SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                  FORM 10-K/A-2


X    ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934 - For the fiscal year ended December 31, 2002

                                       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.)


  5430 LBJ Freeway, Suite 1700   Dallas, Texas           75240-2697
--------------------------------------------------  --------------------
     (Address of principal executive offices)            (Zip Code)


Registrant's telephone number, including area code:    (281)  423-3300
                                                     -------------------

Securities registered pursuant to Section 12(b) of the Act:
                                                      Name of each exchange on
           Title of each class                            which registered
------------------------------------------          ---------------------------
Common stock ($.125 par value)                        New York Stock Exchange
                                                         Pacific Exchange

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

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

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes X    No
                                        ---      ---

As of June 28, 2002,  48,831,984  shares of common stock were  outstanding.  The
aggregate  market  value  of the  8,345,399  shares  of  voting  stock  held  by
non-affiliates of the registrant at June 28, 2002, approximated $127 million.

There were 47,693,884 shares of common stock outstanding at March 12, 2003.

                      Documents incorporated by reference:

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


<PAGE>



     This  Amendment  No. 2 to the Annual Report on Form 10-K for the year ended
December 31, 2002 of NL Industries, Inc. is filed to revise certain disclosures,
and reclassify the Company's  Consolidated  Statement of Income, as requested by
the Securities and Exchange  Commission.  There was no impact on net income as a
result of the  reclassification  of the  Consolidated  Statement of Income.  The
revised disclosures are contained primarily in "Business,"  "Properties," "Legal
Proceedings,"  "Management's  Discussion and Analysis of Financial Condition and
Results of  Operations  - Liquidity  and Capital  Resources"  and the  Company's
Consolidated  Financial  Statements.  This  Amendment  is being filed  solely to
provide the information referenced above. For the convenience of the reader, the
Company  is  re-filing  the  entire   Annual  Report  as  clarified.   No  other
modifications have been made to the Annual Report except as described above.



Forward-Looking Information.

     The  statements  contained  in this  Annual  Report on Form  10-K  ("Annual
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements found (i) under the captions  "Industry,"  "Products and operations,"
"Manufacturing   process  and  raw  materials,"   "Competition,"   "Patents  and
Trademarks," "Foreign  Operations," and "Regulatory and Environmental  Matters,"
all  contained  in Item 1.  Business;  (ii)  under the  captions  "Lead  pigment
litigation," "Environmental matters and litigation," and "Other Litigation," all
contained in Item 3. Legal  Proceedings;  (iii) under the  captions  "Results of
Operations"  and  "Liquidity and Capital  Resources,"  both contained in Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations;  (iv) under the  captions  "Currency  exchange  rates,"  "Marketable
equity security prices," and "Other," all contained in Item 7A. Quantitative and
Qualitative  Disclosures About Market Risk; and (v) in Note 23, "Commitments and
contingencies - Legal proceedings" to the Consolidated Financial Statements, 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,"  "could" or comparable  terminology  or by
discussions  of  strategy or trends.  Although  the  Company  believes  that the
expectations  reflected in such  forward-looking  statements are reasonable,  it
cannot give any  assurances  that these  expectations  will prove to be correct.
Such  statements  by their nature  involve  risks and  uncertainties  that could
significantly  affect expected  results,  and actual future results could differ
materially from those described in such forward-looking statements.

     Among  the  factors  that  could  cause  actual  future  results  to differ
materially are the risks and  uncertainties  discussed in this Annual Report and
those  described  from  time to time in the  Company's  other  filings  with the
Securities and Exchange Commission ("SEC"). While it is not possible to identify
all  factors,  the  Company  continues  to face  many  risks  and  uncertainties
including, but not limited to, the cyclicality of the titanium dioxide industry,
global economic and political conditions,  global productive capacity,  customer
inventory  levels,  changes in  product  pricing,  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,  transportation interruptions, war and
terrorist activities),  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 tax  controversies,  and other risks and  uncertainties
included  in the  Company's  filings  with the SEC.  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.


<PAGE>

                                     PART I

ITEM 1.   BUSINESS

General


     NL  Industries,  Inc.,  organized  as a New  Jersey  corporation  in  1891,
conducts its operations  through its principal wholly owned  subsidiary,  Kronos
Worldwide,  Inc  (formerly  known as Kronos,  Inc.).  The Company is the world's
fifth largest producer of titanium  dioxide pigments  ("TiO2") with an estimated
12% share of worldwide TiO2 sales volume in 2002.  Approximately one-half of the
Company's  2002  sales  volume was in  Europe,  where the  Company is the second
largest  producer of TiO2. NL and its  consolidated  subsidiaries  are sometimes
referred to herein collectively as the "Company."


     The Company's primary  objective is to maximize total  shareholder  return.
The Company continues to take steps towards  achieving its objective,  including
(i) controlling costs, (ii) investing in certain cost effective  debottlenecking
projects to increase TiO2 production  capacity and  efficiency,  (iii) improving
its capital  structure,  and (iv) continuing to pay cash dividends.  The Company
periodically  considers mergers or acquisitions,  which may be within or outside
the chemical industry,  and acquisitions of additional TiO2 production  capacity
to meet its objective.

Industry

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


     Pricing within the global TiO2 industry over the long term is cyclical, and
changes in industry economic  conditions,  especially in Western  industrialized
nations,  can  significantly  impact the Company's  earnings and operating  cash
flows.  The  Company's  average TiO2 selling price on a billing  currency  basis
increased  from the preceding  quarter  during the third and fourth  quarters of
2002,  reversing the downward trend in prices that began in the first quarter of
2001 and continued through the first quarter of 2002.  Industry-wide  demand for
TiO2 strengthened  throughout 2002, with full year demand estimated as 9% higher
than the  previous  year.  This is  believed to have been the result of economic
growth and  restocking of customer  inventory  levels.  Volume demand in 2003 is
expected to increase moderately over 2002 levels.

     The Company has an estimated 18% share of European TiO2 sales volume and an
estimated 14% share of North American TiO2 sales volume.  Per capita consumption
of TiO2 in the United States and Western  Europe far exceeds that in other areas
of the world and these  regions  are  expected  to  continue  to be the  largest
consumers  of TiO2.  Significant  regions for TiO2  consumption  could emerge in
Eastern Europe,  the Far East or China if the economies in these regions develop
to the point  that  quality-of-life  products,  including  TiO2,  are in greater
demand. The Company believes that, due to its strong presence in Western Europe,
it is well positioned to participate in growth in consumption of TiO2 in Eastern
Europe.   Geographic  segment   information  is  contained  in  Note  4  to  the
Consolidated Financial Statements.




<PAGE>


Products and operations

     TiO2 is produced in two crystalline forms: rutile and anatase.  Rutile TiO2
is a more tightly bound crystal that has a higher  refractive index than anatase
TiO2 and, therefore,  provides better opacification and tinting strength in many
applications.  Although many end-use  applications  can use either form of TiO2,
rutile TiO2 is the preferred form for use in coatings, plastics and ink. Anatase
TiO2 has a bluer  undertone  and is less  abrasive  than rutile TiO2,  and it is
often preferred for use in paper, ceramics, rubber and man-made fibers.

