  filed
third-party  complaints for indemnity and/or  contribution  against the Company,
other alleged  manufacturers  of lead pigment  (together  with the Company,  the
"pigment  manufacturers") and the Lead Industries  Association (the "LIA") in 14
actions  commenced by residents of HANO units seeking  compensatory and punitive
damages for injuries allegedly caused by lead pigment.  The actions,  which were
pending  in the  Civil  District  Court  for the  Parish  of  Orleans,  State of
Louisiana,  were  dismissed by the district  court in 1990.  Subsequently,  HANO
agreed to  consolidate  all the cases and appealed.  In March 1992 the Louisiana
Court of Appeals,  Fourth  Circuit,  dismissed  HANO's  appeal as untimely  with
respect to three of these cases. With respect to the other cases included in the
appeal,  the court of appeals  reversed the lower court decision  dismissing the
cases. These cases were remanded to the District Court for further  proceedings.
In November  1994 the  District  Court  granted  defendants'  motion for summary
judgment  in one of the  remaining  cases  and in June 1995 the  District  Court
granted  defendants'  motion for summary  judgment  in several of the  remaining
cases.  After such grant,  only two cases remain  pending and have been inactive
since 1992,  Hall v. HANO,  et al. (No.  89-3552) and Allen v. HANO, et al. (No.
89-427) Civil District Court for the Parish of Orleans, State of Louisiana.

        In June 1989 a complaint  was filed in the Supreme Court of the State of
New York,  County of New York,  against the pigment  manufacturers  and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess of
$50 million for monitoring and abating  alleged lead paint hazards in public and
private  residential  buildings,  diagnosing  and  treating  children  allegedly
exposed to lead paint in city  buildings,  the costs of educating city residents
to the hazards of lead paint,  and liability in personal  injury actions against
the City and the  Housing  Authority  based on alleged  lead  poisoning  of city
residents (The City of New York, the New York City Housing Authority and the New
York City Health and Hospitals  Corp. v. Lead Industries  Association,  Inc., et
al., No. 89-4617).  In December 1991 the court granted the defendants' motion to
dismiss claims alleging negligence and strict liability and denied the remainder
of the motion.  In January 1992 defendants  appealed the denial. In May 1993 the
Appellate  Division of the Supreme  Court  affirmed  the denial of the motion to
dismiss plaintiffs' fraud,  restitution and indemnification  claims. In May 1994
the trial  court  granted  the  defendants'  motion to dismiss  the  plaintiffs'
restitution and indemnification  claims, and plaintiffs  appealed.  In June 1996
the  Appellate  Division  reversed the trial  court's  dismissal of  plaintiffs'
restitution and  indemnification  claims,  reinstating those claims. In December
1998  plaintiffs  moved for partial  summary  judgment on their claims of market
share,  alternative liability,  enterprise liability,  and concert of action. In
February  1999  plaintiffs  New York City and New York City Health and  Hospital
Corporation dismissed with prejudice all their claims and were no longer parties
to the case. Also in February 1999 the New York City Housing Authority dismissed
with  prejudice all of its claims except for claims for damages  relating to two
housing  projects.  In  September  1999 the trial court  denied the  plaintiffs'
motions for summary  judgment on market share and  conspiracy  issues and denied
defendants'  April 1999  motion for summary  judgment on statute of  limitations
grounds. In September 2000 the First Department denied plaintiffs' appeal of the
trial court's  denial of plaintiffs'  motion for summary  judgment on the market
share issue. Discovery is proceeding.


                                            -9-

<PAGE>



        In August  1992 the  Company  was served  with an amended  complaint  in
Jackson,  et al. v. The Glidden  Co., et al.,  Court of Common  Pleas,  Cuyahoga
County,  Cleveland,  Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and
punitive  damages for personal  injury caused by the  ingestion of lead,  and an
order directing  defendants to abate lead-based  paint in buildings.  Plaintiffs
purport to represent a class of similarly  situated persons throughout the State
of Ohio. The amended complaint asserts causes of action under theories of strict
liability,  negligence  per  se,  negligence,  breach  of  express  and  implied
warranty,  fraud, nuisance,  restitution,  and negligent infliction of emotional
distress.  The complaint  asserts several theories of liability  including joint
and several,  market share,  enterprise and  alternative  liability.  Plaintiffs
moved for class certification in October 1998, and all briefing on the issue was
completed in April 1999.  No decision  regarding  class  certification  has been
issued by the trial court.

        In November 1993 the Company was served with a complaint in Brenner,  et
al. v. American  Cyanamid,  et al., (No.  12596-93) Supreme Court,  State of New
York, Erie County alleging injuries to two children  purportedly  caused by lead
pigment.  The  complaint  seeks $24 million in  compensatory  and $10 million in
punitive damages for alleged negligent failure to warn, strict liability,  fraud
and   misrepresentation,   concert  of  action,  civil  conspiracy,   enterprise
liability,  market share  liability,  and  alternative  liability.  In June 1998
defendants  moved for partial summary  judgment  dismissing  plaintiffs'  market
share and alternative  liability claims. In January 1999 the trial court granted
defendants'  summary  judgment motion to dismiss the  alternative  liability and
enterprise liability claims, but denied defendants' motion to dismiss the market
share  liability  claim.  In May 1999  defendants  appealed  the denial of their
motion to dismiss  the  market  share  liability  claim.  The Fourth  Department
intermediate  appellate  court in  December  1999  reversed  the trial court and
dismissed  the market share claim.  The case was remanded to the trial court for
further  proceedings  on the  remaining  claims and in June 2000 the trial court
dismissed all remaining claims. Plaintiffs have filed a notice of appeal.

        In April 1997 the Company  was served  with a complaint  in Parker v. NL
Industries,  et al.  (Circuit  Court,  Baltimore  City,  Maryland,  No. 97085060
CC915).  Plaintiff,  now an adult, and his wife, seek  compensatory and punitive
damages from the Company,  another former manufacturer of lead paint and a local
paint retailer,  based on claims of negligence,  strict liability and fraud, for
plaintiff's  alleged  ingestion of lead paint as a child.  In February  1998 the
Court dismissed the fraud claim. In June 2000,  following a two-week trial,  the
jury returned a verdict for the Company. Plaintiffs have abandoned their appeal.

        In December  1998 the  Company was served with a complaint  on behalf of
four  children  and their  guardians  in  Sabater,  et al.  v.  Lead  Industries
Association,  et al.  (Supreme Court of the State of New York,  County of Bronx,
Index No. 25533/98). Plaintiffs purport to represent a class of all children and
mothers  similarly  situated in New York City. The complaint alleges against the
Company,  the LIA, and other former manufacturers of lead pigment various causes
of  action  including   negligence,   strict  products   liability,   fraud  and
misrepresentation,  concert of action, civil conspiracy,  enterprise  liability,
market share  liability,  breach of warranties,  nuisance,  and violation of New
York  State's   consumer   protection  act.  The  complaint  seeks  damages  for
establishment   of  property   abatement  and  medical   monitoring   funds  and
compensatory  damages for alleged  injuries to plaintiffs.  In February 2000 the
trial court granted defendants'  motions to dismiss the product defect,  express
warranty, nuisance and consumer fraud statute claims. In October 2000 defendants
filed a third-party complaint against the Federal Home Loan Mortgage Corporation
(FHLMC), and FHLMC removed the case to federal court in the Southern District of
New York and moved to dismiss  the claims.  Plaintiffs  have moved to remand the
case to state court.


                                            -10-

<PAGE>



        In  September  1999 an  amended  complaint  was  filed in Thomas v. Lead
Industries Association,  et al. (Circuit Court, Milwaukee,  Wisconsin,  Case No.
99-CV-6411)  adding as defendants the Company and seven other companies  alleged
to have  manufactured  lead products in paint to a suit originally filed against
plaintiff's  landlords.  Plaintiff, a minor, alleges injuries purportedly caused
by lead on the  surfaces of  premises  in homes in which he  resided.  Plaintiff
seeks  compensatory and punitive  damages.  Plaintiff  alleges strict liability,
negligence,    negligent    misrepresentation    and    omissions,    fraudulent
misrepresentations  and  omissions,  concert of action,  civil  conspiracy,  and
enterprise  liability causes of action against the Company,  seven other alleged
former  manufacturers  of lead  products  contained  in paint,  and the LIA.  In
January 2000 the Company filed an answer  denying all  wrongdoing and liability.
In June 2000 the trial court granted  defendants' January 2000 motion to dismiss
the product defect and Wisconsin consumer  protection statute claims.  Discovery
is proceeding.

        In October  1999 the Company  was served  with a  complaint  in State of
Rhode Island v. Lead  Industries  Association,  et al.  (Superior Court of Rhode
Island, No. 99-5226).  Rhode Island, by and through its Attorney General,  seeks
compensatory  and punitive damages for medical,  school,  and public and private
building  abatement  expenses  that the State alleges were caused by lead paint,
and for funding of a public education campaign and screening programs. Plaintiff
seeks judgments of joint and several liability against the Company,  seven other
companies  alleged to have  manufactured  lead  products in paint,  and the LIA.
Plaintiffs  allege public  nuisance,  violation of the Rhode Island Unfair Trade
Practices and Consumer Protection Act, strict liability,  negligence,  negligent
misrepresentation  and omissions,  fraudulent  misrepresentation  and omissions,
civil conspiracy, unjust enrichment,  indemnity, and equitable relief to protect
children.  In January 2000 defendants moved to dismiss all claims. The court has
not ruled.

        In October 1999 the Company was served with a complaint  in Cofield,  et
al. v. Lead  Industries  Association,  et al. (Circuit Court for Baltimore City,
Maryland,  Case  No.  24-C-99-004491).   Plaintiffs,  six  homeowners,  seek  to
represent a class of all owners of nonrental residential properties in Maryland.
Plaintiffs  seek   compensatory  and  punitive  damages  for  the  existence  of
lead-based paint in their homes,  including funds for monitoring,  detecting and
abating  lead-based  paint  in  those  residences.  Plaintiffs  allege  that the
Company,  fourteen other companies  alleged to have  manufactured  lead pigment,
paint and/or  gasoline  additives,  the LIA, and the National Paint and Coatings
Association  are jointly and  severally  liable for  alleged  negligent  product
design,    negligent   failure   to   warn,    supplier    negligence,    strict
liability/defective   design,   strict   liability/failure  to  warn,  nuisance,
indemnification,  fraud and deceit,  conspiracy,  concert of action,  aiding and
abetting, and enterprise liability. Plaintiffs seek damages in excess of $20,000
per household.  In October 1999 defendants  removed the case to Maryland federal
court. In February 2000 defendants moved to dismiss the design defect, fraud and
deceit,  indemnification  and nuisance  claims.  In March 2000 the Federal trial
court (No.  MJG-99-3277)  denied plaintiffs' motion to remand to State Court. In
April 2000 defendants filed an additional  motion to dismiss all claims for lack
of product identification.  In August 2000 the federal court dismissed the fraud
and deceit,  indemnification,  and  nuisance  claims,  and  remanded the case to
Maryland  state  court.  In August 2000  plaintiffs  also filed a third  amended
complaint, with the case renamed Young, et al. v. Lead Industries,  Association,
et al.. In  November  2000  defendants  filed  motions to dismiss all  remaining
claims except conspiracy and aiding and abetting. The court has not ruled. Class
discovery is proceeding.

        In October 1999 the Company was served with a complaint in Smith, et al.
v. Lead  Industries  Association,  et al.  (Circuit  Court for  Baltimore  City,
Maryland,   Case  No.  24-C-99-004490).   Plaintiffs,   six  minors,  each  seek
compensatory  damages  of $5  million  and  punitive  damages  of  $10  million.
Plaintiffs  allege that the Company,  fourteen other  companies  alleged to have
manufactured lead pigment, paint and/or

                                            -11-

<PAGE>



gasoline additives, the LIA, and the National Paint and Coatings Association are
jointly and severally  liable for alleged  negligent  product design,  negligent
failure to warn, supplier negligence,  fraud and deceit, conspiracy,  concert of
action,  aiding and  abetting,  strict  liability/  failure to warn,  and strict
liability/defective  design.  In October  1999  defendants  removed  the case to
Maryland  federal  court and in  November  1999 the case was  remanded  to state
court.  In  February  2000 the Company  answered  the  complaint  and denied all
wrongdoing  and  liability,  and all  defendants  filed  motions to dismiss  the
product defect and fraud and deceit  claims.  In June 2000  defendants  moved to
dismiss all claims for lack of product identification. The court has not ruled.

        In February  2000 the Company was served with a complaint in City of St.
Louis v. Lead  Industries  Association,  et al.  (Missouri  Circuit  Court  22nd
Judicial  Circuit,  St. Louis City, Cause No. 002-245,  Division 1). The City of
St. Louis seeks  compensatory and punitive damages for its expenses  discovering
and  abating  lead,   detecting  lead  poisoning  and  providing  medical  care,
educational  programs for City  residents,  and the costs of educating  children
suffering injuries due to lead exposure.  Plaintiff seeks judgments of joint and
several  liability  against the Company,  eight other companies  alleged to have
manufactured  lead products for paint, and the LIA.  Plaintiff alleges claims of
public nuisance,  product liability,  negligence,  negligent  misrepresentation,
fraudulent   misrepresentation,   civil  conspiracy,   unjust  enrichment,   and
indemnity.  In March 2000 defendants removed the case to Missouri federal court.
In April 2000  plaintiff  filed a motion to remand to State Court and an amended
complaint seeking to add additional  Missouri defendant  residents.  In May 2000
defendants moved to dismiss all claims. The court has not ruled.

        In April 2000 the Company was served with a complaint in County of Santa
Clara v. Atlantic  Richfield  Company,  et al.  (Superior  Court of the State of
California, County of Santa Clara, Case No. CV788657). The County of Santa Clara
seeks to represent a class of California  governmental  entities (other than the
state and its  agencies).  The County seeks from  defendants,  eight  present or
former  pigment  or paint  manufacturing  companies  and the  LIA,  compensatory
damages  for  funds  the  plaintiffs   have  expended  for  medical   treatment,
educational expenses,  abatement or other costs due to exposure to, or potential
exposure to, lead paint, disgorgement of profit, and punitive damages. Plaintiff
alleges  causes  of  action  for  violations  of  the  California  Business  and
Professions Code, strict product liability,  negligence,  fraud and concealment,
unjust   enrichment,   and  indemnity,   and  includes  market  share  liability
allegations. Defendants filed demurrers to the original complaint in August 2000
and to the first  amended  complaint in October 2000. In December 2000 the Court
dismissed all claims except the claim for fraud, but granted plaintiffs leave to
amend.  The  plaintiffs  filed a second  amended  complaint in January 2001 that
included as plaintiffs:  Santa Cruz, Solano,  Alameda,  San Francisco,  and Kern
counties; the cities of San Francisco and Oakland; the Oakland and San Francisco
unified school districts and housing authorities;  and the Oakland Redevelopment
Agency. The second amended complaint omits indemnification and unjust enrichment
claims, but adds public and private nuisance claims.

        In June 2000 two  complaints  were filed in Texas  state  court,  Spring
Branch  Independent  School  District  v. Lead  Industries  Association,  et al.
(District  Court  of  Harris  County,   Texas,  No.  2000-31175),   and  Houston
Independent  School District v. Lead Industries  Association,  et al.  (District
Court of Harris County,  Texas, No. 2000-33725).  The School Districts seek past
and future damages and exemplary damages for costs they have allegedly  incurred
due to the presence of lead-based paint in their buildings from the Company, the
LIA and seven other companies sued as former  manufacturers of lead-based paint.
Plaintiffs  allege  claims for design  defect and  marketing  defect,  negligent
product  design and  failure to warn,  fraudulent  misrepresentation,  negligent
misrepresentation, concert of action, conspiracy, and indemnity. In October

                                            -12-

<PAGE>



2000 the  Company  filed  answers  in both  cases  denying  all  allegations  of
wrongdoing and liability. Discovery is proceeding.

        In June 2000 a complaint was filed in Illinois  state court,  Lewis,  et
al.  v. Lead  Industries  Association,  et al.  (Circuit  Court of Cook  County,
Illinois, County Department, Chancery Division, Case No. 00CH09800).  Plaintiffs
seek to represent two classes, one of all minors between ages six months and six
years who  resided in housing in  Illinois  built  before  1978,  and one of all
individuals  between ages six and twenty years who lived between ages six months
and six years in Illinois housing built before 1978 and had blood lead levels of
10  micrograms/deciliter  or more. The complaint seeks a medical  screening fund
for the first class to determine  blood lead levels,  a medical  monitoring fund
for the second  class to detect the onset of latent  diseases,  and a fund for a
public  education  campaign.  The complaint  seeks to hold jointly and severally
liable  the  Company,  the  LIA,  and  seven  other  companies  sued  as  former
manufacturers  of lead pigment and/or lead paint.  Plaintiffs  allege claims for
negligent product design,  negligent failure to warn, strict products liability,
violation of the Illinois  Consumer Fraud Act,  fraud by omission,  market share
liability,  civil  conspiracy,  concert  of  action,  enterprise  liability  and
alternative  liability.  In October 2000 defendants moved to dismiss all claims.
In November 2000 plaintiffs  moved to amend the complaint.  Plaintiffs  filed an
amended complaint in January 2001.

        In  October  2000 the  Company  was  served  with a  complaint  filed in
California state court.  Justice,  et al. v.  Sherwin-Williams  Company,  et al.
(Superior Court of California,  County of San Francisco, No. 314686). Plaintiffs
are two minors who seek  general,  special and  punitive  damages  for  injuries
alleged to be due to  ingestion  of paint  containing  lead in their  residence.
Defendants  are the Company,  the LIA, and nine other  companies  sued as former
manufacturers  of lead paint.  Plaintiffs  allege claims for negligence,  strict
products liability,  concert of action, market share liability,  and intentional
tort.  The  Company   answered  the  complaint  in  December  2000  denying  all
allegations of wrongdoing and liability.

        In January  2001 the Company was served with a complaint  in Gaines,  et
al., v. The Sherwin-Williams Company, et al. (Circuit Court of Jefferson County,
Mississippi,  Civil Action No. 2000-0604). The complaint seeks joint and several
liability  for  compensatory  and punitive  damages  from the Company,  Sherwin-
Williams,  and four local retailers on behalf of a minor and his mother alleging
injuries  due to  lead  pigment  and/or  paint.  The  complaint  alleges  strict
liability,  negligence, and fraudulent concealment and misrepresentation claims.
In February 2001 the Company  removed the case to federal  court.  In March 2001
the Company  moved to dismiss the  negligence  and  fraudulent  concealment  and
misrepresentation claims.

        In February  2001 the Company was served with a complaint in Borden,  et
al. v. The Sherwin-Williams  Company, et al. (Circuit Court of Jefferson County,
Mississippi,  Civil Action No. 2000-587).  The complaint seeks joint and several
liability for  compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint,  including the Company, on behalf of
18 adult  residents of  Mississippi  who were  allegedly  exposed to lead during
their employment in construction and repair  activities.  The complaint  asserts
strict liability, negligence, fraudulent concealment and misrepresentation,  and
medical  monitoring  claims.  The  Company  intends to deny all  allegations  of
wrongdoing and liability.

        The Company believes that the foregoing lead pigment actions are without
merit  and  intends  to  continue  to deny all  allegations  of  wrongdoing  and
liability and to defend such actions vigorously.


                                            -13-

<PAGE>



        The Company has filed  actions  seeking  declaratory  judgment and other
relief against various  insurance  carriers with respect to costs of defense and
indemnity coverage for certain of its environmental and lead pigment litigation.
NL Industries,  Inc. v. Commercial  Union Insurance Cos., et al., Nos.  90-2124,
-2125 (HLS) (District Court of New Jersey).  The action relating to lead pigment
litigation  defense costs filed in May 1990 against  Commercial  Union Insurance
Company  ("Commercial  Union")  sought to recover  defense costs incurred in the
City of New York lead pigment  case and two other lead pigment  cases which have
since been resolved in the Company's  favor.  The action  relating to lead paint
litigation  defense  costs  has been  settled.  The  Company  has  also  settled
insurance  coverage claims concerning  environmental  claims with certain of the
defendants in the New Jersey environmental  coverage  litigation,  including the
Company's principal former carriers,  as more fully described below. The settled
claims are to be dismissed from the New Jersey litigation in accordance with the
terms of the settlement agreements. The Company also continues to negotiate with
several other insurance  carriers with respect to possible  settlement of claims
that are being  asserted in the New Jersey  environmental  litigation,  although
there can be no assurance that  settlement  agreements can be reached with these
other  carriers.   No  further  material   settlements  relating  to  litigation
concerning environmental remediation coverage are expected.

        Other than granting  motions for summary  judgment brought by two excess
liability  insurance  carriers,  which  contended that their policies  contained
absolute  pollution  exclusion  language,  and certain summary  judgment motions
regarding policy periods and ruling  regarding  choice of law issues,  the Court
has not made any final  rulings  on defense  costs or  indemnity  coverage  with
respect to the Company's  pending  environmental  litigation.  Nor has the Court
made any final ruling on indemnity coverage in the lead pigment  litigation.  No
trial  dates  have been set.  Other than  rulings to date,  the issue of whether
insurance coverage for defense costs or indemnity or both will be found to exist
depends  upon a variety  of  factors,  and there can be no  assurance  that such
insurance coverage will exist in other cases. The Company has not considered any
potential insurance  recoveries for lead pigment or environmental  litigation in
determining related accruals.

Environmental matters and litigation

        The Company  has been named as a  defendant,  PRP, or both,  pursuant to
CERCLA and  similar  state laws in  approximately  75  governmental  and private
actions  associated with waste disposal sites,  mining  locations and facilities
currently  or  previously  owned,  operated  or  used  by  the  Company,  or its
subsidiaries,  or their  predecessors,  certain  of which are on the U.S.  EPA's
Superfund  National  Priorities List or similar state lists.  These  proceedings
seek cleanup  costs,  damages for  personal  injury or property  damage,  and/or
damages for injury to natural  resources.  Certain of these proceedings  involve
claims  for  substantial  amounts.  Although  the  Company  may be  jointly  and
severally  liable  for such  costs,  in most cases it is only one of a number of
PRPs who may also be jointly and severally liable.

        The extent of CERCLA liability cannot accurately be determined until the
Remedial  Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA
issues a record of decision and costs are  allocated  among PRPs.  The extent of
liability under analogous state cleanup  statutes and for common law equivalents
are  subject to similar  uncertainties.  The Company  believes  it has  provided
adequate  accruals for reasonably  estimable  costs for CERCLA matters and other
environmental  liabilities.  At December 31, 2000,  the Company had accrued $110
million for those  environmental  matters which are  reasonably  estimable.  The
Company  determines the amount of accrual on a quarterly  basis by analyzing and
estimating the range of possible costs to the Company. Such costs include, among
other things,  expenditures for remedial investigations,  monitoring,  managing,
studies, certain legal fees, cleanup, removal and remediation. It is

                                            -14-

<PAGE>



not possible to estimate the range of costs for certain  sites.  The Company has
estimated  that the upper end of the range of reasonably  possible  costs to the
Company for sites for which it is possible  to estimate  costs is  approximately
$170 million.  The Company's  estimate of such liability has not been discounted
to present  value and the Company has not reduced its accruals for any potential
insurance  recoveries.  No  assurance  can be given that  actual  costs will not
exceed either accrued  amounts or the upper end of the range for sites for which
estimates  have been made,  and no assurance can be given that costs will not be
incurred  with respect to sites as to which no estimate  presently  can be made.
The imposition of more stringent  standards or requirements under  environmental
laws or  regulations,  new  developments or changes with respect to site cleanup
costs or  allocation  of such costs  among  PRPs,  or a  determination  that the
Company is potentially  responsible  for the release of hazardous  substances at
other  sites  could  result  in  expenditures  in excess  of  amounts  currently
estimated by the Company to be required for such matters. Furthermore, there can
be no  assurance  that  additional  environmental  matters will not arise in the
future.  More detailed  descriptions  of certain legal  proceedings  relating to
environmental matters are set forth below.

        In June  2000 the  Company  recognized  a $43  million  net gain  from a
settlement  with one of the two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts  established to pay future  remediation  and other  environmental
expenditures of the Company.  A settlement with remaining  members of the second
carrier group was reached in January 2001, and the Company  expects to recognize
a $10 million gain in the first quarter of 2001. The settlements  resolved court
proceedings that the Company  initiated to seek  reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.

        In July 1991 the  United  States  filed an  action in the U.S.  District
Court for the  Southern  District  of  Illinois  against  the Company and others
(United States of America v. NL Industries,  Inc., et al., Civ. No. 91-CV 00578)
with respect to the Granite City,  Illinois lead smelter  formerly  owned by the
Company.  The  complaint  seeks  injunctive  relief to compel the  defendants to
comply with an  administrative  order issued  pursuant to CERCLA,  and fines and
treble damages for the alleged failure to comply with the order. The Company and
the other  parties  did not  implement  the  order,  believing  that the  remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and was not selected
in accordance  with law. The complaint  also seeks  recovery of past costs and a
declaration that the defendants are liable for future costs. Although the action
was filed against the Company and ten other defendants, there are 330 other PRPs
who have  been  notified  by the U.S.  EPA.  Some of those  notified  were  also
respondents to the administrative order. In September 1995 the U.S. EPA released
its amended  decision  selecting  cleanup remedies for the Granite City site. In
September  1997 the U.S. EPA  informed the Company that past and future  cleanup
costs are estimated to total  approximately  $63.5 million. In 1999 the U.S. EPA
and certain other PRPs entered into a consent decree settling their liability at
the site for  approximately  50% of the site costs. The Company and the U.S. EPA
reached an agreement in principle in 1999 to settle the  Company's  liability at
the site for $31.5  million.  The Company  and the U.S.  EPA are  negotiating  a
consent decree embodying the terms of this agreement in principle.

        The  Company  reached  an  agreement  in 1999 with the  other  PRPs at a
formerly  owned  lead  smelter  site in  Pedricktown,  New  Jersey to settle the
Company's  liability  for $6 million,  of which $3.2 million has been paid as of
December  31,  2000.  The  settlement  does not  resolve  issues  regarding  the
Company's  potential  liability in the event site costs exceed $21 million.  The
Company does not  presently  expect site costs to exceed such amount and has not
provided accruals for such contingency.

                                            -15-

<PAGE>



        In 1998 the Company  reached an agreement to settle  litigation with the
other PRPs at a lead smelter site in Portland, Oregon that was formerly owned by
the Company. Under the agreement,  the Company agreed to pay a portion of future
cleanup costs. In 2000 the  construction of the remediation was completed and is
now in the operation and maintenance phase.

        In 2000 the  Company  reached  an  agreement  with the other PRPs at the
Baxter  Springs  subsite in Cherokee  County,  Kansas,  to resolve the Company's
liability.  The  Company and others  formerly  mined lead and zinc in the Baxter
Springs subsite. Under the agreement, the Company agreed to pay a portion of the
cleanup  costs  associated  with the Baxter  Springs  subsite.  The U.S. EPA has
estimated  the total  cleanup  costs in the  Baxter  Springs  subsite to be $5.4
million. The remedial design phase of the cleanup is underway.

        In 1996 the U.S. EPA ordered the Company to perform a removal  action at
a formerly  owned facility in Chicago,  Illinois.  The Company has complied with
the order and has  completed  the on-site work at the  facility.  The Company is
conducting an investigation regarding potential offsite contamination.

