SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


|X|      QUARTERLY  REPORT  PURSUANT  TO SECTION  13 OR 15(d) OF THE  SECURITIES
         EXCHANGE ACT OF 1934 - For the quarter ended June 30, 2001

                                       OR

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

                          Commission file number 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
                                                            --------------------



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) had  been  subject  to such  filing
requirements for the past 90 days.
Yes    X          No
    -------          -------




Number of shares of common stock outstanding on August 7, 2001:  49,678,384


<PAGE>


                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                                     INDEX




                                                                           Page
                                                                           ----
PART I.     FINANCIAL INFORMATION

  Item 1.   Financial Statements.

            Consolidated Balance Sheets - June 30, 2001
              and December 31, 2000                                         3-4

            Consolidated Statements of Income - Three months
              and six months ended June 30, 2001 and 2000                    5

            Consolidated Statements of Comprehensive Income
              - Three months and six months ended June 30, 2001 and 2000     6

            Consolidated Statement of Shareholders' Equity
              - Six months ended June 30, 2001                               7

            Consolidated Statements of Cash Flows - Six
              months ended June 30, 2001 and 2000                           8-9

            Notes to Consolidated Financial Statements                     10-26

  Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations                          27-33


PART II.    OTHER INFORMATION

  Item 1.   Legal Proceedings                                               34

  Item 6.   Exhibits and Reports on Form 8-K                                34



                                      - 2 -

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)




              ASSETS                                     June 30,   December 31,
                                                          2001          2000
                                                        ----------  ------------

Current assets:
    Cash and cash equivalents ......................    $   89,068    $  120,378
    Restricted cash equivalents ....................        78,187        69,242
    Accounts and notes receivable ..................       154,966       131,540
    Receivable from affiliates .....................        21,867           214
    Refundable income taxes ........................         9,291        12,302
    Inventories ....................................       175,718       205,973
    Prepaid expenses ...............................         4,798         2,458
    Deferred income taxes ..........................        12,059        11,673
                                                        ----------    ----------

        Total current assets .......................       545,954       553,780
                                                        ----------    ----------

Other assets:
    Marketable securities ..........................        52,703        47,186
    Receivable from affiliate ......................        12,150          --
    Investment in TiO2 manufacturing joint venture .       144,791       150,002
    Prepaid pension cost ...........................        22,446        22,789
    Restricted cash equivalents ....................        16,964        17,942
    Other ..........................................         4,296         4,707
                                                        ----------    ----------

        Total other assets .........................       253,350       242,626
                                                        ----------    ----------

Property and equipment:
    Land ...........................................        23,371        24,978
    Buildings ......................................       121,261       129,019
    Machinery and equipment ........................       499,858       530,920
    Mining properties ..............................        65,523        67,134
    Construction in progress .......................        13,930         4,586
                                                        ----------    ----------
                                                           723,943       756,637
    Less accumulated depreciation and depletion ....       418,590       432,255
                                                        ----------    ----------

        Net property and equipment .................       305,353       324,382
                                                        ----------    ----------

                                                        $1,104,657    $1,120,788
                                                        ==========    ==========


                                      - 3 -

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)




    LIABILITIES AND SHAREHOLDERS' EQUITY              June 30,      December 31,
                                                        2001            2000
                                                    -----------     ------------

Current liabilities:
    Notes payable ..............................    $    58,999     $    69,970
    Current maturities of long-term debt .......            930             730
    Accounts payable and accrued liabilities ...        126,543         147,877
    Payable to affiliates ......................          9,900          10,634
    Accrued environmental costs ................         62,034          53,307
    Income taxes ...............................         15,199          13,616
    Deferred income taxes ......................          1,249           1,822
                                                    -----------     -----------

        Total current liabilities ..............        274,854         297,956
                                                    -----------     -----------

Noncurrent liabilities:
    Long-term debt .............................        196,078         195,363
    Deferred income taxes ......................        149,398         145,673
    Accrued environmental costs ................         46,904          57,133
    Accrued pension cost .......................         18,043          21,220
    Accrued postretirement benefits cost .......         29,744          29,404
    Other ......................................         16,038          23,272
                                                    -----------     -----------

        Total noncurrent liabilities ...........        456,205         472,065
                                                    -----------     -----------


Minority interest ..............................          7,203           6,279
                                                    -----------     -----------

Shareholders' equity:
    Common stock ...............................          8,355           8,355
    Additional paid-in capital .................        777,597         777,528
    Retained earnings ..........................        181,063         141,073
    Accumulated other comprehensive loss .......       (197,912)       (181,872)
    Treasury stock .............................       (402,708)       (400,596)
                                                    -----------     -----------

        Total shareholders' equity .............        366,395         344,488
                                                    -----------     -----------

                                                    $ 1,104,657     $ 1,120,788
                                                    ===========     ===========

Commitments and contingencies (Note 14)



          See accompanying notes to consolidated financial statements.
                                      - 4 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)


<TABLE>
<CAPTION>

                                           Three months ended     Six months ended
                                                June 30,              June 30,
                                          -------------------   -------------------
                                            2001       2000       2001       2000
                                          --------   --------   --------   --------

<S>                                       <C>        <C>        <C>        <C>
Revenues and other income:
    Net sales .........................   $220,105   $251,126   $446,165   $482,135
    Litigation settlement gains, net ..       --       43,000     10,582     43,000
    Insurance recoveries, net .........      1,929       --        1,929       --
    Other, net ........................      3,369     10,946      8,218     15,446
                                          --------   --------   --------   --------

                                           225,403    305,072    466,894    540,581
                                          --------   --------   --------   --------

Costs and expenses:
    Cost of sales .....................    151,320    164,033    301,222    323,298
    Selling, general and administrative     29,336     36,832     61,658     70,222
    Interest ..........................      6,887      7,897     13,863     15,753
                                          --------   --------   --------   --------

                                           187,543    208,762    376,743    409,273
                                          --------   --------   --------   --------

        Income before income taxes and
          minority interest ...........     37,860     96,310     90,151    131,308

Income tax expense ....................     12,069     32,762     29,215     43,961
                                          --------   --------   --------   --------

        Income before minority interest     25,791     63,548     60,936     87,347

Minority interest .....................        367        110        953        201
                                          --------   --------   --------   --------

        Net income ....................   $ 25,424   $ 63,438   $ 59,983   $ 87,146
                                          ========   ========   ========   ========

Earnings per share:
    Basic .............................   $    .51   $   1.26   $   1.20   $   1.72
                                          ========   ========   ========   ========
    Diluted ...........................   $    .51   $   1.25   $   1.20   $   1.71
                                          ========   ========   ========   ========

Weighted average shares used in the
  calculation of earnings per share:
      Basic ...........................     49,932     50,499     50,005     50,710
      Dilutive impact of stock options          95        351        183        290
                                          --------   --------   --------   --------

      Diluted .........................     50,027     50,850     50,188     51,000
                                          ========   ========   ========   ========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                      - 5 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                 (In thousands)

<TABLE>
<CAPTION>


                                                      Three months ended       Six months ended
                                                             June 30,              June 30,
                                                     --------------------    --------------------
                                                       2001        2000        2001        2000
                                                     --------    --------    --------    --------

<S>                                                  <C>         <C>         <C>         <C>
Net income .......................................   $ 25,424    $ 63,438    $ 59,983    $ 87,146
                                                     --------    --------    --------    --------

Other comprehensive income (loss), net of tax:
    Marketable securities adjustment:
        Unrealized holding gains arising during
          the period .............................      7,391         650       3,589         708
        Add:  reclassification adjustment for loss
          included in net income .................        736        --           736        --
                                                     --------    --------    --------    --------

                                                        8,127         650       4,325         708

    Currency translation adjustment ..............     (4,467)     (7,287)    (20,365)    (22,596)
                                                     --------    --------    --------    --------