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


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

     The Company is one of the world's leading  producers and marketers of TiO2.
Kronos and its distributors and agents sell and provide  technical  services for
its  products to over 4,000  customers  with the majority of sales in Europe and
North America.  TiO2 is  distributed by rail,  truck and ocean carrier in either
dry or slurry  form.  The  Company's  manufacturing  facilities  are  located in
Germany,  Canada, Belgium and Norway and the Company owns a one-half interest in
a TiO2 manufacturing joint venture located in Louisiana,  U.S.A. The Company has
sales and marketing activities in over 100 countries worldwide.  The Company and
its predecessors have produced and marketed TiO2 in North America and Europe for
over  80  years.  As a  result,  the  Company  believes  that  it has  developed
considerable  expertise and efficiency in the  manufacture,  sale,  shipment and
service of its  products  in  domestic  and  international  markets.  By volume,
approximately one-half of the Company's 2002 TiO2 sales were to Europe, with 39%
to North America and the balance to export markets.



     The Company is also  engaged in the mining and sale of ilmenite  ore (a raw
material  used as a feedstock  by  sulfate-process  TiO2  plants)  pursuant to a
governmental  concession  with an  unlimited  term that  allows  the  Company to
operate  an  ilmenite  mine in  Norway.  The ore  body,  owned by the  Norwegian
government,  has estimated  ilmenite reserves that are expected to last at least
20 years.  The Company is also engaged in the manufacture and sale of iron-based
water treatment  chemicals  (derived from co-products of the pigment  production
processes).  The Company's  water treatment  chemicals  (marketed under the name
Ecochem) are used as treatment and conditioning agents for industrial  effluents
and municipal wastewater, and in the manufacture of iron pigments.


Manufacturing process and raw materials


     TiO2 is manufactured by the Company using both the chloride process and the
sulfate process.  Approximately  72% of Kronos' current  production  capacity is
based on its  chloride  process  which  generates  less waste  than the  sulfate
process.  The chloride process is a continuous process in which chlorine is used
to extract rutile TiO2. In general,  the chloride process is also less intensive
than the  sulfate  process in terms of  capital  investment,  labor and  energy.
Because  much  of  the  chlorine  is  recycled  and  higher  titanium-containing
feedstock is used, the chloride process produces less waste. The sulfate process
is a batch  chemical  process that uses sulfuric  acid to extract TiO2.  Sulfate
technology  normally  produces  either  anatase  or  rutile  pigment.   Once  an
intermediate  TiO2  pigment has been  produced by either the chloride or sulfate
process,   it  is   `finished'   into   products   with   specific   performance
characteristics   for  particular  end-use   applications   through  proprietary
processes  involving  various chemical surface  treatments and intensive milling
and micronizing.


     Due to environmental factors and customer considerations, the proportion of
TiO2  industry  sales  represented  by  chloride-process  pigments has increased
relative to sulfate-process pigments and, in 2002,  chloride-process  production
facilities represented approximately 62% of industry capacity.


     The Company  produced a Company record 442,000 metric tons of TiO2 in 2002,
compared  to 412,000  metric tons  produced  in 2001 and 441,000  metric tons in
2000. The Company's  average  production  capacity  utilization rate in 2002 was
96%, up from 91% in 2001.  Capacity  utilization  rates in 2001 were down due in
part to lost sulfate  production  volume resulting from the Leverkusen fire. The
Company  believes  its  current  annual   attainable   production   capacity  is
approximately  470,000 metric tons, including its one-half interest in the joint
venture-owned  Louisiana plant (see "TiO2  manufacturing  joint  venture").  The
Company  expects its  production  capacity  will be increased  by  approximately
10,000 metric tons primarily at its chloride  facilities,  with moderate capital
expenditures,  bringing Kronos'  capacity to  approximately  480,000 metric tons
during 2005.


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


     The Company  purchases  slag refined from  ilmenite  sand from Richards Bay
Iron and Titanium  (Proprietary)  Limited (South Africa), a 51%-owned subsidiary
of Rio Tinto plc (U.K.),  under a long-term  supply contract that expires at the
end of 2007.  Natural rutile ore is purchased  primarily  from Iluka  Resources,
Limited  (Australia),  a company formed  through the merger of Westralian  Sands
Limited  (Australia)  and RGC Mineral  Sands,  Ltd.,  under a  long-term  supply
contract  that  expires  at the end of 2004.  The  Company  does not  expect  to
encounter   difficulties  obtaining  long-term  extensions  to  existing  supply
contracts  prior to the  expiration of the  contracts.  Raw materials  purchased
under  these  contracts  and  extensions  thereof are  expected to meet  Kronos'
chloride feedstock requirements over the next several years.

     The primary raw materials used in the TiO2 sulfate  production  process are
titanium-containing  feedstock  derived  primarily  from  rock  and  beach  sand
ilmenite  and  sulfuric  acid.  Sulfuric  acid is  available  from a  number  of
suppliers. Titanium-containing feedstock suitable for use in the sulfate process
is available from a limited number of suppliers around the world. Currently, the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South  Africa.   As  one  of  the  few   vertically   integrated   producers  of
sulfate-process  pigments, Kronos operates a rock ilmenite mine in Norway, which
provided all of the Company's feedstock for its European sulfate-process pigment
plants  in 2002.  For its  Canadian  sulfate-process  plant,  the  Company  also
purchases sulfate grade slag primarily from Q.I.T. Fer et Titane Inc.  (Canada),
a wholly owned subsidiary of Rio Tinto Iron & Titanium,  Inc., under a long-term
supply contract that expires at the end of 2006.

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



     The following table presents certain  information  regarding the amounts of
TiO2 raw materials procured or mined during 2002.




<PAGE>




------------------------------------------------------ -------------------------
         Production Process/Raw Material                Quantity (`000 Metric
                                                              Tons)- 2002
------------------------------------------------------ -------------------------

------------------------------------------------------ -------------------------
Chloride process plants:
------------------------------------------------------ -------------------------
  Purchased slag refined from ilmenite beach sands(1)             199
------------------------------------------------------ -------------------------
  Purchased natural rutile ore(2)                                  70
------------------------------------------------------ -------------------------

------------------------------------------------------ -------------------------
Sulfate process plants:
------------------------------------------------------ -------------------------
  Purchased slag refined from rock and beach sand
   ilmenite(3)                                                     29
------------------------------------------------------ -------------------------
  Mined raw ilmenite ore consumed internally(4)                   297
------------------------------------------------------ -------------------------

------------------------------------------------------ -------------------------
Mined raw ilmenite ore sold to third parties(4)                   536
------------------------------------------------------ -------------------------


(1)  Purchased  primarily  from  Richards  Bay Iron and  Titanium  (Proprietary)
     Limited.

(2)  Purchased primarily from Iluka Resources, Limited.

(3)  Purchased primarily from Q.I.T. Fer et Titane Inc.

