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 September 30, 1998

                                      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 November 9, 1998:  52,127,813


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                                     INDEX




                                                                         Page
PART I.     FINANCIAL INFORMATION

  Item 1.   Financial Statements.

            Consolidated Balance Sheets - December 31, 1997
             and September 30, 1998                                       3-4

            Consolidated Statements of Income - Three months
             and nine months ended September 30, 1997 and 1998            5-6

            Consolidated Statements of Comprehensive Income
             - Three months and nine months ended September 30,
             1997 and 1998                                                 7

            Consolidated Statement of Shareholders' Equity
             - Nine months ended September 30, 1998                        8

            Consolidated Statements of Cash Flows - Nine
             months ended September 30, 1997 and 1998                    9-10

            Notes to Consolidated Financial Statements                   11-17

  Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations                         18-25


PART II.    OTHER INFORMATION

  Item 1.   Legal Proceedings                                             25

  Item 6.   Exhibits and Reports on Form 8-K                             25-26


                                   - 2 -

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

                                (In thousands)


<TABLE>
<CAPTION>


                                                     December 31,  September 30,
              ASSETS                                      1997          1998
                                                     ------------  -------------
<S>                                                    <C>            <C>       
Current assets:
  Cash and cash equivalents, including
   restricted cash of $9,751 and $12,660 .........     $  106,145     $  320,823
  Accounts and notes receivable ..................        148,676        157,829
  Refundable income taxes ........................          1,941         10,377
  Inventories ....................................        192,780        191,568
  Prepaid expenses ...............................          3,348          6,635
  Deferred income taxes ..........................          1,642          1,923
                                                       ----------     ----------

      Total current assets .......................        454,532        689,155
                                                       ----------     ----------


Other assets:
  Marketable securities ..........................         17,270         20,057
  Investment in joint ventures ...................        172,721        171,202
  Prepaid pension cost ...........................         23,848         24,258
  Other ..........................................         18,592         12,554
                                                       ----------     ----------

      Total other assets .........................        232,431        228,071
                                                       ----------     ----------

Property and equipment:
  Land ...........................................         19,479         19,509
  Buildings ......................................        150,090        142,484
  Machinery and equipment ........................        616,309        581,255
  Mining properties ..............................         88,617         82,636
  Construction in progress .......................          2,577          8,420
                                                       ----------     ----------
                                                          877,072        834,304
  Less accumulated depreciation and depletion ....        465,843        454,275
                                                       ----------     ----------

      Net property and equipment .................        411,229        380,029
                                                       ----------     ----------

                                                       $1,098,192     $1,297,255
                                                       ==========     ==========
</TABLE>


                                   - 3 -

<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                    CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                (In thousands)

<TABLE>
<CAPTION>



                                                  December 31,    September 30,
    LIABILITIES AND SHAREHOLDERS' EQUITY              1997            1998
                                                  ------------    -------------

<S>                                                 <C>             <C>        
Current liabilities:
  Notes payable ................................    $    13,968     $    35,864
  Current maturities of long-term debt .........         77,374         184,460
  Accounts payable and accrued liabilities .....        161,730         206,260
  Payable to affiliates ........................         11,512          10,726
  Income taxes .................................         10,910          14,108
  Deferred income taxes ........................            891             931
                                                    -----------     -----------

      Total current liabilities ................        276,385         452,349
                                                    -----------     -----------

Noncurrent liabilities:
  Long-term debt ...............................        666,779         304,060
  Deferred income taxes ........................        132,797         190,310
  Accrued pension cost .........................         44,389          41,738
  Accrued postretirement benefits cost .........         50,951          43,492
  Other ........................................        148,903         118,312
                                                    -----------     -----------

      Total noncurrent liabilities .............      1,043,819         697,912
                                                    -----------     -----------

Minority interest ..............................            257             624
                                                    -----------     -----------

Shareholders' equity:
  Common stock .................................          8,355           8,355
  Additional paid-in capital ...................        759,281         773,864
  Accumulated deficit ..........................       (495,421)       (144,800)
  Accumulated other comprehensive loss .........       (129,513)       (126,170)
  Treasury stock ...............................       (364,971)       (364,879)
                                                    -----------     -----------

      Total shareholders' equity (deficit) .....       (222,269)        146,370
                                                    -----------     -----------

                                                    $ 1,098,192     $ 1,297,255
                                                    ===========     ===========

Commitments and contingencies (Note 14)
</TABLE>

         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        Nine months ended
                                     September 30,            September 30,
                                ----------------------    ----------------------
                                   1997         1998         1997         1998
                                ---------    ---------    ---------    ---------

<S>                             <C>          <C>          <C>          <C>      
Revenues and other income:
  Net sales .................   $ 210,344    $ 221,520    $ 629,087    $ 685,794
  Other, net ................       2,956        7,500       11,718       20,769
                                ---------    ---------    ---------    ---------

                                  213,300      229,020      640,805      706,563
                                ---------    ---------    ---------    ---------

Costs and expenses:
  Cost of sales .............     162,499      151,782      502,353      476,026
  Selling, general and
   administrative ...........      30,994       32,069      130,595       98,337
  Interest ..................      16,445       15,066       49,160       46,917
                                ---------    ---------    ---------    ---------

                                  209,938      198,917      682,108      621,280
                                ---------    ---------    ---------    ---------

     Income (loss) from
      continuing operations
      before income taxes and
      minority interest .....       3,362       30,103      (41,303)      85,283

Income tax expense (benefit)         (608)      (1,273)      (1,714)      14,174
                                ---------    ---------    ---------    ---------

     Income (loss) from 
      continuing operations
      before minority
      interest ..............       3,970       31,376      (39,589)      71,109

Minority interest ...........          23           17           72           36
                                ---------    ---------    ---------    ---------

     Income (loss) from 
      continuing operations .       3,947       31,359      (39,661)      71,073

Discontinued operations             5,814         --         15,956      287,396
Extraordinary item - early 
 extinguishment of debt, net
 of tax benefit of $1,293 and
 $2,568, respectively .......        --         (2,400)        -          (4,766)
                                ---------    ---------    ---------    ---------