        Total other comprehensive income (loss) ..      3,660      (6,637)    (16,040)    (21,888)
                                                     --------    --------    --------    --------

            Comprehensive income .................   $ 29,084    $ 56,801    $ 43,943    $ 65,258
                                                     ========    ========    ========    ========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                      - 6 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                         Six months ended June 30, 2001

                                 (In thousands)


<TABLE>
<CAPTION>

                                                                             Accumulated other
                                                                              comprehensive
                                                                              income (loss)
                                                  Additional             ------------------------
                                         Common    paid-in    Retained    Currency    Marketable   Treasury
                                         stock     capital    earnings   translation  securities     stock      Total
                                         ------   ----------  --------   -----------  ----------   --------   ---------


<S>                                      <C>      <C>        <C>          <C>          <C>       <C>          <C>
Balance at December 31, 2000 .........   $8,355   $777,528   $ 141,073    $(190,757)   $ 8,885   $(400,596)   $ 344,488

Net income ...........................     --         --        59,983         --         --          --         59,983

Other comprehensive income (loss), net     --         --          --        (20,365)     4,325        --        (16,040)

Dividends ............................     --         --       (19,993)        --         --          --        (19,993)

Tax benefit of stock options exercised     --           69        --           --         --          --             69

Treasury stock:
    Acquired (212 shares) ............     --         --          --           --         --        (2,718)      (2,718)
    Reissued  (36 shares) ............     --         --          --           --         --           606          606
                                         ------   --------   ---------    ---------    -------   ---------    ---------

Balance at June 30, 2001 .............   $8,355   $777,597   $ 181,063    $(211,122)   $13,210   $(402,708)   $ 366,395
                                         ======   ========   =========    =========    =======   =========    =========

</TABLE>



          See accompanying notes to consolidated financial statements.
                                      - 7 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Six months ended June 30, 2001 and 2000

                                 (In thousands)

<TABLE>
<CAPTION>



                                                                    2001        2000
                                                                  --------    --------

<S>                                                               <C>         <C>
Cash flows from operating activities:
    Net income ................................................   $ 59,983    $ 87,146
    Depreciation, depletion and amortization ..................     14,930      15,361
    Deferred income taxes .....................................      5,140      25,023
    Distributions from TiO2 manufacturing joint venture .......      4,950       5,250
    Litigation settlement gain, net included in restricted cash    (10,307)    (43,000)
    Net (gains) losses from securities transactions ...........      1,133      (5,553)
    Insurance recoveries, net .................................     (1,929)       --
    Other, net ................................................     (2,065)     (4,166)
                                                                  --------    --------

                                                                    71,835      80,061

    Change in assets and liabilities:
        Accounts and notes receivable .........................    (31,127)    (34,054)
        Inventories ...........................................     21,463      29,340
        Prepaid expenses ......................................     (2,520)     (1,417)
        Accounts payable and accrued liabilities ..............    (16,310)     (9,802)
        Income taxes ..........................................      4,928       8,086
        Other, net ............................................     (3,008)       (696)
                                                                  --------    --------

            Net cash provided by operating activities .........     45,261      71,518
                                                                  --------    --------

Cash flows from investing activities:
    Capital expenditures ......................................    (17,705)    (12,598)
    Property damaged by fire:
        Insurance proceeds ....................................      5,500        --
        Other, net ............................................     (1,000)       --
    Loans to affiliates:
        Loans .................................................    (33,400)       --
        Collections ...........................................        250        --
    Purchase of Tremont Corporation common stock ..............       --        (9,520)
    Change in restricted cash equivalents, net ................        682         459
    Other, net ................................................         41         108
                                                                  --------    --------

        Net cash used by investing activities .................    (45,632)    (21,551)
                                                                  --------    --------

</TABLE>



                                      - 8 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     Six months ended June 30, 2001 and 2000

                                 (In thousands)




                                                            2001         2000
                                                         ---------    ---------

Cash flows from financing activities:
    Dividends paid ...................................   $ (19,993)   $ (15,161)
    Treasury stock:
        Purchased ....................................      (2,718)     (13,959)
        Reissued .....................................         606          470
    Indebtedness:
        Borrowings ...................................       1,437         --
        Principal payments ...........................      (6,990)     (16,830)
    Other, net .......................................          (5)          (7)
                                                         ---------    ---------

        Net cash used by financing activities ........     (27,663)     (45,487)
                                                         ---------    ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities      (28,034)       4,480
        Currency translation .........................      (3,276)      (1,075)
    Balance at beginning of period ...................     120,378      134,224
                                                         ---------    ---------

    Balance at end of period .........................   $  89,068    $ 137,629
                                                         =========    =========


Supplemental disclosures - cash paid for:
    Interest .........................................   $  13,709    $  15,686
    Income taxes, net ................................      19,147       10,797




          See accompanying notes to consolidated financial statements.
                                      - 9 -


<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 June 30, 2001,
Valhi,  Inc. and Tremont  Corporation,  each affiliates of Contran  Corporation,
held approximately 60% and 20%, respectively,  of NL's outstanding common stock.
At June 30, 2001, Contran and its subsidiaries held approximately 93% of Valhi's
outstanding  common stock,  and a company 80% owned by Valhi and 20% owned by 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.  See Note
6.

         The consolidated balance sheet of NL Industries,  Inc. and Subsidiaries
(collectively,  the  "Company") at December 31, 2000 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated  balance sheet at June 30, 2001 and the consolidated  statements of
income,  comprehensive  income,  shareholders'  equity  and cash  flows  for the
interim  periods  ended June 30, 2001 and 2000 have been prepared by the Company
without audit. In the opinion of management all adjustments,  consisting only of
normal  recurring  adjustments,  necessary  to present  fairly the  consolidated
financial  position,  results of operations  and cash flows have been made.  The
results of operations for the interim periods are not necessarily  indicative of
the operating results for a full year or of future operations.

         Certain  information  and  footnote  disclosures  normally  included in
financial  statements  prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Certain prior- year amounts have been
reclassified  to conform to the  current  year  presentation.  The  accompanying
consolidated  financial  statements  should  be read  in  conjunction  with  the
consolidated  financial  statements  included in the Company's  Annual Report on
Form 10-K for the year ended December 31, 2000 (the "2000 Annual Report").

         The  Company  adopted  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  are recognized as either assets or liabilities and measured at fair
value. The accounting for changes in fair value of derivatives is dependent upon
the intended use of the derivative.  As permitted by the transition requirements
of SFAS No. 133, as amended, the Company exempted from the scope of SFAS No. 133
all host contracts containing embedded derivatives which were issued or acquired
prior  to  January  1,  1999.  The  Company  is not a party  to any  significant
derivative or hedging  instrument  covered by SFAS No. 133 at June 30, 2001, and
there was no impact on the Company's financial statements from adopting SFAS No.
133.


                                     - 10 -

<PAGE>



Note 2 - 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.

Note 3 - Business segment information:

         The  Company's  operations  are  conducted  by Kronos in one  operating
business segment - the production and sale of TiO2.