(4)  Obtained from the rock ilmenite mine in Norway operated by Kronos. The TiO2
     content of raw ilmenite ore is substantially lower than the TiO2 content of
     purchased  slag and  natural  rutile ore.  Accordingly,  the tonnage of raw
     ilmenite ore mined is not directly  comparable  to the tonnage of purchased
     slag or natural rutile ore.


TiO2 manufacturing joint venture


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


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


     The  manufacturing  joint  venture  operates  on a  break-even  basis  and,
accordingly, the Company reports no equity in earnings of the joint venture. the
Company's  cost for its share of the TiO2  produced is equal to its share of the
joint venture's  costs.  The Company's share of net costs is reported as cost of
sales as the related TiO2 acquired  from the joint venture is sold.  See Note 10
to the Consolidated Financial Statements.


Competition


     The TiO2 industry is highly competitive.  The Company competes primarily on
the basis of price,  product quality and technical service, and the availability
of high performance pigment grades.  Although certain TiO2 grades are considered
specialty  pigments,  the majority of the Company's grades and substantially all
of Kronos'  production are considered  commodity  pigments with price  generally
being  the most  significant  competitive  factor.  During  2002  Kronos  had an
estimated  12% share of worldwide  TiO2 sales volume,  and the Company  believes
that it is the leading seller of TiO2 in several  countries,  including  Germany
and Canada.

     The  Company's  principal  competitors  are E.I.  du Pont de  Nemours & Co.
("DuPont");  Millennium Chemicals, Inc.; Huntsman;  Kerr-McGee Corporation;  and
Ishihara Sangyo Kaisha,  Ltd.  Kronos' five largest  competitors  have estimated
individual  shares of TiO2  production  capacity  ranging from 24% to 5%, and an
estimated  aggregate 70% share of worldwide TiO2 production  volume.  DuPont has
about  one-half of total U.S.  TiO2  production  capacity  and is the  Company's
principal North American competitor.


     Capacity additions that are the result of construction of greenfield plants
in the worldwide TiO2 market require  significant  capital and substantial  lead
time,  typically  three to five  years in the  Company's  experience.  As no new
plants are currently under construction,  additional  greenfield capacity is not
expected in the next three to five years, but industry  capacity can be expected
to increase  as Kronos and its  competitors  debottleneck  existing  plants.  In
addition to potential capacity additions,  certain competitors have either idled
or shut down  facilities.  Based on the  factors  described  under  the  caption
"Industry"  above,  the  Company  expects  that the average  annual  increase in
industry capacity from announced  debottlenecking projects will be less than the
average annual demand growth for TiO2 over the next three to five years.

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

Research and Development

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

Patents and Trademarks

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

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

Foreign Operations


     The Company's chemical  businesses have operated in non-U.S.  markets since
the 1920s. Most of Kronos' current production  capacity is located in Europe and
Canada with non-U.S. net property and equipment  aggregating  approximately $372
million at December 31, 2002. Net property and equipment in the U.S.,  including
50% of the property and  equipment  of LPC,  was  approximately  $124 million at
December  31,  2002.  The  Company's  European   operations  include  production
facilities  in Germany,  Belgium and Norway.  Approximately  $603 million of the
Company's  2002  consolidated  sales were to non-U.S.  customers,  including $93
million to customers  in areas other than Europe and Canada.  Sales to customers
in the U.S.  aggregated $272 million in 2002. Foreign operations are subject to,
among other  things,  currency  exchange  rate  fluctuations  and the  Company's
results of operations  have, in the past,  been both  favorably and  unfavorably
affected by fluctuations in currency exchange rates.  Effects of fluctuations in
currency  exchange rates on the Company's results of operations are discussed in
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations"  and Item 7A.  "Quantitative  and Qualitative  Disclosures  about
Market Risk."


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


Customer Base and Annual Seasonality


     The Company  believes that neither its aggregate  sales nor those of any of
its principal  product groups are  concentrated in or materially  dependent upon
any single  customer  or small group of  customers.  The  Company's  largest ten
customers  accounted  for  approximately  25% of net sales in 2002.  Neither the
Company's business as a whole nor that of any of its principal product groups is
seasonal  to any  significant  extent.  Due in part  to the  increase  in  paint
production in the spring to meet the spring and summer  painting  season demand,
TiO2 sales are generally higher in the first half of the year than in the second
half of the year.

Employees

     As of December 31, 2002, the Company employed  approximately 2,500 persons,
excluding LPC employees,  with  approximately 100 employees in the United States
and approximately 2,400 at sites outside the United States.  Hourly employees in
production facilities worldwide,  including LPC, are represented by a variety of
labor unions, with labor agreements having various expiration dates. The Company
believes its labor relations are good.

Regulatory and Environmental Matters

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

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

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

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory actions after the EU. The Company believes that Kronos
has  obtained  all  required  permits  and  is in  substantial  compliance  with
applicable  EU  requirements,   including  EU  Directive   92/112/EEC  regarding
establishment of procedures for reduction and eventual  elimination of pollution
caused by waste from the TiO2 industry.

     At all of the Company's  sulfate plant facilities  other than  Fredrikstad,
Norway,  the Company  recycles  spent acid either  through  contracts with third
parties or using the Company's own facilities. At its Fredrikstad, Norway plant,
the Company ships its spent acid to a third party  location  where it is treated
and  disposed.  The Company has a contract  with a third party to treat  certain
by-products of its German sulfate-process plants. Either party may terminate the
contract  after giving four years advance  notice with regard to its  Nordenham,
Germany plant.  Under certain  circumstances,  Kronos may terminate the contract
after giving six months notice with respect to treatment of by-products from the
Leverkusen, Germany plant.

     The Company's  capital  expenditures  related to its ongoing  environmental
protection and improvement  programs in 2002 were approximately $5 million,  and
are currently expected to be approximately $5 million in 2003.

     The Company has been named as a defendant,  potentially  responsible  party
("PRP"),  or both, pursuant to CERCLA and similar state laws in approximately 70
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by the
Company, or its subsidiaries, or their predecessors, certain of which are on the
U.S.   Environmental   Protection   Agency's  ("U.S.  EPA")  Superfund  National
Priorities  List or  similar  state  lists.  See  Item 3.  "Legal  Proceedings."
Principal Shareholders

     At December  31,  2002,  Valhi,  Inc.  ("Valhi")  and  Tremont  Corporation
("Tremont"),   each  affiliates  of  Contran   Corporation   ("Contran"),   held
approximately 63% and 21%,  respectively,  of NL's outstanding  common stock. At
December  31,  2002,  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 the sole trustee.  Mr. Simmons, the Chairman of
the Board of each of Contran,  Valhi and NL and a director  of  Tremont,  may be
deemed  to  control  each  of  such  companies.  See  Notes  7,  8 and 22 to the
Consolidated Financial Statements.