        Residents  in the vicinity of the  Company's  former  Philadelphia  lead
chemicals  plant  commenced a class  action  allegedly  comprised  of over 7,500
individuals seeking medical monitoring and damages allegedly caused by emissions
from the plant.  Wagner, et al. v. Anzon, Inc. and NL Industries,  Inc., No. 87-
4420,  Court  of  Common  Pleas,   Philadelphia  County.  The  complaint  sought
compensatory  and punitive damages from the Company and the current owner of the
plant, and alleged causes of action for, among other things, negligence,  strict
liability,  and nuisance.  A class was certified to include persons who resided,
owned or rented property,  or who work or have worked within up to approximately
three-quarters  of a mile from the plant  from 1960  through  the  present.  The
Company  answered the complaint,  denying  liability.  In December 1994 the jury
returned  a  verdict  in  favor  of  the  Company.  Plaintiffs  appealed  to the
Pennsylvania  Superior  Court and in September  1996 the Superior Court affirmed
the  judgment in favor of the  Company.  In  December  1996  plaintiffs  filed a
petition for allowance of appeal to the  Pennsylvania  Supreme Court,  which was
declined.  Residents  also  filed  consolidated  actions  in the  United  States
District  Court for the Eastern  District of  Pennsylvania,  Shinozaki v. Anzon,
Inc.  and Wagner and  Antczak v. Anzon and NL  Industries,  Inc.  Nos.  87-3441,
87-3502, 87-4137 and 87-5150. The consolidated action is a putative class action
seeking  CERCLA  response  costs,  including  cleanup  and  medical  monitoring,
declaratory and injunctive relief and civil penalties for alleged  violations of
the RCRA,  and also asserting  pendent  common law claims for strict  liability,
trespass,  nuisance and punitive  damages.  The court  dismissed  the common law
claims without prejudice,  dismissed two of the three RCRA claims as against the
Company  with  prejudice,  and stayed the case  pending the outcome of the state
court litigation.

        In 2000 the  Company  reached  an  agreement  with the other PRPs at the
Batavia  Landfill  Superfund Site in Batavia,  New York to resolve the Company's
liability.  The Batavia  Landfill is a former  industrial  waste  disposal site.
Under  the  agreement,  the  Company  agreed to pay 40% of the  future  remedial
construction  costs,  which the U.S. EPA has estimated to be  approximately  $11
million.  Under  the  settlement,  the  Company  is not  responsible  for  costs
associated with the operation and maintenance of the remedy.  In connection with
the settlement,  the U.S. EPA waived  approximately  $4 million in past response
costs. In addition,  the Company received approximately $2 million from settling
PRPs. The remedial design phase of the remedy is underway.

        In October 2000 the Company was served with a complaint  in Pulliam,  et
al. v. NL  Industries,  Inc., et al., No.  49DO20010CT001423,  filed in superior
court in Marion County, Indiana, on behalf of an alleged

                                            -16-

<PAGE>



class of all persons and entities who own or have owned property or have resided
within a one-mile radius of an industrial facility formerly owned by the Company
in Indianapolis,  Indiana.  Plaintiffs  allege that they and their property have
been  injured  by  lead  dust  and  particulates  from  the  facility  and  seek
unspecified  actual  and  punitive  damages  and a removal of all  alleged  lead
contamination.  In  December  2000 the  Company  filed  an  answer  denying  all
allegations of wrongdoing and liability. Discovery is proceeding.

        See Item 1.  "Business - Regulatory and Environmental Matters."

Other litigation

        The  Company  has been named as a  defendant  in various  lawsuits  in a
variety of jurisdictions  alleging personal injuries as a result of occupational
exposure to asbestos, silica and/or mixed dust in connection with formerly owned
operations.  Various of these actions  remain  pending,  including the following
matters.

        In March 1997 the Company was served with a complaint in Ernest  Hughes,
et al. v. Owens-Corning Fiberglass,  Corporation, et al., No. 97-C-051, filed in
the  Fifth  Judicial  District  Court  of  Cass  County,  Texas,  on  behalf  of
approximately 4,000 plaintiffs and their spouses alleging injury due to exposure
to asbestos and seeking compensatory and punitive damages. The Company has filed
an answer  denying the material  allegations.  The case has been inactive  since
1998.

        In February 1999 and October 2000 the Company was served with complaints
in Cosey, et al. v. Bullard, et al., No. 95-0069,  and Pierce, et al. v. GAF, et
al., No. 2006-150, filed in the Circuit Court of Jefferson County,  Mississippi,
on behalf of approximately  1,600  plaintiffs and 275 plaintiffs,  respectively,
alleging   injury  due  to  exposure  to  asbestos  and/or  silica  and  seeking
compensatory and punitive  damages.  The Cosey case was removed to federal court
and  has  been   transferred  to  the  eastern   district  of  Pennsylvania  for
consolidated  proceedings.  The Company has filed  answers in both cases denying
the material allegations of the complaint.

        In  addition,  the  Company is a  defendant  in various  asbestos  cases
pending in Ohio,  Indiana  and West  Virginia on behalf of  approximately  4,600
personal injury claimants.

        In August and  September  2000 the Company and one of its  subsidiaries,
NLO, Inc.  ("NLO"),  were named as defendants in four lawsuits  filed in federal
court in the  western  district of Kentucky  against  the  Department  of Energy
("DOE") and a number of other defendants alleging that nuclear material supplied
by, among others, the Feed Material Production Center ("FMPC") in Fernald, Ohio,
owned by the DOE and formerly  managed under contract by NLO,  harmed  employees
and others at the DOE's Paducah, Kentucky Gaseous Diffusion Plant ("PGDP"). With
respect to each of the cases listed below,  the Company believes that the DOE is
obligated to provide defense and  indemnification  pursuant to its contract with
NLO,  and  pursuant  to its  statutory  obligation  to do so,  as the DOE has in
several  previous  cases relating to management of the FMPC, and the Company has
so advised the DOE.  Answers in the four cases have not been filed.  The Company
and NLO have moved to dismiss  Rainer I. The  Company and NLO intend to deny all
allegations of wrongdoing and liability and to defend the cases vigorously.

        * In Rainer, et al. v. E.I. du Pont de Nemours, et al., ("Rainer I") No.
          5:00CV-223-J,  plaintiffs  purport  to  represent  a class  of  former
          employees at the PGDP and members of their households and seek

                                            -17-

<PAGE>



          actual and punitive damages of $5 billion each for alleged negligence,
          infliction  of  emotional  distress,  ultra-hazardous  activity/strict
          liability and strict products liability.

        * In  Rainer,  et al.  v. Bill  Richardson,  et al.,  No.  5:00CV-220-J,
          plaintiffs  purport to represent  the same classes  regarding the same
          matters alleged in Rainer I, and allege a violation of  constitutional
          rights and seek the same recovery sought in Rainer I.

        * In  Dew,  et  al.  v.  Bill  Richardson,  et  al.,  No.  5:00CV00221R,
          plaintiffs  purport to  represent  classes of all PGDP  employees  who
          sustained  pituitary  tumors  or cancer  as a result  of  exposure  to
          radiation and seek actual and punitive  damages of $2 billion each for
          alleged violation of constitutional rights, assault and battery, fraud
          and misrepresentation,  infliction of emotional distress,  negligence,
          ultra-hazardous  activity/strict liability, strict products liability,
          conspiracy, concert of action, joint venture and enterprise liability,
          and equitable estoppel.

        * In  Shaffer,  et  al.  v.  Atomic  Energy  Commission,   et  al.,  No.
          5:00CV00307M,   plaintiffs   purport  to  represent  classes  of  PGDP
          employees  and  household   members,   subcontractors   at  PGDP,  and
          landowners  near the PGDP and seek actual and  punitive  damages of $1
          billion  each and medical  monitoring  for the same counts  alleged in
          Dew.

        The   Company  is  also   involved  in  various   other   environmental,
contractual,  product liability and other claims and disputes  incidental to its
present and former businesses, and the disposition of past properties and former
businesses.

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

        No matters  were  submitted  to a vote of  security  holders  during the
quarter ended December 31, 2000.

                                            -18-

<PAGE>



                                     PART II

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
               MATTERS

        NL's  common  stock is listed and traded on the New York Stock  Exchange
and the Pacific  Exchange under the symbol "NL." As of March 9, 2001, there were
approximately  6,000 holders of record of NL common stock.  The following  table
sets  forth the high and low sales  prices  for NL common  stock on the New York
Stock Exchange  ("NYSE")  Composite Tape. On March 9, 2001, the closing price of
NL common stock according to the NYSE Composite Tape was $19.63.

<TABLE>
<CAPTION>

                                                             Dividends
                                  High             Low       Declared
                                ---------      ----------   ----------

<S>                             <C>            <C>           <C>
Year ended December 31, 1999:
  First quarter                 $14-15/16      $    8-3/4    $   .035
  Second quarter                  13-9/16          9-1/16        .035
  Third quarter                   13-5/16          11-1/8        .035
  Fourth quarter                  15-7/16           9-3/4        .035

Year ended December 31, 2000:
  First quarter                 $  16-3/8      $       13    $    .15
  Second quarter                       19          13-1/8         .15
  Third quarter                    24-3/8          15-1/2         .15
  Fourth quarter                       25        18-15/16         .20

</TABLE>

        The  Company's  indenture  to its Senior Notes limits the ability of the
Company to pay  dividends,  acquire  treasury  shares and make other  restricted
payments,  as defined.  The aggregate  amount of dividends and other  restricted
payments since October 1993 may not exceed 50% of the aggregate consolidated net
income,  as defined in the indenture,  since October 1993. At December 31, 2000,
$20  million  was  available  for  restricted   payments  including   dividends,
acquisition of treasury shares and affiliate stock purchases.

        In October 2000 the Company increased the regular quarterly  dividend to
$.20 per  share and  subsequently  paid a $.20 per share  cash  dividend  in the
fourth  quarter of 2000. On February 7, 2001,  the Company's  Board of Directors
declared  a regular  quarterly  dividend  of $.20 per share to  shareholders  of
record as of March 14, 2001 to be paid on March 28, 2001.  The  declaration  and
payment of future dividends is  discretionary,  and the amount,  if any, will be
dependent  upon  the  Company's  results  of  operations,  financial  condition,
contractual  restrictions  and other  factors  deemed  relevant by the Company's
Board of Directors.

        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.


                                            -19-

<PAGE>



ITEM 6.        SELECTED FINANCIAL DATA

        The selected consolidated  financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and Notes thereto, and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of  Operations."  Certain  amounts  have been  reclassified  to conform with the
current year's consolidated financial statement presentation.

<TABLE>
<CAPTION>

                                                                   Years ended December 31,
                                                 -------------------------------------------------------------
                                                    2000         1999        1998          1997         1996
                                                 ---------    ---------    ---------    ---------    ---------
                                                              (In millions, except per share amounts)
<S>                                              <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Net sales ....................................   $   922.3    $   908.4    $   894.7    $   837.2    $   851.2
Operating income .............................       212.5        145.7        171.2         82.5         71.6
Income (loss) from continuing operations .....       155.3        159.8         89.9        (29.9)       (11.7)
Net income (loss) ............................       154.6        159.8        366.7         (9.5)        10.8

Earnings per share:
  Basic:
    Income (loss) from continuing operations .   $    3.08    $    3.09    $    1.75    $    (.58)   $    (.23)
    Net income (loss) ........................        3.07         3.09         7.13         (.19)         .21
  Diluted:
    Income (loss) from continuing operations .   $    3.06    $    3.08    $    1.73    $    (.58)   $    (.23)
    Net income (loss) ........................        3.05         3.08         7.05         (.19)         .21

Cash dividends ...............................   $     .65    $     .14    $     .09    $      --    $     .30

BALANCE SHEET DATA at year end:
Cash, cash equivalents, current marketable
 securities, current and noncurrent restricted
 cash equivalents ............................   $   207.6    $   151.8    $   163.1    $   106.1    $   114.1
Current assets ...............................       553.8        506.4        546.8        454.9        500.2
Total assets .................................     1,120.8      1,056.2      1,155.6      1,098.5      1,221.4
Current liabilities ..........................       298.0        264.8        310.7        276.7        290.3
Long-term debt including current maturities ..       196.1        244.5        357.6        744.2        829.0
Shareholders' equity (deficit) ...............       344.5        271.1        152.3       (222.3)      (203.5)

CASH FLOW DATA:
Operating activities .........................   $   139.7    $   108.3    $    45.1    $    89.2    $    16.5
Investing activities .........................       (56.2)       (38.4)       417.3        (11.1)       (68.4)
Financing activities .........................       (95.7)       (88.0)      (396.2)       (82.6)        26.6
Operating, investing and financing activities        (12.2)       (18.1)        66.2         (4.5)       (25.3)

OTHER NON-GAAP FINANCIAL DATA:
EBITDA (1) ...................................   $   286.3    $   162.5    $   187.4    $    67.6    $    90.7

OTHER DATA:
Net debt at year end (2) .....................   $    58.5    $   149.8    $   226.7    $   652.0    $   740.7
Interest expense, net (3) ....................        22.9         30.3         43.1         63.0         64.6
Cash interest expense, net (4) ...............        23.8         28.6         24.8         39.9         44.2
Capital expenditures .........................        31.1         35.6         22.4         28.2         64.2

</TABLE>

                                            -20-

<PAGE>
<TABLE>
<CAPTION>
                                                                   Years ended December 31,
                                                 -------------------------------------------------------------
                                                    2000         1999        1998          1997         1996
                                                 ---------    ---------    ---------    ---------    ---------
                                                              (In millions, except per share amounts)

<S>                                                    <C>          <C>          <C>          <C>          <C>
TiO2 OPERATING STATISTICS:
Average selling price in billing currencies

  index (1983=100) .............................       162          153          154          133          139
Sales volumes (metric tons in thousands) .......       436          427          408          427          388
Production volume (metric tons in thousands) ...       441          411          434          408          373
Production capacity at beginning of year
  (metric tons in thousands) ...................       440          440          420          400          390
Production rate as a percentage of capacity ....      Full          93%         Full         Full          95%

</TABLE>


(1)     EBITDA,  as  presented,   represents  operating  income  less  corporate
        expense, plus (i) litigation settlement gains, net, (ii) other corporate
        income and (iii)  depreciation,  depletion and  amortization.  EBITDA is
        presented as a supplement  to the  Company's  operating  income and cash
        flow from  operations  because  the  Company  believes  that EBITDA is a
        widely  accepted  financial  indicator  of cash flows and the ability to
        service debt.  EBITDA should not be considered as an alternative  to, or
        more meaningful than,  operating  income or net income  determined under
        generally accepted accounting principles ("GAAP") as an indicator of the
        Company's operating performance, or cash flows from operating, investing
        and  financing  activities   determined  under  GAAP  as  a  measure  of
        liquidity.  EBITDA  is  not  intended  to  depict  funds  available  for
        reinvestment or other discretionary uses, as the Company has significant
        debt  requirements  and other  commitments.  Investors  should  consider
        certain factors in evaluating the Company's EBITDA,  including  interest
        expense,  income taxes,  noncash  income and expense  items,  changes in
        assets  and  liabilities,  capital  expenditures,  investments  in joint
        ventures  and other items  included in GAAP cash flows as well as future
        debt  repayment  requirements  and other  commitments,  including  those
        described  in  Notes  9,  12  and  17  to  the  Consolidated   Financial
        Statements.  The  Company  believes  that  the  trend of its  EBITDA  is
        consistent  with the trend of its GAAP operating  income,  except in (i)
        1997 when EBITDA  decreased and  operating  income  increased  from 1996
        amounts due to a $30 million  noncash  charge  related to the  Company's
        adoption of SOP 96-1,  "Environmental  Remediation Liabilities" and (ii)
        2000 when $70 million of net litigation settlement gains are included in
        EBITDA and excluded from operating income,  which treatment results in a
        higher  percentage  increase  over 1999 for  EBITDA as  compared  to the
        percentage  increase over 1999 for operating  income.  See "Management's
        Discussion  and Analysis" for a discussion of operating  income and cash
        flows during the last three years and the Company's outlook. EBITDA as a
        measure  of a  company's  performance  may not be  comparable  to  other
        companies,  unless  substantially  all companies and analysts  determine
        EBITDA as computed and presented herein.

(2)     Net debt  represents  notes payable and long-term  debt less cash,  cash
        equivalents,  current  marketable  securities and current and noncurrent
        restricted cash equivalents.

(3)     Interest expense, net represents interest expense less general corporate
        interest and dividend income.

(4)     Cash interest expense,  net represents interest expense,  net as defined
        in (3) above less noncash interest expense plus noncash interest income.
        Noncash  interest  expense  includes  deferred  interest  expense on the
        Senior Secured  Discount Notes in 1996 through 1998 and  amortization of
        deferred  financing  costs.  Noncash  interest income includes  interest
        income on restricted cash in 2000.


                                            -21-

<PAGE>



ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

  General

        The Company's continuing  operations are conducted by Kronos in the TiO2
business  segment.  As discussed  below,  average TiO2 selling prices in billing
currencies  increased  in 2000 and slightly  decreased  in 1999  compared to the
prior  year.  Kronos'  operating  income  increased  $66.8  million  in 2000 and
declined  $25.5 million in 1999.  Gross profit  margins were 34% in 2000, 27% in
1999 and 31% in 1998.

        Many factors  influence  TiO2  pricing  levels,  including  (i) industry
capacity,  (ii) worldwide  demand growth,  (iii) customer  inventory  levels and
purchasing  decisions and (iv)  relative  changes in foreign  currency  exchange
rates. Kronos believes that the TiO2 industry has long-term growth potential, as
discussed in "Item 1. Business - Industry" and "- Competition."

<TABLE>
<CAPTION>

                                                 Years ended December 31,     % Change
                                                -------------------------  -----------------

                                                 2000      1999     1998   2000-99   1999-98
                                                -----      ----     ----   -------   -------
                                                                 (In millions)
<S>                                               <C>      <C>      <C>      <C>        <C>
Net sales and operating income
  Net sales ...................................   $922.3   $908.4   $894.7    +2%        +2%
  Operating income ............................   $212.5   $145.7   $171.2   +46%       -15%
  Operating income margin percentage ..........      23%      16%      19%

TiO2 operating statistics
  Percent change in average selling prices
    (in billing currencies) ...................                               +6%        -1%
  Sales volume (metric tons in thousands) .....      436      427      408    +2%        +5%
  Production volume (metric tons in thousands).      441      411      434    +7%        -5%
  Production rate as a percent of capacity ....     Full      93%     Full

</TABLE>

        Kronos'  operating  income for 2000 was  higher  than 1999 due to higher
average TiO2 selling  prices in billing  currencies  and higher  production  and
sales volumes.  Kronos' operating income in 1999 was lower than 1998,  primarily
due to lower average TiO2 selling prices and lower production volume,  partially
offset by higher sales volume.

        Average TiO2 selling prices in billing  currencies  (which  excludes the
effects of foreign currency translation) during 2000 were 6% higher than in 1999
with higher  prices in all major  regions  with the greatest  improvement  being
realized in the European and export markets.  Pigment prices  increased from the
preceding quarter during each quarter of 2000,  continuing the upward trend that
began in the fourth quarter of 1999. The rate of price  increases  slowed in the
fourth  quarter to 1% over the third  quarter of 2000,  and prices at the end of
the fourth quarter of 2000 were slightly lower than the average for the quarter.
Since  prices  began to  increase  in the fourth  quarter of 1999,  prices  have
increased  an  aggregate  of 16% in  Europe  and 3% in  North  America  over the
five-quarter period. Average TiO2 selling prices in 1999 were 1% lower than 1998
with higher prices in North America  offset by lower prices in Europe and export
markets.


                                            -22-

<PAGE>



        Record sales volume of 436,000 metric tons of TiO2 in 2000 was 2% higher
than 1999,  primarily due to higher sales in Europe and North  America.  Kronos'
sales volume in the fourth  quarter of 2000 decreased 16% from the record fourth
quarter of 1999.  Approximately  one-half of Kronos'  2000 TiO2 sales volume was
attributable to markets in Europe with  approximately  37% attributable to North
America,  and the balance to other  regions.  Sales volume in 1999 was 5% higher
than 1998 with growth in all major regions.  Industry-wide demand was strong for
the first half of 1998,  before  moderating in the second half of 1998 and early
1999. Demand in the second half of 1999 and the first three quarters of 2000 was
stronger  than  comparable  year-earlier  periods  as a result of,  among  other
things,  customers  buying in advance of  anticipated  price  increases.  Demand
softened in the fourth quarter of 2000.

        The Company's  record  production  volume of 441,000 metric tons in 2000
was 7% higher than the 411,000  metric tons  produced in 1999.  Operating  rates
were near full  capacity  in 2000  compared to 93% in 1999.  Kronos'  production
volume in 1999 was 5% lower than the 434,000  metric tons  produced in 1998 with
operating rates near full capacity in 1998.  Production  volume was curtailed in
the beginning of the first quarter of 1999 in order to manage inventory  levels.
Finished goods inventory  levels  increased in the fourth quarter of 2000 and at
the end of 2000 represent about two months of sales.

        The Company's efforts to debottleneck  Kronos' production  facilities to
meet long-term demand continue to prove successful.  The Company expects Kronos'
production  capacity of 450,000 metric tons at the end of 2000 will be increased
to  approximately  465,000  metric tons during  2002,  primarily at its chloride
facilities, with moderate capital expenditures.

        Industry  demand in 2001 is  expected to heavily  depend upon  worldwide
economic  conditions.  The Company  believes 2001 sales and  production  volumes
should approximate 2000 levels. The price increase that was originally scheduled
for  October  2000 in North  America  has not  been  implemented  due to  market
conditions. The Company recently announced a European price increase of euro 140
per metric ton scheduled to be  implemented  late in the first quarter and early
in the second quarter of 2001. The Company believes that its average 2001 prices
will approximate its average 2000 prices. The extent to which Kronos can realize
these or other price increases in 2001 will depend on market conditions.

        Kronos expects its operating income in the first quarter of 2001 will be
comparable  to the first  quarter of 2000.  Operating  income for the balance of
2001 will depend on worldwide economic  conditions.  If the economy continues to
soften,  selling  prices and sales volume could be lower than  expected and full
year 2001 operating income would likely be below 2000 levels factoring in higher
anticipated costs,  particularly energy. However, if demand strengthens later in
the year the Company should be able to realize price increases.  Kronos believes
this  would put its  operating  income  closer to or above the 2000  level.  The
Company's  expectations  as to the future  prospects of the Company and the TiO2
industry  are based  upon a number of  factors  beyond  the  Company's  control,
including continued  worldwide growth of gross domestic product,  competition in
the market place,  unexpected or  earlier-than-expected  capacity  additions and
technological  advances.  If  actual  developments  differ  from  the  Company's
expectations, the Company's performance could be unfavorably affected.

        Excluding the effects of foreign currency translation, which reduced the
Company's  expenses in both 2000 and 1999 compared to the year-earlier  periods,
Kronos'  cost of sales in 2000 was lower than 1999  primarily  due to lower unit
costs, which resulted  primarily from higher production levels.  Kronos' cost of
sales in 1999 was higher  than 1998 due to higher  sales  volume and higher unit
costs, which resulted primarily from lower production levels.  Cost of sales, as
a percentage of net sales, decreased in 2000 primarily due to the

                                            -23-

<PAGE>



impact on net sales of higher average  selling prices and lower unit costs,  and
increased  in 1999  primarily  due to the  impact on net sales of lower  average
selling prices and higher unit costs.

        Excluding the effects of foreign currency translation, which reduced the
Company's  expense in both 2000 and 1999 compared to the  year-earlier  periods,
selling,  general and  administrative  expenses  ("SG&A"),  excluding  corporate
expenses, increased in 2000 from the year-earlier period primarily due to higher
variable  compensation  expense  and higher  selling and  distribution  expenses
associated with higher 2000 sales volumes.  SG&A,  excluding corporate expenses,
increased  in 1999  from the  year-earlier  period  due to  higher  selling  and
distribution  expenses associated with higher 1999 sales volume. SG&A, excluding
corporate expenses,  as a percentage of net sales, was 12% in each of 2000, 1999
and 1998. See discussion of corporate expenses below.

        The Company has  substantial  operations and assets located  outside the
United States (principally Germany,  Norway,  Belgium and Canada). The Company's
non-U.S.  sales and  operating  costs are  subject  to  currency  exchange  rate
fluctuations which may impact reported earnings and may affect the comparability
of  period-to-period   revenues  and  expenses  expressed  in  U.S.  dollars.  A
significant  amount of the  Company's  sales  (59% in 2000) are  denominated  in
currencies  other  than the U.S.  dollar,  principally  the  euro,  other  major
European currencies and the Canadian dollar. Certain purchases of raw materials,
primarily titanium-containing feedstocks, are denominated in U.S. dollars, while
labor and other production costs are primarily  denominated in local currencies.
Fluctuations  in the  value of the U.S.  dollar  relative  to other  currencies,
primarily a stronger U.S.  dollar  compared to the euro,  decreased sales by $68
million and $15  million  during  2000 and 1999,  respectively,  compared to the
year-earlier  period.  When translated to U.S.  dollars using currency  exchange
rates prevailing during the respective  periods,  Kronos' average selling prices
for 2000 decreased 1% from 1999.  Kronos' average selling prices in U.S. dollars
for 1999  decreased  3% from 1998.  The effect of the  stronger  U.S.  dollar on
Kronos'  operating  costs  that  are not  denominated  in U.S.  dollars  reduced
operating  costs in 2000 and 1999  compared to the  respective  prior  year.  In
addition,  sales to export markets are typically denominated in U.S. dollars and
a stronger U.S. dollar improves margins on these sales at the Company's non-U.S.
subsidiaries.  The  favorable  margin  on  export  sales  tends  to  offset  the
unfavorable  effect of translating  local currency  profits to U.S. dollars when
the dollar is stronger.  As a result,  the net impact of currency  exchange rate
fluctuations  on  operating  income  in 2000 and 1999,  excluding  the 1999 $5.3
million foreign currency  transaction gain, was not significant when compared to
the year-earlier periods.


                                            -24-

<PAGE>



  General corporate

        The following  table sets forth certain  information  regarding  general
corporate income (expense).

<TABLE>
<CAPTION>

                                  Years ended December 31,            Change
                               -----------------------------    ------------------
                                 2000      1999       1998      2000-99    1999-98
                               -------    -------    -------    -------    -------
                                                  (In millions)

<S>                            <C>        <C>        <C>        <C>        <C>
Securities earnings:
    Interest and dividends     $   8.3    $   6.6    $  14.9    $   1.7    $  (8.3)
    Securities gains, net          2.5         --         --        2.5         --
Corporate income .........        73.7        4.6        4.4       69.1         .2
Corporate expense ........       (29.6)     (21.5)     (22.7)      (8.1)       1.2
Interest expense .........       (31.2)     (36.9)     (58.1)       5.7       21.2
                               -------    -------    -------    -------    -------

                               $  23.7    $ (47.2)   $ (61.5)   $  70.9    $  14.3
                               =======    =======    =======    =======    =======

</TABLE>

        Corporate  interest  and dividend  income,  including  noncash  interest
income on restricted  cash balances,  fluctuate in part based upon the amount of
funds  invested and yields  thereon.  Average funds invested in 2000 were higher
than 1999 primarily due to the increase in restricted  cash related to the $43.0
million litigation  settlement in July 2000. Average funds invested in 1999 were
lower than 1998  primarily due to the repayment of certain of the Company's debt
in the last half of 1998.

        Securities  gains,  net in 2000 includes a  second-quarter  $5.6 million
securities gain related to common stock received from the  demutualization of an
insurance  company  from  which the  Company  had  purchased  certain  insurance
policies and a fourth-quarter $3.1 million noncash securities loss related to an
other-than-temporary  decline in value of certain available-for-sale  securities
held by the Company. See Note 4 to the Consolidated Financial Statements.