<TABLE>
<CAPTION>

                                                  Three months ended          Six months ended
                                                        June 30,                   June 30,
                                                 ----------------------    ----------------------
                                                    2001        2000          2001         2000
                                                 ---------    ---------    ---------    ---------
                                                                   (In thousands)

<S>                                              <C>          <C>          <C>          <C>
Net sales ....................................   $ 220,105    $ 251,126    $ 446,165    $ 482,135
Other income, excluding corporate ............         768        2,444        2,010        4,114
                                                 ---------    ---------    ---------    ---------
                                                   220,873      253,570      448,175      486,249

Cost of sales ................................     151,320      164,033      301,222      323,298
Selling, general and administrative, excluding
  corporate ..................................      24,383       26,794       49,867       53,973
                                                 ---------    ---------    ---------    ---------

        Operating income .....................      45,170       62,743       97,086      108,978

Insurance recoveries, net ....................       1,929         --          1,929         --
                                                 ---------    ---------    ---------    ---------

        Income before corporate items, income
          taxes and minority interest ........      47,099       62,743       99,015      108,978

General corporate income (expense):
    Securities earnings, net .................       1,186        7,390        3,792        9,108
    Litigation settlement gains, net and other
      income .................................       1,415       44,112       12,998       45,224
    Corporate expenses .......................      (4,953)     (10,038)     (11,791)     (16,249)
    Interest expense .........................      (6,887)      (7,897)     (13,863)     (15,753)
                                                 ---------    ---------    ---------    ---------

        Income before income taxes and
          minority interest ..................   $  37,860    $  96,310    $  90,151    $ 131,308
                                                 =========    =========    =========    =========
</TABLE>

Note 4 - Inventories:

                                                        June 30,    December 31,
                                                         2001          2000
                                                       ---------    ------------
                                                            (In thousands)

Raw materials ................................         $ 39,827         $ 66,061
Work in process ..............................            6,652            7,117
Finished products ............................          104,406          107,120
Supplies .....................................           24,833           25,675
                                                       --------         --------

                                                       $175,718         $205,973
                                                       ========         ========



                                     - 11 -

<PAGE>

Note 5 - Marketable securities:


                                                          June 30,  December 31,
                                                            2001        2000
                                                          --------  ------------
                                                             (In thousands)

Available-for-sale marketable equity securities:
    Unrealized gains ................................     $ 20,323     $ 14,912
    Unrealized losses ...............................         --         (1,244)
    Cost ............................................       32,380       33,518
                                                          --------     --------

        Aggregate fair value ........................     $ 52,703     $ 47,186
                                                          ========     ========


         In June 2001, the Company  recognized a $1.1 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 11.

Note 6 - Receivable from affiliates:

         A majority-owned subsidiary of the Company, NL Environmental Management
Services,  Inc.  ("EMS"),  loaned  $13.4  million  to  Tremont  under a reducing
revolving  loan agreement in the first quarter of 2001. See Note 1. The loan was
approved by special  committees  of the Company's and EMS's Boards of Directors.
The loan bears  interest at prime plus 2% (10% at June 30,  2001),  is due March
31, 2003 and is  collateralized  by 10.2 million shares of NL common stock owned
by Tremont.  The maximum  amount  available for borrowing by Tremont  reduces by
$250,000 per quarter.  The first  reduction  occurred on June 30, 2001, at which
time Tremont repaid $250,000 of the loan.

         In May 2001, a wholly owned subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"),  one of the trusts described in
Note 1, under a $25 million revolving credit agreement. The loan was approved by
special  committees of the  Company's  and EMS's Boards of  Directors.  The loan
bears  interest at prime (7.5% at June 30, 2001),  is due on demand with 60 days
notice  and is  collateralized  by  15,768  shares,  or  approximately  40%,  of
Contran's outstanding Class A voting common stock which is owned by the Trust.

Note 7 - Accounts payable and accrued liabilities:

                                                     June 30,       December 31,
                                                       2001             2000
                                                     --------       ------------
                                                           (In thousands)

Accounts payable .........................           $ 51,268           $ 64,553
                                                     --------           --------
Accrued liabilities:
    Employee benefits ....................             25,365             34,160
    Interest .............................              4,934              5,019
    Deferred income ......................              4,000              4,000
    Other ................................             40,976             40,145
                                                     --------           --------

                                                       75,275             83,324
                                                     --------           --------

                                                     $126,543           $147,877
                                                     ========           ========


                                     - 12 -

<PAGE>



Note 8 - Other noncurrent liabilities:

                                                         June 30,   December 31,
                                                           2001         2000
                                                         --------   ------------
                                                            (In thousands)

Insurance claims and expenses ..................         $ 9,370         $10,314
Employee benefits ..............................           3,496           7,721
Deferred income ................................           2,333           4,333
Other ..........................................             839             904
                                                         -------         -------

                                                         $16,038         $23,272
                                                         =======         =======

Note 9 - Notes payable and long-term debt:

<TABLE>
<CAPTION>

                                                                      June 30,  December 31,
                                                                        2001       2000
                                                                      --------  ------------
                                                                          (In thousands)

<S>                                                                   <C>        <C>
Notes payable - Kronos ............................................   $ 58,999   $ 69,970
                                                                      ========   ========

Long-term debt:
    NL Industries, Inc. - 11.75% Senior Secured Notes (See Note 13)   $194,000   $194,000
    Kronos ........................................................      3,008      2,093
                                                                      --------   --------

                                                                       197,008    196,093
Less current maturities ...........................................        930        730
                                                                      --------   --------

                                                                      $196,078   $195,363
                                                                      ========   ========
</TABLE>

         Notes payable consists of euro 43.5 million and NOK 200 million at June
30, 2001 and euro 51 million and NOK 200 million at December 31, 2000.

Note 10 - Income taxes:

         The   difference   between  the   provision   for  income  tax  expense
attributable to income before income taxes and minority  interest and the amount
that would be expected using the U.S.  federal  statutory income tax rate of 35%
is presented below.
<TABLE>
<CAPTION>

                                                               Six months ended
                                                                   June 30,
                                                              --------------------
                                                                2001         2000
                                                              --------    --------
                                                                 (In thousands)

<S>                                                           <C>         <C>
Expected tax expense ......................................   $ 31,553    $ 45,958
Non-U.S. tax rates ........................................     (2,722)     (2,900)
Incremental tax on income of companies not included in NL's
  consolidated U.S. federal income tax return .............        300         634
Valuation allowance .......................................     (1,113)     (1,325)
U.S. state income taxes ...................................        234         614
Other, net ................................................        963         980
                                                              --------    --------

        Income tax expense ................................   $ 29,215    $ 43,961
                                                              ========    ========
</TABLE>


                                     - 13 -

<PAGE>


Note 11 - Litigation settlement gains, net and other income, net:

  Litigation settlement gains, net

         In the  first  quarter  of 2001 and the  second  quarter  of 2000,  the
Company  recognized  litigation  settlement gains with former insurance  carrier
groups  of $10.6  million  and $43  million,  respectively,  to  settle  certain
insurance  coverage claims related to environmental  remediation.  A majority of
the proceeds from these settlements were transferred to  special-purpose  trusts
established by the insurance carrier groups to pay future  remediation and other
environmental  expenditures  of the  Company.  No further  material  settlements
relating  to  litigation  concerning  environmental   remediation  coverage  are
expected.

  Other income, net

<TABLE>
<CAPTION>

                                        Three months ended       Six months ended
                                             June 30,                 June  30,
                                        --------------------    --------------------
                                          2001         2000       2001        2000
                                        --------    --------    --------    --------
                                                          (In thousands)

<S>                                     <C>         <C>         <C>         <C>
Securities earnings:
    Interest and dividends ..........   $  2,319    $  1,837    $  4,925    $  3,555
    Securities transactions .........     (1,133)      5,553      (1,133)      5,553
                                        --------    --------    --------    --------
                                           1,186       7,390       3,792       9,108
Currency transaction gains, net .....        214       2,413       1,281       3,654
Noncompete agreement income .........      1,000       1,000       2,000       2,000
Disposition of property and equipment        (58)       (546)       (419)       (948)
Trade interest income ...............        476         470       1,069         827
Other, net ..........................        551         219         495         805
                                        --------    --------    --------    --------

                                        $  3,369    $ 10,946    $  8,218    $ 15,446
                                        ========    ========    ========    ========
</TABLE>


         In the second  quarter of 2000,  the Company  recognized a $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.