Website and other available information

     The  Company  maintains  a website  on the  Internet  with the  address  of
www.nl-ind.com.  Copies of this  Annual  Report on Form 10-K for the year  ended
December 31, 2002 and copies of the Company's Quarterly Reports on Form 10-Q for
2002 and 2003 and any  Current  Reports  on Form 8-K for 2002 and 2003,  and any
amendments  thereto,  are or  will  be  available  free  of  charge  as  soon as
reasonably  practical  after  they  are  filed  with  the SEC at  such  website.
Information contained on the Company's website is not part of this report.

     The general  public may read and copy any  materials the Company files with
the  SEC  at  the  SEC's  Public  Reference  Room  at 450  Fifth  Street,  N.W.,
Washington,  D.C. 20549.  The public may obtain  information on the operation of
the Public Reference Room by calling the SEC at  1-800-SEC-0330.  The Company is
an electronic  filer,  and the SEC  maintains an Internet  website that contains
reports,  proxy and  information  statements,  and other  information  regarding
issuers  that file  electronically  with the SEC,  including  the  Company.  The
Internet address of the SEC's website is www.sec.gov.

ITEM 2. PROPERTIES


     The  Company  currently  operates  five  TiO2  plants  in  Europe  (two  in
Leverkusen,  Germany; one in Nordenham,  Germany; one in Langerbrugge,  Belgium;
and one in Fredrikstad,  Norway). In North America, the Company has a TiO2 plant
in  Varennes,  Quebec,  Canada and,  through  the  manufacturing  joint  venture
described above, a one-half interest in a TiO2 plant in Lake Charles, Louisiana.
The Company operates an ilmenite ore mine in Hauge i Dalane,  Norway pursuant to
a  governmental  concession  and also owns a TiO2 slurry plant in Lake  Charles,
Louisiana. See Note 13 to the Consolidated Financial Statements.

     The Company's  principal German operating  subsidiary leases the land under
its Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050.
The Leverkusen facility, with about one-third of Kronos' current TiO2 production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG. Rent for the Leverkusen  facility is  periodically  established by agreement
with  Bayer AG for  periods  of at least two years at a time.  Under a  separate
supplies  and  services  agreement  expiring in 2011,  Bayer  provides  some raw
materials,  including  chlorine and certain amounts of sulfuric acid,  auxiliary
and  operating  materials  and  utilities  services  necessary  to  operate  the
Leverkusen  facility.  The  lease has  certain  restrictions  regarding  Kronos'
ability to transfer ownership or use of the Leverkusen facility.



     The  Company  owns all of its  principal  production  facilities  described
above,  except for the land under the Leverkusen and Fredrikstad  facilities and
the  ilmenite  ore mine.  The  Company  has a  governmental  concession  with an
unlimited term to operate the ilmenite mine in Norway.


     The Company has under lease various  corporate and  administrative  offices
located in the U.S. and various sales offices located in the U.S.,  France,  the
Netherlands,  Denmark  and the U.K.  In 2002  the  Company  closed  its New York
administrative office.

ITEM 3.  LEGAL PROCEEDINGS

Lead pigment litigation

     The Company was formerly  involved in the  manufacture of lead pigments for
use in paint and  lead-based  paint.  During the past 15 years,  the Company has
been named as a defendant or third party defendant in various legal  proceedings
alleging that the Company and approximately  seven other companies that formerly
manufactured  lead  pigments  for use in paint  (together,  the "former  pigment
manufacturers")  and  lead-based  paint are  responsible  for  personal  injury,
property damage and governmental  expenditures allegedly associated with the use
of these  products.  These cases assert a combination  of claims that  generally
include   negligent  product  design,   negligent  failure  to  warn,   supplier
negligence,  fraud  and  deceit,  public  and  private  nuisance,   restitution,
indemnification,  conspiracy,  concert of action,  aiding and  abetting,  strict
liability/failure to warn, and strict liability/defective  design, violations of
state  consumer  protection  statutes,   enterprise   liability,   market  share
liability,  and similar claims.  The Company has neither lost nor settled any of
these cases.  Considering the Company's previous involvement in the lead pigment
and  lead-based  paint  businesses,  the Company  expects that  additional  lead
pigment and lead-based paint  litigation,  asserting  similar or different legal
theories  and seeking  similar or  different  types of damage and relief to that
described below, may be filed. In addition,  various other cases are pending (in
which the Company is not a  defendant)  seeking  recovery  for injury  allegedly
caused by lead  pigment  and  lead-based  paint.  Although  the Company is not a
defendant  in these  cases,  the  outcome  of these  cases may have an impact on
additional cases being filed against the Company.

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

     In 1989  and 1990 the  Housing  Authority  of New  Orleans  ("HANO")  filed
third-party  complaints  against the former pigment  manufacturers  and the Lead
Industries  Association (the "LIA") in 14 actions commenced by residents of HANO
units seeking compensatory and punitive damages for injuries allegedly caused by
lead pigment.  All but two of these actions,  Hall v. HANO, et al. (No. 89-3552)
and Allen v. HANO, et al. (No.  89-427) Civil  District  Court for the Parish of
Orleans,  State of  Louisiana,  have been  dismissed.  These two cases have been
inactive since 1992.

     In June 1989 a complaint was filed in the Supreme Court of the State of New
York, County of New York, against the former pigment  manufacturers and the LIA.
Plaintiffs  sought  damages in excess of $50 million for  monitoring and abating
alleged  lead  paint  hazards  in  public  and  private  residential  buildings,
diagnosing  and  treating  children  allegedly  exposed  to lead  paint  in city
buildings,  the costs of educating  city residents to the hazards of lead paint,
and liability in personal  injury actions against New York City and the New York
City Housing  Authority  based on alleged lead  poisoning of city residents (The
City of New York,  the New York  City  Housing  Authority  and the New York City
Health and Hospitals  Corp. v. Lead  Industries  Association,  Inc., et al., No.
89-4617).  As a result of pre-trial motions, the New York City Housing Authority
is the only remaining  plaintiff in the case and is pursuing  damage claims only
with respect to two housing projects. Discovery is proceeding.

     In August 1992 the Company was served with an amended complaint in Jackson,
et al. v. The  Glidden  Co., et al.,  Court of Common  Pleas,  Cuyahoga  County,
Cleveland,  Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and punitive
damages  for  personal  injury  caused by the  ingestion  of lead,  and an order
directing defendants to abate lead-based paint in buildings.  Plaintiffs purport
to represent a class of similarly situated persons throughout the State of Ohio.
The trial court has denied plaintiffs' motion for class certification. Discovery
and  pre-trial  proceedings  are  continuing  with  respect  to  the  individual
plaintiffs.  Defendants have filed a motion for summary  judgment on all claims.
The court has not yet ruled on the motion.

     In December  1998 the Company was served with a complaint on behalf of four
children and their guardians in Sabater, et al. v. Lead Industries  Association,
et al.  (Supreme  Court of the  State of New York,  County  of Bronx,  Index No.
25533/98).  Plaintiffs  purport to represent a class of all children and mothers
similarly  situated in New York State.  The complaint seeks damages from the LIA
and other former pigment  manufacturers for establishment of property  abatement
and medical  monitoring funds and  compensatory  damages for alleged injuries to
plaintiffs. Discovery regarding class certification is proceeding.