      Net income (loss) .....   $   9,761    $  28,959    $ (23,705)   $ 353,703
                                =========    =========    =========    =========

</TABLE>



                                   - 5 -


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                    (In thousands, except per share data)



<TABLE>
<CAPTION>

                                       Three months ended           Nine months ended
                                          September 30,               September 30,
                                     -----------------------    ------------------------
                                        1997         1998          1997           1998
                                     ----------   ----------    ----------    ----------

<S>                                  <C>          <C>           <C>           <C>       
Basic earnings per share:
  Continuing operations ..........   $      .08   $      .61    $     (.78)   $     1.38
  Discontinued operations ........          .11         --             .32          5.60
  Extraordinary item .............         --           (.05)         --            (.09)
                                     ----------   ----------    ----------    ----------

    Net income (loss) ............   $      .19   $      .56    $     (.46)   $     6.89
                                     ==========   ==========    ==========    ==========


Diluted earnings per share:
  Continuing operations ..........   $      .08   $      .60    $     (.78)   $     1.37
  Discontinued operations ........          .11         --             .32          5.52
  Extraordinary item .............         --           (.05)         --           (0.09)
                                     ----------   ----------    ----------    ----------

    Net income (loss) ............   $      .19   $      .55    $     (.46)   $     6.80
                                     ==========   ==========    ==========    ==========

Shares used in the calculation
 of earnings per share:
  Basic ..........................       51,146       51,444        51,143        51,356
  Dilutive impact of stock options          439          750          --             668
                                     ----------   ----------    ----------    ----------

  Diluted ........................       51,585       52,194        51,143        52,024
                                     ==========   ==========    ==========    ==========
</TABLE>


         See accompanying notes to consolidated financial statements.
                                   - 6 -


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                (In thousands)


<TABLE>
<CAPTION>

                                       Three months ended     Nine months ended
                                          September 30,         September 30,
                                      -------------------   --------------------
                                        1997       1998       1997        1998
                                      --------   --------   --------    --------

<S>                                   <C>        <C>        <C>         <C>     
Net income (loss) .................   $  9,761   $ 28,959   $(23,705)   $353,703
                                      --------   --------   --------    --------

Other comprehensive income
 (loss), net of tax:
  Marketable securities
   adjustment .....................      2,862        913      4,829       1,812
  Currency translation
   adjustment .....................        935      4,603     (6,570)      1,531
                                      --------   --------   --------    --------
    Total other comprehensive
     income (loss) ................      3,797      5,516     (1,741)      3,343
                                      --------   --------   --------    --------

  Comprehensive income (loss) .....   $ 13,558   $ 34,475   $(25,446)   $357,046
                                      ========   ========   ========    ========

</TABLE>



         See accompanying notes to consolidated financial statements.
                                   - 7 -


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                     Nine months ended September 30, 1998

                                (In thousands)
<TABLE>
<CAPTION>

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

<S>                                      <C>          <C>          <C>           <C>           <C>          <C>           <C>       
Balance at December 31, 1997 .........   $   8,355    $ 759,281    $(495,421)    $(133,810)    $   4,297    $(364,971)    $(222,269)

Net income ...........................        --           --        353,703          --            --           --         353,703

Other comprehensive income (loss), net        --           --           --           1,531         1,812         --           3,343

Dividends ............................        --           --         (3,082)         --            --           --          (3,082)

Cash received upon settlement of
 shareholder derivative lawsuit, net
 of $3,198 in legal fees and expenses         --         11,211         --            --            --           --          11,211

Tax benefit of stock options exercised        --          3,372         --            --            --           --           3,372

Treasury stock reissued ..............        --           --           --            --            --             92            92
                                         ---------    ---------    ---------     ---------     ---------    ---------     ---------

Balance at September 30, 1998 ........   $   8,355    $ 773,864    $(144,800)    $(132,279)    $   6,109    $(364,879)    $ 146,370
                                         =========    =========    =========     =========     =========    =========     =========

</TABLE>





         See accompanying notes to consolidated financial statements.
                                   - 8 -


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                 Nine months ended September 30, 1997 and 1998

                                (In thousands)


<TABLE>
<CAPTION>

                                                           1997         1998
                                                        ---------     ---------

<S>                                                     <C>           <C>      
Cash flows from operating activities:
  Net income (loss) ................................    $ (23,705)    $ 353,703
  Depreciation, depletion and amortization .........       25,711        25,531
  Noncash interest expense .........................       17,040        17,291
  Deferred income taxes ............................       (1,910)        1,958
  Change in accounting for environmental
   remediation costs ...............................       30,000          --
  Discontinued operations:
    Net gain from sale of Rheox ....................         --        (286,071)
    Income from operations of Rheox ................      (15,956)       (1,325)
  Other, net .......................................       (9,848)       (9,453)
                                                        ---------     ---------

                                                           21,332       101,634

  Change in assets and liabilities:
    Accounts and notes receivable ..................      (29,417)      (26,697)
    Inventories ....................................       45,742       (13,670)
    Prepaid expenses ...............................       (2,967)       (3,501)
    Accounts payable and accrued liabilities .......       14,162        12,994
    Income taxes ...................................        7,293       (14,572)
    Other, net .....................................       (5,598)       11,808
  Rheox, net .......................................       20,266       (25,864)
                                                        ---------     ---------

      Net cash provided by operating activities ....       70,813        42,132
                                                        ---------     ---------

Cash flows from investing activities:
  Proceeds from sale of Rheox ......................         --         435,080
  Capital expenditures .............................      (22,154)      (12,731)
  Collection of note receivable ....................         --           6,875
  Investment in joint venture, net .................        5,836          (371)
  Proceeds from disposition of property
   and equipment ...................................        2,912           486
  Rheox, net .......................................       (1,185)          (26)
                                                        ---------     ---------
      Net cash provided (used) by investing
       activities ..................................      (14,591)      429,313
                                                        ---------     ---------
</TABLE>



                                   - 9 -


<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

               CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                 Nine months ended September 30, 1997 and 1998

                                (In thousands)