Note 12 - Leverkusen fire and insurance claim:

         A fire on March 20, 2001 damaged a section of the Company's Leverkusen,
Germany 35,000 metric ton sulfate-process TiO2 plant ("Sulfate Plant") and, as a
result,  production of TiO2 at the Leverkusen  facility was halted. The fire did
not enter the Company's adjacent 125,000 metric ton chloride-process  TiO2 plant
("Chloride  Plant"),  but did damage  certain  support  equipment  necessary  to
operate that plant. The damage to the support equipment  resulted in a temporary
shutdown of the Chloride Plant.

         On April  8,  2001,  repairs  to the  damaged  support  equipment  were
substantially  completed and full  production  resumed at the Chloride Plant. In
April, the undamaged section of the Sulfate Plant resumed limited production (5%
to 20% of capacity)  of an  intermediate  form of TiO2  ("Hydrated  TiO2").  The
Hydrated  TiO2  is  being  transported  to  the  Company's  Nordenham,   Germany
sulfate-process  TiO2 plant to be further  processed  and finished  into certain
grades of TiO2.  The  Company's  ability to  produce  the  Hydrated  TiO2 at the
Sulfate  Plant is limited by the  available  excess  capacity  at its  Nordenham
plant.  The  Company  expects the Sulfate  Plant to be over 50%  operational  in
August 2001 and fully operational in October 2001.


                                     - 14 -

<PAGE>



         The  Company  believes  that the damage to  property  and the  business
interruption losses caused by the fire are covered by insurance,  but the effect
on the  financial  results  of the  Company on a  quarter-to-quarter  basis or a
year-to-year basis will depend on the timing and amount of insurance recoveries.
During the second quarter of 2001, the Company's  insurance  carriers approved a
partial  payment of $10.5 million ($9 million  received as of June 30, 2001) for
property damage costs and business  interruption losses caused by the Leverkusen
fire. Five million dollars of this payment represented partial  compensation for
business  interruption losses which was recorded as a reduction of cost of sales
to offset  unallocated  period costs that  resulted  from lost  production.  The
remaining $5.5 million represented  property damage recoveries against which the
Company  recorded $3.6 million of expenses related to destroyed asset write-offs
and  related  clean-up  costs,   resulting  in  a  net  gain  of  $1.9  million.
Negotiations with the insurance carrier group continue,  and the Company expects
to receive  additional  insurance  recoveries  for property  damage and business
interruption losses. The Company did not recognize additional insurance proceeds
in  the  second   quarter  of  2001  because  the  amounts  are  not   presently
determinable.

Note 13 - Condensed consolidating financial information:

         The   Company's   11.75%   Senior   Secured  Notes  (the  "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 which 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  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  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.   Elimination   entries  eliminate  (i)  the  parent's   investments  in
subsidiaries  and the equity in  earnings  of  subsidiaries,  (ii)  intercompany
payables and receivables and (iii) other transactions between subsidiaries.

                                     - 15 -

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet
                                  June 30, 2001
                                 (In thousands)


<TABLE>
<CAPTION>

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

<S>                                                   <C>           <C>           <C>             <C>             <C>
Current assets:
    Cash and cash equivalents ....................    $      518    $   58,873    $    29,677     $      --       $   89,068
    Restricted cash equivalents ..................        78,187          --             --              --           78,187
    Accounts and notes receivable ................           316       154,578             72            --          154,966
    Receivable from affiliates ...................         6,153         1,558         21,664          (7,508)        21,867
    Refundable income taxes ......................         6,222         3,061              8            --            9,291
    Inventories ..................................          --         175,718           --              --          175,718
    Prepaid expenses .............................           270         4,528           --              --            4,798
    Deferred income taxes ........................         7,206         4,853           --              --           12,059
                                                      ----------    ----------    -----------     -----------     ----------

        Total current assets .....................        98,872       403,169         51,421          (7,508)       545,954
                                                      ----------    ----------    -----------     -----------     ----------

Other assets:
    Investment in subsidiaries ...................     1,002,596          --              294      (1,002,890)          --
    Marketable securities ........................           558          --           52,145            --           52,703
    Notes receivable from affiliates .............       194,000       593,459         35,150        (810,459)        12,150
    Investment in TiO2 manufacturing joint venture          --         144,791           --              --          144,791
    Prepaid pension cost .........................         2,007        20,439           --              --           22,446
    Restricted cash equivalents ..................        16,964          --             --              --           16,964
    Other ........................................         1,492         2,804           --              --            4,296
                                                      ----------    ----------    -----------     -----------     ----------

        Total other assets .......................     1,217,617       761,493         87,589      (1,813,349)       253,350
                                                      ----------    ----------    -----------     -----------     ----------

Property and equipment, net ......................         4,073       301,280           --              --          305,353
                                                      ----------    ----------    -----------     -----------     ----------

                                                      $1,320,562    $1,465,942    $   139,010     $(1,820,857)    $1,104,657
                                                      ==========    ==========    ===========     ===========     ==========
</TABLE>



                                      -16-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
               Condensed Consolidating Balance Sheet, (Continued)
                                  June 30, 2001
                                 (In thousands)

<TABLE>
<CAPTION>

                                                      NL                            Combined
                                                  Industries,                     Non-guarantor
                                                     Inc.         Kronos, Inc.    Subsidiaries     Eliminations   Consolidated
                                                  -----------     ------------    -------------    ------------   ------------
    LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                              <C>             <C>             <C>              <C>              <C>
Current liabilities:
    Notes payable ..........................     $      --       $    58,999     $      --        $      --        $    58,999
    Current maturities of long-term debt ...            --               930            --               --                930
    Accounts payable and accrued liabilities          21,776         104,631             136             --            126,543
    Payable to affiliates ..................           5,323          11,474             611           (7,508)           9,900
    Accrued environmental costs ............           8,061            --            53,973             --             62,034
    Income taxes ...........................            --            15,199            --               --             15,199
    Deferred income taxes ..................            --             1,249            --               --              1,249
                                                 -----------     -----------     -----------      -----------      -----------

        Total current liabilities ..........          35,160         192,482          54,720           (7,508)         274,854
                                                 -----------     -----------     -----------      -----------      -----------

Noncurrent liabilities:
    Long-term debt .........................         194,000           2,078            --               --            196,078
    Notes payable to affiliate .............         616,459         194,000            --           (810,459)            --
    Deferred income taxes ..................          73,406          73,109           2,883             --            149,398
    Accrued environmental costs ............           6,925           8,221          31,758             --             46,904
    Accrued pension cost ...................           1,461          16,582            --               --             18,043
    Accrued postretirement benefits cost ...          16,083          13,661            --               --             29,744
    Other ..................................          10,673           5,365            --               --             16,038
                                                 -----------     -----------     -----------      -----------      -----------

        Total noncurrent liabilities .......         919,007         313,016          34,641         (810,459)         456,205
                                                 -----------     -----------     -----------      -----------      -----------

Minority interest ..........................            --               279           6,924             --              7,203
                                                 -----------     -----------     -----------      -----------      -----------

Shareholders' equity .......................         366,395         960,165          42,725       (1,002,890)         366,395
                                                 -----------     -----------     -----------      -----------      -----------

                                                 $ 1,320,562     $ 1,465,942     $   139,010      $(1,820,857)     $ 1,104,657
                                                 ===========     ===========     ===========      ===========      ===========
</TABLE>


                                      -17-

<PAGE>



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

<TABLE>
<CAPTION>

                                                         NL                         Combined
                                                     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 TiO2 manufacturing 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>

                                      -18-

<PAGE>



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

                                                     NL                            Combined
                                                 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          24,098         123,555             224             --            147,877
    Payable to affiliates ..................           2,140          14,073             612           (6,191)          10,634
    Accrued environmental costs ............           5,046            --            48,261             --             53,307
    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 environmental costs ............           6,729           8,699          41,705             --             57,133
    Accrued pension cost ...................           1,438          19,782            --               --             21,220
    Accrued postretirement benefits cost ...          15,039          14,365            --               --             29,404
    Other ..................................          15,460           7,812            --               --             23,272
                                                 -----------     -----------     -----------      -----------      -----------