     In  September  1999 an  amended  complaint  was  filed in  Thomas  v.  Lead
Industries Association,  et al. (Circuit Court, Milwaukee,  Wisconsin,  Case No.
99-CV-6411),  adding as defendants  the former pigment  manufacturers  to a suit
originally filed against  plaintiff's  landlords.  Plaintiff,  a minor,  alleges
injuries  purportedly  caused by lead on the  surfaces  of  premises in homes in
which he resided.  Plaintiff seeks  compensatory and punitive  damages,  and the
Company  has  denied  liability.   In  January  2003  the  trial  court  granted
defendants' motion for summary judgment, dismissing all counts of the complaint.
The time for plaintiff to appeal has not yet expired.

     In October  1999 the Company was served with a complaint  in State of Rhode
Island v. Lead Industries  Association,  et al. (Superior Court of Rhode Island,
No. 99-5226).  The State seeks compensatory and punitive damages for medical and
educational  expenses,  and public and private building  abatement expenses that
the  State  alleges  were  caused by lead  paint,  and for  funding  of a public
education campaign and health screening  programs.  Plaintiff seeks judgments of
joint and several  liability  against the former pigment  manufacturers  and the
LIA.  Trial began in phase I of this case before a Rhode Island state court jury
on  September  4, 2002 on the question of whether lead pigment in paint on Rhode
Island  buildings  is a public  nuisance.  On October  29,  2002 the trial judge
declared a  mistrial  in the case when the jury was unable to reach a verdict on
the question,  with the jury reportedly deadlocked 4-2 in the defendants' favor.
No date has been set for any further proceedings, including any possible retrial
of the  public  nuisance  issue.  Other  claims  made by the  Attorney  General,
including  violation of the Rhode Island  Unfair  Trade  Practices  and Consumer
Protection  Act,  strict   liability,   negligence,   negligent  and  fraudulent
misrepresentation,  civil  conspiracy,  indemnity,  and unjust enrichment remain
pending and were not the subject of this trial.  Post-trial motions by plaintiff
and defendants for judgment notwithstanding the mistrial are pending.

     In October 1999 the Company was served with a complaint in Smith, et al. v.
Lead Industries Association, et al. (Circuit Court for Baltimore City, Maryland,
Case No. 24-C-99-004490). Plaintiffs, seven minors from four families, each seek
compensatory  damages of $5 million  and  punitive  damages of $10  million  for
alleged  injuries due to  lead-based  paint.  Plaintiffs  allege that the former
pigment  manufacturers and other companies  alleged to have  manufactured  paint
and/or  gasoline  additives,  the  LIA,  and the  National  Paint  and  Coatings
Association are jointly and severally liable.  The Company has denied liability,
and all defendants  filed motions to dismiss various of the claims.  In February
2002 the trial  court  dismissed  all claims  except  those  relating to product
liability for lead paint and the Maryland  Consumer  Protection Act. In November
2002 the trial court  granted  summary  judgment  against the children  from the
first  of  the  plaintiff  families  and  plaintiffs  have  appealed.  Pre-trial
proceedings and discovery against the other plaintiffs are continuing.

     In February  2000 the  Company  was served with a complaint  in City of St.
Louis v. Lead  Industries  Association,  et al.  (Missouri  Circuit  Court  22nd
Judicial  Circuit,  St. Louis City,  Cause No. 002-245,  Division 1).  Plaintiff
seeks compensatory and punitive damages for its expenses discovering and abating
lead-based  paint,  detecting  lead  poisoning  and  providing  medical care and
educational  programs for City  residents,  and the costs of educating  children
suffering injuries due to lead exposure.  Plaintiff seeks judgments of joint and
several  liability  against  the former  pigment  manufacturers  and the LIA. In
November 2002 defendants' motion to dismiss was denied. Discovery is proceeding.

     In April 2000 the Company  was served  with a complaint  in County of Santa
Clara v. Atlantic  Richfield  Company,  et al.  (Superior  Court of the State of
California,  County of Santa  Clara,  Case No.  CV788657),  brought  against the
former  pigment  manufacturers,  the LIA and certain  paint  manufacturers.  The
County of Santa Clara  seeks to  represent  a class of  California  governmental
entities (other than the state and its agencies) to recover compensatory damages
for funds the plaintiffs  have expended or will in the future expend for medical
treatment, educational expenses, abatement or other costs due to exposure to, or
potential exposure to, lead paint, disgorgement of profit, and punitive damages.
Santa Cruz, Solano, Alameda, San Francisco, and Kern counties, the cities of San
Francisco and Oakland,  the Oakland and San Francisco  unified school  districts
and housing  authorities  and the Oakland  Redevelopment  Agency have joined the
case as  plaintiffs.  Pre-trial  proceedings  and discovery are  continuing.  In
February 2003 defendants filed a motion for summary judgment.

     In June 2000 two complaints were filed in Texas state court,  Spring Branch
Independent  School District v. Lead Industries  Association,  et al.  (District
Court of Harris County,  Texas, No. 2000-31175),  and Houston Independent School
District  v.  Lead  Industries  Association,  et al.  (District  Court of Harris
County,  Texas,  No.  2000-33725).  The  School  Districts  seek past and future
damages and  exemplary  damages for costs they have  allegedly  incurred or will
incur due to the presence of lead-based paint in their buildings from the former
pigment  manufacturers  and the LIA . The Company has denied all  liability.  In
June 2002, the trial court granted the Company's  motion for summary judgment in
the Spring Branch  Independent  School District case.  Plaintiffs have appealed.
The Houston Independent School District case has been abated, or stayed, pending
appellate review of the trial court's dismissal of the Spring Branch Independent
School District case or certain other events.

     In June 2000 a complaint was filed in Illinois state court,  Lewis,  et al.
v. Lead Industries Association,  et al. (Circuit Court of Cook County, Illinois,
County Department,  Chancery Division,  Case No. 00CH09800).  Plaintiffs seek to
represent two classes,  one of all minors  between ages six months and six years
who resided in housing in Illinois built before 1978, and one of all individuals
between  ages six and  twenty  years who lived  between  ages six months and six
years in  Illinois  housing  built  before  1978 and had blood lead levels of 10
micrograms/deciliter  or more. The complaint seeks damages jointly and severally
from  the  former  pigment  manufacturers  and the LIA to  establish  a  medical
screening  fund for the first class to determine  blood lead  levels,  a medical
monitoring fund for the second class to detect the onset of latent diseases, and
a fund for a public education campaign.  In March 2002 the trial court dismissed
all claims. Plaintiffs have appealed.