<TABLE>
<CAPTION>


                                                           1997         1998
                                                         ---------    ---------

<S>                                                      <C>          <C>      
Cash flows from financing activities:
  Indebtedness:
    Borrowings .......................................   $    --      $  30,491
    Principal payments ...............................    (173,739)    (170,853)
    Deferred financing costs .........................      (2,343)        --
  Settlement of shareholder derivative lawsuit, net ..        --         11,211
  Dividends ..........................................        --         (3,082)
  Rheox, net .........................................     108,775     (117,500)
  Other, net .........................................         252           90
                                                         ---------    ---------

      Net cash used by financing activities ..........     (67,055)    (249,643)
                                                         ---------    ---------

Cash and cash equivalents:
  Net change from:
    Operating, investing and financing activities ....     (10,833)     221,802
    Currency translation .............................      (1,068)         506
    Sale of Rheox ....................................        --         (7,630)
  Balance at beginning of period .....................     114,115      106,145
                                                         ---------    ---------

  Balance at end of period ...........................   $ 102,214    $ 320,823
                                                         =========    =========


Supplemental disclosures - cash paid for:
  Interest, net of amounts capitalized ...............   $  35,262    $  21,972
  Income taxes, net ..................................       1,317       47,839

</TABLE>



         See accompanying notes to consolidated financial statements.
                                   - 10 -


<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. In January 1998 the
specialty  chemicals business of Rheox,  Inc., a wholly-owned  subsidiary of NL,
was sold.  At  September  30, 1998 Valhi,  Inc.  and Tremont  Corporation,  each
affiliates of Contran Corporation, held approximately 58% and 19%, respectively,
of NL's  outstanding  common stock, and together may be deemed to control NL. At
September  30,  1998  Contran and its  subsidiaries  held  approximately  92% of
Valhi's outstanding common stock, and Valhi and other entities related to Harold
C. Simmons held approximately 53% of Tremont's outstanding common stock.

      The  consolidated  balance sheet of NL Industries,  Inc. and  Subsidiaries
(collectively,  the  "Company") at December 31, 1997 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated balance sheet at September 30, 1998 and the consolidated statements
of income,  comprehensive  income,  shareholders'  equity and cash flows for the
interim  periods  ended  September  30, 1997 and 1998 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,  including  reporting
the Company's  specialty  chemicals  business as a discontinued  operation.  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,  1997 (the  "1997  Annual
Report").

      The  Company  will  adopt  Statement  of  Financial  Accounting  Standards
("SFAS") No. 133, Accounting for Derivative  Instruments and Hedging Activities,
no later than the first  quarter of 2000.  SFAS No. 133  establishes  accounting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives  will be recognized as either assets or liabilities  and measured at
fair value.  The accounting for changes in fair value of derivatives will depend
upon the intended use of the derivative.  The Company is currently studying this
newly-issued  accounting  rule, and the impact of adopting SFAS No. 133, if any,
has not yet been  determined  but will be dependent upon the extent to which the
Company  is  then  a  party  to  derivative  contracts  or  engaged  in  hedging
activities.  At September 30, 1998 the Company is not a party to any  derivative
contracts or engaged in any hedging activities covered by SFAS No. 133.

                                   - 11 -

<PAGE>



NOTE 2 - EARNINGS PER SHARE:

      Basic  earnings  per  share are based on the  weighted  average  number of
common shares  outstanding  during each period.  Diluted  earnings per share are
based on the weighted average common shares  outstanding and the dilutive impact
of outstanding stock options.

NOTE 3 - BUSINESS SEGMENT INFORMATION:

      The  Company's  continuing  operations  are  conducted  by  Kronos  in one
business segment - TiO2.

<TABLE>
<CAPTION>

                                        Three months ended         Nine months ended
                                           September 30,             September 30,
                                      ----------------------    ----------------------
                                        1997         1998         1997         1998
                                      ---------    ---------    ---------    ---------
                                                         (In thousands)

<S>                                   <C>          <C>          <C>          <C>      
Net sales .........................   $ 210,344    $ 221,520    $ 629,087    $ 685,794
Other income, excluding
 corporate ........................       2,306        2,036        9,476        4,719
                                      ---------    ---------    ---------    ---------
                                        212,650      223,556      638,563      690,513

Cost of sales .....................     162,499      151,782      502,353      476,026
Selling, general and
 administrative, excluding
 corporate ........................      25,243       26,750       85,798       83,339
                                      ---------    ---------    ---------    ---------

Operating income ..................      24,908       45,024       50,412      131,148

General corporate income (expense):
  Securities earnings, net ........         590        4,345        1,817       12,747
  Expenses, net ...................      (5,691)      (4,200)     (44,372)     (11,695)
  Interest expense ................     (16,445)     (15,066)     (49,160)     (46,917)
                                      ---------    ---------    ---------    ---------

                                      $   3,362    $  30,103    $ (41,303)   $  85,283
                                      =========    =========    =========    =========
</TABLE>

      Corporate expenses,  net decreased in the first nine months of 1998 due to
the $30 million noncash charge taken in the first quarter of 1997 related to the
adoption of a new method of  accounting  for certain  environmental  remediation
costs.

NOTE 4 - INVENTORIES:

<TABLE>
<CAPTION>

                                                     December 31,  September 30,
                                                         1997          1998
                                                     ------------  -------------
                                                             (In thousands)

<S>                                                    <C>              <C>     
Raw materials ................................         $ 45,844         $ 37,984
Work in process ..............................            8,018           11,472
Finished products ............................          107,427          107,468
Supplies .....................................           31,491           34,644
                                                       --------         --------

                                                       $192,780         $191,568
                                                       ========         ========
</TABLE>

                                   - 12 -

<PAGE>
NOTE 5 - MARKETABLE SECURITIES:
<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)
<S>                                                      <C>           <C>     
Available-for-sale securities - noncurrent
 marketable equity securities:
  Unrealized gains .................................     $  6,939      $ 11,254
  Unrealized losses ................................         (328)       (1,856)
  Cost .............................................       10,659        10,659
                                                         --------      --------