        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>


                                      -19-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                   Condensed Consolidating Statement of Income
                        Three months ended June 30, 2001
                                 (In thousands)
<TABLE>
<CAPTION>

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

<S>                                                        <C>            <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................   $    --        $ 220,105      $    --        $    --        $ 220,105
    Interest and dividends .............................       6,857          8,864          1,562        (14,488)         2,795
    Equity in income of subsidiaries ...................      37,044           --             --          (37,044)          --
    Insurance recoveries, net ..........................        --            1,929           --             --            1,929
    Other income, net ..................................         282            292           --             --              574
                                                           ---------      ---------      ---------      ---------      ---------

                                                              44,183        231,190          1,562        (51,532)       225,403
                                                           ---------      ---------      ---------      ---------      ---------
Costs and expenses:
    Cost of sales ......................................        --          151,320           --             --          151,320
    Selling, general and administrative ................       4,416         25,124           (204)          --           29,336
    Interest ...........................................      14,564          6,811           --          (14,488)         6,887
                                                           ---------      ---------      ---------      ---------      ---------

                                                              18,980        183,255           (204)       (14,488)       187,543
                                                           ---------      ---------      ---------      ---------      ---------

        Income before income taxes and minority interest      25,203         47,935          1,766        (37,044)        37,860

Income tax expense (benefit) ...........................        (221)        12,290           --             --           12,069
                                                           ---------      ---------      ---------      ---------      ---------

        Income before minority interest ................      25,424         35,645          1,766        (37,044)        25,791

Minority interest ......................................        --                4            363           --              367
                                                           ---------      ---------      ---------      ---------      ---------

        Net income .....................................   $  25,424      $  35,641      $   1,403      $ (37,044)     $  25,424
                                                           =========      =========      =========      =========      =========

</TABLE>

                                      -20-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                   Condensed Consolidating Statement of Income
                        Three months ended June 30, 2000
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                NL         Combined        Combined
                                                            Industries,    Guarantor    Non-guarantor
                                                               Inc.       Subsidiaries   Subsidiaries   Eliminations Consolidated
                                                            -----------   ------------  --------------  ------------ ------------

<S>                                                          <C>           <C>           <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................     $    --       $ 251,126     $    --        $    --        $ 251,126
    Interest and dividends .............................         7,540         5,779         1,402        (12,414)         2,307
    Equity in income of subsidiaries ...................        41,305          --            --          (41,305)          --
    Litigation settlement gains, net ...................        43,000          --            --             --           43,000
    Other income, net ..................................         6,665         1,974          --             --            8,639
                                                             ---------     ---------     ---------      ---------      ---------

                                                                98,510       258,879         1,402        (53,719)       305,072
                                                             ---------     ---------     ---------      ---------      ---------

Costs and expenses:
    Cost of sales ......................................          --         164,033          --             --          164,033
    Selling, general and administrative ................         9,174        27,540           118           --           36,832
    Interest ...........................................        12,563         7,748          --          (12,414)         7,897
                                                             ---------     ---------     ---------      ---------      ---------

                                                                21,737       199,321           118        (12,414)       208,762
                                                             ---------     ---------     ---------      ---------      ---------

        Income before income taxes and minority interest        76,773        59,558         1,284        (41,305)        96,310

Income tax expense .....................................        13,335        19,427          --             --           32,762
                                                             ---------     ---------     ---------      ---------      ---------

        Income before minority interest ................        63,438        40,131         1,284        (41,305)        63,548

Minority interest ......................................          --               4           106           --              110
                                                             ---------     ---------     ---------      ---------      ---------

        Net income .....................................     $  63,438     $  40,127     $   1,178      $ (41,305)     $  63,438
                                                             =========     =========     =========      =========      =========
</TABLE>


                                      -21-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                   Condensed Consolidating Statement of Income
                         Six months ended June 30, 2001
                                 (In thousands)

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

<S>                                                          <C>           <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................     $    --       $ 446,165      $    --        $    --        $ 446,165
    Interest and dividends .............................        13,997        15,459          3,121        (26,583)         5,994
    Equity in income of subsidiaries ...................        74,521          --             --          (74,521)          --
    Litigation settlement gains, net ...................        10,582          --             --             --           10,582
    Insurance recoveries, net ..........................          --           1,929           --             --            1,929
    Other income, net ..................................         1,283           941           --             --            2,224
                                                             ---------     ---------      ---------      ---------      ---------

                                                               100,383       464,494          3,121       (101,104)       466,894
                                                             ---------     ---------      ---------      ---------      ---------
Costs and expenses:
    Cost of sales ......................................          --         301,222           --             --          301,222
    Selling, general and administrative ................        11,057        51,339           (738)          --           61,658
    Interest ...........................................        26,726        13,720           --          (26,583)        13,863
                                                             ---------     ---------      ---------      ---------      ---------

                                                                37,783       366,281           (738)       (26,583)       376,743
                                                             ---------     ---------      ---------      ---------      ---------

        Income before income taxes and minority interest        62,600        98,213          3,859        (74,521)        90,151

Income tax expense .....................................         2,617        26,598           --             --           29,215
                                                             ---------     ---------      ---------      ---------      ---------

        Income before minority interest ................        59,983        71,615          3,859        (74,521)        60,936

Minority interest ......................................          --               9            944           --              953
                                                             ---------     ---------      ---------      ---------      ---------

        Net income .....................................     $  59,983     $  71,606      $   2,915      $ (74,521)     $  59,983
                                                             =========     =========      =========      =========      =========
</TABLE>



                                      -22-

<PAGE>



                                       NL INDUSTRIES, INC. AND SUBSIDIARIES
                                    Condensed Consolidating Statement of Income
                                          Six months ended June 30, 2000
                                                  (In thousands)

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

<S>                                                          <C>           <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................     $    --       $ 482,135      $    --        $    --        $ 482,135
    Interest and dividends .............................        15,174        11,579          2,802        (25,173)         4,382
    Equity in income of subsidiaries ...................       114,458          --             --         (114,458)          --
    Litigation settlement gains, net ...................        43,000          --             --             --           43,000
    Other income, net ..................................         7,777         3,287           --             --           11,064
                                                             ---------     ---------      ---------      ---------      ---------

                                                               180,409       497,001          2,802       (139,631)       540,581
                                                             ---------     ---------      ---------      ---------      ---------

Costs and expenses:
    Cost of sales ......................................          --         323,298           --             --          323,298
    Selling, general and administrative ................        14,205        55,482            535           --           70,222
    Interest ...........................................        25,130        15,796           --          (25,173)        15,753
                                                             ---------     ---------      ---------      ---------      ---------

                                                                39,335       394,576            535        (25,173)       409,273
                                                             ---------     ---------      ---------      ---------      ---------

        Income before income taxes and minority interest       141,074       102,425          2,267       (114,458)       131,308

Income tax expense (benefit) ...........................        53,928        (9,967)          --             --           43,961
                                                             ---------     ---------      ---------      ---------      ---------

        Income before minority interest ................        87,146       112,392          2,267       (114,458)        87,347

Minority interest ......................................          --              25            176           --              201
                                                             ---------     ---------      ---------      ---------      ---------

        Net income .....................................     $  87,146     $ 112,367      $   2,091      $(114,458)     $  87,146
                                                             =========     =========      =========      =========      =========
</TABLE>



                                      -23-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                 Condensed Consolidating Statement of Cash Flows
                         Six months ended June 30, 2001
                                 (In thousands)

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

<S>                                                         <C>          <C>          <C>          <C>          <C>
Net cash provided (used) by operating activities .......    $ 14,106     $ 47,889     $   (929)    $(15,805)    $  45,261
                                                            --------     --------     --------     --------     ---------