     In October 2000 the Company was served with a complaint filed in California
state court, Justice, et al. v. Sherwin-Williams Company, et al. (Superior Court
of California,  County of San Francisco, No. 314686).  Plaintiffs are two minors
who  seek  general,  special  and  punitive  damages  from  the  former  pigment
manufacturers  and the LIA for injuries  alleged to be due to ingestion of paint
containing  lead in their  residence.  The Company has denied all liability.  In
February  2003,  plaintiffs  moved to dismiss  the case  without  prejudice.  In
February  2001 the Company was served with a complaint in Borden,  et al. v. The
Sherwin-Williams   Company,   et  al.   (Circuit  Court  of  Jefferson   County,
Mississippi,  Civil Action No. 2000-587).  The complaint seeks joint and several
liability for  compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint,  including the Company, on behalf of
18 adult  residents of  Mississippi  who were  allegedly  exposed to lead during
their  employment  in  construction  and repair  activities.  One  plaintiff has
dropped  his  claims  and the court has  ordered  that the claims of nine of the
plaintiffs be transferred to Holmes County, Mississippi,  state court. Pre-trial
proceedings  are continuing  with respect to the eight  plaintiffs  remaining in
Jefferson County. Trial is scheduled to begin in October 2003.

     In May 2001 the Company was served with a complaint in City of Milwaukee v.
NL Industries,  Inc. and Mautz Paint (Circuit Court,  Civil Division,  Milwaukee
County,   Wisconsin,   Case  No.  01CV003066).   The  City  of  Milwaukee  seeks
compensatory   and  equitable  relief  for  lead  hazards  in  Milwaukee  homes,
restitution  for amounts it has spent to abate lead, and punitive  damages.  The
Company has denied all liability. Pre-trial proceedings are continuing. Trial is
scheduled to begin in October 2003.

     In May 2001 the Company was served with a complaint in Harris County, Texas
v. Lead Industries Association,  et al. (District Court of Harris County, Texas,
No.  2001-21413).  The complaint  seeks actual and punitive  damages and asserts
claims jointly and severally  against the former pigment  manufacturers  and the
LIA  for  past  and  future  damages  due to  the  presence  of  lead  paint  in
County-owned buildings.  The Company has denied all liability. The case has been
abated,  or stayed,  pending  appellate review of the trial court's dismissal of
the Spring Branch Independent School District case or certain other events.

     In December 2001 the Company was served with a complaint in Quitman  County
School District v. Lead Industries Association, et al. (Circuit Court of Quitman
County,  Mississippi,  Case No.  2001-0106).  The  complaint  asserts  joint and
several liability and seeks  compensatory and punitive damages for the abatement
of lead paint in Quitman County  schools from the former pigment  manufacturers,
local  paint  retailers  and  others.  Plaintiffs  subsequently  dismissed  with
prejudice  all  defendants  except NL.  The case has been  removed to the United
States District Court for the Northern District of Mississippi.  The Company has
denied all  liability  and has filed a motion for  summary  judgment.  Pre-trial
proceedings are continuing.

     In January and February  2002 the Company was served with  complaints by 25
New Jersey  municipalities  and counties which have been  consolidated as In re:
Lead Paint Litigation,  (Superior Court of New Jersey,  Middlesex  County,  Case
Code 702). Each complaint seeks abatement of lead paint from all housing and all
public buildings in each jurisdiction and punitive damages jointly and severally
from the former  pigment  manufacturers  and the LIA. In November 2002 the trial
court dismissed the cases with prejudice. Plaintiffs have appealed.

     In January 2002 the Company was served with a complaint in Jackson, et al.,
v. Phillips  Building  Supply of Laurel,  et al. (Circuit Court of Jones County,
Mississippi,  Dkt.  Co.  2002-10-CV1).  The  complaint  seeks  joint and several
liability from three local retailers and six non-Mississippi companies that sold
paint for  compensatory  and  punitive  damages  on behalf  of four  adults  for
injuries alleged to have been caused by the use of lead paint.  After removal to
federal  court,  in  February  2003 the case was  remanded to state  court.  The
Company has denied all allegations of liability,  and pre-trial  proceedings are
continuing.

     In  February  2002 the  Company  was  served  with a  complaint  in Liberty
Independent  School District v. Lead Industries  Association,  et al.  (District
Court  of  Liberty  County,  Texas,  No.  63,332).  The  school  district  seeks
compensatory  and punitive damages jointly and severally from the former pigment
manufacturers  and the LIA for property  damage to its buildings.  The complaint
was  amended  to add  Liberty  County,  the  City of  Liberty,  and  the  Dayton
Independent   School  District  as  plaintiffs  and  drop  the  Lead  Industries
Association as a defendant. The Company has denied all allegations of liability.
The case has been  abated,  or  stayed,  pending  appellate  review of the trial
court's  dismissal of the Spring  Branch  Independent  School  District  case or
certain other events.

     In May  2002  the  Company  was  served  with a  complaint  in  Brownsville
Independent  School District v. Lead Industries  Association,  et al.  (District
Court of Cameron County,  Texas,  No.  2002-052081 B), seeking  compensatory and
punitive   damages   jointly  and   severally   from  the  former  lead  pigment
manufacturers  and  LIA  for  property  damage.   The  Company  has  denied  all
allegations of liability. The case has been abated, or stayed, pending appellate
review of the trial court's  dismissal of the Spring Branch  Independent  School
District case or certain other events.

     In  September  2002 the  Company  was served  with a  complaint  in City of
Chicago v. American  Cyanamid,  et al. (Circuit Court of Cook County,  Illinois,
No. 02CH16212),  seeking damages to abate lead paint in a single-count complaint
alleging   public   nuisance   against  the  Company  and  seven  other   former
manufacturers  of lead pigment.  Defendants have filed a motion to dismiss.  The
court has not yet ruled on the motion.

     In October  2002 the Company  was served with a complaint  in Walters v. NL
Industries,  et al. (Kings County Supreme Court, New York, No.  28087/2002),  in
which an adult seeks compensatory and punitive damages from the Company and five
other former lead pigment  manufacturers  for childhood  exposure to lead paint.
The complaint alleges negligence and strict product  liability,  and seeks joint
and  several  liability  with  claims of civil  conspiracy,  concert  of action,
enterprise liability, and market share or alternative liability. Defendants have
moved to dismiss certain of the counts.

     The  Company is also aware of three  personal  injury  complaints  filed in
state court in LeFlore  County  Mississippi  in December  2002. In Russell v. NL
Industries,  Inc.,  et al. (No.  No.2002-0235-CICI),  six painters have sued NL,
four  paint  companies,  and  a  local  retailer,   alleging  strict  liability,
negligence,  fraudulent  concealment,  misrepresentation,  and  conspiracy,  and
seeking  compensatory  and punitive  damages for alleged injuries caused by lead
paint. In Stewart v. NL Industries,  Inc., et al. (No. 2002-0266-CICI),  a child
has sued NL,  four paint  companies,  two local  retailers,  and two  landlords,
alleging   strict   liability,    negligence,    fraudulent   concealment,   and
misrepresentation,  and seeking  compensatory  and punitive  damages for alleged
injuries  caused by lead paint.  In Jones v. NL  Industries,  Inc.,  et al. (No.
2002-0241-CICI),  fourteen  children  from  five  families  have sued NL and one
landlord  alleging strict liability,  negligence,  fraudulent  concealment,  and
misrepresentation,  and seeking  compensatory  and punitive  damages for alleged
injuries  caused by lead  paint.  The  Company has not been served in any of the
cases.