      Aggregate market .............................     $ 17,270      $ 20,057
                                                         ========      ========
</TABLE>
NOTE 6 - INVESTMENT IN JOINT VENTURES:
<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)
<S>                                                     <C>             <C>     
TiO2 manufacturing joint venture ...............        $170,830        $171,202
Other ..........................................           1,891            --
                                                        --------        --------

                                                        $172,721        $171,202
                                                        ========        ========
</TABLE>
NOTE 7 - OTHER NONCURRENT ASSETS:
<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)
<S>                                                      <C>             <C>    
Deferred financing costs, net ..................         $ 9,973         $ 6,427
Intangible assets, net .........................           4,228           2,613
Other ..........................................           4,391           3,514
                                                         -------         -------

                                                         $18,592         $12,554
                                                         =======         =======
</TABLE>
NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)
<S>                                                  <C>                <C>     
Accounts payable .........................           $ 64,698           $ 50,831
                                                     --------           --------
Accrued liabilities:
  Employee benefits ......................             40,110             35,169
  Environmental costs ....................              9,000             48,146
  Interest ...............................              6,966             15,371
  Other ..................................             40,956             56,743
                                                     --------           --------

                                                       97,032            155,429
                                                     --------           --------
                                                     $161,730           $206,260
                                                     ========           ========
</TABLE>
                                   - 13 -

<PAGE>



NOTE 9 - OTHER NONCURRENT LIABILITIES:

<TABLE>
<CAPTION>
                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)

<S>                                                      <C>          <C>     
Environmental costs ..........................         $125,502         $ 79,355
Insurance claims and expenses ................           11,436           12,200
Employee benefits ............................           10,835           10,626
Deferred income ..............................             --             13,333
Other ........................................            1,130            2,798
                                                       --------         --------

                                                       $148,903         $118,312
                                                       ========         ========
</TABLE>

NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>

                                                      December 31, September 30,
                                                          1997         1998
                                                      -----------  -------------
                                                           (In thousands)

<S>                                                       <C>           <C>     
Notes payable - Kronos (DM 25,000 and
 DM 60,500, respectively) ..........................      $ 13,968      $ 35,864
                                                          ========      ========

Long-term debt:
  NL Industries:
    11.75% Senior Secured Notes ....................      $250,000      $244,000
    13% Senior Secured Discount Notes ..............       169,857       118,583
                                                          --------      --------

                                                           419,857       362,583
                                                          --------      --------
  Kronos:
    DM bank credit facility (DM 288,322 and
     DM 207,322, respectively) .....................       161,085       124,419
    Joint venture term loan ........................        42,429          --
    Other ..........................................         3,282         1,518
                                                          --------      --------

                                                           206,796       125,937
                                                          --------      --------

  Rheox - bank term loan ...........................       117,500          --
                                                          --------      --------

                                                           744,153       488,520

Less current maturities ............................        77,374       184,460
                                                          --------      --------

                                                          $666,779      $304,060
                                                          ========      ========
</TABLE>

      The Company  redeemed the 13% Senior Secured Discount Notes on October 15,
1998 at the redemption price of 106% of the principal amount, in accordance with
the terms of the Senior  Secured  Discount  Notes  indenture.  As a result,  the
accreted  value of the Senior Secured  Discount  Notes has been  classified as a
current liability at September 30, 1998.


                                   - 14 -

<PAGE>



NOTE 11 - INCOME TAXES:

      The difference  between the provision for income tax expense  attributable
to income from continuing  operations  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>
                                                            Nine months ended
                                                              September 30,
                                                           --------------------
                                                              1997       1998
                                                           --------    --------
                                                              (In thousands)

<S>                                                        <C>         <C>     
Expected tax expense (benefit) .........................   $(14,456)   $ 29,849
Non-U.S. tax rates .....................................       (462)        281
Incremental tax on income of companies not included
 in NL's consolidated U.S. federal income tax return ...      2,171       2,142
Refund of prior-year dividend withholding tax ..........       --        (8,219)
Change in valuation allowance ..........................     10,459      (9,798)
U.S. state income taxes ................................       --           200
Other, net .............................................        574        (281)
                                                           --------    --------

      Income tax expense (benefit) .....................   $ (1,714)   $ 14,174
                                                           ========    ========
</TABLE>

NOTE 12 - OTHER INCOME, NET:

<TABLE>
<CAPTION>
                                     Three months ended      Nine months ended
                                         September 30,          September 30,
                                     --------------------   --------------------
                                       1997        1998        1997       1998
                                     --------    --------   --------    --------
                                                    (In thousands)

<S>                                  <C>         <C>        <C>         <C>     
Corporate interest and dividend
 income ..........................   $    869    $  4,345   $  1,817    $ 12,747
Currency transaction gains, net ..        155         986      3,220       2,703
Noncompete agreement income ......       --         1,000       --         2,667
Trade interest income ............        759         525      2,047       1,562
Gain (loss) from disposition of ..        172
 property and equipment ..........       (311)      2,452       (130)
Other, net .......................      1,484         472      2,182       1,220
                                     --------    --------   --------    --------

                                     $  2,956    $  7,500   $ 11,718    $ 20,769
                                     ========    ========   ========    ========
</TABLE>

NOTE 13 - DISCONTINUED OPERATIONS:

      The Company sold the net assets of its Rheox specialty  chemicals business
for $465 million cash (before fees and  expenses) in the first  quarter of 1998,
including $20 million  attributable to a five-year  agreement by the Company not
to compete in the  rheological  products  business.  The Company  recognized  an
after-tax  gain of  approximately  $286  million  on the  sale of this  business
segment.  A portion of the $380  million  after-tax  proceeds was used to reduce
outstanding indebtedness by approximately $231 million.


                                   - 15 -

<PAGE>



      Condensed income statement data related to discontinued operations for the
interim  periods  ended  September  30, 1997 and 1998 are as  follows.  Interest
expense has been  allocated to  discontinued  operations  based on the amount of
debt specifically attributed to Rheox's operations.