Cash flows from investing activities:
    Capital expenditures ...............................        --        (17,705)        --           --         (17,705)
    Loans to affiliates ................................        --           --        (33,150)        --         (33,150)
    Change in restricted cash ..........................       4,877         --           --         (4,195)          682
    Other, net .........................................           7        4,534           (8)           8         4,541
                                                            --------     --------     --------     --------     ---------

        Net cash provided (used) by investing activities       4,884      (13,171)     (33,158)      (4,187)      (45,632)
                                                            --------     --------     --------     --------     ---------

Cash flows from financing activities:
    Dividends, net .....................................     (19,993)     (20,000)        --         20,000       (19,993)
    Treasury stock:
        Purchased ......................................      (2,718)        --           --           --          (2,718)
        Reissued .......................................         606         --           --           --             606
    Indebtedness:
        Borrowings .....................................        --          1,437         --           --           1,437
        Principal payments .............................        --         (6,990)        --           --          (6,990)
    Other, net .........................................        --              3         --             (8)           (5)
                                                            --------     --------     --------     --------     ---------

        Net cash provided (used) by financing activities     (22,105)     (25,550)        --         19,992       (27,663)
                                                            --------     --------     --------     --------     ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..      (3,115)       9,168      (34,087)        --         (28,034)
        Currency translation ...........................           1       (3,274)          (3)        --          (3,276)
                                                            --------     --------     --------     --------     ---------
                                                              (3,114)       5,894      (34,090)        --         (31,310)
    Balance at beginning of year .......................       3,632       52,979       63,767         --         120,378
                                                            --------     --------     --------     --------     ---------

    Balance at end of year .............................    $    518     $ 58,873     $ 29,677     $   --       $  89,068
                                                            ========     ========     ========     ========     =========

</TABLE>


                                      -24-

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                 Condensed Consolidating Statement of Cash Flows
                         Six months ended June 30, 2000
                                 (In thousands)

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

<S>                                                         <C>          <C>           <C>          <C>          <C>
Net cash provided (used) by operating activities .......    $ 19,927     $  89,698     $   (107)    $(38,000)    $  71,518
                                                            --------     ---------     --------     --------     ---------

Cash flows from investing activities:
    Capital expenditures ...............................        --         (12,598)        --           --         (12,598)
    Purchase of Tremont Corporation common stock .......      (9,520)         --           --           --          (9,520)
    Change in restricted cash ..........................         459          --           --           --             459
    Loans to affiliates ................................        --         (73,872)      68,000        5,872          --
    Other, net .........................................          22            86         --           --             108
                                                            --------     ---------     --------     --------     ---------

        Net cash provided (used) by investing activities      (9,039)      (86,384)      68,000        5,872       (21,551)
                                                            --------     ---------     --------     --------     ---------

Cash flows from financing activities:
    Treasury stock:
        Purchased ......................................     (13,959)         --           --           --         (13,959)
        Reissued .......................................         470          --           --           --             470
    Dividends, net .....................................     (15,161)      (38,000)        --         38,000       (15,161)
    Principal payments on debt .........................        --         (16,830)        --           --         (16,830)
    Loans from affiliates ..............................       5,872          --           --         (5,872)         --
    Other, net .........................................        --              (7)        --           --              (7)
                                                            --------     ---------     --------     --------     ---------

        Net cash provided (used) by financing activities     (22,778)      (54,837)        --         32,128       (45,487)
                                                            --------     ---------     --------     --------     ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..     (11,890)      (51,523)      67,893         --           4,480
        Currency translation ...........................        --          (1,072)          (3)        --          (1,075)
                                                            --------     ---------     --------     --------     ---------
                                                             (11,890)      (52,595)      67,890         --           3,405
    Balance at beginning of year .......................      13,415       113,062        7,747         --         134,224
                                                            --------     ---------     --------     --------     ---------

    Balance at end of year .............................    $  1,525     $  60,467     $ 75,637     $   --       $ 137,629
                                                            ========     =========     ========     ========     =========
</TABLE>


                                      -25-

<PAGE>



Note 14 - Commitments and contingencies:

         For  descriptions  of certain legal  proceedings,  income tax and other
commitments and contingencies  related to the Company,  reference is made to (i)
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  (ii) Part II,  Item 1 - "Legal  Proceedings,"  (iii) the  Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 2001, and (iv) the
2000 Annual Report.




                                      -26-

<PAGE>



MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------


RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                             Three months ended           %           Six months ended        %
                                                   June  30,           Change             June  30,        Change
                                           ----------------------      ------      --------------------    ------
                                              2001        2000                      2001          2000
                                              ----        ----                      ----          ----
                                                   (In millions, except percentages and metric tons)

<S>                                          <C>         <C>            <C>         <C>         <C>         <C>
Net sales and operating income
    Net sales .......................        $220.1      $251.1         -12%        $446.2      $482.1       -7%
    Operating income ................        $ 45.2      $ 62.7         -28%        $ 97.1      $109.0      -11%
    Operating income margin
      percentage ....................           21%         25%                        22%         23%

TiO2 operating statistics
    Percent change in average selling
      price (in billing currencies) .                                    +1%                                 +3%
    Sales volume (metric tons in
      thousands) ....................           105         120         -13%           208         231      -10%
    Production volume (metric tons
      in thousands) .................            99         110         -10%           207         215       -4%

</TABLE>

         Kronos'  operating income in the second quarter of 2001 decreased $17.5
million or 28% from the second quarter of 2000 due to lower sales and production
volumes,  partially  offset by slightly higher average selling prices in billing
currencies.  Kronos'  operating income in the first half of 2001 decreased $11.9
million  or 11% from the first  half of 2000 due to lower  sales and  production
volumes,   partially   offset  by  higher  average  selling  prices  in  billing
currencies.

         Kronos' average selling price in billing currencies (which excludes the
effects of foreign currency  translation)  during the second quarter of 2001 was
slightly  higher  than the  second  quarter  of 2000 and 2% lower than the first
quarter  of 2001.  Compared  to the first  quarter  of 2001,  prices in  billing
currencies were lower in all major markets. The average selling price in billing
currencies in June was 1% lower than the average selling price during the second
quarter as prices continued to trend downward.  Kronos' average selling price in
billing  currencies for the first half of 2001 was 3% higher than the first half
of 2000 due to higher European prices,  partially offset by lower North American
and export prices.  Based on the global economic  slowdown,  the Company expects
its average selling price in billing  currencies will continue to trend downward
into  the  fourth  quarter,  resulting  in a lower  average  selling  price  for
full-year 2001 compared to the full-year average selling price in 2000.

         Kronos'  second-quarter 2001 sales volume decreased 13% from the record
second  quarter of 2000 and increased 1% from the first  quarter of 2001.  Sales
volume in the second quarter of 2001 was lower in all major markets  compared to
the second quarter of 2000.  Compared to the first quarter of 2001, sales volume
increased  by 13% in  North  America  while  the  European  and  export  markets
decreased 4% and 10%,  respectively.  Sales volume in the first half of 2001 was
10% lower  than the  record  first half of 2000.  Kronos  anticipates  its sales
volume  for  full-year  2001  will be lower  than that of 2000.  Finished  goods
inventory  levels at the end of June  decreased  7% from March  2001  levels and
represent about two months of sales.



                                      -27-

<PAGE>



         Second-quarter 2001 production volume was 10% lower than the comparable
2000 period with  operating  rates at 87% in the second quarter of 2001 compared
to near full capacity in the second quarter of 2000.  Kronos'  production volume
in the  first  half of 2001  was 4%  lower  than  the  first  half of 2000  with
operating  rates at 93% in the first half of 2001 compared to near full capacity
in the first half of 2000. The lower production  volume was primarily related to
lost sulfate-process production at the Company's Leverkusen facility. Production
at the Company's  Leverkusen  facility was adversely  affected late in the first
quarter by a fire on March 20, 2001. See Note 12 to the  Consolidated  Financial
Statements.  Production rates at the Company's Leverkusen chloride-process plant
returned to full capacity in April, and the Company's Leverkusen sulfate-process
plant  is  expected  to be  over  50%  operational  in  August  2001  and  fully
operational  in October  2001.  Kronos  anticipates  its  production  volume for
full-year 2001 will be lower than that of 2000.