        Corporate  income  in  2000  includes  a $69.5  million  net  gain  from
settlements with former insurance carriers.  In January 2001 the Company reached
a $10  million  settlement  with the  remaining  group of its  principal  former
insurance  carriers and expects to report the gain in the first quarter of 2001.
No further material settlements relating to litigation concerning  environmental
remediation  coverage are expected.  See Note 14 to the  Consolidated  Financial
Statements.  The Company  recognized $4.0 million in both 2000 and 1999 and $3.7
million in 1998 of income related to the straight-line,  five-year  amortization
of $20  million  of  proceeds  received  in  conjunction  with  the  sale of its
specialty  chemicals  business  attributable  to a  five-year  agreement  by the
Company not to compete in the rheological products business.

        Corporate expense in 2000 was higher than 1999, primarily as a result of
higher legal and environmental  expenses.  The Company expects corporate expense
in 2001 will be  slightly  lower  than  2000  primarily  due to lower  legal and
environmental expenses.

        Interest  expense in 2000  declined  compared to 1999  primarily  due to
reduced levels of outstanding  euro-denominated  debt.  Interest expense in 1999
declined compared to 1998 due to the prepayment of the Company's former Deutsche
mark bank credit facility in 1999 and prepayments of outstanding indebtedness in
1998,  principally the Senior Secured  Discount Notes, a joint venture term loan
and a portion of the  Company's  former DM bank  credit  facility.  Assuming  no
significant change in interest rates, interest expense in 2001 is expected to be
lower compared to 2000 due to (i) lower levels of outstanding indebtedness and

                                            -25-

<PAGE>



(ii) lower average  interest rates as a result of the December 2000  refinancing
of $50  million  of  the  Company's  high  fixed-rate  public  debt  with  lower
variable-rate bank debt.

  Provision for income taxes

        The  principal  reasons  for the  difference  between  the U.S.  federal
statutory  income  tax rates and the  Company's  effective  income tax rates are
explained in Note 12 to the  Consolidated  Financial  Statements.  The Company's
operations  are conducted on a worldwide  basis and the geographic mix of income
can  significantly  impact the Company's  effective income tax rate. In 2000 the
Company's  effective  income tax rate varied  from the  normally  expected  rate
primarily due to the geographic mix of income,  changes in the German income tax
"base"  rate  and  the  recognition  of  certain  deductible  tax  assets  which
previously did not meet the "more-likely-than-not" recognition criteria. In 1999
and 1998 the Company's effective tax rate varied from the normally expected rate
due predominantly to the recognition of certain  deductible tax attributes which
previously did not meet the "more-likely-than-not" recognition criteria. Also in
2000, 1999 and 1998, the Company recognized certain one-time benefits related to
German tax settlements.

        Effective  January 1, 2001, the Company and its qualifying  subsidiaries
will be included in the consolidated United States federal tax return of Contran
(the "Contran Tax Group").  As a member of the Contran Tax Group, the Company is
a party to a tax sharing  agreement (the "Contran Tax  Agreement").  The Contran
Tax Agreement  provides that the Company  compute its provision for U.S.  income
taxes on a separate  company  basis  using the tax  elections  made by  Contran.
Pursuant to the  Contran  Tax  Agreement,  and using the tax  elections  made by
Contran,  the Company will make  payments to or receive  payments  from Valhi in
amounts it would have paid to or received from the Internal  Revenue Service had
it not been a member of the  Contran  Tax Group.  Refunds are limited to amounts
previously paid under the Contran Tax Agreement.

  Other

        Minority  interest  primarily  relates to the  Company's  majority-owned
environmental management subsidiary,  NL Environmental Management Services, Inc.
("EMS").  EMS was established in 1998, at which time EMS  contractually  assumed
certain of the Company's environmental liabilities.  EMS' earnings are based, in
part,  upon its ability to favorably  resolve these  liabilities on an aggregate
basis.   The  minority   interest   shareholders  of  EMS  actively  manage  the
environmental  liabilities  and  share in 39% of EMS'  cumulative  earnings,  as
defined  in  the  formation   documents.   The  Company   includes   liabilities
contractually assumed by EMS in its consolidated balance sheet.

        Discontinued operations in 1998 represent the Company's former specialty
chemicals  operation which was sold in January 1998. The extraordinary  items in
2000 and 1998 resulted from early extinguishment of debt.


                                            -26-

<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

        The Company's  consolidated cash flows,  including certain  discontinued
operations in 1998, for each of the past three years are presented below.

<TABLE>
<CAPTION>

                                                       Years ended December 31,
                                                     ----------------------------
                                                        2000     1999       1998
                                                     --------  --------  --------
                                                            (In millions)
<S>                                                  <C>       <C>       <C>

Net cash provided (used) by:
  Operating activities:
    Before changes in assets and liabilities .....   $  153.1  $  115.7  $  137.0
    Changes in assets and liabilities ............      (13.4)     (7.4)    (91.9)
                                                     --------  --------  --------
                                                        139.7     108.3      45.1
  Investing activities ...........................      (56.2)    (38.4)    417.3
  Financing activities ...........................      (95.7)    (88.0)   (396.2)
                                                     --------  --------  --------
Net cash provided (used) by operating, investing
 and financing activities ........................   $  (12.2) $  (18.1) $   66.2
                                                     ========  ========  ========

</TABLE>


  Operating cash flows

        Certain  items  included  in  the  determination  of net  income  do not
represent  current  inflows or outflows of cash.  For example,  the $3.1 million
security transaction loss recognized in 2000 for an other-than-temporary decline
in value of certain marketable securities held by the Company, did not result in
a current outflow of cash.  Depreciation,  depletion and amortization is another
noncash  expense item.  Noncash  interest  expense  consists of  amortization of
original issue discount on certain  indebtedness  and  amortization  of deferred
financing costs. Certain other items included in the determination of net income
have an impact on cash flows from operating  activities,  but the impact of such
items on cash will differ  from their  impact on net income.  For  example,  the
amount of income or expense recorded for pension and OPEB assets and obligations
(which depend upon a number of factors,  including actuarial assumptions used to
value  obligations)  will  generally  differ from the  outflows of cash for such
benefits. See Note 10 to the Consolidated Financial Statements.

        The TiO2 industry is cyclical and changes in economic  conditions within
the industry  significantly  impact the earnings and operating cash flows of the
Company.  Cash flow from  operations,  before changes in assets and  liabilities
increased  $37.4  million in 2000 and  decreased  $21.3 million in 1999 from the
preceding year.

        Operating cash flows in 2000 compared to 1999 were favorably affected by
$66.8 million  higher  operating  income and $4.8 million of lower cash interest
expense,  net,  partially  offset by $5.3 million of higher payments to fund the
Company's  pension  plans,  $8.2  million of higher  corporate  expenses,  $16.1
million of higher current tax expense,  and $6.1 million of lower  distributions
from the TiO2 manufacturing joint venture.

        Operating cash flows in 1999 compared to 1998 were unfavorably  affected
by $25.5 million of lower operating  income,  $7.4 million of higher current tax
expense and $3.8 million of higher cash interest expense,  net, partially offset
by $13.7 million of distribution from the joint venture.


                                            -27-

<PAGE>



        Changes in the Company's assets and liabilities (excluding the effect of
currency  translation)  used  cash in  2000,  1999  and  1998  primarily  due to
increases  in  inventory  levels in 2000 and 1998 and  increases  in  receivable
levels in 1999 due to high year-end demand.

  Investing cash flows

        The Company's capital expenditures were $31 million, $36 million and $22
million in 2000, 1999 and 1998, respectively.  Capital expenditures in 1999 were
higher due to $6  million  of  expenditures  for a  landfill  expansion  for the
Company's Belgian facility.  Capital expenditures of the 50%-owned manufacturing
joint  venture  were $4  million  in each of  2000,  1999  and  1998 and are not
included in the Company's capital expenditures.

        The Company's capital  expenditures  during the past three years include
an  aggregate  of $24  million ($8  million in 2000) for the  Company's  ongoing
environmental  protection and compliance programs.  The Company's estimated 2001
and 2002  capital  expenditures  are $37 million  for each year,  and include $6
million and $5 million,  respectively,  in the area of environmental  protection
and compliance.

        During 2000 the Company  purchased  1,000,000 shares of Tremont's common
stock in market transactions for an aggregate of $26 million.  See Notes 1 and 4
to the Consolidated  Financial Statements.  Tremont owns 10.2 million shares, or
20%, of NL's outstanding common stock.

        In  February  2001  NL  Environmental   Management  Services,   Inc.,  a
majority-owned  subsidiary of the Company,  loaned $13.4 million to Tremont. The
loan  bears   interest  at  prime  plus  2%,  is  due  March  31,  2003  and  is
collateralized by 10.2 million shares of NL common stock owned by Tremont.

        The Company sold the net assets of its specialty  chemicals  business in
January 1998 for $465 million and recognized an after-tax gain of  approximately
$286 million on the sale of this business segment.

  Financing cash flows

        In the second and third  quarters of 2000 the  Company  repaid euro 17.9
million  ($16.7  million  when paid) and euro 13.0 million  ($12.2  million when
paid), respectively, of its euro-denominated short-term debt with cash flow from
operations. In December 2000 the Company borrowed $43 million of short-term non-
U.S.  dollar-denominated bank debt and used the proceeds along with cash on hand
to redeem $50 million (par value) of the Company's 11.75% Senior Secured Notes.

        In the first quarter of 1999 the Company  prepaid the remaining  balance
of DM 107 million  ($60  million  when paid) of a term loan that was part of the
Company's  previous  DM bank  credit  facility,  principally  by  drawing DM 100
million  ($56  million  when  drawn) on the  revolving  portion of the DM credit
facility.  In the second and third  quarters of 1999,  the Company  repaid DM 60
million ($33 million when paid) of the DM revolving  credit  facility  with cash
provided from operations.  The revolver's  outstanding balance of DM 120 million
was further reduced in October 1999 by DM 20 million ($11 million when paid). In
December  1999  the  Company  borrowed  $26  million  of  short-term   unsecured
euro-denominated  bank  debt and used the  proceeds  along  with cash on hand to
prepay the  remaining  balance of DM 100 million  ($52 million when paid) of the
revolving  portion of the DM credit  facility.  The DM credit  facility was then
terminated,  which released  collateral and eliminated certain  restrictive loan
covenants.


                                            -28-

<PAGE>



        Borrowings  in 1998  included DM 35 million ($19 million when  borrowed)
under the Company's short-term non-U.S. credit facilities and DM 20 million ($11
million  when  borrowed)  under the  Company's  DM  revolving  credit  facility.
Repayments  in 1998  included DM 40 million  ($23  million  when paid) of the DM
revolving  credit  facility  and DM 81 million ($44 million when paid) of its DM
term loan. The Company's  borrowings and principal  repayments excludes activity
related to the Company's discontinued operations.

        With a majority of the $380 million after-tax net proceeds from the sale
of its specialty chemicals business, the Company (i) prepaid $118 million of the
Rheox term loan  (included as  Discontinued  operations,  net, on the  Company's
Consolidated  Statements  of Cash  Flows),  (ii)  prepaid $42 million of Kronos'
tranche  of the  LPC  joint  venture  term  loan,  (iii)  made  $65  million  of
open-market  purchases of the Company's  13% Senior  Secured  Discount  Notes at
prices ranging from $101.25 to $105.19 per $100 of their principal amounts, (iv)
purchased  $6  million  of the Senior  Secured  Notes and  $61,000 of the Senior
Secured Discount Notes at a price of $100 and $96.03 per $100 of their principal
amounts,  respectively,  pursuant to a June 1998 pro rata  tender  offer to Note
holders as required  under the terms of the  indenture,  and (v)  redeemed  $121
million of 13% Senior Secured Discount Notes  outstanding on October 15, 1998 at
the redemption  price of 106% of the principal  amount,  in accordance  with the
terms of the Senior Secured Discount Notes indenture.

        Dividends paid during 2000,  1999 and 1998 totaled $32.7  million,  $7.2
million and $4.6 million,  respectively.  At December 31, 2000,  the Company had
$20 million available for payment of dividends,  acquisition of treasury shares,
acquisition of affiliate stock and other  restricted  payments as defined in the
Senior  Secured Notes  indenture.  On February 7, 2001,  the Company's  Board of
Directors   declared  a  regular  quarterly   dividend  of  $.20  per  share  to
shareholders of record as of March 14, 2001 to be paid on March 28, 2001.

        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.

        In 1998,  as a result  of the  settlement  of a  shareholder  derivative
lawsuit on behalf of the Company, Valhi transferred $14.4 million in cash to the
Company,  and the Company paid plaintiffs'  attorneys' fees and expenses of $3.2
million.

  Cash, cash equivalents, restricted cash and borrowing availability

        At  December  31,  2000,  the  Company  had cash  and  cash  equivalents
aggregating $120 million (38% held by non-U.S.  subsidiaries) and $87 million of
restricted cash equivalents held by U.S. subsidiaries,  of which $18 million was
classified  as  a  noncurrent   asset.  At  December  31,  2000,  the  Company's
subsidiaries  had $16 million  available for  borrowing  under  non-U.S.  credit
facilities.  At December 31, 2000,  the Company had complied  with all financial
covenants governing its debt agreements.

        Based  upon  the  Company's  expectations  for  the  TiO2  industry  and
anticipated  demands on the Company's  cash resources as discussed  herein,  the
Company expects to have sufficient  liquidity to meet its near-term  obligations
including operations,  capital  expenditures,  debt service and current dividend
policy.   To  the  extent  that  actual   developments   differ  from  Company's
expectations, the Company's liquidity could be adversely affected.

                                            -29-

<PAGE>



  Income taxes

        A  reduction  in the  German  "base"  income  tax rate  from 30% to 25%,
enacted in October 2000,  became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of  additional  deferred  income
tax expense in the fourth  quarter of 2000 due to a reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.  The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.

        Certain  of the  Company's  tax  returns in various  U.S.  and  non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax deficiencies, including interest.

        The  Company  has  received  tax  assessments  from  the  Norwegian  tax
authorities   proposing  tax   deficiencies   including   related   interest  of
approximately  NOK 38 million  ($4.3  million at December 31, 2000)  relating to
1994 and 1996. The Company is currently  litigating the primary issue related to
the 1994  assessment  and in February 2001 the Norwegian  Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian  Supreme  Court  and  believes  that the  outcome  of the 1996 case is
dependent  on the eventual  outcome of the 1994 case.  The Company has granted a
lien for the 1994 and 1996 tax assessments on its Fredrikstad, Norway TiO2 plant
in favor of the Norwegian tax authorities.

        The Company has received  preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities  proposing tax deficiencies,  including
related interest,  of approximately euro 12.7 million ($11.8 million at December
31, 2000).  The Company has filed protests to the assessments for the years 1991
to 1996 and  expects to file a protest for 1997.  The Company is in  discussions
with the Belgian tax authorities and believes that a significant  portion of the
assessments are without merit.

        No  assurance  can be  given  that the  Company's  tax  matters  will be
favorably resolved due to the inherent  uncertainties  involved in court and tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position, results of operations or liquidity.

        At December 31, 2000,  the Company had net deferred tax  liabilities  of
$136 million. The Company operates in numerous tax jurisdictions,  in certain of
which it has  temporary  differences  that net to  deferred  tax assets  (before
valuation  allowance).  The  Company  has  provided  a  deferred  tax  valuation
allowance of $190 million at December 31, 2000,  principally related to Germany,
partially  offsetting  deferred  tax assets  which the  Company  believes do not
currently meet the "more-likely-than-not" recognition criteria.

  Environmental matters and litigation

        The Company has been named as a defendant,  PRP, or both, in a number of
legal  proceedings  associated  with  environmental  matters,   including  waste
disposal sites,  mining locations and facilities  currently or previously owned,
operated  or used  by the  Company,  certain  of  which  are on the  U.S.  EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
the Company evaluates the potential range of its liability at sites where it has
been  named  as  a  PRP  or  defendant,   including  sites  for  which  EMS  has
contractually  assumed the  Company's  obligation.  The Company  believes it has
adequate  accruals  for  reasonably  estimable  costs of such  matters,  but the
Company's ultimate liability may be affected

                                            -30-

<PAGE>



by a number of factors, including changes in remedial alternatives and costs and
the allocation of such costs among PRPs.

        The Company is also a defendant in a number of legal proceedings seeking
damages for personal  injury and property damage arising out of the sale of lead
pigments and lead-based paints.  There is no assurance that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
paint  litigation is without merit.  The Company has not accrued any amounts for
such pending litigation. Liability that may result, if any, cannot reasonably be
estimated.  The Company  currently  believes the  disposition  of all claims and
disputes,  individually and in the aggregate, should not have a material adverse
effect on the Company's consolidated  financial position,  results of operations
or liquidity.  There can be no assurance that additional  matters of these types
will not arise in the future. See Item 3. "Legal Proceedings" and Note 17 to the
Consolidated Financial Statements.

  Foreign operations

        As  discussed  above,  the Company has  substantial  operations  located
outside  the United  States for which the  functional  currency  is not the U.S.
dollar. As a result, the reported amount of the Company's assets and liabilities
related to its non-U.S. operations, and therefore the Company's consolidated net
assets,  will  fluctuate  based upon  changes in  currency  exchange  rates.  At
December 31, 2000,  the Company had  substantial  net assets  denominated in the
euro, Canadian dollar, Norwegian kroner and United Kingdom pound sterling.

  Euro currency

        Beginning January 1, 1999, certain members of the European Union ("EU"),
including Germany,  Belgium, the Netherlands and France,  adopted a new European
currency  unit (the  "euro")  as their  common  legal  currency.  Following  the
introduction  of the euro,  the  participating  countries'  national  currencies
remain  legal tender as  denominations  of the euro from January 1, 1999 through
January 1, 2002,  and the  exchange  rates  between  the euro and such  national
currency units are fixed.

        The Company conducts substantial  operations in Europe. As of January 1,
2001, the functional currency of the Company's German, Belgian, Dutch and French
operations  have been  converted  to the euro  from  their  respective  national
currencies.  The  Company  has  assessed  and  evaluated  the impact of the euro
conversion on its business and made the necessary system  conversions.  The euro
conversion may impact the Company's  operations  including,  among other things,
changes  in  product  pricing  decisions   necessitated  by  cross-border  price
transparencies.  Such  changes in product  pricing  decisions  could impact both
selling prices and purchasing costs and, consequently,  favorably or unfavorably
impact results of operations, financial condition or liquidity.

  Other

        The  Company   periodically   evaluates  its   liquidity   requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things,  its debt service and capital  expenditure  requirements
and estimated  future  operating  cash flows.  As a result of this process,  the
Company  in the  past  has  sought,  and in the  future  may  seek,  to  reduce,
refinance, repurchase or restructure indebtedness; raise

                                            -31-

<PAGE>



additional capital; issue additional securities; repurchase shares of its common
stock;  modify  its  dividend  policy;  restructure  ownership  interests;  sell
interests in subsidiaries  or other assets;  or take a combination of such steps
or other  steps to manage its  liquidity  and capital  resources.  In the normal
course  of  its  business,   the  Company  may  review   opportunities  for  the
acquisition,  divestiture,  joint venture or other business  combinations in the
chemicals  or other  industries,  as well as the  acquisition  of  interests  in
related companies. In the event of any acquisition or joint venture transaction,
the Company may consider using  available  cash,  issuing  equity  securities or
increasing its indebtedness to the extent permitted by the agreements  governing
the  Company's  existing  debt.  See  Note  9  to  the  Consolidated   Financial
Statements.

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  General

        The Company is exposed to market risk from changes in currency  exchange
rates,  interest rates and equity security prices.  In the past, the Company has
periodically  entered  into  interest  rate swaps or other types of contracts in
order to manage a portion of its  interest  rate  market  risk.  Otherwise,  the
Company has not  generally  entered into  forward or option  contracts to manage
such market risks,  nor has the Company  entered into any such contract or other
type of derivative instrument for trading purposes.  The Company was not a party
to any forward or  derivative  option  contracts  related to  currency  exchange
rates,  interest rates or equity  security  prices at December 31, 2000 or 1999.
See Notes 2 and 18 to the Consolidated Financial Statements.

  Interest rates

        The  Company is exposed to market risk from  changes in interest  rates,
primarily related to indebtedness. At December 31, 2000, the Company's aggregate
indebtedness  was  split  between  73%  of  fixed-rate  instruments  and  27% of
variable-rate borrowings (1999 -81% fixed-rate and 19% variable-rate). The large
percentage of fixed-rate debt instruments  minimizes  earnings  volatility which
would  result from  changes in interest  rates.  The  following  table  presents
principal amounts and  weighted-average  interest rates, by contractual maturity
dates, for the Company's  aggregate  indebtedness at December 31, 2000 and 1999.
At December  31, 2000 and 1999,  all  outstanding  fixed-rate  indebtedness  was
denominated in U.S. dollars, and all outstanding variable-rate  indebtedness was
denominated  in either euros or Norwegian  kroner.  Information  shown below for
such euro- and  kronor-denominated  indebtedness is presented in its U.S. dollar
equivalent at December 31, 2000 using that date's exchange rate of 1.08 euro per
U.S.  dollar (1999 - .99 euro per U.S.  dollar) and 8.90 kroner per U.S.  dollar
(1999-n/a).  Certain  kroner-denominated capital leases totaling $2.1 million in
2000 and $.5 million in 1999 have been excluded from the table below.

                                            -32-

<PAGE>


<TABLE>
<CAPTION>

                                                                                             Fair Value at
                                                      Contractual Maturity Date               December 31,
                                              ---------------------------------------------  -------------
December 31, 1999:                             2000     2001    2002      2003       Total       1999
                                              ------   ------  ------  --------    --------  -------------
                                                                     (In millions)
<S>                                           <C>      <C>     <C>     <C>         <C>         <C>
Fixed-rate debt (U.S. dollar- denominated):
  Principal amount ........................   $  --    $  --   $  --   $  244.0    $  244.0    $ 253.2
  Weighted-average interest rate ..........      --       --      --     11.75%      11.75%
Variable-rate debt (euro- denominated):
  Principal amount ........................   $57.1    $  --   $  --   $     --    $  57.1     $  57.1
  Weighted-average interest rate ..........    3.6%       --      --         --        3.6%


<CAPTION>

December 31, 2000:                             N/A      2001    2002     2003        Total        2000
                                              ------   ------  ------  --------    --------  -------------
                                                                     (In millions)
<S>                                                    <C>     <C>     <C>         <C>         <C>
Fixed-rate debt (U.S. dollar-denominated):
  Principal amount .......................             $  --   $  --   $ 194.0     $  194.0    $   195.9
  Weighted-average interest rate .........                --      --    11.75%       11.75%
Variable-rate debt (Non-U.S ..............
  dollar-denominated):
    Principal amount .....................             $70.0   $  --   $    --     $   70.0    $    70.0
    Weighted-average interest rate .......              6.3%      --        --         6.3%

</TABLE>

  Currency exchange rates

        The Company is exposed to market risk  arising  from changes in currency
exchange rates as a result of manufacturing and selling its products  worldwide.
Earnings are primarily  affected by fluctuations in the value of the U.S. dollar
relative to the euro,  Canadian dollar,  Norwegian kroner and the United Kingdom
pound sterling.  See Item 7. "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of risks and uncertainties
related to the conversion of certain of these currencies to the euro.

        At December  31,  2000,  the  Company  had $48  million of  indebtedness
denominated  in euros  (1999 - $58  million)  and $24  million  of  indebtedness
denominated in Norwegian kroner (1999-$.5 million) The potential increase in the
U.S.  dollar  equivalent of the principal  amount  outstanding  resulting from a
hypothetical  10% adverse  change in exchange  rates would be  approximately  $7
million (1999 - $6 million).

  Marketable equity security prices

        The  Company is  exposed to market  risk due to changes in prices of the
marketable  securities which are held. The fair value of such equity  securities
at December 31, 2000 and 1999 was $47 million and $15 million, respectively. The
potential  change in the aggregate fair value of these  investments,  assuming a
10% change in prices, would be $4.7 million and $1.5 million, respectively.

  Other

        The Company  believes there are certain  shortcomings in the sensitivity
analyses  presented above,  which analyses are required under the Securities and
Exchange  Commission's  regulations.  For example,  the  hypothetical  affect of
changes in interest rates discussed above ignores the potential  effect on other
variables which affect the Company's  results of operations and cash flows, such
as demand for the  Company's  products,  sales  volumes and  selling  prices and
operating expenses. Contrary to the above assumptions, changes in interest rates
rarely  result  in   simultaneous   parallel   shifts  along  the  yield  curve.
Accordingly,  the  amounts  presented  above  are not  necessarily  an  accurate
reflection  of the  potential  losses  the  Company  would  incur  assuming  the
hypothetical changes in market prices were actually to occur.


                                            -33-

<PAGE>




        The above discussion and estimated  sensitivity analysis amounts include
forward-looking  statements of market risk which assume hypothetical  changes in
market prices.  Actual future market  conditions  will likely differ  materially
from such assumptions.  Accordingly,  such forward-looking statements should not
be  considered  to be  projections  by the  Company of future  events,  gains or
losses.

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information required by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on page
F-1.


ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The  information  required by this Item is  incorporated by reference to
the Company's  definitive  proxy  statement to be filed with the  Securities and
Exchange  Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "NL Proxy Statement").

ITEM 11.       EXECUTIVE COMPENSATION

        The  information  required by this Item is  incorporated by reference to
the NL Proxy Statement.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The  information  required by this Item is  incorporated by reference to
the NL Proxy Statement.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The  information  required by this Item is  incorporated by reference to
the  NL  Proxy  Statement.  See  also  Note  16 to  the  Consolidated  Financial
Statements.


                                            -34-

<PAGE>



                                     PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

 (a) and (d)Financial Statements and Schedules

                  The consolidated  financial statements and schedules listed by
                  the  Registrant  on  the   accompanying   Index  of  Financial
                  Statements  and Schedules  (see page F-1) are filed as part of
                  this Annual Report.


 (b)              Reports on Form 8-K

                  Reports on Form 8-K for the quarter  ended  December  31, 2000
                  and thereafter through the date of this report.

                  October 18, 2000      -   reported Items 5 and 7.

 (c)              Exhibits

                  Included  as  exhibits  are the items  listed  in the  Exhibit
                  Index.  NL will furnish a copy of any of the  exhibits  listed
                  below upon  payment of $4.00 per exhibit to cover the costs to
                  NL of furnishing the exhibits. Instruments defining the rights
                  of  holders  of  debt  issues  which  do  not  exceed  10%  of
                  consolidated  total assets will be furnished to the Securities
                  and Exchange Commission upon request.

                                            -35-

<PAGE>



Item No.                              Exhibit Index

  3.1          By-Laws,  as amended on June 28, 1990 - incorporated by reference
               to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
               the year ended December 31, 1990.

  3.2          Certificate of Amended and Restated  Certificate of Incorporation
               dated June 28, 1990 -  incorporated  by reference to Exhibit 1 to
               the  Registrant's  Proxy Statement on Schedule 14A for the annual
               meeting held on June 28, 1990.

  4.1          Registration  Rights  Agreement  dated  October 30, 1991,  by and
               between the Registrant and Tremont  Corporation - incorporated by
               reference  to Exhibit 4.3 to the  Registrant's  Annual  Report on
               Form 10-K for the year ended December 31, 1991.

  4.2          Indenture  dated  October 20,  1993  governing  the  Registrant's
               11.75% Senior  Secured Notes due 2003,  including  form of Senior
               Note  -   incorporated   by  reference  to  Exhibit  4.1  to  the
               Registrant's  Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993.

  4.3          Senior  Mirror  Notes dated  October 20, 1993 -  incorporated  by
               reference to Exhibit 4.3 to the Registrant's  Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1993.