<TABLE>
<CAPTION>
                                                            Nine months ended
                                                             September 30,
                                                         -----------------------
                                                            1997          1998
                                                         ---------     ---------
                                                            (In thousands)

<S>                                                      <C>           <C>      
Operations:
  Net sales .........................................    $ 111,336     $  12,630
                                                         =========     =========

  Operating income ..................................    $  34,315     $   2,900
  Interest and other expenses .......................        8,933           797
                                                         ---------     ---------

      Income before income taxes and minority
       interest .....................................       25,382         2,103

  Income tax expense ................................        9,463           778
  Minority interest .................................          (37)         --
                                                         ---------     ---------

                                                            15,956         1,325

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

                                                         $  15,956     $ 287,396
                                                         =========     =========
</TABLE>

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

<TABLE>
<CAPTION>
                                                           Nine months ended
                                                            September 30,
                                                       ------------------------
                                                           1997          1998
                                                       ----------     ---------
                                                            (In thousands)

<S>                                                    <C>            <C>       
Cash flows from:
  Operating activities ...........................     $  20,266      $ (26,493)
  Investing activities - capital expenditures ....           (26)
   and other .....................................        (1,185)
  Financing activities - indebtedness, net .......       108,775       (117,500)
                                                       ---------      ---------

                                                       $ 127,856      $(144,019)
                                                       =========      ========= 
</TABLE>

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 quarters ended March 31, 1998 and June 30,
1998, and (iv) the 1997 Annual Report.



                                   - 16 -

<PAGE>



      In July 1998 the Company reached an agreement (the "Tioxide  Purchase") to
(i) acquire the North American TiO2 operations of Imperial  Chemical  Industries
plc's ("ICI")  subsidiary,  Tioxide Group  Limited,  and a Tioxide TiO2 plant in
England, and (ii) cancel certain rights to chloride-process  technology licensed
to Tioxide by the Company in connection with the formation of Louisiana  Pigment
Company ("LPC") in 1993. The aggregate amount to be paid to ICI is approximately
$365  million,  including a $30 million fee for the  cancellation  of technology
rights and approximately $50 million in working capital. The purchase is subject
to regulatory clearances,  completion of the purchase by E.I. du Pont de Nemours
&  Co.  of  ICI's  remaining  non-North  American  TiO2  business  (the  "DuPont
Purchase"), and other conditions customary to transactions of this type.

      The operations to be acquired  include  Tioxide's  50%-interest  in LPC, a
manufacturing  joint  venture  of  the  Company  and  Tioxide  that  operates  a
chloride-process  TiO2 plant in Louisiana with capacity of approximately 120,000
metric tons per annum ("mtpa"); Tioxide's 75,000 mtpa sulfate-process TiO2 plant
in Grimsby, England; Tioxide's 52,000 mtpa finishing plant in Tracy, Quebec; and
Tioxide's North American marketing and distribution business.

      Upon  completion  of the DuPont  Purchase  and the Tioxide  Purchase,  the
Company  expects to become  the  world's  third  largest  manufacturer  of TiO2,
increasing its productive capacity by approximately 135,000 mtpa.

      Assuming  regulatory  clearances are received in 1998, the Company expects
the Tioxide Purchase to close in the first quarter of 1999.




                                   - 17 -

<PAGE>



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

<TABLE>
<CAPTION>
                               Three months ended    %         Nine months ended       %
                                  September 30,    Change        September 30,      Change
                               ------------------  ------     -------------------   ------
                                1997       1998                1997         1998
                               ------     ------              ------       ------         
                                 (In millions)                  (In millions)

<S>                            <C>        <C>      <C>        <C>          <C>      <C>
Net sales ................     $210.3     $221.5    +5%       $629.1       $685.8     +9%

Operating income .........     $ 24.9     $ 45.0   +81%       $ 50.4       $131.1   +160%

Percent changes in TiO2:
  Sales volume ...........                          -9%                               -2%
  Average selling prices
   (in billing currencies)                         +17%                              +17%
</TABLE>

      Kronos'  operating  income in the third  quarter  and first nine months of
1998 increased from the comparable periods in 1997 due to higher average selling
prices,  partially  offset by lower sales volume and the absence of $9.7 million
of income from refunds of German  franchise  taxes received in the third quarter
of 1997. Kronos expects its fourth-quarter 1998 operating income will exceed its
fourth-quarter  1997  operating  income  primarily  because  of  higher  average
fourth-quarter  1998 TiO2 selling prices,  partially  offset by moderately lower
fourth-quarter 1998 sales volume.

      Average TiO2 selling  prices for the third quarter of 1998 were 17% higher
than the third quarter of 1997 and 2% higher than the second quarter of 1998.

      Kronos'  third-quarter  sales  volume  decreased  9% from the record sales
volume in the year-earlier period as demand moderated. Sales volume in the first
nine  months  of 1998  was 2%  lower  than  the  year-earlier  period  primarily
reflecting  lower sales volume in Asia,  partially offset by higher sales volume
in  Europe.  As a result of lower  second-half  1998  demand  for  TiO2,  Kronos
anticipates its TiO2 sales volume for full-year 1998 will be slightly below that
of calendar year 1997.

      Kronos' cost of sales as a percentage of net sales  decreased in the third
quarter and first nine months of 1998  primarily due to higher  average  selling
prices.  Kronos' selling,  general and administrative  expenses decreased in the
third  quarter  and first nine  months of 1998 due to lower  distribution  costs
associated  with lower sales volume and  favorable  effects of foreign  currency
translation,  partially offset by the impact of the German franchise tax refunds
received in the third quarter of 1997.

      A significant amount of sales are denominated in currencies other than the
U.S. dollar,  and fluctuations in the value of the U.S. dollar relative to other
currencies  decreased  the dollar value of sales for the third quarter and first
nine months of 1998 by $3 million and $26 million, respectively, compared to the
comparable 1997 periods.