         The  Company  believes  that the damage to  property  and the  business
interruption losses caused by the fire are covered by insurance,  but the effect
on the  financial  results  of the  Company on a  quarter-to-quarter  basis or a
year-to-year basis will depend on the timing and amount of insurance recoveries.
During the second quarter of 2001, the Company's  insurance  carriers approved a
partial  payment of $10.5 million ($9 million  received as of June 30, 2001) for
property damage costs and business  interruption losses caused by the Leverkusen
fire. Five million dollars of this payment represented partial  compensation for
business  interruption losses which was recorded as a reduction of cost of sales
to offset  unallocated  period costs that  resulted  from lost  production.  The
remaining $5.5 million represented  property damage recoveries against which the
Company  recorded $3.6 million of expenses related to destroyed asset write-offs
and  related  clean-up  costs,   resulting  in  a  net  gain  of  $1.9  million.
Negotiations with the insurance carrier group continue,  and the Company expects
to receive  additional  insurance  recoveries  for property  damage and business
interruption losses. The Company did not recognize additional insurance proceeds
in  the  second   quarter  of  2001  because  the  amounts  are  not   presently
determinable.

         Kronos  expects  its  full-year  2001   operating   income,   excluding
fire-related  insurance  recoveries for property  damage,  will be significantly
lower than 2000  primarily  because of lower average  selling  prices in billing
currencies, lower sales and production volumes and higher energy costs.

         Compared to the year-earlier  periods, cost of sales as a percentage of
net sales  increased in both the second quarter and first half of 2001 primarily
due to lower  production  volume.  Excluding  the  effects of  foreign  currency
translation,  which  decreased the Company's  expenses in the second quarter and
first half of 2001 compared to  year-earlier  periods,  the  Company's  selling,
general and administrative expenses, excluding corporate expenses, in the second
quarter and first half of 2001 were slightly lower compared to the  year-earlier
periods.

         A  significant   amount  of  Kronos'  sales  and  operating  costs  are
denominated in currencies other than the U.S. dollar.  Fluctuations in the value
of the U.S.  dollar  relative to other  currencies,  primarily  a stronger  U.S.
dollar  compared to the euro in the second quarter and first half of 2001 versus
the  year-earlier  periods,  decreased  the dollar  value of sales in the second
quarter  and  first  half  of  2001  by  a  net  $7  million  and  $18  million,
respectively,  when compared to the year-earlier  periods.  When translated from
billing  currencies to U.S.  dollars using currency  exchange  rates  prevailing
during the respective  periods,  Kronos'  second-  quarter 2001 average  selling
price in U.S.  dollars  was 2% lower than in the  second  quarter of 2000 and 4%
lower than the first  quarter of 2001.  Kronos'  average  selling  price in U.S.
dollars for the first half of 2001 decreased 1% from the first half of 2000. The
effect of the  stronger  U.S.  dollar on  Kronos'  operating  costs that are not
denominated in U.S.  dollars  reduced  operating costs in the second quarter and
first half of 2001 compared to the year-earlier  periods. In addition,  sales to
export markets are typically denominated in U.S.

                                      -28-

<PAGE>



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 the second quarter and first
half of 2001 was not significant when compared to the year-earlier periods.

  General corporate

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

<TABLE>
<CAPTION>
                            Three months ended                        Six months ended
                                 June 30,           Difference           June 30,             Difference
                          ----------------------    ----------     -----------------------    ----------
                             2001         2000                        2001          2000
                             ----         ----                        ----          ----
                                                           (In millions)

<S>                        <C>           <C>           <C>           <C>           <C>           <C>
Securities earnings.       $   1.2       $   7.4       $  (6.2)      $   3.8       $   9.2       $  (5.4)
Corporate income ...           1.4          44.1         (42.7)         13.0          45.2         (32.2)
Corporate expense ..          (4.9)        (10.0)          5.1         (11.7)        (16.3)          4.6
Interest expense ...          (6.9)         (7.9)          1.0         (13.9)        (15.8)          1.9
                           -------       -------       -------       -------       -------       -------

                           $  (9.2)      $  33.6       $ (42.8)      $  (8.8)      $  22.3       $ (31.1)
                           =======       =======       =======       =======       =======       =======
</TABLE>

         Securities  earnings  in the  second  quarter  and  first  half of 2001
declined  from the  comparable  periods in 2000  primarily due to a $5.6 million
second-quarter  2000  securities  gain related to common stock received from the
demutualization  of an insurance  company  from which the Company had  purchased
certain insurance policies.

         Corporate income in the first quarter of 2001 and the second quarter of
2000 includes  litigation  settlement gains with former insurance carrier groups
of $10.6 million and $43 million,  respectively. See Note 11 to the Consolidated
Financial  Statements.  No further material  settlements  relating to litigation
concerning environmental remediation coverage are expected.

         Corporate  expense  in the  second  quarter  and first half of 2001 was
lower  than the  year-earlier  periods,  primarily  due to  lower  environmental
remediation accruals and lower legal fees.

         Interest expense in the second quarter and first half of 2001 decreased
13% and 12%, respectively,  from the comparable periods in 2000 primarily due to
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 and lower levels of outstanding debt. At the end of the second quarter
of 2001, the Company repaid $6.5 million of its euro-denominated short-term debt
with excess cash flow from  operations.  The Company  expects its full-year 2001
interest expense will be lower than full-year 2000.

  Provision for income taxes

         The Company reduced its deferred income tax valuation allowance by $1.1
million  in the first  half of 2001 and $1.3  million  in the first half of 2000
primarily as a result of  utilization  of certain tax  attributes  for which the
benefit  had not been  previously  recognized  under the  "more-likely-than-not"
recognition criteria.


                                      -29-

<PAGE>



  Other

         Minority  interest  primarily  relates to the Company's  majority-owned
environmental management subsidiary,  NL Environmental Management Services, Inc.
("EMS").

LIQUIDITY AND CAPITAL RESOURCES

         The Company's  consolidated  cash flows from  operating,  investing and
financing  activities  for the six  months  ended  June  30,  2001  and 2000 are
presented below.

<TABLE>
<CAPTION>
                                                                                     Six months ended
                                                                                          June 30,
                                                                                     -----------------
                                                                                      2001       2000
                                                                                     -------   -------
                                                                                       (In millions)

<S>                                                                                  <C>       <C>
Net cash provided (used) by:
    Operating activities:
        Before changes in assets and liabilities ................................    $  71.8   $  80.1
        Changes in assets and liabilities .......................................      (26.5)     (8.6)
                                                                                     -------   -------
                                                                                        45.3      71.5
  Investing activities ..........................................................      (45.6)    (21.6)
  Financing activities ..........................................................      (27.7)    (45.4)
                                                                                     -------   -------

      Net cash provided (used) by operating, investing, and financing activities     $ (28.0)  $   4.5
                                                                                     =======   =======
</TABLE>

  Operating activities

         The TiO2 industry is cyclical and changes in economic conditions within
the industry  significantly  affect the earnings and operating cash flows of the
Company. Cash flow from operations, before changes in assets and liabilities, in
the first half of 2001 decreased  from the  comparable  period in 2000 primarily
due to  lower  operating  income.  The net  cash  used to  fund  changes  in the
Company's  inventories,  receivables  and  payables  (excluding  the  effect  of
currency translation) in the first half of 2001 was significantly higher than in
the  first  half of 2000 due to  higher  inventory  balances  and  decreases  in
accounts payable and accrued liabilities in the first half of 2001.