  4.4          Senior Note  Subsidiary  Pledge  Agreement dated October 20, 1993
               between  Registrant and Kronos,  Inc. - incorporated by reference
               to Exhibit 4.4 to the Registrant's  Quarterly Report on Form 10-Q
               for the quarter ended September 30, 1993.

  4.5          Third Party Pledge and Intercreditor  Agreement dated October 20,
               1993  between   Registrant,   Chase   Manhattan   Bank  (National
               Association)  and Chemical  Bank -  incorporated  by reference to
               Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for
               the quarter ended September 30, 1993.

  10.1         Lease Contract dated June 21, 1952, between Farbenfabrieken Bayer
               Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung
               (German  language  version  and  English  translation  thereof) -
               incorporated  by reference to Exhibit  10.14 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1985.

  10.2         Contract  on  Supplies  and  Services   among  Bayer  AG,  Kronos
               Titan-GmbH  and Kronos  International,  Inc.  dated June 30, 1995
               (English   translation   from   German   language   document)   -
               incorporated  by reference  to Exhibit  10.1 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1995.

 10.3**        Richards  Bay Slag  Sales  Agreement  dated May 1,  1995  between
               Richards Bay Iron and Titanium  (Proprietary) Limited and Kronos,
               Inc.  -  incorporated  by  reference  to  Exhibit  10.17  to  the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1995.

 10.4**        Amendment to Richards Bay Slag Sales  Agreement dated May 1, 1999
               between Richards Bay Iron and Titanium  (Proprietary) Limited and
               Kronos,  Inc. - incorporated  by reference to Exhibit 10.4 to the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1999.

                                            -36-

<PAGE>



  10.5         Formation  Agreement  dated as of October 18, 1993 among  Tioxide
               Americas  Inc.,  Kronos  Louisiana,  Inc. and  Louisiana  Pigment
               Company,  L.P. - incorporated by reference to Exhibit 10.2 to the
               Registrant's  Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993.

  10.6         Joint  Venture  Agreement  dated as of October 18,  1993  between
               Tioxide Americas Inc. and Kronos  Louisiana,  Inc. - incorporated
               by reference to Exhibit 10.3 to the Registrant's Quarterly Report
               on Form 10-Q for the quarter ended September 30, 1993.

  10.7         Kronos  Offtake  Agreement  dated as of October 18, 1993  between
               Kronos  Louisiana,  Inc. and Louisiana  Pigment  Company,  L.P. -
               incorporated  by reference  to Exhibit  10.4 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.8         Amendment No. 1 to Kronos Offtake  Agreement dated as of December
               20, 1995 between  Kronos  Louisiana,  Inc. and Louisiana  Pigment
               Company, L.P. - incorporated by reference to Exhibit 10.22 to the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1995.

  10.9         Tioxide Americas  Offtake  Agreement dated as of October 18, 1993
               between Tioxide Americas Inc. and Louisiana Pigment Company, L.P.
               - incorporated  by reference to Exhibit 10.5 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.10        Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of
               December 20, 1995 between  Tioxide  Americas  Inc. and  Louisiana
               Pigment  Company,  L.P. -  incorporated  by  reference to Exhibit
               10.24 to the Registrant's Annual Report on Form 10-K for the year
               ended December 31, 1995.

  10.11        TCI/KCI Output  Purchase  Agreement  dated as of October 18, 1993
               between   Tioxide   Canada  Inc.  and  Kronos   Canada,   Inc.  -
               incorporated  by reference  to Exhibit  10.6 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.12        TAI/KLA Output  Purchase  Agreement  dated as of October 18, 1993
               between  Tioxide  Americas  Inc.  and  Kronos  Louisiana,  Inc. -
               incorporated  by reference  to Exhibit  10.7 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.13        Master Technology Exchange Agreement dated as of October 18, 1993
               among Kronos, Inc., Kronos Louisiana, Inc., Kronos International,
               Inc.,  Tioxide Group Limited and Tioxide Group Services Limited -
               incorporated  by reference  to Exhibit  10.8 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.14        Parents'  Undertaking  dated as of October 18,  1993  between ICI
               American  Holdings  Inc.  and  Kronos,  Inc.  -  incorporated  by
               reference to Exhibit 10.9 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1993.


                                            -37-

<PAGE>



  10.15        Allocation Agreement dated as of October 18, 1993 between Tioxide
               Americas  Inc., ICI American  Holdings,  Inc.,  Kronos,  Inc. and
               Kronos  Louisiana,  Inc. -  incorporated  by reference to Exhibit
               10.10 to the  Registrant's  Quarterly Report on Form 10-Q for the
               quarter ended September 30, 1993.

 10.16         Form  of  Director's  Indemnity  Agreement  between  NL  and  the
               independent   members  of  the  Board  of   Directors   of  NL  -
               incorporated  by reference to Exhibit  10.20 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1987.

  10.17*       1989 Long Term Performance Incentive Plan of NL Industries,  Inc.
               -  incorporated  by  reference  to Exhibit B to the  Registrant's
               Proxy  Statement  on  Schedule  14A for  the  annual  meeting  of
               shareholders held on May 8, 1996.

 10.18*        NL Industries,  Inc. Variable Compensation Plan - incorporated by
               reference  to Exhibit A to the  Registrant's  Proxy  Statement on
               Schedule 14A for the annual meeting of  shareholders  held on May
               8, 1996.

 10.19*        NL  Industries,  Inc.  Retirement  Savings  Plan,  as amended and
               restated  effective  April 1, 1996 - incorporated by reference to
               Exhibit 10.38 to the Registrant's  Annual Report on Form 10-K for
               the year ended December 31, 1996.

 10.20*        Amendment  to  NL  Industries,   Inc.   Retirement  Savings  Plan
               effective  as of January 1, 2000 -  incorporated  by reference to
               Exhibit 10.1 to the  Registrant's  Quarterly  Report on Form 10-Q
               for the quarter ended June 30, 2000

 10.21*        NL Industries, Inc. 1992 Non-Employee Director Stock Option Plan,
               as adopted  by the Board of  Directors  on  February  13,  1992 -
               incorporated by reference to Appendix A to the Registrant's Proxy
               Statement on Schedule 14A for the annual meeting of  shareholders
               held April 30, 1992.

 10.22*        NL Industries,  Inc. 1998 Long-Term Incentive Plan - incorporated
               by reference to Appendix A to the Registrant's Proxy Statement on
               Schedule 14A for the annual meeting of  shareholders  held on May
               6, 1998.

  10.23        Intercorporate  Services Agreement by and between Valhi, Inc. and
               the Registrant  effective as of January 1, 2000 - incorporated by
               reference to Exhibit 10.2 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended June 30, 2000.

 10.24         Intercorporate   Services   Agreement  by  and  between   Contran
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.3 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.

 10.25         Intercorporate  Service  Agreement by and between Titanium Metals
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.4 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.


                                            -38-

<PAGE>



10.26          Intercorporate   Services   Agreement  by  and  between   Tremont
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.5 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.

 10.27         Intercorporate   Services   Agreement   by  and   between   CompX
               International, Inc. and the Registrant effective as of January 1,
               2000  -  incorporated   by  reference  to  Exhibit  10.6  to  the
               Registrant's  Quarterly Report of Form 10-Q for the quarter ended
               June 30, 2000.

  10.28        Insurance  Sharing  Agreement,  effective January 1, 1990, by and
               between  the   Registrant,   NL  Insurance,   Ltd.  (an  indirect
               subsidiary  of  Tremont  Corporation)  and Baroid  Corporation  -
               incorporated  by reference to Exhibit  10.20 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1991.

 10.29*        Executive  severance  agreement  effective as of March 9, 1995 by
               and between the  Registrant and Lawrence A. Wigdor - incorporated
               by reference to Exhibit 10.3 to the Registrant's Quarterly Report
               on Form 10-Q for the quarter ended September 30, 1996.

 10.30*        Executive  severance  agreement  effective as of July 24, 1996 by
               and between the Registrant and J. Landis Martin - incorporated by
               reference to Exhibit 10.1 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1997.

 10.31*        Supplemental   Executive   Retirement  Plan  for  Executives  and
               Officers of NL Industries, Inc. effective as of January 1, 1991 -
               incorporated  by reference to Exhibit  10.26 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1992.

 10.32*        Agreement to Defer Bonus Payment dated  February 20, 1998 between
               the Registrant and Lawrence A. Wigdor and related trust agreement
               - incorporated by reference to Exhibit 10.48 to the  Registrant's
               Annual Report of Form 10-K for the year ended December 31, 1997.

 10.33*        Agreement to Defer Bonus Payment dated  February 20, 1998 between
               the Registrant and J. Landis Martin and related trust agreement -
               incorporated  by reference to Exhibit  10.49 to the  Registrant's
               Annual Report of Form 10-K for the year ended December 31, 1997.

  10.34        Revolving   Loan  Note  dated   February  9,  2001  with  Tremont
               Corporation as Maker and NL  Environmental  Management  Services,
               Inc. as Payee.

 10.35         Security  Agreement dated February 9, 2001 by and between Tremont
               Corporation and NL Environmental Management Services, Inc.

  10.36        Tax  Agreement  between  Valhi,  Inc.  and  NL  Industries,  Inc.
               effective as of January 1, 2001.

  10.37        Subscription   Agreement  by  and  among  Valhi,   Inc.,  Tremont
               Holdings,  LLC and Tremont Group,  Inc.  effective as of December
               31, 2000.

 21.1          Subsidiaries of the Registrant.

 23.1          Consent of Independent Accountants.

                                            -39-

<PAGE>



  99.1         Annual  Report of NL  Industries,  Inc.  Retirement  Savings Plan
               (Form  11-K) to be filed  under Form  10-K/A to the  Registrant's
               Annual  Report on Form 10-K  within 180 days after  December  31,
               2000.

All  documents  in the  Exhibit  Index  above  that  have been  incorporated  by
reference were previously filed by the Registrant under SEC File Number 1-640.

*       Management contract, compensatory plan or arrangement.

**      Portions  of  the  exhibit  have  been  omitted  pursuant  to a  request
        for confidential treatment.

                                            -40-

<PAGE>



                                          SIGNATURES


        Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                                       NL Industries, Inc.
                                                       (Registrant)


                                       By /s/ J. Landis Martin
                                          -------------------------------------
                                          J. Landis Martin, March 9, 2001
                                          President and Chief Executive Officer

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the date indicated:


/s/ J. Landis Martin                       /s/ Harold C. Simmons
-------------------------------            ---------------------------------
J. Landis Martin, March 9, 2001            Harold C. Simmons, March 9, 2001
Director, President and                    Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)

/s/ Glenn R. Simmons                       /s/ Steven L. Watson
-------------------------------            ---------------------------------
Glenn R. Simmons, March 9, 2001            Steven L. Watson, March 9, 2001
Director                                   Director


/s/ Kenneth R. Peak                        /s/ Dr. Lawrence A. Wigdor
------------------------------             ---------------------------------
Kenneth R. Peak, March 9, 2001             Dr. Lawrence A. Wigdor, March 9, 2001
Director                                   Director, President and Chief
                                           Executive Officer of Kronos


/s/ General Thomas P. Stafford             /s/ Susan E. Alderton
-----------------------------------------  ---------------------------------
General Thomas P. Stafford, March 9, 2001  Susan E. Alderton, March 9, 2001
Director                                   Vice President and Chief Financial
                                            Officer
                                           (Principal Financial Officer)

                                           /s/ Robert D. Hardy
                                           ---------------------------------
                                           Robert D. Hardy, March 9, 2001
                                           Vice President and Controller
                                           (Principal Accounting Officer)


                                            -41-

<PAGE>



                               NL INDUSTRIES, INC.

                           ANNUAL REPORT ON FORM 10-K

                            Items 8, 14(a) and 14(d)

                   Index of Financial Statements and Schedules
                   -------------------------------------------


Financial Statements                                                Pages
--------------------                                                -----

  Report of Independent Accountants                                 F-2

  Consolidated Balance Sheets - December 31, 2000 and 1999          F-3 / F-4

  Consolidated Statements of Income - Years ended
   December 31, 2000, 1999 and 1998                                 F-5 / F-6

  Consolidated Statements of Comprehensive Income - Years
   ended December 31, 2000, 1999 and 1998                           F-7

  Consolidated Statements of Shareholders' Equity - Years
   ended December 31, 2000, 1999 and 1998                           F-8

  Consolidated Statements of Cash Flows - Years ended
   December 31, 2000, 1999 and 1998                                 F-9 / F-11

  Notes to Consolidated Financial Statements                        F-12 / F-53


Financial Statement Schedules

  Report of Independent Accountants                                 S-1

  Schedule I - Condensed Financial Information of Registrant        S-2 / S-7

  Schedule II - Valuation and qualifying accounts                   S-8





                                            F-1

<PAGE>







                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Shareholders and Board of Directors of NL Industries, Inc.:

        In our opinion,  the  accompanying  consolidated  balance sheets and the
related consolidated statements of income,  comprehensive income,  shareholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial position of NL Industries, Inc. at December 31, 2000 and 1999, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.





                                            PricewaterhouseCoopers LLP

Houston, Texas
February 28, 2001






                                            F-2

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

                      (In thousands, except per share data)

<TABLE>
<CAPTION>


                          ASSETS                            2000         1999
                                                         ----------   ----------

<S>                                                      <C>          <C>
Current assets:
    Cash and cash equivalents ........................   $  120,378   $  134,224
    Restricted cash equivalents ......................       69,242       17,565
    Accounts and notes receivable,
      less allowance of $2,222 and $2,075 ............      131,540      143,768
    Receivable from affiliates .......................          214          747
    Refundable income taxes ..........................       12,302        4,473
    Inventories ......................................      205,973      191,184
    Prepaid expenses .................................        2,458        2,492
    Deferred income taxes ............................       11,673       11,974
                                                         ----------   ----------

        Total current assets .........................      553,780      506,427
                                                         ----------   ----------



Other assets:
    Marketable securities ............................       47,186       15,055
    Investment in TiO2 manufacturing joint venture ...      150,002      157,552
    Prepaid pension cost .............................       22,789       23,271
    Restricted cash equivalents ......................       17,942         --
    Other ............................................        4,707        5,410
                                                         ----------   ----------

        Total other assets ...........................      242,626      201,288
                                                         ----------   ----------




Property and equipment:
    Land .............................................       24,978       23,678
    Buildings ........................................      129,019      133,682
    Machinery and equipment ..........................      530,920      550,842
    Mining properties ................................       67,134       71,952
    Construction in progress .........................        4,586        6,805
                                                         ----------   ----------
                                                            756,637      786,959
    Less accumulated depreciation and depletion ......      432,255      438,501
                                                         ----------   ----------

        Net property and equipment ...................      324,382      348,458
                                                         ----------   ----------

                                                         $1,120,788   $1,056,173
                                                         ==========   ==========
</TABLE>




                                            F-3

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                            CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                  December 31, 2000 and 1999

                             (In thousands, except per share data)

<TABLE>
<CAPTION>


     LIABILITIES AND SHAREHOLDERS' EQUITY                    2000           1999
                                                         -----------    -----------
<S>                                                      <C>            <C>
Current liabilities:
    Notes payable ....................................   $    69,970    $    57,076
    Current maturities of long-term debt .............           730            212
    Accounts payable and accrued liabilities .........       147,877        143,132
    Payable to affiliates ............................        10,634         11,240
    Accrued environmental costs ......................        53,307         47,228
    Income taxes .....................................        13,616          5,605
    Deferred income taxes ............................         1,822            326
                                                         -----------    -----------

        Total current liabilities ....................       297,956        264,819
                                                         -----------    -----------

Noncurrent liabilities:
    Long-term debt ...................................       195,363        244,266
    Deferred income taxes ............................       145,673        108,226
    Accrued environmental costs ......................        57,133         64,491
    Accrued pension cost .............................        21,220         32,946
    Accrued postretirement benefits cost .............        29,404         37,105
    Other ............................................        23,272         29,330
                                                         -----------    -----------

        Total noncurrent liabilities .................       472,065        516,364
                                                         -----------    -----------

Minority interest ....................................         6,279          3,903
                                                         -----------    -----------

Shareholders' equity:
    Preferred stock - 5,000 shares authorized,
      no shares issued or outstanding ................          --             --
    Common stock - $.125 par value; 150,000
      shares authorized; 66,839 shares issued ........         8,355          8,355
    Additional paid-in capital .......................       777,528        774,304
    Retained earnings ................................       141,073         19,150
    Accumulated other comprehensive income (loss):
      Currency translation ...........................      (190,757)      (160,022)
      Marketable securities ..........................         8,885          2,857
      Pension liabilities ............................          --           (1,756)
    Treasury stock, at cost (16,787 and 15,555 shares)      (400,596)      (371,801)
                                                         -----------    -----------

        Total shareholders' equity ...................       344,488        271,087
                                                         -----------    -----------

                                                         $ 1,120,788    $ 1,056,173
                                                         ===========    ===========

</TABLE>

Commitments and contingencies (Notes 12 and 17)

                 See accompanying notes to consolidated financial statements.
                                            F-4

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2000, 1999 and 1998

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                     2000           1999           1998
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Revenues and other income:
    Net sales ................................   $   922,319    $   908,387    $   894,724
    Litigation settlement gains, net .........        69,465           --             --
    Other, net ...............................        23,283         23,646         25,453
                                                 -----------    -----------    -----------

                                                   1,015,067        932,033        920,177
                                                 -----------    -----------    -----------

Costs and expenses:
    Cost of sales ............................       610,449        662,315        618,447
    Selling, general and administrative ......       137,178        134,342        133,970
    Interest .................................        31,243         36,884         58,070
                                                 -----------    -----------    -----------

                                                     778,870        833,541        810,487
                                                 -----------    -----------    -----------

      Income from continuing operations before
        income taxes and minority interest ...       236,197         98,492        109,690

Income tax expense (benefit) .................        78,420        (64,601)        19,788
                                                 -----------    -----------    -----------

      Income from continuing operations before
        minority interest ....................       157,777        163,093         89,902

Minority interest ............................         2,436          3,322             40
                                                 -----------    -----------    -----------

      Income from continuing operations ......       155,341        159,771         89,862

Discontinued operations ......................          --             --          287,396

Extraordinary items - early extinguishment of
  debt, net of tax benefit of $394 and $5,698           (732)          --          (10,580)
                                                 -----------    -----------    -----------

      Net income .............................   $   154,609    $   159,771    $   366,678
                                                 ===========    ===========    ===========

</TABLE>


                                            F-5

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                              2000         1999          1998
                                          ----------    ----------   ----------
<S>                                       <C>           <C>          <C>
Basic earnings per share:
    Continuing operations .............   $     3.08    $     3.09   $     1.75
    Discontinued operations ...........         --            --           5.59
    Extraordinary items ...............         (.01)         --           (.21)
                                          ----------    ----------   ----------

      Net income ......................   $     3.07    $     3.09   $     7.13
                                          ==========    ==========   ==========


Diluted earnings per share:
    Continuing operations .............   $     3.06    $     3.08   $     1.73
    Discontinued operations ...........         --            --           5.52
    Extraordinary items ...............         (.01)         --           (.20)
                                          ----------    ----------   ----------

      Net income ......................   $     3.05    $     3.08   $     7.05
                                          ==========    ==========   ==========

Weighted average shares used in the
  calculation of earnings per share:
    Basic .............................       50,415        51,774       51,460
    Dilutive impact of stock options ..          334            93          540
                                          ----------    ----------   ----------

    Diluted ...........................       50,749        51,867       52,000
                                          ==========    ==========   ==========

</TABLE>



                 See accompanying notes to consolidated financial statements.

                                            F-6

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)

<TABLE>
<CAPTION>


                                                    2000         1999         1998
                                                 ---------    ---------    ---------

<S>                                              <C>          <C>          <C>
Net income ...................................   $ 154,609    $ 159,771    $ 366,678
                                                 ---------    ---------    ---------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment:
    Unrealized holding gains (losses) arising
     during the period .......................       4,064       (1,641)         201
       Add:  reclassification adjustment for
        loss included in net income .........        1,964         --           --
                                                 ---------    ---------    ---------

                                                     6,028       (1,641)         201

    Minimum pension liabilities adjustment ...       1,756        1,431       (3,187)

    Currency translation adjustment ..........     (30,735)     (26,582)         370
                                                 ---------    ---------    ---------

      Total other comprehensive loss .........     (22,951)     (26,792)      (2,616)
                                                 ---------    ---------    ---------

    Comprehensive income .....................   $ 131,658    $ 132,979    $ 364,062
                                                 =========    =========    =========
</TABLE>




                 See accompanying notes to consolidated financial statements.

                                            F-7

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)
<TABLE>
<CAPTION>
                                                                                                         Accumulated other
                                                                                                     comprehensive income (loss)
                                                                      Additional   Retained    -------------------------------------
                                                            Common      paid-in    earnings    Currency       Pension     Marketable
                                                            Stock       capital    (deficit)   translation   liabilities  securities
                                                          ---------   ----------  ----------   -----------  ------------ -----------

<S>                                                       <C>         <C>         <C>          <C>          <C>          <C>
Balance at December 31, 1997 ..........................   $   8,355   $ 759,281   $(495,421)   $(133,810)   $    --      $   4,297

Net income ............................................        --          --       366,678         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --            370       (3,187)         201
Common dividends declared -  $.09 per share ...........        --          --        (4,636)        --           --           --
Cash received upon settlement of shareholder derivative        --        11,211        --           --           --           --
  lawsuit,  net of $3,198 in legal fees and  expenses
Tax benefit of stock options exercised ................        --         3,796        --           --           --           --
Treasury stock reissued (544 shares) ..................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------

Balance at December 31, 1998 ..........................       8,355     774,288    (133,379)    (133,440)      (3,187)       4,498

Net income ............................................        --          --       159,771         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --        (26,582)       1,431       (1,641)
Common dividends declared -  $.14 per share ...........        --          --        (7,242)        --           --           --
Tax benefit of stock options exercised ................        --            16        --           --           --           --
Treasury stock:
    Acquired (552 shares) .............................        --          --          --           --           --           --
    Reissued (25 shares) ..............................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------


Balance at December 31, 1999 ..........................       8,355     774,304      19,150     (160,022)      (1,756)       2,857

Net income ............................................        --          --       154,609         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --        (30,735)       1,756        6,028
Common dividends declared - $.65 per share ............        --          --       (32,686)        --           --           --
Tax benefit of stock options exercised ................        --         3,224        --           --           --           --
Treasury stock:
    Acquired (1,682 shares) ...........................        --          --          --           --           --           --
    Reissued (450 shares) .............................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------

Balance at December 31, 2000 ..........................   $   8,355   $ 777,528   $ 141,073    $(190,757)   $    --      $   8,885

<CAPTION>
                                                           Treasury
                                                            stock        Total
                                                          ----------   ---------

<S>                                                       <C>          <C>
Balance at December 31, 1997 ..........................   $(364,971)   $(222,269)

Net income ............................................        --        366,678
Other comprehensive income (loss), net of tax .........        --         (2,616)
Common dividends declared -  $.09 per share ...........        --         (4,636)
Cash received upon settlement of shareholder derivative        --         11,211
  lawsuit,  net of $3,198 in legal fees and  expenses
Tax benefit of stock options exercised ................        --          3,796
Treasury stock reissued (544 shares) ..................         170          170
                                                          ---------    ---------

Balance at December 31, 1998 ..........................    (364,801)     152,334

Net income ............................................        --        159,771
Other comprehensive income (loss), net of tax .........        --        (26,792)
Common dividends declared -  $.14 per share ...........        --         (7,242)
Tax benefit of stock options exercised ................        --             16
Treasury stock:
    Acquired (552 shares) .............................      (7,210)      (7,210)
    Reissued (25 shares) ..............................         210          210
                                                          ---------    ---------

Balance at December 31, 1999 ..........................    (371,801)     271,087

Net income ............................................        --        154,609
Other comprehensive income (loss), net of tax .........        --        (22,951)
Common dividends declared - $.65 per share ............        --        (32,686)
Tax benefit of stock options exercised ................        --          3,224
Treasury stock:
    Acquired (1,682 shares) ...........................     (30,886)     (30,886)
    Reissued (450 shares) .............................       2,091        2,091
                                                          ---------    ---------

Balance at December 31, 2000 ..........................   $(400,596)   $ 344,488

</TABLE>
                 See accompanying notes to consolidated financial statements.

                                            F-8

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)
<TABLE>
<CAPTION>



                                                            2000          1999         1998
                                                          ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>
Cash flows from operating activities:
    Net income ........................................   $ 154,609    $ 159,771    $ 366,678
    Depreciation, depletion and amortization ..........      29,733       33,730       34,545
    Noncash interest income on restricted cash ........      (1,531)        --           --
    Noncash interest expense ..........................         599        1,682       18,393
    Deferred income taxes .............................      40,186      (86,772)       4,988
    Minority interest .................................       2,436        3,322           40
    Net (gains) losses from:
      Securities transactions .........................      (2,531)        --           --
      Disposition of property and equipment ...........       1,562          429          768
    Pension cost, net .................................     (11,816)      (4,702)      (5,566)
    Other postretirement benefits, net ................       1,062       (5,459)      (6,299)
    Distributions from TiO2 manufacturing joint venture       7,550       13,650         --
    Litigation settlement gains, net ..................     (69,465)        --           --
    Discontinued operations, net ......................        --           --       (287,396)
    Extraordinary items ...............................         732         --         10,580
    Other, net ........................................        --           --            317
                                                          ---------    ---------    ---------

                                                            153,126      115,651      137,048

    Discontinued operations, net ......................        --           --        (30,587)
    Change in assets and liabilities:
      Accounts and notes receivable ...................       1,417      (22,289)      (2,012)
      Inventories .....................................     (23,395)      20,663      (49,839)
      Prepaid expenses ................................        (244)        (463)         436
      Accounts payable and accrued liabilities ........       9,301        7,315       (2,741)
      Income taxes ....................................       4,843        6,729      (12,976)
      Accounts with affiliates ........................        (123)      (3,572)       2,286
      Other noncurrent assets .........................        (168)       1,090         (178)
      Other noncurrent liabilities ....................      (5,002)     (16,816)       3,650
                                                          ---------    ---------    ---------

          Net cash provided by operating activities ...     139,755      108,308       45,087
                                                          ---------    ---------    ---------
</TABLE>





                                            F-9

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)


<TABLE>
<CAPTION>

                                                              2000         1999         1998
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Cash flows from investing activities:
    Capital expenditures ...............................   $ (31,089)   $ (35,559)   $ (22,392)
    Purchase of Tremont Corporation common stock .......     (26,040)        --           --
    Change in restricted cash equivalents, net .........         630       (5,176)      (2,638)
    Proceeds from disposition of property and equipment.         139        2,344          769
    Proceeds from disposition of marketable securities .         158         --          6,875
    Other, net .........................................         (33)        --           (372)
    Proceeds from sale of specialty chemicals business .        --           --        435,080
    Discontinued operations, net .......................        --           --            (26)
                                                           ---------    ---------    ---------

        Net cash provided (used) by investing activities     (56,235)     (38,391)     417,296
                                                           ---------    ---------    ---------

Cash flows from financing activities:
    Indebtedness:
      Borrowings .......................................      44,923       82,038       30,491
      Principal payments ...............................     (79,162)    (155,787)    (315,892)
    Dividends paid .....................................     (32,686)      (7,242)      (4,636)
    Treasury stock:
      Purchased ........................................     (30,886)      (7,210)        --
      Reissued .........................................       2,091          210          170
    Settlement of shareholder derivative lawsuit, net ..        --           --         11,211
    Distributions to minority interests ................          (6)          (6)          (2)
    Discontinued operations, net .......................        --           --       (117,500)
                                                           ---------    ---------    ---------

        Net cash used by financing activities ..........     (95,726)     (87,997)    (396,158)
                                                           ---------    ---------    ---------

        Net change during the year from operating
          investing and financing activities ...........   $ (12,206)   $ (18,080)   $  66,225
                                                           =========    =========    =========

</TABLE>



                                            F-10

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)

<TABLE>
<CAPTION>


                                               2000         1999        1998
                                            ---------    ---------    ---------

<S>                                          <C>         <C>          <C>
Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing
      activities ........................    $(12,206)   $ (18,080)   $   66,225
    Currency translation ................      (1,640)      (2,649)         (36)
    Sale of discontinued operation ......        --           --         (7,630)
                                            ---------    ---------    ---------

                                              (13,846)     (20,729)      58,559
        Balance at beginning of year ....     134,224      154,953       96,394
                                            ---------    ---------    ---------

        Balance at end of year ..........   $ 120,378    $ 134,224    $ 154,953
                                            =========    =========    =========

Supplemental disclosures - cash paid for:
  Interest, net of amounts capitalized ..   $  32,354    $  35,540    $  37,965
  Income taxes ..........................      33,398       14,963       54,230

</TABLE>


                 See accompanying notes to consolidated financial statements.
                                            F-11

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

        NL Industries,  Inc.  conducts its titanium  dioxide  pigments  ("TiO2")
operations  through its wholly owned  subsidiary,  Kronos,  Inc. At December 31,
2000,  Valhi,  Inc.  and  Tremont   Corporation,   each  affiliates  of  Contran
Corporation,  held approximately 60% and 20%, respectively,  of NL's outstanding
common  stock.  At  December  31,  2000,   Contran  and  its  subsidiaries  held
approximately 93% of Valhi's outstanding common stock, and a subsidiary of Valhi
and  NL  held   approximately  80%  of  Tremont's   outstanding   common  stock.
Substantially  all of  Contran's  outstanding  voting  stock  is held by  trusts
established for the benefit of certain  children and  grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee.  Mr. Simmons, the Chairman of the
Board of NL and the Chairman of the Board and Chief Executive Officer of Contran
and Valhi and a  director  of  Tremont,  may be deemed to  control  each of such
companies.