                                   - 18 -

<PAGE>



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

<TABLE>
<CAPTION>
                       Three months ended             Nine months ended
                          September 30,   Difference    September 30,   Difference
                       ------------------ ---------- ------------------ ----------
                          1997     1998                 1997     1998
                         ------   ------               ------   ------         
                                               (In millions)

<S>                      <C>      <C>       <C>        <C>      <C>       <C>  
Securities earnings ...  $   .6   $  4.3    $ 3.7      $  1.8   $ 12.7    $10.9
Corporate expenses, net    (5.7)    (4.1)     1.6       (44.3)   (11.6)    32.7
Interest expense ......   (16.4)   (15.1)     1.3       (49.2)   (46.9)     2.3
                         ------   ------    -----      ------   ------    -----

                         $(21.5)  $(14.9)   $ 6.6      $(91.7)  $(45.8)   $45.9
                         ======   ======    =====      ======   ======    =====
</TABLE>

      Securities earnings increased due to higher average balances available for
investment.  Corporate expenses,  net in the first nine months of 1998 was lower
than the comparable  period in 1997 due to the $30 million  noncash charge taken
in the first quarter of 1997 related to the Company's  adoption of SOP No. 96-1,
"Environmental  Remediation  Liabilities."  This  charge is included in selling,
general and administrative expense in the Company's  consolidated  statements of
income.

      The Company expects general corporate interest income and interest expense
to be lower in the fourth  quarter of 1998 compared to the third quarter of 1998
due to the  redemption  of the remaining 13% Senior  Secured  Discount  Notes on
October 15, 1998.

      Income  taxes in the third  quarter of 1998  include a tax benefit of $8.2
million resulting from a refund of prior-year German dividend withholding taxes.

      The Company sold the net assets of its Rheox specialty  chemicals business
in the first quarter of 1998 and, as a result of the sale,  Rheox's  results are
reported as discontinued operations.

LIQUIDITY AND CAPITAL RESOURCES

      The  Company's  consolidated  cash flows  from  operating,  investing  and
financing  activities for the nine months ended  September 30, 1997 and 1998 are
presented below.

<TABLE>
<CAPTION>
                                                              Nine months ended
                                                                September 30,
                                                              -----------------
                                                               1997       1998
                                                               ------    ------
                                                                (In millions)
<S>                                                            <C>       <C>   
Net cash provided (used) by:
  Operating activities ....................................    $ 70.8    $ 42.1
  Investing activities ....................................     (14.6)    429.3
  Financing activities ....................................     (67.0)   (249.6)
                                                               ------    ------

      Net cash provided (used) by operating, investing
       and financing activities ...........................    $(10.8)   $221.8
                                                               ======    ======
</TABLE>

      The TiO2  industry is cyclical and changes in economic  conditions  within
the industry  significantly  impact the earnings and operating cash flows of the
Company. Cash flow from operations, before changes in assets and liabilities,

                                   - 19 -

<PAGE>



in the 1998 period improved significantly from the comparable period in 1997 due
to higher operating income.  Changes in the Company's  inventories,  receivables
and payables  (excluding  the effect of currency  translation)  used cash in the
first nine  months of 1998 but  provided  cash in the first nine  months of 1997
primarily due to  reductions  in inventory  levels in the 1997 period and higher
payments  of income  taxes in the 1998 period as a result of the gain on sale of
Rheox.

      The  sale of the  Company's  specialty  chemicals  business  in the  first
quarter of 1998 resulted in net proceeds of $380 million  after  current  income
taxes and other  expenses.  In the first nine months of 1998, the Company used a
portion of the net proceeds to repay certain  indebtedness,  as described below,
and on  October  15,  1998,  used a portion  of the net  proceeds  to redeem the
remaining  $119 million of 13% Senior  Secured  Discount Notes at the redemption
price of 106% of the  principal  amount,  in  accordance  with the  terms of the
Discount Notes indenture.

      During the first nine months of 1998,  the  Company  used a portion of the
net  proceeds  to (i) prepay $118  million of the Rheox  credit  facility,  (ii)
prepay $42 million of Kronos'  share of the LPC joint  venture term loan,  (iii)
make $65 million of  open-market  purchases of the Company's 13% Senior  Secured
Discount  Notes at prices  ranging  from  $101.25 to  $105.19  per $100 of their
principal amounts,  and (iv) purchase $6 million of the Senior Secured Notes and
$61 thousand of the Senior Secured  Discount Notes at a price of $100 and $96.03
per $100 of their principal amounts,  respectively,  pursuant to a June 1998 pro
rata tender offer to Note holders as required under the terms of the indenture.

      The Company  prepaid DM 81 million  ($44 million when paid) of its DM term
loan in the first quarter of 1998. A portion of the funds for such prepayment of
the DM term loan was provided by a first-quarter DM 35 million ($19 million when
borrowed)  increase in  outstanding  borrowings  under the Company's  short-term
non-U.S. credit facilities. In the second quarter of 1998, the Company repaid DM
20 million ($11 million when paid) of the DM revolving credit facility.

      In order to complete the Tioxide  Purchase,  the Company expects to borrow
approximately $250 million in bank financing.

      At  September  30,  1998  the  Company  had  cash  and  cash   equivalents
aggregating  $321  million  (14%  held  by  non-U.S.  subsidiaries),   including
restricted cash equivalents of $13 million.  The Company's  subsidiaries had $91
million  available for borrowing at September 30, 1998 under  existing  non-U.S.
credit facilities.

      In the  third  quarter  of 1998,  the  Company  paid a  regular  quarterly
dividend of $.03 per share to shareholders  aggregating $1.5 million.  Dividends
paid during the first nine months of 1998 totaled $3.1 million.  In October 1998
the Company's Board of Directors  declared a regular quarterly  dividend of $.03
per  share to  shareholders  of  record as of  December  16,  1998 to be paid on
December 30, 1998.

      In June 1998, as a result of the  settlement  of a shareholder  derivative
lawsuit on behalf of the Company, Valhi transferred $14.4 million in cash to the

                                   - 20 -

<PAGE>



Company, and the Company agreed to pay plaintiffs'  attorneys' fees and expenses
of $3.2 million.