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

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

     The issue of whether  insurance  coverage for defense costs or indemnity or
both will be found to exist for lead pigment  litigation  depends upon a variety
of factors,  and there can be no assurance that such insurance  coverage will be
available. The Company has not considered any potential insurance recoveries for
lead pigment or environmental litigation in determining related accruals.

Environmental matters and litigation


     The Company has been named as a defendant, PRP, or both, pursuant to CERCLA
and similar state laws in  approximately  70  governmental  and private  actions
associated with waste disposal sites, mining locations and facilities  currently
or previously owned,  operated or used by the Company,  or its subsidiaries,  or
their  predecessors,  certain of which are on the U.S. EPA's Superfund  National
Priorities List or similar state lists.  These  proceedings  seek cleanup costs,
damages for personal  injury or property  damage,  and/or  damages for injury to
natural resources.  Certain of these proceedings  involve claims for substantial
amounts.  Although  the  Company may be jointly  and  severally  liable for such
costs,  in most cases it is only one of a number of PRPs who may also be jointly
and severally liable. See Note 23 to the Consolidated Financial Statements.


     The extent of CERCLA  liability  cannot  accurately be determined until the
Remedial  Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA
issues a record of decision and costs are  allocated  among PRPs.  The extent of
liability under analogous state cleanup  statutes and for common law equivalents
are  subject to similar  uncertainties.  The Company  believes  it has  provided
adequate  accruals for reasonably  estimable  costs for CERCLA matters and other
environmental  liabilities.  At December 31,  2002,  the Company had accrued $98
million for those  environmental  matters which are  reasonably  estimable.  The
Company  determines the amount of accrual on a quarterly  basis by analyzing and
estimating  the range of reasonably  possible  costs to the Company.  Such costs
include,   among  other  things,   expenditures  for  remedial   investigations,
monitoring,   managing,  studies,  certain  legal  fees,  cleanup,  removal  and
remediation.  It is not  possible  to  estimate  the range of costs for  certain
sites.  The Company has estimated  that the upper end of the range of reasonably
possible  costs to the  Company  for sites for which it is  possible to estimate
costs is approximately  $140 million.  The Company's  estimate of such liability
has not been  discounted  to present  value and the  Company has not reduced its
accruals for any potential insurance recoveries.  No assurance can be given that
actual  costs will not  exceed  either  accrued  amounts or the upper end of the
range for sites for which  estimates  have been made,  and no  assurance  can be
given  that  costs  will not be  incurred  with  respect to sites as to which no
estimate  presently can be made. The  imposition of more stringent  standards or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes  with respect to site cleanup  costs or  allocation  of such costs among
PRPs,  the  insolvency  of other PRPs,  or a  determination  that the Company is
potentially  responsible for the release of hazardous  substances at other sites
could result in  expenditures  in excess of amounts  currently  estimated by the
Company to be required for such matters. Furthermore,  there can be no assurance
that  additional  environmental  matters  will  not  arise in the  future.  More
detailed  descriptions of certain legal  proceedings  relating to  environmental
matters are set forth below.



     The exact time frame over which the Company makes  payments with respect to
its accrued  environmental  costs is unknown and is dependent upon,  among other
things,  the timing of the actual  remediation  process which in part depends on
factors  outside the control of the  Company.  At each balance  sheet date,  the
Company makes an estimate of the amount of its accrued environmental costs which
will be paid out over the subsequent 12 months,  and the Company classifies such
amount as a current liability.  The remainder of the accrued environmental costs
are classified as a noncurrent liability.

     At  December  31,  2002,  there  are  approximately  15 sites for which the
Company is unable to estimate a range of costs.  For these sites,  generally the
investigation is in the early stages,  and it is either unknown as to whether or
not the Company  actually had any  association  with the site, or if the Company
had association with the site, the nature of its responsibility, if any, for the
contamination  at the site and the extent of  contamination.  The timing on when
information  would  become  available  to the  Company  to allow the  Company to
estimate a range of loss is unknown and dependent on events  outside the control
of the Company,  such as when the party alleging liability provides  information
to the Company.


     In  June  2000  the  Company  recognized  a $43  million  net  gain  from a
settlement  with one of the two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts  established to pay future  remediation  and other  environmental
expenditures of the Company.  A settlement with remaining  members of the second
carrier  group was reached in January 2001,  and the Company  recognized a $10.3
million  gain in the first  quarter of 2001.  In 2002 and 2001 the Company  also
recognized  $5.2 million and $1.4  million,  respectively,  of other  litigation
settlement  gains. The settlements  resolved court  proceedings that the Company
initiated to seek  reimbursement  for legal defense  expenditures  and indemnity
coverage for certain of its environmental remediation  expenditures.  No further
material settlements relating to litigation concerning environmental remediation
coverage are expected. See Note 19 to the Consolidated Financial Statements.

     In July 1991 the United States filed an action in the U.S.  District  Court
for the  Southern  District of Illinois  against the Company and others  (United
States of America v. NL  Industries,  Inc.,  et al.,  Civ. No. 91-CV 00578) with
respect  to the  Granite  City,  Illinois  lead  smelter  formerly  owned by the
Company.  The  complaint  seeks  injunctive  relief to compel the  defendants to
comply with an  administrative  order issued  pursuant to CERCLA,  and fines and
treble damages for the alleged failure to comply with the order. The Company and
the other  parties  did not  implement  the  order,  believing  that the  remedy
selected by the U.S. EPA was unlawful. The complaint also seeks recovery of past
costs and a  declaration  that the  defendants  are  liable  for  future  costs.
Although  the action was filed  against the  Company  and ten other  defendants,
there are 330 other PRPs who have been  notified by the U.S.  EPA. Some of those
notified were also respondents to the administrative  order. The Company and the
U.S. EPA have entered into a consent decree settling the Company's  liability at
the site for $31.5 million,  which includes penalties of $1 million. The consent
decree is subject to court  approval.  The Company expects to pay the settlement
in 2003 with restricted funds held by the Company's environmental trusts.

     The Company  reached an agreement in 1999 with the other PRPs at a formerly
owned lead  smelter  site in  Pedricktown,  New  Jersey to settle the  Company's
liability  for $6 million,  all of which has been paid as of December  31, 2002.
The  settlement  does not  resolve  issues  regarding  the  Company's  potential
liability  in the event site costs  exceed $21  million.  The  Company  does not
presently expect site costs to exceed such amount and has not provided  accruals
for such contingency.

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

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

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

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

     In October 2000 the Company was served with a complaint in Pulliam,  et al.
v. NL  Industries,  Inc., et al, (No.  49F12-0104-CT-001301),  filed in superior
court in Marion  County,  Indiana,  on behalf of an alleged class of all persons
and  entities who own or have owned  property or have resided  within a one-mile
radius of an industrial  facility  formerly owned by a subsidiary of the Company
in Indianapolis,  Indiana.  Plaintiffs  allege that they and their property have
been  injured  by  lead  dust  and  particulates  from  the  facility  and  seek
unspecified  actual  and  punitive  damages  and a removal of all  alleged  lead
contamination under various theories,  including  negligence,  strict liability,
battery,  nuisance  and  trespass.  The  Company has denied all  allegations  of
wrongdoing and liability.  In 2002, the court dismissed plaintiffs'  allegations
that the case should be certified as a class action.  The defendants  have moved
to  dismiss  the  remainder  of the  case.  The  court has not yet ruled on this
motion. Discovery is proceeding.