Note 2 - Summary of significant accounting policies:

Principles of consolidation and management's estimates

        The accompanying  consolidated financial statements include the accounts
of NL and its majority-owned  subsidiaries  (collectively,  the "Company").  All
material  intercompany  accounts  and  balances  have been  eliminated.  Certain
prior-year  amounts  have been  reclassified  to  conform  to the  current  year
presentation.  The  preparation  of  financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amount  of  revenues  and  expenses  during  the
reporting  period.  Ultimate  actual results may in some  instances  differ from
previously estimated amounts.

Translation of foreign currencies

        Assets and  liabilities of  subsidiaries  whose  functional  currency is
other than the U.S.  dollar are  translated  at year-end  rates of exchange  and
revenues  and  expenses  are  translated  at  weighted  average  exchange  rates
prevailing during the year.  Resulting  translation  adjustments are included in
other  comprehensive  income  (loss),  net of  related  income  taxes.  Currency
transaction gains and losses are recognized in income currently.

Cash equivalents

        Cash  equivalents  include  U.S.  Treasury  securities  purchased  under
short-term  agreements to resell and bank  deposits with original  maturities of
three months or less.



                                            F-12

<PAGE>



Restricted cash equivalents

        At December 31, 2000,  restricted cash equivalents of approximately  $17
million   collateralized   undrawn  letters  of  credit,   and  restricted  cash
equivalents  of  approximately  $70 million was held by special  purpose  trusts
established  to pay  future  environmental  remediation  obligations  and  other
environmental  expenditures  of the Company.  Restricted  cash  equivalents  are
primarily  invested in U.S.  government  securities  and money market funds that
invest primarily in U.S. government securities. At December 31, 1999, restricted
cash equivalents of approximately $18 million  collateralized undrawn letters of
credit.  Restricted  cash is classified as either a current or noncurrent  asset
depending upon the  classification of the liability to which the restricted cash
relates.

Marketable securities and securities transactions

        Marketable  securities  are  carried  at market  based on quoted  market
prices.  Unrealized  gains  and  losses  on  available-for-sale  securities  are
included in other  comprehensive  income (loss),  net of related deferred income
taxes.  See Note 4.  Gains  and  losses  on  available-for-sale  securities  are
recognized  in  income  upon  realization  and are  computed  based on  specific
identification of the securities sold.

Inventories

        Inventories are stated at the lower of cost  (principally  average cost)
or market. Amounts are removed from inventories at average cost.

Investment in TiO2 manufacturing joint venture

        Investment in a 50%-owned  manufacturing  joint venture is accounted for
by the equity method.

Intangible assets

        Intangible assets, included in other noncurrent assets, are amortized by
the  straight-line  method  over the  periods  expected  to be  benefitted,  not
exceeding ten years. At December 31, 2000 and 1999, accumulated  amortization of
intangible assets was $20.4 million and $22.1 million, respectively.

Property, equipment, depreciation and depletion

        Property and  equipment  are stated at cost.  Interest  costs related to
major, long-term capital projects are capitalized as a component of construction
costs.  Expenditures for  maintenance,  repairs and minor renewals are expensed;
expenditures for major improvements are capitalized.

        Depreciation is computed  principally by the  straight-line  method over
the  estimated  useful  lives of ten to forty years for  buildings  and three to
twenty years for  machinery  and  equipment.  Depletion of mining  properties is
computed by the unit-of-production and straight-line methods.


                                            F-13

<PAGE>



Long-term debt

        Long-term  debt is stated net of  unamortized  original  issue  discount
("OID").  OID is amortized  over the period during which cash interest  payments
are not required and deferred financing costs are amortized over the term of the
applicable issue, both by the interest method.

Employee benefit plans

        Accounting and funding policies for retirement plans and  postretirement
benefits other than pensions ("OPEB") are described in Note 10.

        The Company accounts for stock-based employee compensation in accordance
with Accounting  Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to  Employees,"  and its various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Compensation
cost  recognized by the Company in accordance  with APBO No. 25 was $1.7 million
in 2000 and nil in each of 1999 and 1998.

Environmental remediation costs

        Environmental  remediation  costs  are  accrued  when  estimated  future
expenditures  are  probable  and  reasonably  estimable.  The  estimated  future
expenditures  generally  are not  discounted  to present  value.  Recoveries  of
remediation  costs from other parties,  if any, are reported as receivables when
their receipt is deemed probable.  At December 31, 2000 and 1999, no receivables
for recoveries have been recognized.

Net sales

        The Company  adopted the  Securities and Exchange  Commission's  ("SEC")
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," as amended, in
2000.  Revenue  generally is realized or  realizable  and earned when all of the
requirements of SAB 101 are met,  including when title and the risks and rewards
of  ownership  passes to the  customer.  The impact of adopting  SAB 101 was not
material. Amounts charged to customers for shipping and handling are included in
net sales.

Repair and maintenance costs

        The Company performs  planned major  maintenance  activities  during the
year.  Repair and maintenance  costs estimated to be incurred in connection with
planned major maintenance  activities are accrued in advance and are included in
cost of goods sold.

Shipping and handling costs

        Shipping  and  handling  costs are  included  in  selling,  general  and
administrative  expense  and were $50 million in 2000 and $54 million in each of
1999 and 1998.


                                            F-14

<PAGE>



Income taxes

        Deferred  income tax  assets  and  liabilities  are  recognized  for the
expected future tax consequences of temporary differences between the income tax
and financial  reporting  carrying amounts of assets and liabilities,  including
investments in subsidiaries  and  unconsolidated  affiliates not included in the
Company's  U.S.  tax  group  (the  "NL Tax  Group").  The  Company  periodically
evaluates its deferred tax assets and adjusts any related  valuation  allowance.
The Company's  valuation allowance is equal to the amount of deferred tax assets
which the Company  believes do not meet the  "more-likely-than-not"  recognition
criteria.

        Effective  January 1, 2001, the Company and its qualifying  subsidiaries
will be included in the consolidated United States federal tax return of Contran
(the "Contran Tax Group").  As a member of the Contran Tax Group, the Company is
a party to a tax sharing  agreement (the "Contran Tax  Agreement").  The Contran
Tax Agreement  provides that the Company  compute its provision for U.S.  income
taxes on a  separate-company  basis  using the tax  elections  made by  Contran.
Pursuant  to the  Contran  Tax  Agreement  and using the tax  elections  made by
Contran,  the Company will make  payments to or receive  payments  from Valhi in
amounts it would have paid to or received from the Internal  Revenue Service had
it not been a member of the  Contran  Tax Group.  Refunds are limited to amounts
previously paid under the Contran Tax Agreement.

Interest rate swaps and contracts

        The Company periodically uses interest rate swaps and contracts (such as
caps and floors) to manage  interest rate risk with respect to financial  assets
or liabilities. The Company has not entered into these contracts for speculative
purposes in the past, nor does it currently  anticipate  doing so in the future.
Any cost associated with the swap or contract designated as a hedge of assets or
liabilities  is deferred  and  amortized  over the life of the  agreement  as an
adjustment to interest income or expense. If the swap or contract is terminated,
the resulting  gain or loss is deferred and amortized over the remaining life of
the underlying asset or liability.  If the hedged instrument is disposed of, the
swap or contract  agreement is marked to market with any resulting  gain or loss
included with the gain or loss from the disposition. The Company was not a party
to any such contracts at December 31, 2000 or 1999.

Earnings per share

        Basic  earnings  per share is based on the  weighted  average  number of
common  shares  outstanding  during each period.  Diluted  earnings per share is
based on the  weighted  average  number of  common  shares  outstanding  and the
dilutive  impact of outstanding  stock options.  The weighted  average number of
outstanding  stock options which were excluded from the  calculation  of diluted
earnings per share because their impact would have been antidilutive  aggregated
222,000, 1,511,000 and 483,000 in 2000, 1999 and 1998, respectively.  There were
no  adjustments  to  income  from  continuing  operations  or net  income in the
computation of the diluted earnings per share amounts.

New accounting principles not yet adopted

        The Company  will adopt  Statement  of  Financial  Accounting  Standards
("SFAS") No. 133, Accounting for Derivative  Instruments and Hedging Activities,
as  amended,  effective  January 1, 2001.  SFAS No. 133  establishes  accounting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives will be

                                            F-15

<PAGE>



recognized  as either  assets or  liabilities  and  measured at fair value.  The
accounting  for  changes  in fair  value of  derivatives  will  depend  upon the
intended use of the  derivative,  and such charges will be recognized  either in
net  income  or other  comprehensive  income.  As  permitted  by the  transition
requirements of SFAS No. 133, as amended, the Company will exempt from the scope
of SFAS No. 133 all host contracts  containing  embedded  derivatives which were
issued,  acquired or not  substantially  modified  prior to January 1, 1999. The
Company  is not a party to any  significant  derivative  or  hedging  instrument
covered by SFAS No. 133 at December 31, 2000.  The adoption of SFAS No. 133 will
not have a material  effect on the Company's  consolidated  financial  position,
liquidity or results of operations.

Note 3 - Business and geographic segments:

        The  Company's  operations  are  conducted  by Kronos  in one  operating
business  segment - the production and sale of TiO2.  Titanium  dioxide pigments
are used to impart  whiteness,  brightness  and  opacity  to a wide  variety  of
products,  including paints, plastics, paper, fibers and ceramics.  Discontinued
operations  consists of the Company's former specialty  chemicals business which
was sold in January  1998.  See Note 20. At December 31, 2000 and 1999,  the net
assets of non-U.S. subsidiaries included in consolidated net assets approximated
$352 million and $375 million, respectively.

        The Company  evaluates its TiO2 segment  performance  based on operating
income.  Operating income is defined as income from continuing operations before
minority interest,  income taxes,  interest expense,  certain nonrecurring items
and certain  general  corporate  items.  Corporate items excluded from operating
income include interest and dividend income not attributable to TiO2 operations,
litigation  settlement gains and securities  transaction  gains and losses.  The
accounting  policies of the TiO2 segment are the same as those described in Note
2. Interest  income  included in the  calculation  of TiO2  operating  income is
disclosed in Note 13 as "Trade interest income."

        Segment  assets  are  comprised  of  all  assets   attributable  to  the
reportable operating segment. The Company's investment in the TiO2 manufacturing
joint  venture  (see  Note 6) is  included  in  TiO2  business  segment  assets.
Corporate assets are not attributable to the TiO2 operating  segment and consist
principally  of  cash,  cash   equivalents,   restricted  cash  equivalents  and
marketable securities.  For geographic information,  net sales are attributed to
the place of  manufacture  (point of origin) and the  location  of the  customer
(point of destination);  property and equipment are attributed to their physical
location.


                                            F-16

<PAGE>


<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                               2000        1999         1998
                                            ---------    ---------    ---------
                                                      (In thousands)
Business segment - TiO2
<S>                                         <C>          <C>          <C>
Net sales ...............................   $ 922,319    $ 908,387    $ 894,724
Other income, excluding corporate .......       8,167       12,484        6,110
                                            ---------    ---------    ---------
                                              930,486      920,871      900,834

Cost of sales ...........................     610,449      662,315      618,447
Selling, general and administrative,
 excluding corporate ....................     107,554      112,888      111,206
                                            ---------    ---------    ---------

    Operating income ....................     212,483      145,668      171,181

General corporate income (expense):
    Securities earnings:
        Interest and dividends ..........       8,346        6,597       14,921
        Securities gains, net ...........       2,531         --           --
    Litigation settlement gains,
     net and other income ...............      73,704        4,565        4,421
    Corporate expense ...................     (29,624)     (21,454)     (22,763)
    Interest expense ....................     (31,243)     (36,884)     (58,070)
                                            ---------    ---------    ---------

                                            $ 236,197    $  98,492    $ 109,690
                                            =========    =========    =========

Capital expenditures:
    Kronos ..............................   $  31,066    $  32,703    $  22,310
    General corporate ...................          23        2,856           82
                                            ---------    ---------    ---------

                                            $  31,089    $  35,559    $  22,392
                                            =========    =========    =========

Depreciation, depletion and amortization:
    Kronos ..............................   $  28,989    $  33,047    $  34,341
    General corporate ...................         744          683          204
                                            ---------    ---------    ---------

                                            $  29,733    $  33,730    $  34,545
                                            =========    =========    =========
</TABLE>


                                            F-17

<PAGE>

<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                            -----------------------------------
                                              2000          1999         1998
                                            ---------    ---------    ---------
                                                       (In thousands)

<S>                                         <C>          <C>          <C>
Geographic areas
    Net sales - point of origin:

        Germany .........................   $ 444,050    $ 459,467    $ 451,061
        United States ...................     313,426      299,520      289,701
        Canada ..........................     154,579      162,746      158,967
        Belgium .........................     137,829      138,671      159,558
        Norway ..........................      98,300       88,277       91,112
        Other ...........................      92,691       90,442       96,912
        Eliminations ....................    (318,556)    (330,736)    (352,587)
                                            ---------    ---------    ---------

                                            $ 922,319    $ 908,387    $ 894,724
                                            =========    =========    =========

    Net sales - point of destination:
        Europe ..........................   $ 480,388    $ 478,652    $ 493,942
        United States ...................     283,327      268,037      246,209
        Canada ..........................      53,060       60,834       66,843
        Latin America ...................      27,104       35,308       35,281
        Asia ............................      45,922       41,612       21,042
        Other ...........................      32,518       23,944       31,407
                                            ---------    ---------    ---------

                                            $ 922,319    $ 908,387    $ 894,724
                                            =========    =========    =========
</TABLE>

<TABLE>
<CAPTION>

                                                      December 31,
                                        ----------------------------------------
                                           2000           1999           1998
                                        ----------     ----------     ----------
                                                    (In thousands)
<S>                                     <C>            <C>            <C>
Identifiable assets

Net property and equipment:
    Germany .......................     $  173,385     $  190,292     $  223,605
    Canada ........................         57,929         62,334         60,574
    Belgium .......................         46,778         49,146         51,683
    Norway ........................         38,361         39,845         42,336
    Other .........................          7,929          6,841          3,961
                                        ----------     ----------     ----------

                                        $  324,382     $  348,458     $  382,159
                                        ==========     ==========     ==========

Total assets:
    Kronos ........................     $  893,340     $  972,549     $  997,893
    General corporate .............        227,448         83,624        157,752
                                        ----------     ----------     ----------

                                        $1,120,788     $1,056,173     $1,155,645
                                        ==========     ==========     ==========
</TABLE>


                                            F-18

<PAGE>



Note 4 - Marketable securities and securities transactions:
<TABLE>
<CAPTION>

                                                                December 31,
                                                          ---------------------
                                                             2000       1999
                                                          --------     --------
                                                              (In thousands)
<S>                                                       <C>          <C>
Available-for-sale marketable equity securities:
    Unrealized gains .................................    $ 14,912     $  6,700
    Unrealized losses ................................      (1,244)      (2,304)
    Cost .............................................      33,518       10,659
                                                          --------     --------

        Aggregate fair value .........................    $ 47,186     $ 15,055
                                                          ========     ========
</TABLE>

        During 2000 the Company  purchased  1,000,000 shares of Tremont's common
stock in market  transactions for an aggregate of $26 million.  Before the close
of business on December 31, 2000, the Company held 16% of Tremont's  outstanding
common  stock,  including  approximately  36,000 shares  previously  held by the
Company, and Valhi held an additional 64% of Tremont's outstanding common stock.
Effective  with the  close  of  business  on  December  31,  2000,  the  Company
contributed  substantially all of its Tremont shares,  and Valhi contributed all
of its Tremont shares, to a newly formed company, Tremont Group, Inc., in return
for a 20% and 80%  respective  ownership  interest in Tremont  Group.  After the
contributions,  Tremont  Group held the 80% of Tremont  previously  owned by the
Company and Valhi.

        The Company's  stock of Tremont Group is redeemable at the option of the
Company for fair value based upon the value of the  underlying  Tremont  shares,
and  the  Company   accounts  for  its   investment   in  Tremont  Group  as  an
available-for-sale  marketable security.  The Company also held approximately 1%
of Valhi's  outstanding  common stock at December 31, 2000 and 1999. The Company
accounts  for  investments  in  its  parent  companies  as  "available-for-sale"
marketable securities carried at fair value. See Note 1.

        In 2000 the  Company  received  approximately  390,000  shares of common
stock  pursuant to the  demutualization  of an insurance  company from which the
Company had purchased certain insurance policies.  The Company recognized a $5.6
million securities gain based on the insurance company's initial public offering
price of $14-1/4 per share.  The shares  were  placed in a Voluntary  Employees'
Beneficiary  Association ("VEBA") trust, the assets of which may only be used to
pay for certain  retiree  benefits.  The Company  accounted for the $5.6 million
contribution of the insurance company's common stock to the trust as a reduction
of its accrued postretirement  benefits cost liability.  The shares were sold by
the trust in 2000 for $7.8 million or $20 per share. See Notes 10 and 13.

        In 2000 the Company  recognized a $3.1 million  noncash  securities loss
related   to   an    other-than-temporary    decline   in   value   of   certain
available-for-sale securities held by the Company. See Note 13.


                                            F-19

<PAGE>



Note 5 - Inventories:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                             -------------------
                                                               2000       1999
                                                             --------   --------
                                                               (In thousands)

<S>                                                          <C>        <C>
Raw materials ............................................   $ 66,061   $ 54,861
Work in process ..........................................      7,117      8,065
Finished products ........................................    107,120    100,824
Supplies .................................................     25,675     27,434
                                                             --------   --------

                                                             $205,973   $191,184
                                                             ========   ========

</TABLE>

Note 6 - Investment in TiO2 manufacturing joint venture:

        Kronos  Louisiana,  Inc.  ("KLA"),  a wholly owned subsidiary of Kronos,
owns a 50%  interest  in  Louisiana  Pigment  Company,  L.P.  ("LPC").  LPC is a
manufacturing  joint  venture that is also  50%-owned by Tioxide  Americas  Inc.
("Tioxide"),  a subsidiary of Huntsman ICI Holdings,  a 70%-owned  subsidiary of
Huntsman  Corporation.  LPC owns and operates a  chloride-process  TiO2 plant in
Lake Charles, Louisiana.

        KLA is required to purchase  one-half of the TiO2  produced by LPC.  LPC
operates on a break-even basis and,  accordingly,  the Company reports no equity
in earnings of LPC.  Kronos' cost for its share of the TiO2 produced is equal to
its share of LPC's costs.  Kronos' share of LPC's  interest  expense in 1998 was
reported as a  component  of interest  expense.  Kronos'  share of all other net
costs is  reported  as cost of sales as the related  TiO2  acquired  from LPC is
sold.

        LPC made cash  distributions  of $15.1 million in 2000 and $27.3 million
in 1999, equally split between the partners.

        Summary balance sheets of LPC are shown below.

<TABLE>
<CAPTION>

                                                              December 31,
                                                         -----------------------
                                                           2000        1999
                                                         --------       --------

                                                             (In thousands)
           ASSETS

<S>                                                      <C>            <C>
Current assets ...................................       $ 56,063       $ 55,999
Property and equipment, net ......................        264,918        279,567
                                                         --------       --------

                                                         $320,981       $335,566
                                                         ========       ========

   LIABILITIES AND PARTNERS' EQUITY

Other liabilities, primarily current .............       $ 18,749       $ 18,234
Partners' equity .................................        302,232        317,332
                                                         --------       --------

                                                         $320,981       $335,566
                                                         ========       ========

</TABLE>


                                            F-20

<PAGE>



        Summary income statements of LPC are shown below.

<TABLE>
<CAPTION>
                                                  Years ended December 31,
                                            ------------------------------------
                                              2000          1999          1998
                                            --------      --------      --------

                                                      (In thousands)

<S>                                         <C>           <C>           <C>
Revenues and other income:
    Kronos ...........................      $ 92,530      $ 85,304      $ 90,392
    Tioxide ..........................        93,366        86,309        89,879
    Interest .........................           578           569           753
                                            --------      --------      --------

                                             186,474       172,182       181,024
                                            --------      --------      --------

Cost and expenses:
    Cost of sales ....................       186,045       171,829       178,803
    General and administrative .......           429           353           348
    Interest .........................          --            --           1,873
                                            --------      --------      --------

                                             186,474       172,182       181,024
                                            --------      --------      --------

        Net income ...................      $   --        $   --        $   --
                                            ========      ========      ========
</TABLE>


Note 7 - Accounts payable and accrued liabilities:

<TABLE>
<CAPTION>


                                                             December 31,
                                                     ---------------------------
                                                       2000               1999
                                                     --------           --------
                                                             (In thousands)

<S>                                                  <C>                <C>
Accounts payable .........................           $ 64,553           $ 56,597
                                                     --------           --------
Accrued liabilities:
    Employee benefits ....................             34,160             35,243
    Interest .............................              5,019              6,761
    Deferred income ......................              4,000              4,000
    Other ................................             40,145             40,531
                                                     --------           --------

                                                       83,324             86,535
                                                     --------           --------

                                                     $147,877           $143,132
                                                     ========           ========

</TABLE>

                                            F-21

<PAGE>



Note 8 - Other noncurrent liabilities:

<TABLE>
<CAPTION>
                                                              December 31,
                                                       -------------------------
                                                        2000              1999
                                                       -------           -------
                                                             (In thousands)

<S>                                                    <C>               <C>
Insurance claims expense ...................           $10,314           $11,688
Employee benefits ..........................             7,721             7,816
Deferred income ............................             4,333             8,333
Other ......................................               904             1,493
                                                       -------           -------

                                                       $23,272           $29,330
                                                       =======           =======
</TABLE>

Note 9 - Notes payable and long-term debt:

<TABLE>
<CAPTION>

                                                                December 31,
                                                           ---------------------
                                                             2000        1999
                                                           --------     --------
                                                               (In thousands)

<S>                                                        <C>          <C>
Notes payable ........................................     $ 69,970     $ 57,076
                                                           ========     ========

Long-term debt:
    NL Industries - 11.75% Senior Secured Notes ......     $194,000     $244,000
    Kronos ...........................................        2,093          478
                                                           --------     --------

                                                            196,093      244,478
    Less current maturities ..........................          730          212
                                                           --------     --------

                                                           $195,363     $244,266
                                                           ========     ========
</TABLE>


        The Company's  $194 million of 11.75% Senior Secured Notes due 2003 (the
"Notes")  are  collateralized  by a series of  intercompany  notes  from  Kronos
International,  Inc.  ("KII"),  a wholly owned subsidiary of Kronos,  to NL, the
interest  rate and payment terms of which mirror those of the  respective  Notes
(the "Mirror Notes"). The Notes are also collateralized by a first priority lien
on the stock of Kronos.

        In the event of foreclosure,  the holders of the Notes would have access
to the  consolidated  assets,  earnings and equity of the  Company.  The Company
believes  the  collateralization  of  the  Notes,  as  described  above,  is the
functional  economic  equivalent  of a full and  unconditional  guarantee of the
Notes by Kronos. In lieu of providing  separate audited financial  statements of
Kronos, the Company has included condensed  consolidating  financial information
in accordance with Rule 3-10 (e) of the SEC's Regulation S-X. See Note 21.

        The Company  redeemed  $50 million  (par value) of the Notes on December
29, 2000 at 101.5%. The remaining Notes are redeemable, at the Company's option,
at a redemption  price of 101.5% of the principal  amount,  declining to 100% in
October 2001. In the event of a Change of Control,  as defined in the indenture,
the Company  would be required to make an offer to purchase the Notes at 101% of
the principal amount of the Notes. The Notes are issued pursuant to an indenture
which  contains a number of covenants  and  restrictions  which,  among  others,
restrict the ability of the Company and its  subsidiaries  to incur debt,  incur
liens,  pay  dividends,  merge or  consolidate  with, or sell or transfer all or
substantially  all of their assets to another entity.  At December 31, 2000, $20
million was available for payment of dividends pursuant to

                                            F-22

<PAGE>



the  terms of the  indenture.  The  quoted  market  price of the  Notes per $100
principal   amount  was  $101  and  $103.75  at  December  31,  2000  and  1999,
respectively.

        Notes payable consist of short-term  borrowings  denominated in non-U.S.
currencies due within one year from non-U.S. banks. Borrowings total $70 million
(euro 51 million and NOK 200 million) at December 31, 2000 and $57million  (euro
57 million) at December 31, 1999.  Interest  rates on notes payable  ranged from
5.33% to 7.92% at  December  31,  2000 and from 3.03% to 4.30% at  December  31,
1999.

        Unused  lines of credit  available  for  borrowing  under the  Company's
non-U.S. credit facilities approximated $16 million at December 31, 2000.

        During 1998 the Company redeemed (i) $6 million  principal amount of its
Senior  Secured  Notes at par value  pursuant  to a tender  offer;  and (ii) the
entire issue of its 13% Senior Secured Discount Notes ($187.5 million  principal
amount  at  maturity)  with  premiums  ranging  between  1.25%  and 6% in market
transactions or pursuant to a tender offer.

        The  aggregate  maturities  of  long-term  debt at December 31, 2000 are
shown in the table below.

<TABLE>
<CAPTION>

Years ending December 31,                                           Amount
                                                               --------------
                                                               (In thousands)

        <S>                                                      <C>
        2001                                                     $    730
        2002                                                          627
        2003                                                      194,549
        2004                                                           61
        2005                                                           66
        2006                                                           60
                                                                 --------

                                                                 $196,093
                                                                 ========
</TABLE>

Note 10 - Employee benefit plans:

Company-sponsored pension plans

        The Company maintains  various defined benefit and defined  contribution
pension plans  covering  substantially  all  employees.  Non-U.S.  employees are
covered by plans in their respective  countries and a majority of U.S. employees
are eligible to participate in a contributory savings plan.