      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  non-income tax related items and interest.
The Company  previously reached an agreement with the German tax authorities and
paid certain tax  deficiencies of  approximately DM 44 million ($28 million when
paid),  including  interest,  which resolved  significant tax  contingencies for
years through 1990. In the third quarter of 1998,  the Company  received a DM 14
million ($8.2 million when received) refund of 1990 German dividend  withholding
taxes.  The German tax authorities were required to refund such amounts based on
a recent German Supreme Court decision in favor of another taxpayer.  The refund
resulted in a reduction of the settlement  amount from DM 44 million referred to
above to DM 30  million  for years  through  1990.  No further  withholding  tax
refunds are expected.

      Certain  other  significant   German  tax  contingencies   aggregating  an
estimated  DM 172 million  ($102  million at September  30,  1998)  through 1997
remain outstanding and are in litigation. Of these, one primary issue represents
disputed amounts  aggregating DM 160 million ($95 million at September 30, 1998)
for  years  through  1997.  The  Company  has  received  tax  assessments  for a
substantial   portion  of  these  amounts.   No  payments  of  tax  or  interest
deficiencies  related to these  assessments are expected until the litigation is
resolved.  During  1997 a German  tax  court  proceeding  involving  a tax issue
substantially  the same as this issue was decided in favor of the taxpayer.  The
German tax authorities  have appealed that decision to the German Supreme Court.
The  Company  believes  that a  decision  by the  German  Supreme  Court will be
rendered  within a year and will likely  determine  the outcome of the Company's
primary dispute with the German tax  authorities.  Although the Company believes
that it will ultimately  prevail in this matter, the Company has granted a DM 94
million ($56 million at September 30, 1998) lien on its Nordenham,  Germany TiO2
plant in favor of the City of  Leverkusen,  and a DM 5 million  ($3  million  at
September 30, 1998) lien in favor of the German federal tax authorities.  If the
Company does not prevail,  these  contingencies  will increase the Company's tax
liability  for 1990 and each year  thereafter,  and the  Company  would  seek to
negotiate payment over a period of time.

      In addition,  during 1997 the Company reached an agreement with the German
tax authorities  regarding  certain other issues not in litigation for the years
1991 through 1994, and agreed to pay additional tax deficiencies of DM 9 million
($5 million at September 30, 1998),  most of which was paid in the third quarter
of 1998.

      During 1997 the Company  received a tax assessment  from the Norwegian tax
authorities  proposing  tax  deficiencies  of  NOK 51  million  ($7  million  at
September 30, 1998) relating to 1994.  The Company has appealed this  assessment
and has begun litigation proceedings. Although the Company believes that it will
ultimately  prevail,  the  Company has granted a lien for the full amount of the
tax assessment on its  Fredrikstad,  Norway TiO2 plant in favor of the Norwegian
tax authorities.

                                   - 21 -

<PAGE>



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

      The Company 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.  The Company believes it has adequate accruals
($128  million at September  30, 1998) 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 $160 million. The Company's estimates of such liabilities have not
been  discounted  to present  value,  and the  Company  has not  recognized  any
potential insurance recoveries. No assurance can be given that actual costs will
not  exceed  accrued  amounts  or the upper end of the range for sites for which
estimates  have been made,  and no assurance can be given that costs will not be
incurred  with respect to sites as to which no estimate  presently  can be made.
Further,  there can be no assurance that additional  environmental  matters will
not arise in the future.

      The Company is also a defendant in a number of legal  proceedings  seeking
damages for personal  injury and property  damage  arising from 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 be reasonably
estimated. In addition, various legislation and administrative regulations have,
from  time to time,  been  enacted  or  proposed  that  seek to  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 to 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.  The Company currently  believes
the disposition of all claims and disputes,  individually  and in the aggregate,
should  not  have  a  material  adverse  effect  on the  Company's  consolidated
financial

                                   - 22 -

<PAGE>



position,  results of operations or  liquidity.  There can be no assurance  that
additional matters of these types will not arise in the future.

      The Company is in the process of  evaluating  and  upgrading  its computer
systems (both information technology ("IT") systems and non-IT systems involving
embedded chip technology) and software applications (collectively referred to as
"systems") to ensure that the systems  function  properly  beginning  January 1,
2000.  To achieve  its year 2000  compliance  plan,  the  Company  is  utilizing
internal and external resources to identify,  correct or reprogram, and test its
systems.

      The Company has conducted an inventory of its IT systems  worldwide and is
currently  testing the  systems and  applications  that have been  corrected  or
reprogrammed for year 2000  compliance.  The Company has completed a preliminary
inventory  of its  non-IT  systems  and  is in the  process  of  validating  the
inventory and correcting or replacing date-deficient systems. The Company uses a
number of  packaged  software  products  that have been  upgraded to a year 2000
compliant version in the normal course of business.  Excluding the cost of these
software  upgrades,  the  Company's  cost of  becoming  year 2000  compliant  is
expected to be approximately $2 million, of which about one-third has been spent
through September 1998. The Company expects its major IT systems to be year 2000
compliant  by March  1999,  and  expects  its  non-IT  systems  to be year  2000
compliant by September 1999.

      As part of its year  2000  compliance  plan,  the  Company  has  requested
confirmations  from its major domestic and foreign  software  vendors,  hardware
vendors and primary  suppliers,  that they are developing and implementing plans
to become, or are, year 2000 compliant.  Confirmations received to date from the
Company's software vendors, hardware vendors and primary suppliers indicate that
generally they are in the process of  implementing  remediation  plans to ensure
that their  systems are  compliant  by December  31,  1999.  The major  software
vendors used by the Company have already delivered year 2000 compliant software.
The Company plans to request  confirmations  from its major  customers that they
are developing or implementing plans to become year-2000 compliant.

      The Company is developing a  contingency  plan to address  potential  year
2000  related  business  interruptions  that may occur on January  1,  2000,  or
thereafter. This plan is expected to be completed in the second quarter of 1999.