  Investing activities

         In February  2001, EMS loaned $13.4 million to Tremont under a reducing
revolving loan agreement.  See Note 1 to the Consolidated  Financial Statements.
The loan was approved by special committees of the Company's and EMS's Boards of
Directors.  The loan bears interest at prime plus 2% (10% at June 30, 2001),  is
due March 31, 2003 and is  collateralized  by 10.2  million  shares of NL common
stock owned by Tremont.  The maximum  amount  available for borrowing by Tremont
reduces by $250,000 per quarter.  The first reduction occurred on June 30, 2001,
at which time Tremont repaid $250,000 of the loan.

         In May 2001, a wholly owned subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"),  one of the trusts described in
Note 1 to  the  Consolidated  Financial  Statements,  under  a new  $25  million
revolving credit agreement.  The loan was approved by special  committees of the
Company's and EMS's Boards of Directors.  The loan bears interest at prime (7.5%
at June 30, 2001), is due

                                      -30-

<PAGE>



on  demand  with 60 days  notice  and is  collateralized  by 15,768  shares,  or
approximately 40%, of Contran's outstanding Class A voting common stock which is
owned by the Trust.

         The Company  received  $5.5 million of insurance  proceeds for property
damage  resulting  from the  Leverkusen  fire and paid $1  million  of  expenses
related to repairs and clean-up costs.

  Financing activities

         At the end of the second  quarter of 2001,  the Company repaid euro 7.6
million ($6.5 million when paid) of its  euro-denominated  short-term  debt with
excess cash flow from operations.

         In the second  quarter of 2001,  the Company  paid a regular  quarterly
dividend to shareholders of $.20 per share,  aggregating $10 million.  Dividends
paid during the first half of 2001  totaled  $.40 per share or $20  million.  On
July 24, 2001,  the Company's  Board of Directors  declared a regular  quarterly
dividend of $.20 per share to shareholders of record as of September 14, 2001 to
be paid on September 28, 2001.

         Pursuant to its share repurchase program, the Company purchased 212,000
shares of its common  stock at an  aggregate  cost of $2.7 million in the second
quarter of 2001.  An  additional  192,000  shares at an  aggregate  cost of $2.8
million were purchased in July 2001, with 362,000 shares  remaining for purchase
under the repurchase program.

  Cash, cash equivalents, restricted cash equivalents and borrowing availability

         At June 30, 2001, the Company had cash and cash equivalents aggregating
$89 million ($47 million held by non-U.S.  subsidiaries)  and an additional  $95
million of restricted cash equivalents held by U.S.  subsidiaries,  of which $17
million was classified as a noncurrent asset. The Company's subsidiaries had $12
million available for borrowing at June 30, 2001 under existing non-U.S.  credit
facilities.

  Income tax contingencies

         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 received tax assessments from the Norwegian tax authorities
proposing tax  deficiencies,  including  related  interest,  of NOK 39.3 million
pertaining to 1994 and 1996. The Company was  unsuccessful  in appealing the tax
assessments  and in June 2001 paid NOK 39.3 million  ($4.3 million when paid) to
the  Norwegian tax  authorities.  The Company was  adequately  reserved for this
contingency.  The  Company  has  requested  the  release  of  the  lien  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 12.9 million ($11.1 million at June 30,
2001).  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 is without merit.


                                      -31-

<PAGE>



         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.

  Environmental matters and litigation

         The  Company  has been named as a  defendant,  potentially  responsible
party  ("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.  Environmental  Protection  Agency's (the "U.S.
EPA") 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 ($109 million at June 30, 2001) for reasonably estimable costs
of such  matters,  but the  Company's  ultimate  liability  may be affected by a
number of factors,  including changes in remedial alternatives and costs and the
allocations  of such costs among PRPs.  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 for 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.  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.

  Lead pigment litigation

         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. 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. The Company currently believes the
disposition  of all  claims and  disputes,  individually  and in the  aggregate,
should not have a material adverse

                                      -32-

<PAGE>



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 1 - "Legal Proceedings."

  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 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, and loans to, 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.

  Special note regarding forward-looking statements

         The  statements  contained  in this  Report  on Form  10-Q  ("Quarterly
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements  found under the captions  "Results of Operations" and "Liquidity and
Capital  Resources"  above,  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,  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,  changes in
product  costing,  changes  in  foreign  currency  exchange  rates,  competitive
technology positions,  operating interruptions  (including,  but not limited to,
labor   disputes,   leaks,   fires,   explosions,   unscheduled   downtime   and
transportation  interruptions),  recoveries from insurance claims and the timing
thereof,  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
this Quarterly Report and in the 2000 Annual Report,  and the  uncertainties set
forth from time to time in the  Company's  other  public  reports  and  filings.
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  disclaims any intention or obligation to update publicly or revise such
statements whether as a result of new information, future events or otherwise.



                                      -33-

<PAGE>



                           PART II. OTHER INFORMATION

ITEM 1.      LEGAL PROCEEDINGS

             Reference  is made to the  2000  Annual  Report  and the  Company's
Quarterly  Report  on Form  10-Q  for the  quarter  ended  March  31,  2001  for
descriptions of certain previously reported legal proceedings.

             City of St.  Louis v.  Lead  Industries  Association,  et al.  (No.
002-245). In June 2001 defendants moved to dismiss all claims. The court has not
ruled.

             County of Santa Clara v. Atlantic  Richfield  Company,  et al. (No.
CV788657).  In June 2001 the court granted the previously described motions with
respect to privately  owned  buildings  and with respect to the nuisance  claim,
with leave to replead, and otherwise denied the motions.

             City of  Milwaukee v. N. L.  Industries,  Inc. and Mautz Paint (No.
01CV003088).  The Company was served in May 2001 and answered  the  complaint in
August 2001 denying all wrongdoing.

             Harris County,  Texas v. Lead Industries  Association,  et al. (No.
2001-21413).  The Company was served in May 2001 and answered  the  complaint in
June 2001 denying all wrongdoing.

             In June 2001 a  complaint  was  filed in  Jefferson  County  School
District v. Lead  Industries  Association,  et al.  (Circuit  Court of Jefferson
County,  Mississippi,  Case No. 2001-69).  The complaint seeks joint and several
liability for  compensatory and punitive damages for the abatement of lead paint
in  Jefferson  County  Schools from the Company,  former  manufacturers  of lead
pigment and paint and local  retailers.  The complaint  asserts strict liability
design  defect and marketing  defect,  negligent  product  design and failure to
warn,  fraudulent  misrepresentation,  negligent  misrepresentation,  concert of
action, public nuisance,  restitution,  and conspiracy.  The Company answered in
July 2001  denying all  allegations  of  wrongdoing  and has removed the case to
Federal Court.

             It is possible that other governmental entities or other plaintiffs
may file claims  related to lead  pigment and paint  similar to those  described
above and in the 2000 Annual Report.


ITEM 6.      EXHIBITS AND REPORTS ON FORM 8-K

             (a)   Exhibits

                   10.1 -  Intercorporate  Services  Agreement  by  and  between
                   Titanium Metals  Corporation and the Registrant  effective as
                   of January 1, 2001.

             (b)   Reports on Form 8-K

                   There were no Reports  on Form 8-K filed  during the  quarter
                   ended June 30, 2001 and through the date of this report.



                                      -34-

<PAGE>



                                   SIGNATURES


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





                                                    NL INDUSTRIES, INC.
                                                -------------------------------
                                                       (Registrant)



Date:  August 7, 2001                    By     /s/ Susan E. Alderton
---------------------                           -------------------------------
                                                Susan E. Alderton
                                                  Vice President and
                                                  Chief Financial Officer
                                                  (Principal Financial Officer)



Date:  August 7, 2001                    By     /s/ Robert D. Hardy
---------------------                           -------------------------------
                                                Robert D. Hardy
                                                  Vice President and Controller
                                                  (Principal Accounting Officer)

                                      -35-