        The Company  contributes to eligible U.S.  employees' accounts an amount
equal  to  approximately  4% (3% in 1999  and  1998)  of the  employee's  annual
eligible  earnings and  partially  matches  employee  contributions  to the U.S.
contributory  savings  plan.  The  Company  also has an  unfunded,  nonqualified
defined contribution plan covering certain executives, and participants' account
balances  are  credited  based on a formula  involving  eligible  earnings.  The
Company's  expense related to these plans included in continuing  operations was
$1.6 million in 2000,  $1.1  million in 1999 and $1.3  million in 1998.  Expense
related to these plans included in discontinued operations was nil in 1998.


                                            F-23

<PAGE>



        Certain  actuarial  assumptions  used in measuring  the defined  benefit
pension assets, liabilities and expenses are presented below.

<TABLE>
<CAPTION>

                                                               December 31,
                                                  -----------------------------------
                                                    2000          1999         1998
                                                    ----          ----         ----
                                                               (Percentages)

<S>                                               <C>          <C>          <C>
Discount rate .................................   6.0 to 7.8   5.8 to 7.5   5.5 to 8.5
Rate of increase in future compensation levels.   3.0 to 4.5   2.5 to 4.5   2.5 to 6.0
Long-term rate of return on plan assets .......   7.0 to 9.0   6.0 to 9.0   6.0 to 9.0

</TABLE>

        During 1998 the Company curtailed certain U.S. employee pension benefits
and  recognized  a gain of $1.5  million,  which  is  included  in  discontinued
operations.  Plan assets are  comprised  primarily  of  investments  in U.S. and
non-U.S.  corporate equity and debt securities,  short-term investments,  mutual
funds and group annuity contracts.

        SFAS No. 87, "Employers'  Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation  exceeds the unfunded accrued pension  liability.  Variances
from  actuarially  assumed rates will change the actuarial  valuation of accrued
pension liabilities, pension expense and funding requirements in future periods.

        The  components  of the  net  periodic  defined  benefit  pension  cost,
excluding  curtailment  (gain) loss and discontinued  operations,  are set forth
below.
<TABLE>
<CAPTION>

                                                                 Years ended December 31,
                                                            --------------------------------
                                                              2000        1999       1998
                                                            --------    --------    --------
                                                                    (In thousands)

<S>                                                         <C>         <C>         <C>
Net periodic pension cost:
    Service cost benefits ...............................   $  4,063    $  3,942    $  3,835
    Interest cost on projected benefit obligation ("PBO")     15,088      16,170      15,669
    Expected return on plan assets ......................    (15,403)    (15,567)    (15,172)
    Amortization of prior service cost ..................        238         267         332
    Amortization of net transition obligation ...........        530         578         173
    Recognized actuarial losses .........................        226       1,144         385
                                                            --------    --------    --------

                                                            $  4,742    $  6,534    $  5,222
                                                            ========    ========    ========
</TABLE>


                                            F-24

<PAGE>



        The funded status of the Company's  defined benefit pension plans is set
forth below.

<TABLE>
<CAPTION>

                                                               December 31,
                                                         ----------------------
                                                            2000         1999
                                                         ---------    ---------
                                                              (In thousands)
<S>                                                      <C>          <C>
Change in PBO:
    Beginning of year ................................   $ 260,186    $ 296,013
    Service cost .....................................       4,063        3,942
    Interest .........................................      15,088       16,170
    Participant contributions ........................       1,027          939
    Actuarial (gain) loss ............................       1,022      (14,303)
    Benefits paid ....................................     (16,993)     (16,345)
    Change in currency exchange rates ................     (16,038)     (26,230)
                                                         ---------    ---------

        End of year ..................................     248,355      260,186
                                                         ---------    ---------

Change in fair value of plan assets:
    Beginning of year ................................     218,942      221,035
    Actual return on plan assets .....................      11,762       21,444
    Employer contributions ...........................      16,558       11,236
    Participant contributions ........................       1,027          939
    Benefits paid ....................................     (16,993)     (16,345)
    Change in currency exchange rates ................     (14,312)     (19,367)
                                                         ---------    ---------

        End of year ..................................     216,984      218,942
                                                         ---------    ---------

Funded status at year end:
    Plan assets less than PBO ........................     (31,371)     (41,244)
    Unrecognized actuarial loss ......................      24,191       21,603
    Unrecognized prior service cost ..................       1,693        2,137
    Unrecognized net transition obligation ...........         786          514
                                                         ---------    ---------

                                                         $  (4,701)   $ (16,990)
                                                         =========    =========

Amounts recognized in the balance sheet:
    Prepaid pension cost .............................   $  22,789    $  23,271
    Accrued pension cost:
        Current ......................................      (6,270)      (9,071)
        Noncurrent ...................................     (21,220)     (32,946)
    Accumulated other comprehensive income (loss) ....        --          1,756
                                                         ---------    ---------

                                                         $  (4,701)   $ (16,990)
                                                         =========    =========
</TABLE>

        Selected  information  related to the Company's  defined benefit pension
plans that have accumulated  benefit obligations in excess of fair value of plan
assets is presented  below.  At December 31, 2000, 76% of the projected  benefit
obligations of such plans relate to non-U.S. plans (1999 - 75%).


                                            F-25

<PAGE>



<TABLE>
<CAPTION>

                                                             December 31,
                                                       -------------------------
                                                        2000              1999
                                                       --------         --------
                                                            (In thousands)

<S>                                                    <C>              <C>
Projected benefit obligation .................         $190,141         $194,204
Accumulated benefit obligation ...............          169,077          164,262
Fair value of plan assets ....................          149,767          146,435

</TABLE>

Incentive bonus programs

        Certain  employees are eligible to participate in the Company's  various
incentive bonus programs. The programs provide for annual payments, which may be
in the form of cash or NL common stock. The amount of the annual payment paid to
an employee,  if any, is based on formulas involving the profitability of Kronos
in  relation  to the annual  operating  plan and,  for most of these  employees,
individual performance.

Postretirement benefits other than pensions

        In  addition  to  providing  pension  benefits,  the  Company  currently
provides  certain health care and life insurance  benefits for eligible  retired
employees.  Certain of the Company's  Canadian employees may become eligible for
such  postretirement  health  care and life  insurance  benefits  if they  reach
retirement age while working for the Company.  In 1989 the Company began phasing
out such benefits for currently active U.S. employees over a ten-year period and
U.S.  employees  retiring after 1998 are not entitled to any such benefits.  The
majority of all  retirees  are  required to  contribute a portion of the cost of
their benefits and certain  current and future retirees are eligible for reduced
health  care  benefits  at age  65.  With  the  exception  of the  $5.6  million
contributed  to the VEBA trust  discussed in Note 4, the Company's  policy is to
fund  medical  claims  as they are  incurred,  net of any  contributions  by the
retirees.

        For measuring the OPEB liability at December 31, 2000, the expected rate
of  increase in health  care costs is 8.5% in 2001  decreasing  to 5.5% in 2007.
Other weighted-average assumptions used to measure the liability and expense are
presented below.

<TABLE>
<CAPTION>
                                                                 December 31,
                                                            -----------------------
                                                            2000     1999      1998
                                                            ----     ----      ----
                                                                 (Percentages)

<S>                                                          <C>      <C>      <C>
Discount rate .......................................        7.3      7.5      6.5
Long-term rate for compensation increases ...........        6.0      6.0      6.0
Long-term rate of return on plan assets .............        7.7      9.0      9.0

</TABLE>

        Variances  from  actuarially  assumed  rates will  change  accrued  OPEB
liabilities,  net  periodic  OPEB  expense  and funding  requirements  in future
periods.  If the health care cost trend rate was  increased  (decreased)  by one
percentage  point for each  year,  postretirement  benefit  expense  would  have
increased  approximately $.1 million (decreased by $.1 million) in 2000, and the
projected  benefit  obligation  at  December  31, 2000 would have  increased  by
approximately $1.7 million (decreased by $1.5 million). During 1998, as a result
of the sale of Rheox,  the Company settled  certain U.S.  employee OPEB benefits
and  recognized a $3.2 million  gain,  all of which is included in  discontinued
operations.


                                            F-26

<PAGE>



        The  components  of the Company's  net periodic  postretirement  benefit
cost,  excluding  curtailment and settlement gains and discontinued  operations,
are set forth below. The net periodic  postretirement  benefit costs included in
discontinued operations excluding the settlement gain was nil in 1998.

<TABLE>
<CAPTION>

                                                    Years ended December 31,
                                                -------------------------------
                                                  2000         1999       1998
                                                -------     -------     -------
                                                        (In thousands)

<S>                                             <C>         <C>         <C>
Net periodic OPEB cost (benefit):
    Service cost benefits ..................    $    84     $    40     $    43
    Interest cost on PBO ...................      2,646       2,069       2,393
    Expected return on plan assets .........       (521)       (526)       (583)
    Amortization of prior service cost .....     (2,075)     (2,075)     (2,075)
    Recognized actuarial losses (gains) ....         24        (573)       (811)
                                                -------     -------     -------

                                                $   158     $(1,065)    $(1,033)
                                                =======     =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           2000           1999
                                                        --------       --------

                                                             (In thousands)
<S>                                                     <C>            <C>
Change in PBO:
    Beginning of year ............................      $ 37,354       $ 33,812
    Service cost .................................            84             40
    Interest cost ................................         2,646          2,069
    Actuarial losses .............................         1,672          5,714
    Benefits paid from:
        Company funds ............................        (1,790)        (3,316)
        Plan assets ..............................        (2,859)        (1,078)
    Change in currency exchange rates ............           (67)           113
                                                        --------       --------

        End of year ..............................        37,040         37,354
                                                        --------       --------

Change in fair value of plan assets:
    Beginning of year ............................         5,968          6,365
    Actual return on plan assets .................         2,705            206
    Employer contributions .......................         6,028            475
    Benefits paid ................................        (2,859)        (1,078)
                                                        --------       --------

        End of year ..............................        11,842          5,968
                                                        --------       --------

Funded status at year end:
    Plan assets less than PBO ....................       (25,198)       (31,386)
    Unrecognized actuarial gain ..................        (1,135)          (575)
    Unrecognized prior service cost ..............        (7,858)        (9,933)
                                                        --------       --------

                                                        $(34,191)      $(41,894)
                                                        ========       ========

Amounts recognized in the balance sheet:
    Current ......................................      $ (4,787)      $ (4,789)
    Noncurrent ...................................       (29,404)       (37,105)
                                                        --------       --------

                                                        $(34,191)      $(41,894)
                                                        ========       ========
</TABLE>
                                            F-27


<PAGE>


Note 11 - Shareholders' equity:

Common stock
<TABLE>
<CAPTION>

                                                    Shares of common stock
                                              ----------------------------------
                                                         Treasury
                                              Issued      stock     Outstanding
                                              ------     --------   -----------
                                                       (In thousands)

<S>                                           <C>          <C>           <C>
Balance at December 31, 1997 ..........       66,839       15,572        51,267
    Treasury shares reissued ..........         --           (544)          544
                                              ------       ------        ------

Balance at December 31, 1998 ..........       66,839       15,028        51,811
    Treasury shares acquired ..........         --            552          (552)
    Treasury shares reissued ..........         --            (25)           25
                                              ------       ------        ------

Balance at December 31, 1999 ..........       66,839       15,555        51,284
    Treasury shares acquired ..........         --          1,682        (1,682)
    Treasury shares reissued ..........         --           (450)          450
                                              ------       ------        ------

Balance at December 31, 2000 ..........       66,839       16,787        50,052
                                              ======       ======        ======
</TABLE>


        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.

        The Company  reinstated  a regular  quarterly  dividend in June 1998 and
subsequently  paid three  quarterly  $.03 per share cash  dividends in 1998.  In
February 1999 the Company increased the regular quarterly  dividend to $.035 per
share and  subsequently  paid four  quarterly  $.035 per share cash dividends in
1999. In February 2000 the Company increased the regular  quarterly  dividend to
$.15 per  share and  subsequently  paid  three  quarterly  $.15 per  share  cash
dividends  in the  first  nine  months  of 2000.  In  October  2000 the  Company
increased the regular quarterly dividend to $.20 per share and subsequently paid
a  quarterly  $.20 per share cash  dividend  in the fourth  quarter of 2000.  On
February 7, 2001, the Company's Board of Directors  declared a regular quarterly
dividend of $.20 per share to  shareholders of record as of March 14, 2001 to be
paid on March 28, 2001.

Common stock options

        The NL Industries,  Inc. 1998  Long-Term  Incentive Plan (the "NL Option
Plan") provides for the discretionary  grant of restricted  common stock,  stock
options,  stock appreciation rights ("SARs") and other incentive compensation to
officers and other key employees of the Company.  Although certain stock options
granted  pursuant  to a similar  plan which  preceded  the NL Option  Plan ("the
Predecessor Option Plan") remain outstanding at December 31, 2000, no additional
options may be granted under the Predecessor Option Plan.

        Up to five million  shares of NL common stock may be issued  pursuant to
the NL Option Plan and, at December 31, 2000,  4,147,000  shares were  available
for future  grants.  The NL Option Plan  provides  for the grant of options that
qualify  as  incentive  options  and for  options  which  are not so  qualified.
Generally,  stock options and SARs  (collectively,  "options")  are granted at a
price equal to or greater than 100% of the

                                            F-28

<PAGE>



market  price at the date of grant,  vest over a five year period and expire ten
years  from the date of grant.  Restricted  stock,  forfeitable  unless  certain
periods  of  employment  are  completed,  is held in  escrow  in the name of the
grantee until the restriction  period  expires.  No SARs have been granted under
the NL Option Plan.

        In addition to the NL Option  Plan,  the Company had a stock option plan
for its nonemployee  directors that expired in 1998. At December 31, 2000, there
were  options to acquire  2,000 shares of common  stock  outstanding  under this
plan, all of which were fully vested. Future grants to directors are expected to
be granted from the NL Option Plan.

        Changes in outstanding  options granted  pursuant to the NL Option Plan,
the Predecessor Option Plan and the nonemployee  director plan are summarized in
the table below.
<TABLE>
<CAPTION>

                                                       Exercise price    Amount
                                                         per share       payable
                                                   --------------------    upon
                                        Shares        Low       High     exercise
                                        ------     ---------  ---------  --------
                                        (In thousands, except per share amounts)

<S>                                     <C>        <C>        <C>        <C>
Outstanding at December 31, 1997        2,845      $    4.81  $   24.19  $ 34,761


    Granted ....................          474          17.97      21.97     9,334
    Exercised ..................         (960)          4.81      17.25    (8,740)
    Forfeited ..................         (240)          5.00      19.97    (4,336)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 1998        2,119           5.00      24.19    31,019

    Granted ....................          410          11.28      15.19     5,377
    Exercised ..................          (25)          5.00      11.81      (209)
    Forfeited ..................          (67)          8.69      22.63    (1,244)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 1999        2,437           5.00      24.19    34,943

    Granted ....................          432          14.25      14.44     6,165
    Exercised ..................         (918)          5.00      17.97    (9,508)
    Forfeited ..................         (349)          8.69      24.19    (7,237)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 2000        1,602      $    5.00  $   21.97  $ 24,363
                                        =====      =========  =========  ========

</TABLE>

        At  December  31,  2000,  1999 and 1998  options  to  purchase  363,480,
1,255,901 and 957,861  shares,  respectively,  were  exercisable  and options to
purchase  340,800  shares become  exercisable  in 2001.  All of the  exercisable
options  at  December  31,  2000 had  exercise  prices  less than the  Company's
December 31, 2000 quoted market price of $24.25 per share.  Outstanding  options
at  December  31,  2000  expire  at  various   dates   through   2010,   with  a
weighted-average remaining life of eight years.

        The pro forma  information  required  by SFAS No. 123,  "Accounting  for
Stock-Based  Compensation,"  is based  on an  estimation  of the  fair  value of
options issued subsequent to January 1, 1995. The  weighted-average  fair values
of options  granted during 2000,  1999 and 1998 were $4.83,  $6.94 and $9.78 per
share,  respectively.  The fair values of employee stock options were calculated
using the Black-Scholes stock option valuation model with the following weighted
average assumptions for grants in 2000, 1999 and 1998: stock price volatility of
48%, 50% and 51% in 2000, 1999 and 1998, respectively;  risk-free rate of return
of

                                            F-29

<PAGE>



5% in 2000, 6% in 1999 and 4% in 1998;  dividend yield of 4.9% in 2000,  1.2% in
1999 and .9% in  1998;  and an  expected  term of 9 years in 2000 and 1999 and 8
years in 1998. For purposes of pro forma  disclosures,  the estimated fair value
of the options is amortized to expense over the options' vesting period.

        The Company's pro forma net income and basic net income per common share
were as follows.  The pro forma  impact on earnings  per common  share for 2000,
1999 and 1998 is not  necessarily  indicative of future  effects on earnings per
share.

<TABLE>
<CAPTION>

                                                               Years ended December 31,
                                                    -------------------------------------------
                                                        2000            1999            1998
                                                    -----------     -----------     -----------
                                                      (In thousands except per share amounts)

<S>                                                 <C>             <C>             <C>
Net income - as reported ......................     $   154,609     $   159,771     $   366,678
Net income - pro forma ........................     $   152,201     $   156,868     $   363,843
Net income per basic common share - as reported     $      3.07     $      3.09     $      7.13
Net income per basic common share - pro forma .     $      3.02     $      3.03     $      7.07

</TABLE>

Preferred stock

        The Company is  authorized  to issue a total of five  million  shares of
preferred  stock.  The rights of preferred  stock as to  dividends,  redemption,
liquidation and conversion are determined upon issuance.

Note 12 - Income taxes:

        The components of (i) income from  continuing  operations  before income
taxes and minority interest ("pretax  income"),  (ii) the difference between the
provision  for income taxes  attributable  to pretax income and the amounts that
would be expected using the U.S. federal statutory income tax rate of 35%, (iii)
the  provision  for income taxes and (iv) the  comprehensive  tax  provision are
presented below.

<TABLE>
<CAPTION>
                                                Years ended December 31,
                                      ------------------------------------------
                                        2000             1999             1998
                                      --------         --------         --------
                                                    (In thousands)
<S>                                   <C>              <C>              <C>
Pretax income:
    U.S .....................         $ 73,646         $ 23,642         $ 57,638
    Non-U.S .................          162,551           74,850           52,052
                                      --------         --------         --------

                                      $236,197         $ 98,492         $109,690
                                      ========         ========         ========
</TABLE>


                                            F-30

<PAGE>

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                               ------------------------------------
                                                                 2000          1999         1998
                                                               --------      --------      --------

                                                                           (In thousands)


<S>                                                            <C>           <C>           <C>
Expected tax expense .....................................     $ 82,669      $ 34,472      $ 38,391
Non-U.S. tax rates .......................................       (6,445)        6,119         2,507
Resolution of German income tax audits ...................       (5,500)      (36,490)         --
Change in valuation allowance:
    Corporate restructuring in Germany and other .........         --         (77,580)         --
    Change in German income tax law ......................         --          24,070          --
    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not" .       (2,600)      (15,807)      (19,143)
      recognition criteria
Incremental tax on income of companies not included in the
  NL Tax Group ...........................................        1,943         2,747         4,277
German rate change adjustment of deferred taxes ..........        5,695          --            --
Refund of prior-year German dividend withholding taxes ...         --            --          (8,219)
U.S. state income taxes ..................................        1,348          (680)          307
Other, net ...............................................        1,310        (1,452)        1,668
                                                               --------      --------      --------

    Income tax expense (benefit) .........................     $ 78,420      $(64,601)     $ 19,788
                                                               ========      ========      ========

Provision for income taxes:
    Current income tax expense (benefit):
        U.S. federal .....................................     $ (8,255)     $    193      $    850
        U.S. state .......................................          622        (2,489)          307
        Non-U.S ..........................................       45,867        24,467        13,643
                                                               --------      --------      --------

                                                                 38,234        22,171        14,800
                                                               --------      --------      --------

    Deferred income tax expense (benefit):
        U.S. federal .....................................       32,128       (47,426)        2,112
        U.S. state .......................................          726         1,809          --
        Non-U.S ..........................................        7,332       (41,155)        2,876
                                                               --------      --------      --------
                                                                 40,186       (86,772)        4,988
                                                               --------      --------      --------

                                                               $ 78,420      $(64,601)     $ 19,788
                                                               ========      ========      ========

Comprehensive provision (benefit) for
  income taxes allocable to:
      Pretax income ......................................     $ 78,420      $(64,601)     $ 19,788
      Discontinued operations ............................         --            --          87,000
      Extraordinary item .................................         (394)         --          (5,698)
      Additional paid-in capital .........................       (3,224)          (16)       (3,796)
      Other comprehensive income - marketable securities .        3,244          (883)          108
                                                               --------      --------      --------

                                                               $ 78,046      $(65,500)     $ 97,402
                                                               ========      ========      ========
</TABLE>


                                            F-31

<PAGE>



        The components of the net deferred tax liability are summarized below:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                      --------------------------------------------------------
                                                                 2000                     1999
                                                                 ----                     ----
                                                             Deferred tax                   Deferred tax
                                                      --------------------------    --------------------------
                                                       Assets        Liabilities     Assets        Liabilities
                                                      ---------      -----------    ---------      -----------
                                                                            (In thousands)

<S>                                                   <C>            <C>            <C>            <C>
Tax effect of temporary differences relating to:
    Inventories .................................     $   4,027      $  (2,966)     $   4,025      $  (2,086)
    Property and equipment ......................        61,738        (53,753)        96,548        (53,313)
    Accrued postretirement benefits cost ........        13,145           --           14,575           --
    Accrued (prepaid) pension cost ..............         4,348        (22,928)         6,288        (24,830)
    Accrued environmental costs .................        37,761           --           37,439           --
    Noncompete agreement ........................         2,917           --            4,317           --
    Other accrued liabilities and deductible
      differences ...............................        18,327           --           16,878           --
    Other taxable differences ...................          --         (122,561)          --          (87,041)
Tax on unremitted earnings of non-U.S
  subsidiaries ..................................          --           (4,396)          --          (20,727)
Tax loss and tax credit carryforwards ...........       119,064           --          144,985           --
Valuation allowance .............................      (190,312)          --         (233,595)          --
                                                      ---------      ---------      ---------      ---------

    Gross deferred tax assets (liabilities) .....        71,015       (206,604)        91,460       (187,997)

Reclassification, principally netting by
  tax jurisdiction ..............................       (59,109)       59,109         (79,445)        79,445
                                                      ---------      ---------      ---------      ---------

    Net total deferred tax assets (liabilities) .        11,906       (147,495)        12,015       (108,552)
    Net current deferred tax assets (liabilities)        11,673         (1,822)        11,974           (326)
                                                      ---------      ---------      ---------      ---------

    Net noncurrent deferred tax assets
      (liabilities)..............................     $     233      $(145,673)     $      41      $(108,226)
                                                      =========      =========      =========      =========
</TABLE>


        Changes in the Company's  deferred  income tax  valuation  allowance are
summarized  below.  The deductible  temporary  differences in 1998 include items
that have been reported as discontinued operations.

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                        ---------------------------------------
                                                                           2000           1999           1998
                                                                        ---------      ---------      ---------
                                                                                     (In thousands)


<S>                                                                     <C>            <C>            <C>
Balance at the beginning of year ..................................     $ 233,595      $ 134,477      $ 188,585

    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not"
      recognition criteria ........................................        (2,600)       (70,946)       (64,274)
    Increase in certain deductible temporary differences which
      the Company believes do not meet the "more-likely-than-
      not" recognition criteria ...................................          --            1,629          6,964
    Offset to the change in gross deferred income tax assets
      due principally to redeterminations of certain tax attributes
      and implementation of certain tax planning strategies .......       (24,955)       183,150         (3,734)
    Foreign currency translation ..................................       (15,728)       (14,715)         6,936
                                                                        ---------      ---------      ---------

Balance at the end of year ........................................     $ 190,312      $ 233,595      $ 134,477
                                                                        =========      =========      =========
</TABLE>


                                            F-32

<PAGE>



        A  reduction  in the  German  "base"  income  tax rate  from 30% to 25%,
enacted in October 2000,  became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of  additional  deferred  income
tax expense in the fourth  quarter of 2000 due to a reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.  The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.

        Certain  of the  Company's  tax  returns in various  U.S.  and  non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax deficiencies, including interest.

        The  Company  has  received  tax  assessments  from  the  Norwegian  tax
authorities   proposing  tax   deficiencies   including   related   interest  of
approximately  NOK 38 million  ($4.3  million at December 31, 2000)  relating to
1994 and 1996. The Company is currently  litigating the primary issue related to
the 1994  assessment  and in February 2001 the Norwegian  Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian  Supreme  Court  and  believes  that the  outcome  of the 1996 case is
dependent  on the eventual  outcome of the 1994 case.  The Company has granted a
lien for the 1994 and 1996 tax assessments on its Fredrikstad, Norway TiO2 plant
in favor of the Norwegian tax authorities.

        The Company has received  preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities  proposing tax deficiencies,  including
related interest,  of approximately euro 12.7 million ($11.8 million at December
31, 2000).  The Company has filed protests to the assessments for the years 1991
to 1996 and  expects to file a protest for 1997.  The Company is in  discussions
with the Belgian tax authorities and believes that a significant  portion of the
assessments are without merit.

        No  assurance  can be  given  that the  Company's  tax  matters  will be
favorably   resolved  due  to  the  inherent   uncertainties   involved  in  tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position, results of operations or liquidity.

        The Company  recognized a $90 million noncash income tax benefit in 1999
related to (i) a favorable  resolution of the Company's  previously reported tax
contingency  in Germany ($36  million) and (ii) a net reduction in the Company's
deferred  income tax  valuation  allowance  due to a change in  estimate  of the
Company's   ability  to  utilize   certain  income  tax  attributes   under  the
"more-likely-than-not" recognition criteria ($54 million).

        The $54 million  net  reduction  in the  Company's  deferred  income tax
valuation  allowance is comprised of (i) a $78 million decrease in the valuation
allowance to recognize the benefit of certain  deductible  income tax attributes
which the Company now believes  meets the  recognition  criteria as a result of,
among  other  things,   a  corporate   restructuring  of  the  Company's  German
subsidiaries offset by (ii) a $24 million increase in the valuation allowance to
reduce the previously  recognized benefit of certain other deductible income tax
attributes  which the Company now believes do not meet the recognition  criteria
due to a change in German tax law.

        At December 31,  2000,  the Company  had,  for U.S.  federal  income tax
purposes,  a net operating loss  carryforward of  approximately $3 million which
expires in 2019. The Company also has  approximately  $315 million of income tax
loss  carryforwards  in Germany  with no  expiration  date.  In 1998 the Company
utilized  $13  million of  alternative  minimum  tax credit  carryforwards  (the
benefit of which was recognized in

                                            F-33

<PAGE>



discontinued  operations) to reduce U.S. federal income tax expense.  Unutilized
foreign tax credit  carryovers of $2 million and $6 million  expired in 1999 and
1998, respectively.

Note 13 - Other income, net:

<TABLE>
<CAPTION>

                                                  Years ended December 31,
                                           ------------------------------------
                                             2000        1999        1998
                                           --------      --------      --------

                                                   (In thousands)
<S>                                        <C>           <C>           <C>
Securities earnings:
    Interest and dividends ...........     $  8,346      $  6,597      $ 14,921
    Securities gains, net ............        2,531          --            --
                                           --------      --------      --------
                                             10,877         6,597        14,921
Currency transaction gains, net ......        6,499        10,161         4,157
Noncompete agreement income ..........        4,000         4,000         3,667
Trade interest income ................        2,333         2,365         2,115
Disposition of property and equipment        (1,562)         (429)         (768)
Other, net ...........................        1,136           952         1,361
                                           --------      --------      --------

                                           $ 23,283      $ 23,646      $ 25,453
                                           ========      ========      ========
</TABLE>

        The  Company  received a $20 million fee as part of the sale of Rheox in
January 1998 in payment for entering into a five-year covenant not to compete in
the rheological  products business.  The Company is amortizing the fee to income
using the  straight-line  method over the five-year  noncompete period beginning
January 30, 1998.