      Although the Company expects its systems to be year 2000 compliant  before
December  31,  1999,  it cannot  predict the outcome or success of the year 2000
compliance programs of its vendors,  suppliers,  and customers. The Company also
cannot predict whether its major software vendors, who continue to test for year
2000  compliance,  will find additional  problems that would result in unplanned
upgrades of their  applications  after  December 31, 1999.  As a result of these
uncertainties,  the Company cannot predict the impact on its financial condition
or results of  noncompliant  year 2000  systems  that the  Company  directly  or
indirectly  relies upon.  Should the Company's year 2000  compliance plan not be
successful or be delayed beyond January 2000,  the  consequences  to the Company
could be  far-reaching  and material,  including an inability to produce TiO2 at
its  manufacturing  facilities,  which could lead to an indeterminate  amount of
lost

                                   - 23 -

<PAGE>



revenue.  Other potential negative consequences could include plant malfunction,
impeded  communications or power supplies, or slower transaction  processing and
financial reporting.

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

      The Company  conducts  substantial  operations in Europe.  The  functional
currency of the Company's  German,  Belgian,  Dutch and French  operations  will
convert to the euro from their  respective  national  currencies over a two-year
period  beginning  in  1999.  The  euro  conversion  may  impact  the  Company's
operations including,  among other things,  changes in product pricing decisions
necessitated  by  cross-border  price  transparencies.  Such  changes in product
pricing  decisions  could impact both selling prices and  purchasing  costs and,
consequently, favorably or unfavorably impact results of operations.

      The  Company  has  a  significant  amount  of  outstanding  DM-denominated
indebtedness  and such debt will become  euro-denominated  effective  January 1,
1999.   Modifications   of  information   systems  to  handle   euro-denominated
transactions will be required, although the modifications are not expected to be
extensive.

      The Company has begun to assess and evaluate  the  expected  impact of the
euro conversion on its business.  Such  evaluations are still in process but are
expected to be  concluded by the end of 1998.  The Company  expects to spend and
charge to expense  less than $1  million in  evaluation  and  conversion  costs.
Because  of  the  inherent  uncertainty  of the  ultimate  affect  of  the  euro
conversion,  the Company cannot accurately  predict the impact on its results of
operations, financial condition or liquidity.

      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,   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   industry.   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.


                                   - 24 -

<PAGE>



      The statements  contained in this Report on Form 10-Q ("Quarterly Report")
that 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  involve  a number  of risks  and
uncertainties.  The  actual  results  of the  future  events  described  in such
forward-looking statements in this Quarterly Report could differ materially from
those stated in such  forward-looking  statements and the Company  disclaims any
intention  or  obligation  to update or revise any  forward-looking  statements,
whether as a result of new  information,  future events or otherwise.  Among the
factors that could cause actual  results to differ  materially are the risks and
uncertainties  discussed in this Quarterly Report and in the 1997 Annual Report,
including,  without limitation,  the portions of such reports under the captions
referenced  above,  and the  uncertainties  set  forth  from time to time in the
Company's other public reports and filings and public statements.

                          PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         Reference is made to the 1997 Annual Report and the Company's Quarterly
Report on Form 10-Q for the quarters  ended March 31, 1998 and June 30, 1998 for
descriptions of certain previously-reported legal proceedings.

         State of Illinois v. NL Industries, Inc., et al. (No. 88-CH-11618).  In
October 1998 the Supreme Court of Illinois declined the State's petition to
review the previously reported decisions in favor of the Company.

         DeLeon v. Exide Corp. and NL Industries, Inc., (No. DV98-02669-B).  In
August 1998 the plaintiffs dismissed this previously-reported case without
prejudice.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a) EXHIBITS

             10.1 -  1998  Framework  Agreement  between  ICI,  DuPont  and  the
             Registrant dated July 24, 1998.

             10.2   - July 24, 1998 Agreement between ICI and the Registrant.

             10.3 - Form  of  Hivedown  Agreement  to be  entered  into  between
             Tioxide Europe Limited and Newco.

             10.4 - Form of Share  Sale and  Purchase  Agreement  of Newco to be
             entered into between Tioxide Europe Limited and the Registrant.

             10.5 - Form  of  Product  Exchange  Agreement  to be  entered  into
             between Newco and Tioxide Europe Limited.


                                   - 25 -

<PAGE>



             10.6   - Form of Share Sale and Purchase Agreement of Tioxide
             Americas Inc. to be entered into between ICI American Holdings Inc.
             and the Registrant.

             10.7   - Form  of  Share  Sale  and  Purchase  Agreement of Tioxide
             CanadaInc. to be entered into between Tioxide Group Limited and ICI
             Omicron B.V. and the Registrant.

             10.8 - Form of  Americas  Liability  Agreement  to be entered  into
             between ICI and the Registrant.

             10.9 -  Intercorporate  Services  Agreement by and between  Contran
             Corporation and the Registrant effective as of January 1, 1998.

             10.10 -  Intercorporate  Services  Agreement by and between  Valhi,
             Inc. and the Registrant effective as of January 1, 1998.

             10.11 -  Intercorporate  Services  Agreement by and between Tremont
             Corporation and the Registrant effective as of January 1, 1998.

             10.12 - Intercorporate  Services  Agreement by and between Titanium
             Metals  Corporation  and the Registrant  effective as of January 1,
             1998.

             10.13 -  Intercorporate  Services  Agreement  by and between  CompX
             International  Inc. and the  Registrant  effective as of January 1,
             1998.

             27.1 - Financial  Data  Schedule  for the  nine-month  period ended
             September 30, 1998.

         (b) REPORTS ON FORM 8-K

             Reports on Form 8-K for the quarter  ended  September  30, 1998 and
             through the date of this report:

               August 28,  1998 - reported  Items 5 and 7.  
               October  19,  1998 - reported  Items 5 and 7. 
               October 21, 1998 - reported  Items 5 and 7.


                                   - 26 -

<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:  November 9, 1998                   By   /s/ Susan E. Alderton
-----------------------                        ---------------------
                                               Susan E. Alderton
                                                Vice President and
                                                Chief Financial Officer



Date:  November 9, 1998                   By   /s/ Dennis G. Newkirk
-----------------------                        ---------------------
                                               Dennis G. Newkirk
                                                Vice President and Controller
                                                (Principal Accounting Officer)

                                   - 27 -