Note 14 - Litigation settlement gains, net:

        In June  2000 the  Company  recognized  a $43  million  net gain  from a
settlement  with one of its two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts  established to pay future  remediation  and other  environmental
expenditures of the Company.  A settlement with remaining  members of the second
carrier group was reached in January 2001, and the Company  expects to recognize
a $10 million gain in the first quarter of 2001. The settlements  resolved court
proceedings that the Company  initiated to seek  reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.

Note 15 - Other items:

        Advertising  expense  included in  continuing  operations is expensed as
incurred and was $1 million in each of 2000, 1999 and 1998.

        Research, development and certain sales technical support costs included
in continuing  operations is expensed as incurred and approximated $6 million in
2000 and $7 million in each of 1999 and 1998.

        Interest capitalized related to continuing operations in connection with
long-term  capital  projects  was nil in each of 2000 and 1999 and $1 million in
1998.

                                            F-34

<PAGE>



Note 16 - Related party transactions:

        The  Company  may be deemed  to be  controlled  by  Harold  C.  Simmons.
Corporations  that may be  deemed to be  controlled  by or  affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management  and  expense  sharing  arrangements,  shared fee  arrangements,  tax
sharing agreements,  joint ventures,  partnerships,  loans, options, advances of
funds on open  account,  and sales,  leases and  exchanges of assets,  including
securities  issued  by  both  related  and  unrelated  parties  and  (b)  common
investment and acquisition strategies,  business combinations,  reorganizations,
recapitalizations,  securities  repurchases,  and purchases and sales (and other
acquisitions  and  dispositions)  of  subsidiaries,  divisions or other business
units,  which  transactions have involved both related and unrelated parties and
have included  transactions  which  resulted in the  acquisition  by one related
party of a publicly  held minority  equity  interest in another  related  party.
While no  transactions  of the type described above are planned or proposed with
respect to the  Company  other than as set forth in this  Annual  Report on Form
10-K,  the  Company  from time to time  considers,  reviews  and  evaluates  and
understands  that  Contran,  Valhi and  related  entities  consider,  review and
evaluate,  such  transactions.  Depending  upon  the  business,  tax  and  other
objectives  then  relevant,  and  restrictions  under the  indentures  and other
agreements, it is possible that the Company might be a party to one or more such
transactions in the future.

        It is the policy of the Company to engage in  transactions  with related
parties  on terms,  in the  opinion of the  Company,  no less  favorable  to the
Company than could be obtained from unrelated parties.

        The  Company is a party to an  intercorporate  services  agreement  with
Contran (the "Contran ISA") whereby Contran provides certain management services
to the Company on a fee basis.  Intercorporate  services fee expense  related to
the Contran ISA was and $1.0 million in each of 2000, 1999 and 1998.

        The  Company is a party to an  intercorporate  services  agreement  with
Valhi  (the  "Valhi  ISA")  whereby  Valhi  and  the  Company   provide  certain
management,  financial and administrative services to each other on a fee basis.
Net intercorporate services fee expense related to the Valhi ISA was $.2 million
in 2000, $.1 million in 1999 and nil in 1998.

        The  Company  is  party to an  intercorporate  services  agreement  with
Tremont  (the  "Tremont  ISA").  Under the terms of the  contract,  the  Company
provides  certain  management and financial  services to Tremont on a fee basis.
Intercorporate services fee income related to the Tremont ISA was $.1 million in
each of 2000, 1999 and 1998.

        The Company is party to an intercorporate services agreement (the "Timet
ISA") with  Titanium  Metals  Corporation  ("Timet"),  approximately  47% of the
outstanding  common  stock of which is  currently  held by Tremont  and  another
entity  related  to Harold C.  Simmons.  Under  the terms of the  contract,  the
Company  provides  certain  management and financial  services to Timet on a fee
basis.  Intercorporate  services  fee  income  related  to the Timet ISA was $.3
million in each of 2000, 1999 and 1998.

        The Company is party to an intercorporate services agreement (the "CompX
ISA") with CompX International, Inc. ("CompX"), a subsidiary of Valhi. Under the
terms  of  the  contract,   the  Company   provides   certain   management   and
administrative  services to CompX on a fee basis.  Intercorporate  services  fee
income  related to the CompX ISA was $.2 million in 2000 and $.1 million in each
of 1999 and 1998.

        Purchases of TiO2 from LPC were $92.5 in 2000, $85.3 million in 1999 and
$89.0 million in 1998.


                                            F-35

<PAGE>



        The Company and Tall Pines Insurance Company ("Tall Pines") (formerly NL
Insurance,  Ltd. of Vermont),  a wholly owned subsidiary of Tremont, are parties
to an Insurance  Sharing  Agreement  with  respect to certain loss  payments and
reserves  established  by Tall Pines that (i) arise out of claims  against other
entities for which the Company is contractually responsible and (ii) are subject
to payment by Tall Pines under certain reinsurance  contracts.  Also, Tall Pines
will credit the Company with respect to certain  underwriting  profits or credit
recoveries that Tall Pines receives from  independent  reinsurers that relate to
retained  liabilities.  At December  31,  2000,  the Company has $9.7 million of
restricted cash that  collateralizes  certain of Tall Pines' outstanding letters
of credit.

        Tall  Pines,  Valmont  and EWI RE,  Inc.  ("EWI")  provide for or broker
certain of the  Company's,  its joint  venture's and its  affiliates'  insurance
policies.  Valmont is a wholly owned insurance company of Valhi. Parties related
to Contran own all of the outstanding  common stock of EWI. Through December 31,
2000,  a  son-in-law  of  Harold  C.  Simmons  managed  the  operations  of EWI.
Subsequent to December 31, 2000, such son-in-law  provides  advisory services to
EWI as requested by EWI.  Consistent  with insurance  industry  practices,  Tall
Pines,  Valmont and EWI receive  commissions  from the insurance and reinsurance
underwriters  for the policies that they provide or broker.  The Company and its
joint venture paid approximately $5.7 million,  $3.7 million and $3.0 million in
2000,  1999 and 1998,  respectively,  for policies  provided or brokered by Tall
Pines,  Valmont  and  EWI.  These  amounts  principally  included  payments  for
reinsurance  and insurance  premiums paid to unrelated  third parties,  but also
included  commissions  paid to Tall Pines,  Valmont  and EWI.  In the  Company's
opinion,  the amounts that the Company paid for these insurance policies and the
allocation among the Company and its affiliates of relative  insurance  premiums
are reasonable and similar to those they could have obtained  through  unrelated
insurance companies and/or brokers. The Company expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2001.

        In  February  2001  NL  Environmental   Management  Services,   Inc.,  a
majority-owned  subsidiary of the Company,  loaned $13.4 million to Tremont. The
loan  bears   interest  at  prime  plus  2%,  is  due  March  31,  2003  and  is
collateralized by 10.2 million shares of NL common stock owned by Tremont.

        During 2000 the Company  purchased  414,000  shares of its common  stock
from  officers and  directors  of the Company for an aggregate of $9.4  million.
Such purchases were at market prices on the respective dates of purchase.


                                            F-36

<PAGE>



        Amounts  receivable from and payable to affiliates are summarized in the
following table.

<TABLE>
<CAPTION>
                                                              December 31,
                                                        ------------------------
                                                         2000             1999
                                                        -------          -------
                                                            (In thousands)
<S>                                                     <C>              <C>
Receivable from affiliates:
    Timet ....................................          $     1          $   310
    CompX ....................................               82              176
    Other ....................................              131              261
                                                        -------          -------
                                                        $   214          $   747
                                                        =======          =======

Payable to affiliates:
    Tremont Corporation ......................          $ 1,923          $ 2,859
    LPC ......................................            8,711            8,381
                                                        -------          -------
                                                        $10,634          $11,240
                                                        =======          =======

</TABLE>

        Amounts  payable to LPC are generally for the purchase of TiO2 (see Note
6), and amounts payable to Tremont principally relate to the Company's Insurance
Sharing Agreement described above.

Note 17 - Commitments and contingencies:

Leases

        The Company leases,  pursuant to operating leases, various manufacturing
and  office  space and  transportation  equipment.  Most of the  leases  contain
purchase  and/or  various  term  renewal  options at fair market and fair rental
values,  respectively.  In most cases  management  expects  that,  in the normal
course of business, leases will be renewed or replaced by other leases.

        Kronos' principal German operating  subsidiary leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with  approximately  one-third  of Kronos'  current  TiO2
production  capacity,  is located  within the lessor's  extensive  manufacturing
complex,  and Kronos is the only unrelated  party so situated.  Under a separate
supplies and services  agreement  expiring in 2011, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the  Leverkusen  facility.  Both the lease and the supplies and services
agreements  restrict the Company's  ability to transfer  ownership or use of the
Leverkusen facility.


                                            F-36

<PAGE>



        Net rent expense included in continuing operations aggregated $9 million
in each of 2000 and 1999 and $7 million in 1998.  At December 31, 2000,  minimum
rental commitments under the terms of noncancellable operating leases, excluding
discontinued operations, were as follows:
<TABLE>
<CAPTION>


Years ending December 31,                            Real Estate        Equipment
                                                     -----------        ---------
                                                            (In thousands)

 <S>                                                   <C>               <C>
 2001                                                  $ 1,985           $ 1,496
 2002                                                    1,780               808
 2003                                                    1,630               464
 2004                                                    1,243               295
 2005                                                    1,094                77
 2006 and thereafter                                    18,886                20
                                                       -------           -------
                                                       $26,618           $ 3,160
                                                       =======           =======
</TABLE>

Capital expenditures

        At December 31, 2000, the estimated cost to complete capital projects in
process approximated $16 million,  including $4 million to complete an expansion
project increasing finishing capacity at the Company's Belgian facility.

Purchase commitments

        The  Company  has  long-term  supply  contracts  that  provide  for  the
Company's chloride feedstock  requirements  through 2003. The agreements require
the Company  purchase  certain  minimum  quantities  of  feedstock  with average
minimum annual purchase commitments aggregating approximately $155 million.

Legal proceedings

        Lead  pigment   litigation.   Since  1987  the  Company,   other  former
manufacturers  of lead pigments for use in paint and lead-based  paint,  and the
Lead  Industries  Association  have been named as  defendants  in various  legal
proceedings  seeking damages for personal  injury and property damage  allegedly
caused by the use of lead-based paints. Certain of these actions have been filed
by or on behalf of states,  large United States  cities or their public  housing
authorities and certain others have been asserted as class actions.  These legal
proceedings  seek  recovery  under a variety of  theories,  including  negligent
product  design,  failure  to  warn,  strict  liability,   breach  of  warranty,
conspiracy/concert  of action,  enterprise  liability,  market share  liability,
intentional tort, and fraud and misrepresentation.

        The  plaintiffs  in  these  actions  generally  seek  to  impose  on the
defendants  responsibility for lead paint abatement and asserted health concerns
associated  with the use of lead-based  paints,  including  damages for personal
injury,  contribution  and/or  indemnification  for  medical  expenses,  medical
monitoring  expenses  and costs for  educational  programs.  Most of these legal
proceedings are in various pre-trial stages; some are on appeal.


                                            F-38

<PAGE>



        The Company  believes that these actions are without  merit,  intends to
continue to deny all  allegations  of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending lead
pigment litigation.  Considering the Company's previous  involvement in the lead
and  lead  pigment  businesses,  there  can  be  no  assurance  that  additional
litigation similar to that currently pending will not be filed.

        Environmental matters and litigation.  Some of the Company's current and
former facilities, including several divested secondary lead smelters and former
mining  locations,   are  the  subject  of  civil   litigation,   administrative
proceedings  or  investigations  arising under  federal and state  environmental
laws. Additionally,  in connection with past disposal practices, the Company has
been named a potential  responsible  party ("PRP") pursuant to the Comprehensive
Environmental  Response,  Compensation  and  Liability  Act,  as  amended by the
Superfund  Amendments and  Reauthorization  Act ("CERCLA") in  approximately  75
governmental  and private  actions  associated  with  hazardous  waste sites and
former  mining  locations,  certain  of  which  are  on the  U.S.  Environmental
Protection  Agency's  Superfund  National  Priorities  List.  These actions seek
cleanup costs, damages for personal injury or property damage and/or damages for
injury to natural  resources.  While the Company  may be jointly  and  severally
liable for such costs,  in most cases it is only one of a number of PRPs who are
also jointly and  severally  liable.  In  addition,  the Company is a party to a
number of  lawsuits  filed in  various  jurisdictions  alleging  CERCLA or other
environmental claims.

        At December  31,  2000,  the Company had accrued  $110 million for those
environmental  matters  which are  reasonably  estimable.  It is not possible to
estimate  the range of costs for  certain  sites.  The upper end of the range of
reasonably  possible  costs to the  Company  for sites  which it is  possible to
estimate costs is approximately  $170 million.  The Company's  estimates of such
liabilities  have not been discounted to present value,  and the Company has not
recognized any potential insurance recoveries other than the settlements in 2000
discussed in Note 14.

        The  imposition  of  more  stringent  standards  or  requirements  under
environmental  laws or regulations,  new developments or changes respecting site
cleanup costs or allocation  of such costs among PRPs, or a  determination  that
the Company is potentially  responsible for the release of hazardous  substances
at other  sites  could  result in  expenditures  in excess of amounts  currently
estimated by the Company to be required for such  matters.  No assurance  can be
given that actual costs will not exceed accrued  amounts or the upper end of the
range for sites for which estimates have been made and no assurance can be given
that costs will not be  incurred  with  respect to sites as to which no estimate
presently  can be made.  Further,  there  can be no  assurance  that  additional
environmental matters will not arise in the future.

        Certain of the  Company's  businesses  are and have been  engaged in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other  companies  engaged  in  similar  businesses,  certain  past  and  current
operations and products of the Company have the potential to cause environmental
or other damage.  The Company has implemented and continues to implement various
policies  and programs in an effort to minimize  these risks.  The policy of the
Company  is to  maintain  compliance  with  applicable  environmental  laws  and
regulations at all of its facilities and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely   affect   the   Company's   production,   handling,   use,   storage,
transportation,  sale or disposal of such  substances  as well as the  Company's
consolidated financial position, results of operations or liquidity.


                                            F-39

<PAGE>



        Other  litigation.  The  Company  is  also  involved  in  various  other
environmental,  contractual,  product  liability  and other  claims and disputes
incidental to its present and former businesses.

        The  Company  currently  believes  the  disposition  of all  claims  and
disputes  individually or in the aggregate,  should not have a material  adverse
effect on the Company's consolidated financial condition,  results of operations
or liquidity.

Concentrations of credit risk

        Sales of TiO2  accounted for more than 90% of net sales from  continuing
operations  during each of the past three years. The remaining sales result from
the mining and sale of ilmenite ore (a raw material used in the sulfate  pigment
production process),  and the manufacture and sale of iron-based water treatment
chemicals (derived from co-products of the TiO2 production  processes).  TiO2 is
generally  sold to the paint,  plastics and paper  industries.  Such markets are
generally  considered   "quality-of-life"  markets  whose  demand  for  TiO2  is
influenced  by  the  relative  economic  well-being  of the  various  geographic
regions.  TiO2 is  sold to over  4,000  customers,  with  the top ten  customers
approximating  25% of net sales in each of the last three  years.  Approximately
one-half  of the  Company's  TiO2 sales by volume  were to Europe in each of the
past three years and  approximately  37% in each of 1998, 1999 and 2000 of sales
were attributable to North America.

        Consolidated cash, cash equivalents,  current and noncurrent  restricted
cash equivalents includes $159 million and $78 million invested in U.S. Treasury
securities purchased under short-term  agreements to resell at December 31, 2000
and 1999, respectively,  of which $67 million and $58 million,  respectively, of
such securities are held in trust for the Company by a single U.S. bank.

Note 18 - Financial instruments:

        Summarized  below is the  estimated  fair value and related net carrying
value of the Company's financial instruments.

<TABLE>
<CAPTION>

                                                                  December 31,           December 31,
                                                                      2000                   1999
                                                              --------------------   -------------------
                                                              Carrying      Fair     Carrying      Fair
                                                               Amount      Value      Amount      Value
                                                              --------     -----     --------     -----
                                                                           (In millions)

<S>                                                          <C>        <C>          <C>        <C>
Cash, cash equivalents, current and noncurrent
  restricted cash equivalents ..........................     $  207.6   $    207.6   $  151.8   $  151.8
Marketable securities - classified as available-for-sale         47.2         47.2       15.1       15.1

Notes payable and long-term debt:
    Fixed rate with market quotes - Senior Secured Notes     $  194.0   $    195.9   $  244.0   $  253.2
    Variable rate debt .................................         72.1         72.1       57.6       57.6

Common shareholders' equity ............................     $  344.5   $  1,213.8   $  271.1   $  774.1

</TABLE>

        Fair value of the Company's  marketable  securities  and Notes are based
upon  quoted  market  prices  and  the  fair  value  of  the  Company's   common
shareholder's equity is based upon quoted market prices for NL's common stock at
the end of the year.  The Company held no derivative  financial  instruments  at
December 31, 2000 or 1999.

                                            F-40

<PAGE>



Note 19 - Quarterly financial data (unaudited):

<TABLE>
<CAPTION>

                                                                 Quarter ended
                                                   -----------------------------------------
                                                   March 31   June 30    Sept. 30   Dec. 31
                                                   --------   --------   --------   --------
                                                    (In thousands, except per share amounts)

<S>                                                <C>        <C>        <C>        <C>
Year ended December 31, 2000:


    Net sales ..................................   $231,009   $251,126   $242,309   $197,875
    Cost of sales ..............................    159,265    164,033    159,021    128,130
    Operating income ...........................     46,235     62,743     57,511     45,994
    Income from continuing operations ..........     23,708     63,438     30,169     38,026(a)
    Net income .................................     23,708     63,438     30,169     37,294(a)

    Earnings per share:
        Basic:
            Income from continuing operations ..   $    .47   $   1.26   $    .60   $    .76(a)
                                                   ========   ========   ========   ========
            Net income .........................   $    .47   $   1.26   $    .60   $    .75(a)
                                                   ========   ========   ========   ========
        Diluted:
            Income from continuing operations ..   $    .46   $   1.25   $    .60   $    .75(a)
                                                   ========   ========   ========   ========
            Net income .........................   $    .46   $   1.25   $    .60   $    .74(a)
                                                   ========   ========   ========   ========

    Weighted average common shares and potential
      common shares outstanding:
        Basic ..................................     50,920     50,499     50,203     50,045
        Diluted ................................     51,154     50,850     50,606     50,385

Year ended December 31, 1999:

    Net sales ..................................   $201,569   $232,568   $242,621   $231,629
    Cost of sales ..............................    147,040    167,779    181,745    165,751
    Operating income ...........................     30,961     44,136     34,759     35,812
    Net income .................................     13,940    111,823     17,146     16,862

    Earnings per share - net income:
        Basic ..................................   $    .27   $   2.16   $    .33   $    .33
                                                   ========   ========   ========   ========
        Diluted ................................   $    .27   $   2.16   $    .33   $    .33
                                                   ========   ========   ========   ========

    Weighted average common shares and potential
      common shares outstanding:
        Basic ..................................     51,819     51,826     51,835     51,614
        Diluted ................................     51,870     51,883     51,943     51,758
</TABLE>


(a)     Income from continuing operations in the fourth quarter of 2000 includes
        a $26.5 million pretax net litigation  settlement gain (see Note 14) and
        a $3.1 million  noncash  securities loss (see Note 4). Net income in the
        fourth  quarter of 2000 also includes a $.7 million  extraordinary  item
        for early extinguishment of debt, net of tax.


                                            F-41

<PAGE>



Note 20 - Discontinued operations:

        The Company sold the net assets of its Rheox specialty chemical business
to Elementis  plc for $465  million  cash (before fees and  expenses) in January
1998, including $20 million attributable to a five-year agreement by the Company
not to compete in the rheological  products business.  The Company recognized an
after-tax  gain of  approximately  $286  million  on the  sale of this  business
segment.  As a result of the sale, the Company has presented the results of this
business segment as discontinued operations.

        Condensed  income statement  related to discontinued  operations for the
month ended January 31, 1998 is as follows.  Interest expense has been allocated
to discontinued  operations based on the amount of debt specifically  attributed
to Rheox's operations.

<TABLE>
<CAPTION>

                                                                      Month ended
                                                                       January 31,
                                                                          1998
                                                                    --------------
                                                                    (In thousands)

<S>                                                                   <C>
Net sales ......................................................      $  12,630
Other expense, net .............................................            (50)
                                                                      ---------

                                                                         12,580
                                                                      ---------

Cost of sales ..................................................          6,969
Selling, general and administrative ............................          2,737
Interest expense ...............................................            771
                                                                      ---------

                                                                         10,477
                                                                      ---------

    Income before income taxes .................................          2,103

Income tax expense .............................................            778
                                                                      ---------

                                                                          1,325

Gain from sale of Rheox, net of tax expense of $86,222 .........        286,071
                                                                      ---------

                                                                      $ 287,396
                                                                      =========
</TABLE>


        Condensed  cash  flow  data  for  Rheox  (excluding  dividends  paid to,
contributions received from and intercompany loans with NL) is presented below.

<TABLE>
<CAPTION>
                                                                     Month ended
                                                                     January 31,
                                                                        1998
                                                                    --------------
                                                                    (In thousands)
<S>                                                                   <C>
Cash flows from:
    Operating activities ......................................       $ (30,587)
    Investing activities - capital expenditures ...............             (26)
    Financing activities - indebtedness, net ..................        (117,500)
                                                                      ---------

        Net change from operating, investing and
          financing activities ................................       $(148,113)
                                                                      =========
</TABLE>


                                            F-42

<PAGE>



Note 21 - Condensed consolidating financial information:

        The Company's 11.75% Senior Secured Notes are collateralized by a series
of  intercompany  notes  to  NL  (the  "Parent  Issuer").  The  Notes  are  also
collateralized  by a first  priority  lien on the  stock  of  Kronos.  A  second
priority lien on the stock of NL Capital Corporation ("NLCC") collateralized the
notes  until  February  2000,  at such time it was  merged  into KII and  became
included in the first priority lien on the stock of Kronos.

        In the event of foreclosure,  the holders of the Notes would have access
to the  consolidated  assets,  earnings and equity of the  Company.  The Company
believes  the  collateralization  of  the  Notes,  as  described  above,  is the
functional  economic  equivalent of a joint and several,  full and unconditional
guarantee of the Notes by Kronos and, prior to its merger into KII, NLCC.

        Management believes that separate audited financial statements would not
provide  additional  material  information that would be useful in assessing the
financial position of Kronos and NLCC (the "Guarantor Subsidiaries"). In lieu of
providing separate audited financial  statements of the Guarantor  Subsidiaries,
the Company has included condensed  consolidating  financial  information of the
Parent  Issuer,   Guarantor  Subsidiaries  and  non-guarantor   subsidiaries  in
accordance  with  Rule  3-10 (e) of the  SEC's  Regulation  S-X.  The  Guarantor
Subsidiaries and the non-guarantor  subsidiaries  comprise all of the direct and
indirect subsidiaries of the Parent Issuer.

        Investments  in  subsidiaries  are  accounted for by NL under the equity
method,  wherein  the parent  company's  share of  earnings  is  included in net
income.   The  elimination   entries   eliminate  the  parent's   investment  in
subsidiaries and the equity in earnings of subsidiaries,  intercompany  payables
and receivables and other transactions between subsidiaries.

                                            F-43

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                            Condensed Consolidating Balance Sheet
                                      December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>


                                                                      Combined
                                      NL Industries,                Non-guarantor
                                           Inc.       Kronos, Inc.  Subsidiaries   Eliminations    Consolidated
                                      --------------  ------------  -------------  ------------    ------------

                     ASSETS
<S>                                    <C>           <C>           <C>            <C>            <C>
Current assets:
    Cash and cash equivalents ......   $     3,632   $    52,979   $    63,767    $      --      $   120,378
    Restricted cash equivalents ....        69,242          --            --             --           69,242
    Accounts and notes receivable ..           172       131,295            73           --          131,540
    Receivable from affiliates .....         6,189          --             216         (6,191)           214
    Refundable income taxes ........        10,512         1,790          --             --           12,302
    Inventories ....................          --         205,973          --             --          205,973
    Prepaid expenses ...............           347         2,111          --             --            2,458
    Deferred income taxes ..........         6,394         5,279          --             --           11,673
                                       -----------   -----------   -----------    -----------    -----------

        Total current assets .......        96,488       399,427        64,056         (6,191)       553,780
                                       -----------   -----------   -----------    -----------    -----------

Other assets:
    Investment in subsidiaries .....       687,300          --             285       (687,585)          --
    Marketable securities ..........           452          --          46,734           --           47,186
    Notes receivable from affiliates       194,000       301,695        23,000       (518,695)          --
    Investment in joint venture ....          --         150,002          --             --          150,002
    Prepaid pension cost ...........         1,772        21,017          --             --           22,789
    Restricted cash equivalents ....        17,942          --            --             --           17,942
    Other ..........................         1,739         2,968          --             --            4,707
                                       -----------   -----------   -----------    -----------    -----------

        Total other assets .........       903,205       475,682        70,019     (1,206,280)       242,626
                                       -----------   -----------   -----------    -----------    -----------

Property and equipment, net ........         4,425       319,957          --             --          324,382
                                       -----------   -----------   -----------    -----------    -----------

                                       $ 1,004,118   $ 1,195,066   $   134,075    $(1,212,471)   $ 1,120,788
                                       ===========   ===========   ===========    ===========    ===========
</TABLE>


                                           F - 44

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet, (Continued)
                                      December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>
                                                                                Combined
                                                NL Industries,                Non-guarantor
                                                    Inc.       Kronos, Inc.   Subsidiaries    Eliminations    Consolidated
                                                -----------    -----------    -------------   ------------    ------------

      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                             <C>            <C>            <C>             <C>             <C>
Current liabilities:

    Notes payable ..........................    $      --      $    69,970    $      --       $      --       $    69,970
    Current maturities of long-term debt ...           --              730           --              --               730
    Accounts payable and accrued liabilities         29,144        123,555         48,485            --           201,184
    Payable to affiliates ..................          2,140         14,073            612          (6,191)         10,634
    Income taxes ...........................           --           13,604             12            --            13,616
    Deferred income taxes ..................           --            1,822           --              --             1,822
                                                -----------    -----------    -----------     -----------     -----------

        Total current liabilities ..........         31,284        223,754         49,109          (6,191)        297,956
                                                -----------    -----------    -----------     -----------     -----------

Noncurrent liabilities:
    Long-term debt .........................        194,000          1,363           --              --           195,363
    Notes payable to affiliate .............        324,695        194,000           --          (518,695)           --
    Deferred income taxes ..................         70,985         73,699            989            --           145,673
    Accrued pension cost ...................          1,438         19,782           --              --            21,220
    Accrued postretirement benefits cost ...         15,039         14,365           --              --            29,404
    Other ..................................         22,189         16,511         41,705            --            80,405
                                                -----------    -----------    -----------     -----------     -----------

        Total noncurrent liabilities .......        628,346        319,720         42,694        (518,695)        472,065
                                                -----------    -----------    -----------     -----------     -----------

Minority interest ..........................           --              299          5,980            --             6,279
                                                -----------    -----------    -----------     -----------     -----------

Shareholders' equity .......................        344,488        651,293         36,292        (687,585)        344,488
                                                -----------    -----------    -----------     -----------     -----------

                                                $ 1,004,118    $ 1,195,066    $   134,075     $(1,212,471)    $ 1,120,788
                                                ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 45

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                            Condensed Consolidating Balance Sheet
                                      December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>
                                                        Combined       Combined
                                       NL Industries,   Guarantor     Non-guarantor
                                           Inc.        Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                       --------------  ------------   -------------   ------------    ------------

                     ASSETS
<S>                                     <C>            <C>            <C>             <C>             <C>
Current assets:

    Cash and cash equivalents ......    $    13,415    $   113,062    $     7,747     $      --       $   134,224
    Restricted cash equivalents ....         17,565           --             --              --            17,565
    Accounts and notes receivable ..             61        143,647             60            --           143,768
    Receivable from affiliates .....         11,668           --              562         (11,483)            747
    Refundable income taxes ........            317          4,155              1            --             4,473
    Inventories ....................           --          191,184           --              --           191,184
    Prepaid expenses ...............            227          2,265           --              --             2,492
    Deferred income taxes ..........          5,774          6,200           --              --            11,974
                                        -----------    -----------    -----------     -----------     -----------

        Total current assets .......         49,027        460,513          8,370         (11,483)        506,427
                                        -----------    -----------    -----------     -----------     -----------

Other assets:
    Investment in subsidiaries .....        558,898           --              285        (559,183)           --
    Marketable securities ..........          2,600           --           12,455            --            15,055
    Notes receivable from affiliates        244,000        185,839         78,000        (507,839)           --
    Investment in joint venture ....           --          157,552           --              --           157,552
    Prepaid pension cost ...........           --           24,127           --              (856)         23,271
    Deferred income taxes ..........          3,992             41           --            (3,992)             41
    Other ..........................          2,620          2,749           --              --             5,369
                                        -----------    -----------    -----------     -----------     -----------

        Total other assets .........        812,110        370,308         90,740      (1,071,870)        201,288
                                        -----------    -----------    -----------     -----------     -----------

Property and equipment, net ........          5,174        343,284           --              --           348,458
                                        -----------    -----------    -----------     -----------     -----------

                                        $   866,311    $ 1,174,105    $    99,110     $(1,083,353)    $ 1,056,173
                                        ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 46

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet, (Continued)
                                      December 31, 1999
                                        (In thousands)


<TABLE>
<CAPTION>

                                                                  Combined       Combined
                                              NL Industries,     Guarantor     Non-guarantor
                                                   Inc.         Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                              --------------   -------------   -------------   ------------    ------------

      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                             <C>            <C>            <C>             <C>             <C>
Current liabilities:

    Notes payable ..........................    $      --      $    57,076    $      --       $      --       $    57,076
    Current maturities of long-term debt ...           --              212           --              --               212
    Accounts payable and accrued liabilities         30,397        114,512         45,451            --           190,360
    Payable to affiliates ..................          3,444         20,368            614         (13,186)         11,240
    Income taxes ...........................          1,470          4,135           --              --             5,605
    Deferred income taxes ..................           --              326           --              --               326
                                                -----------    -----------    -----------     -----------     -----------

        Total current liabilities ..........         35,311        196,629         46,065         (13,186)        264,819
                                                -----------    -----------    -----------     -----------     -----------

Noncurrent liabilities:
    Long-term debt .........................        244,000            266           --              --           244,266
    Notes payable to affiliate .............        263,839        244,000           --          (507,839)           --
    Deferred income taxes ..................           --          111,932            286          (3,992)        108,226
    Accrued pension cost ...................          8,410         25,392           --              (856)         32,946
    Accrued postretirement benefits cost ...         21,625         15,480           --              --            37,105
    Other ..................................         22,039         21,076         50,706            --            93,821
                                                -----------    -----------    -----------     -----------     -----------

        Total noncurrent liabilities .......        559,913        418,146         50,992        (512,687)        516,364
                                                -----------    -----------    -----------     -----------     -----------

Minority interest ..........................           --              312          3,591            --             3,903
                                                -----------    -----------    -----------     -----------     -----------

Shareholders' equity (deficit) .............        271,087        559,018         (1,538)       (557,480)        271,087
                                                -----------    -----------    -----------     -----------     -----------

                                                $   866,311    $ 1,174,105    $    99,110     $(1,083,353)    $ 1,056,173
                                                ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 47

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                      Combined       Combined
                                                  NL Industries,     Guarantor     Non-guarantor
                                                       Inc.         Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                                  --------------    ------------   -------------   ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>             <C>
Revenues and other income:

    Net sales ..................................    $      --       $   922,319     $      --       $      --       $   922,319
    Interest and dividends .....................         31,598          25,587           5,937         (52,443)         10,679
    Equity in income of subsidiaries ...........        173,620            --              --          (173,620)           --
    Litigation settlement gains, net ...........         69,465            --              --              --            69,465
    Other income, net ..........................         12,595           5,834            --            (5,825)         12,604
                                                    -----------     -----------     -----------     -----------     -----------

                                                        287,278         953,740           5,937        (231,888)      1,015,067
                                                    -----------     -----------     -----------     -----------     -----------

Costs and expenses:
    Cost of sales ..............................           --           610,449            --              --           610,449
    Selling, general and administrative ........         25,381         112,429            (632)           --           137,178
    Interest ...................................         52,701          30,985            --           (52,443)         31,243
                                                    -----------     -----------     -----------     -----------     -----------

                                                         78,082         753,863            (632)        (52,443)        778,870
                                                    -----------     -----------     -----------     -----------     -----------

        Income before income taxes, minority
          interest and extraordinary item ......        209,196         199,877           6,569        (179,445)        236,197
Income tax expense .............................         53,855          22,850              12           1,703          78,420
                                                    -----------     -----------     -----------     -----------     -----------

        Income before minority interest and
          extraordinary item ...................        155,341         177,027           6,557        (181,148)        157,777

Minority interest ..............................           --                47           2,389            --             2,436
                                                    -----------     -----------     -----------     -----------     -----------

        Income before extraordinary item .......        155,341         176,980           4,168        (181,148)        155,341

Extraordinary item-early extinguishment of debt,
  net of tax benefit of $394 ...................           (732)           --              --              --              (732)
                                                    -----------     -----------     -----------     -----------     -----------

        Net income .............................    $   154,609     $   176,980     $     4,168     $  (181,148)    $   154,609
                                                    ===========     ===========     ===========     ===========     ===========

</TABLE>

                                           F - 48

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>

                                                        Combined       Combined
                                        NL Industries,  Guarantor   Non-guarantor
                                            Inc.       Subsidiaries Subsidiaries  Eliminations   Consolidated
                                        -------------- ------------ ------------- ------------   ------------
<S>                                        <C>          <C>          <C>           <C>           <C>
Revenues and other income:

    Net sales .........................    $    --      $ 908,387    $    --       $    --       $ 908,387
    Interest and dividends ............       30,843       24,425        6,823       (53,129)        8,962
    Equity in income of subsidiaries ..      154,625         --           --        (154,625)         --
    Other income, net .................        4,565       10,119         --            --          14,684
                                           ---------    ---------    ---------     ---------     ---------

                                             190,033      942,931        6,823      (207,754)      932,033
                                           ---------    ---------    ---------     ---------     ---------

Costs and expenses:
    Cost of sales .....................         --        662,315         --            --         662,315
    Selling, general and administrative       16,037      116,138        2,167          --         134,342
    Interest ..........................       49,872       40,141         --         (53,129)       36,884
                                           ---------    ---------    ---------     ---------     ---------

                                              65,909      818,594        2,167       (53,129)      833,541
                                           ---------    ---------    ---------     ---------     ---------

        Income before income taxes
          and minority interest .......      124,124      124,337        4,656      (154,625)       98,492

Income tax benefit ....................       35,647       26,955        1,999          --          64,601
                                           ---------    ---------    ---------     ---------     ---------

        Income before minority interest      159,771      151,292        6,655      (154,625)      163,093

Minority interest .....................         --             48        3,274          --           3,322
                                           ---------    ---------    ---------     ---------     ---------

        Net income ....................    $ 159,771    $ 151,244    $   3,381     $(154,625)    $ 159,771
                                           =========    =========    =========     =========     =========

</TABLE>

                                           F - 49

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 1998
                                        (In thousands)

<TABLE>
<CAPTION>


                                                                    Combined     Combined
                                                   NL Industries,   Guarantor   Non-guarantor
                                                       Inc.        Subsidiaries Subsidiaries  Eliminations  Consolidated
                                                   --------------  ------------ ------------  ------------  ------------
<S>                                                   <C>           <C>          <C>           <C>           <C>
Revenues and other income:

    Net sales ....................................    $    --       $ 894,724    $    --       $    --       $ 894,724
    Interest and dividends .......................       57,901        18,481        3,559       (62,905)       17,036
    Equity in income of subsidiaries .............       73,839          --           --         (73,839)         --
    Other income, net ............................       10,056         4,069       (1,997)       (3,711)        8,417
                                                      ---------     ---------    ---------     ---------     ---------
                                                        141,796       917,274        1,562      (140,455)      920,177
                                                      ---------     ---------    ---------     ---------     ---------
Costs and expenses:
    Cost of sales ................................         --         618,754         --            (307)      618,447
    Selling, general and administrative ..........       10,756       122,523          691          --         133,970
    Interest .....................................       55,078        70,762         --         (67,770)       58,070
                                                      ---------     ---------    ---------     ---------     ---------
                                                         65,834       812,039          691       (68,077)      810,487
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations before
          income taxes and minority interest .....       75,962       105,235          871       (72,378)      109,690

Income tax expense (benefit) .....................      (13,900)       33,601         --              87        19,788
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations before
          minority interest ......................       89,862        71,634          871       (72,465)       89,902
Minority interest ................................         --              40         --            --              40
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations ........       89,862        71,594          871       (72,465)       89,862

Discontinued operations ..........................      287,396       285,385         --        (285,385)      287,396
Extraordinary item - early extinguishment of debt,
  net of tax benefit of $5,698 ...................      (10,580)          999         --            (999)      (10,580)
                                                      ---------     ---------    ---------     ---------     ---------

        Net income ...............................    $ 366,678     $ 357,978    $     871     $(358,849)    $ 366,678
                                                      =========     =========    =========     =========     =========

</TABLE>

                                           F - 50

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                          Combined      Combined
                                                         NL Industries,  Guarantor    Non-guarantor
                                                             Inc.        Subsidiaries   Subsidiaries Eliminations   Consolidated
                                                         --------------  ------------ -------------- ------------   ------------

<S>                                                         <C>           <C>           <C>           <C>           <C>
Net cash provided (used) by operating activities .......    $  12,318     $ 177,642     $   4,795     $ (55,000)    $ 139,755
                                                            ---------     ---------     ---------     ---------     ---------
Cash flows from investing activities:
    Capital expenditures ...............................          (23)      (31,066)         --            --         (31,089)
    Purchase of Tremont Corporation common stock .......      (26,040)         --            --            --         (26,040)
    Change in restricted cash ..........................        4,480          --          (3,850)         --             630
    Loans to affiliates ................................       50,000      (115,856)       55,000        10,856          --
    Other, net .........................................          107            77          --              80           264
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by investing activities       28,524      (146,845)       51,150        10,936       (56,235)
                                                            ---------     ---------     ---------     ---------     ---------


Cash flows from financing activities:
    Indebtedness:
        Borrowings .....................................         --          44,923          --            --          44,923
        Principal payments .............................      (50,000)      (29,162)         --            --         (79,162)
    Treasury stock:
        Purchased ......................................      (30,886)         --            --            --         (30,886)
        Reissued .......................................        2,091          --            --            --           2,091
    Dividends, net .....................................      (32,686)      (55,000)         --          55,000       (32,686)
    Loans from affiliates ..............................       60,856       (50,000)         --         (10,856)         --
    Other, net .........................................         --              (6)           80           (80)           (6)
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by financing activities      (50,625)      (89,245)           80        44,064       (95,726)
                                                            ---------     ---------     ---------     ---------     ---------


Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..       (9,783)      (58,448)       56,025          --         (12,206)
        Currency translation ...........................         --          (1,635)           (5)         --          (1,640)
                                                            ---------     ---------     ---------     ---------     ---------

                                                               (9,783)      (60,083)       56,020          --         (13,846)
    Balance at beginning of year .......................       13,415       113,062         7,747          --         134,224
                                                            ---------     ---------     ---------     ---------     ---------


    Balance at end of year .............................    $   3,632     $  52,979     $  63,767     $    --       $ 120,378
                                                            =========     =========     =========     =========     =========
</TABLE>


                                           F - 51

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>
                                                                            Combined     Combined
                                                           NL Industries,   Guarantor   Non-guarantor
                                                                Inc.       Subsidiaries  Subsidiaries Eliminations  Consolidated
                                                           --------------  ------------ ------------- ------------  ------------

<S>                                                         <C>           <C>           <C>           <C>           <C>
Net cash provided (used) by operating activities .......    $  28,742     $ 134,937     $  (5,371)    $ (50,000)    $ 108,308
                                                            ---------     ---------     ---------     ---------     ---------

Cash flows from investing activities:
    Capital expenditures ...............................       (2,856)      (32,703)         --            --         (35,559)
    Change in restricted cash ..........................      (12,065)         --           6,889          --          (5,176)
    Other, net .........................................          (17)        2,334          --              27         2,344
                                                            ---------     ---------     ---------     ---------     ---------
        Net cash provided (used) by investing activities      (14,938)      (30,369)        6,889            27       (38,391)
                                                            ---------     ---------     ---------     ---------     ---------
Cash flows from financing activities:
    Indebtedness:
        Borrowings .....................................         --          82,038          --            --          82,038
        Principal payments .............................         --        (155,787)         --            --        (155,787)
    Treasury stock purchased ...........................       (7,000)         --            --            --          (7,000)
    Dividends, net .....................................       (7,242)      (50,030)           30        50,000        (7,242)
    Other, net .........................................         --              (6)           27           (27)           (6)
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by financing activities      (14,242)     (123,785)           57        49,973       (87,997)
                                                            ---------     ---------     ---------     ---------     ---------
Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..         (438)      (19,217)        1,575          --         (18,080)
        Currency translation ...........................         --          (2,649)         --            --          (2,649)
                                                                 (438)      (21,866)        1,575          --         (20,729)
    Balance at beginning of year .......................       13,853       134,928         6,172          --         154,953
                                                            ---------     ---------     ---------     ---------     ---------

    Balance at end of year .............................    $  13,415     $ 113,062     $   7,747     $    --       $ 134,224
                                                            =========     =========     =========     =========     =========
</TABLE>


                                           F - 52

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 1998
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                                  Combined     Combined
                                                                 NL Industries,  Guarantor   Non-guarantor
                                                                      Inc.      Subsidiaries  Subsidiaries Eliminations Consolidated
                                                                 -------------- ------------ ------------- ------------ ------------

<S>                                                                <C>           <C>           <C>           <C>          <C>
Net cash provided (used) by operating activities ..............    $  92,846     $  35,899     $ (68,658)    $ (15,000)   $  45,087
                                                                   ---------     ---------     ---------     ---------    ---------
Cash flows from investing activities:
    Capital expenditures ......................................          (82)      (22,310)         --            --        (22,392)
    Proceeds from disposition of securities ...................        6,875          --            --            --          6,875
    Change in restricted cash .................................         (566)        4,817        (6,889)         --         (2,638)
    Loans to affiliates .......................................         --        (224,660)         --         224,660         --
    Proceeds from sale of specialty chemicals business ........         --         435,080          --            --        435,080
    Other, net ................................................           87           284          --            --            371
                                                                   ---------     ---------     ---------     ---------    ---------
        Net cash provided (used) by investing activities ......        6,314       193,211        (6,889)      224,660      417,296
                                                                   ---------     ---------     ---------     ---------    ---------
Cash flows from financing activities:
    Indebtedness:
        Borrowings ............................................         --          30,491          --            --         30,491
        Principal payments ....................................     (193,498)     (108,113)      (14,281)         --       (315,892)
    Settlement of shareholder derivative lawsuit, net .........       11,211          --            --            --         11,211
    Dividends, net ............................................       (4,636)      (15,000)         --          15,000       (4,636)
    Loans from affiliates .....................................       89,839        38,821        96,000      (224,660)        --
    Discontinued operations, net ..............................         --        (117,500)         --            --       (117,500)
    Other, net ................................................          170            (2)         --            --            168
                                                                   ---------     ---------     ---------     ---------    ---------
        Net cash provided (used) by financing activities ......      (96,914)     (171,303)       81,719      (209,660)    (396,158)
                                                                   ---------     ---------     ---------     ---------    ---------
Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities .........        2,246        57,807         6,172          --         66,225
        Currency translation ..................................         --             (36)         --            --            (36)
        Sale of discontinued operation ........................         --          (7,630)         --            --         (7,630)
                                                                   ---------     ---------     ---------     ---------    ---------
                                                                       2,246        50,141         6,172          --         58,559
    Balance at beginning of year ..............................       11,607        84,787          --            --         96,394
                                                                   ---------     ---------     ---------     ---------    ---------
    Balance at end of year ....................................    $  13,853     $ 134,928     $   6,172     $    --      $ 154,953
                                                                   =========     =========     =========     =========    =========

</TABLE>

                                           F - 53

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES


To the Board of Directors of NL Industries, Inc.:

        Our audits of the consolidated  financial  statements referred to in our
report dated  February 28, 2001  appearing on page F-2 in the 2000 Annual Report
to  Shareholders  on  Form  10-K  of  NL  Industries,  Inc.  (which  report  and
consolidated  financial  statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item 14(a) and (d) of this Form 10-K. In our opinion,  these financial
statement  schedules present fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.




PricewaterhouseCoopers LLP

Houston, Texas
February 28, 2001


                                            S-1

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                   SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                   Condensed Balance Sheets
                                  December 31, 2000 and 1999
                                        (In thousands)
<TABLE>
<CAPTION>

                                                           2000          1999
                                                        ----------    ----------

                    ASSETS
<S>                                                     <C>           <C>
Current assets:

    Cash and cash equivalents ......................    $    3,632    $   13,415
    Restricted cash equivalents ....................        69,242        17,565
    Accounts and notes receivable ..................           172            61
    Receivable from subsidiaries ...................         6,189        11,668
    Refundable income taxes ........................        10,512           317
    Prepaid expenses ...............................           347           227
    Deferred income taxes ..........................         6,394         5,774
                                                        ----------    ----------
        Total current assets .......................        96,488        49,027
                                                        ----------    ----------
Other assets:
    Marketable securities ..........................           452         2,600
    Notes receivable from subsidiary ...............       194,000       244,000
    Investment in subsidiaries .....................       687,300       558,898
    Deferred income taxes ..........................          --           3,992
    Restricted cash equivalents ....................        17,942          --
    Prepaid pension cost ...........................         1,772          --
    Other ..........................................         1,739         2,620
                                                        ----------    ----------
        Total other assets .........................       903,205       812,110
                                                        ----------    ----------
Property and equipment, net ........................         4,425         5,174
                                                        ----------    ----------
                                                        $1,004,118    $  866,311
                                                        ==========    ==========
               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities .......    $   29,144    $   30,397
    Payable to affiliates ..........................         2,140         3,444
    Income taxes ...................................          --           1,470
                                                        ----------    ----------
        Total current liabilities ..................        31,284        35,311
                                                        ----------    ----------
Noncurrent liabilities:
    Long-term debt .................................       194,000       244,000
    Notes payable to affiliates ....................       324,695       263,839
    Deferred income taxes ..........................        70,985          --
    Accrued pension cost ...........................         1,438         8,410
    Accrued postretirement benefits cost ...........        15,039        21,625
    Other ..........................................        22,189        22,039
                                                        ----------    ----------
        Total noncurrent liabilities ...............       628,346       559,913
                                                        ----------    ----------
Shareholders' equity ...............................       344,488       271,087
                                                        ----------    ----------
                                                        $1,004,118    $  866,311
                                                        ==========    ==========
</TABLE>
Contingencies (Note 4)

                                            S-2

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                                Condensed Statements of Income

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)


<TABLE>
<CAPTION>

                                               2000           1999          1998
                                             ---------     ---------     ---------
<S>                                          <C>           <C>           <C>
Revenues and other income:
    Equity in income from continuing
      operations of subsidiaries ........    $ 173,620     $ 154,625     $  73,839
    Interest and dividends ..............        2,961         1,184         1,812
    Interest income from subsidiaries ...       28,637        29,659        56,089
    Securities gains, net ...............        8,356          --           5,635
    Litigation settlement gains, net ....       69,465          --            --
    Other income, net ...................        4,239         4,565         4,421
                                             ---------     ---------     ---------

                                               287,278       190,033       141,796
                                             ---------     ---------     ---------
Costs and expenses:
    General and administrative ..........       25,381        16,037        10,756
    Interest ............................       52,701        49,872        55,078
                                             ---------     ---------     ---------
                                                78,082        65,909        65,834
                                             ---------     ---------     ---------
        Income from continuing operations
          before income taxes ...........      209,196       124,124        75,962

Income tax expense (benefit) ............       53,855       (35,647)      (13,900)
                                             ---------     ---------     ---------
        Income from continuing operations      155,341       159,771        89,862

Discontinued operations .................         --            --         287,396
Extraordinary items .....................         (732)         --         (10,580)
                                             ---------     ---------     ---------

        Net income ......................    $ 154,609     $ 159,771     $ 366,678
                                             =========     =========     =========

</TABLE>


                                            S-3

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                              Condensed Statements of Cash Flows

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)

<TABLE>
<CAPTION>


                                                               2000          1999          1998
                                                            ---------     ---------     ---------
<S>                                                         <C>           <C>           <C>
Cash flows from operating activities:

    Net income .........................................    $ 154,609     $ 159,771     $ 366,678
    Equity in income of subsidiaries:
        Continuing .....................................     (173,620)     (154,625)      (73,839)
        Discontinued ...................................         --            --        (287,396)
    Distributions from subsidiaries ....................       55,000        50,000        15,000
    Noncash interest income, net .......................         (932)         (390)       (8,660)
    Deferred income taxes ..............................       71,837       (18,071)       (3,862)
    Securities gains, net ..............................       (8,356)         --          (3,711)
    Litigation settlement gains, net ...................      (69,465)         --            --
    Other, net .........................................       (4,399)       (3,164)       (3,382)
                                                            ---------     ---------     ---------

                                                               24,674        33,521           828

    Change in assets and liabilities, net ..............      (12,356)       (4,779)       92,018
                                                            ---------     ---------     ---------

        Net cash provided by operating activities ......       12,318        28,742        92,846
                                                            ---------     ---------     ---------

Cash flows from investing activities:
    Change in restricted cash equivalents, net .........        4,480       (12,065)         (566)
    Capital expenditures ...............................          (23)       (2,856)          (82)
    Purchase of Tremont Corporation common stock .......      (26,040)         --            --
    Loans to affiliates ................................       50,000          --            --
    Investments in subsidiaries ........................          (80)          (27)         --
    Proceeds from disposition of marketable securities .          158          --           6,875
    Other, net .........................................           29            10            87
                                                            ---------     ---------     ---------

        Net cash provided (used) by investing activities       28,524       (14,938)        6,314
                                                            ---------     ---------     ---------

</TABLE>

                                            S-4

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                        Condensed Statements of Cash Flows (Continued)

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)


<TABLE>
<CAPTION>

                                                            2000          1999          1998
                                                         ---------     ---------     ---------
<S>                                                      <C>           <C>           <C>
Cash flows from financing activities:
    Dividends .......................................    $ (32,686)    $  (7,242)    $  (4,636)
    Treasury stock:
        Purchased ...................................      (30,886)       (7,210)         --
        Reissued ....................................        2,091           210           170
    Indebtedness - principal payments ...............      (50,000)         --        (193,498)
    Loans from affiliates ...........................       60,856          --          89,839
    Settlement of shareholder derivative lawsuit, net         --            --          11,211
                                                         ---------     ---------     ---------

        Net cash used by financing activities .......      (50,625)      (14,242)      (96,914)
                                                         ---------     ---------     ---------

    Net change from operating, investing and
      financing activities ..........................       (9,783)         (438)        2,246
    Balance at beginning of year ....................       13,415        13,853        11,607
                                                         ---------     ---------     ---------

    Balance at end of year ..........................    $   3,632     $  13,415     $  13,853
                                                         =========     =========     =========

</TABLE>


                                            S-5

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                    Notes to Condensed Financial Information


Note 1 - Basis of presentation:

         The  Consolidated  Financial  Statements  of NL  Industries,  Inc. (the
"Company")  and the  related  Notes to  Consolidated  Financial  Statements  are
incorporated herein by reference.

Note 2 - Net receivable from (payable to) subsidiaries and affiliates:

<TABLE>
<CAPTION>
                                                             December 31,
                                                    ---------------------------
                                                       2000              1999
                                                    ---------         ---------

                                                           (In thousands)
<S>                                                 <C>               <C>
Current:
    Receivable from:
        Kronos:

            Income taxes ...................        $   1,260         $   3,790
            Other, net .....................            4,103             6,507
        Timet ..............................                1               310
        CompX ..............................               82               176
        Other ..............................              743               885
                                                    ---------         ---------

                                                    $   6,189         $  11,668
                                                    =========         =========

    Payable to:
        Tremont ............................        $  (1,925)        $  (2,859)
        NLEMS ..............................             (146)             (562)
        Other ..............................              (69)              (23)
                                                    ---------         ---------

                                                    $  (2,140)        $  (3,444)
                                                    =========         =========
Noncurrent:
    Notes receivable from Kronos ...........        $ 194,000         $ 244,000
                                                    =========         =========

    Notes payable to:
        Kronos .............................        $(301,695)        $(185,839)
        NLEMS ..............................          (23,000)          (78,000)
                                                    ---------         ---------

                                                    $(324,695)        $(263,839)
                                                    =========         =========
</TABLE>


                                            S-6

<PAGE>



Note 3 - Long-term debt:

        See Note 9 of the Consolidated Financial Statements for a description of
the Notes.  The Company's  $194 million of Senior  Secured Notes at December 31,
2000  are  due  October  2003.  The  Company  has  guaranteed  Kronos'  non-U.S.
dollar-denominated notes payable of $70 million.

Note 4 - Contingencies:

See Legal proceedings in Note 17 to the Consolidated Financial Statements.


                                            S-7

<PAGE>


                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                        SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                        (In thousands)

<TABLE>
<CAPTION>

                                                                         Charges
                                                                        (credits)
                                                            Balance at   to costs                          Currency
                                                            beginning      and                            translation  Balance at
                       Description                           of year     expenses     Deductions          adjustments  end of year
                       -----------                          ----------  ---------    -----------          -----------  -----------

<S>                                                         <C>         <C>          <C>                   <C>          <C>
Year ended December 31, 2000:

    Allowance for doubtful accounts and notes receivable    $  2,075    $    342     $    (67) (a)         $   (128)    $  2,222
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 22,095    $    113     $     --              $ (1,779)    $ 20,429
                                                            ========    ========     =========             ========     ========

Year ended December 31, 1999:
    Allowance for doubtful accounts and notes receivable    $  2,377    $    140     $    (180) (a)        $   (262)    $  2,075
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 23,704    $  1,851     $      --             $ (3,460)    $ 22,095
                                                            ========    ========     =========             ========     ========

Year ended December 31, 1998:
    Allowance for doubtful accounts and notes receivable    $  2,828    $   (208)    $    (363) (a)(b)     $    120     $  2,377
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 22,366    $  2,438     $  (2,757) (b)        $  1,657     $ 23,704
                                                            ========    ========     =========             ========     ========
</TABLE>

---------------------------------------------
(a)     Amounts written off, less recoveries.
(b)     Sale of Rheox's assets.













                                            S-8