     In November  2001,  the Company was named as a defendant in Herd v. ASARCO,
et al. (Case No.  CJ-2001-443),  filed in the  District  Court in and for Ottawa
County,  Oklahoma.  The  complaint  was filed on behalf of a minor  against  the
Company  and  other  defendants  and  alleges  that  defendants'  former  mining
operations near Picher, Oklahoma resulted in damage to the plaintiff as a result
of the  ingestion  of lead from mining  co-products.  The Company has denied the
material allegations of the complaint. The case was removed to federal court and
the United States was added as a third-party defendant. Discovery is proceeding.
Trial is  scheduled  for  August  2003.  In 2002,  the  Company  was  named as a
defendant in four additional  cases with  substantially  similar  allegations to
those in the Herd case.  (Reeves v.  ASARCO et al.,  Case No.  CJ-02-8;  Carr v.
ASARCO et al., Case No.  CJ-02-59;  Edens v. ASARCO et al., Case No.  CJ-02-245;
and Koger v. ASARCO et al.,  Case No.  CJ-02-284.)  Each of these cases has been
removed to federal court and the United States added as a third-party defendant.
These cases have been consolidated with the Herd case for purposes of discovery.
Discovery is proceeding.

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

Other litigation

     The Company has been named as a defendant in various  lawsuits in a variety
of  jurisdictions,  alleging  personal  injuries  as a  result  of  occupational
exposure to asbestos, silica and/or mixed dust in connection with formerly owned
operations.  Approximately 350 of these cases involving a total of approximately
27,700  plaintiffs  and  their  spouses  remain  pending.  Of these  plaintiffs,
approximately 18,250 are represented by 8 cases pending in Texas and Mississippi
state courts.  The Company has not accrued any amounts for this  litigation.  In
addition, from time to time, the Company has received notices regarding asbestos
or silica claims  purporting to be brought  against former  subsidiaries  of the
Company,  including  notices  provided  to  insurers  with which the Company has
entered  into  settlements   extinguishing  certain  insurance  policies.  These
insurers may seek indemnification from the Company.

     In August and September 2000 the Company and one of its subsidiaries,  NLO,
Inc.  ("NLO"),  were named as defendants in four lawsuits filed in federal court
in the Western District of Kentucky against the Department of Energy ("DOE") and
a number of other defendants  alleging that nuclear materials supplied by, among
others, the Feed Materials Production Center ("FMPC") in Fernald, Ohio, owned by
the DOE and formerly  managed under contract by NLO, harmed employees and others
at the DOE's Paducah, Kentucky Gaseous Diffusion Plant ("PGDP"). With respect to
each of the cases,  the Company  believes  that the DOE is  obligated to provide
defense and  indemnification  pursuant to its contract with NLO, and pursuant to
its  statutory  obligation  to do so, as the DOE has in several  previous  cases
relating to management of the FMPC and the Company has so advised the DOE. Three
of the cases have been settled and dismissed with prejudice, with the DOE paying
the settlement  amount.  In the fourth case, Dew, et al. v. Bill Richardson,  et
al.,  described  below,  the parties  have  settled  the case,  subject to court
approval  which was granted in March 2003.  The DOE has  indicated  that it will
reimburse the settlement amount. In Dew, et al. v. Bill Richardson,  et al., No.
5:00CV-221-M,  plaintiffs purport to represent classes of all PGDP employees who
sustained  pituitary  tumors or cancer as a result of exposure to radiation  and
seek actual and  punitive  damages of $2 billion  each for alleged  violation of
constitutional   rights,  assault  and  battery,  fraud  and  misrepresentation,
infliction of emotional distress,  negligence,  ultra-hazardous  activity/strict
liability,  strict  products  liability,  conspiracy,  concert of action,  joint
venture and enterprise liability, and equitable estoppel.

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

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2002.


<PAGE>


                                     PART II

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

     NL's common  stock is listed and traded on the New York Stock  Exchange and
the Pacific  Exchange  under the symbol "NL." As of March 12,  2003,  there were
approximately  5,900 holders of record of NL common stock.  The following  table
sets  forth the high and low sales  prices  for NL common  stock on the New York
Stock Exchange ("NYSE")  Composite Tape. On March 12, 2003, the closing price of
NL common stock according to the NYSE Composite Tape was $14.78.

<TABLE>
<CAPTION>
                                                                        High             Low           Dividends
                                                                                                        Declared
                                                                    --------------  ---------------  ---------------
Year ended December 31, 2002:
<S>                                                                 <C>             <C>              <C>
    First quarter                                                   $      17.47    $       13.01    $        .20
    Second quarter                                                         18.80            14.84             .20
    Third quarter                                                          16.10            13.07             .20
    Fourth quarter                                                         18.83            13.80            2.70

Year ended December 31, 2001:
    First quarter                                                   $      24.31    $       16.25    $        .20
    Second quarter                                                         18.00            11.60             .20
    Third quarter                                                          16.75            13.80             .20
    Fourth quarter                                                         15.70            12.04             .20
</TABLE>

     The  Company  paid four  quarterly  $.20 per share cash  dividends  and one
additional  $2.50 per share cash  dividend in 2002.  On  February  5, 2003,  the
Company's Board of Directors  declared a regular quarterly  dividend of $.20 per
share to  shareholders  of record  as of March 14,  2003 to be paid on March 26,
2003. The declaration and payment of future dividends is discretionary,  and the
amount,  if any,  will be dependent  upon the Company's  results of  operations,
financial condition,  contractual restrictions and other factors deemed relevant
by the Company's Board of Directors.

     Pursuant to its share repurchase  program,  the Company purchased 1,384,000
shares of its  common  stock in the open  market at an  aggregate  cost of $21.3
million in 2002,  1,059,000  shares of its common stock in the open market at an
aggregate cost of $15.5 million in 2001 and 1,682,000 shares of its common stock
at an aggregate  cost of $30.9 million in 2000.  In October 2002,  the Company's
Board of Directors  authorized  a 1,500,000  share  extension of the  repurchase
program.  Approximately  1,323,000  additional shares are available for purchase
under the  Company's  share  repurchase  program.  The  available  shares may be
purchased  over an  unspecified  period of time,  and are to be held as treasury
shares available for general corporate purposes.

ITEM 6. SELECTED FINANCIAL DATA

     The selected consolidated  financial data set forth below should be read in
conjunction with the Consolidated  Financial  Statements and Notes thereto,  and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of Operations."  Certain amounts have been reclassified from amounts  previously
reported to conform with the current  year's  consolidated  financial  statement
presentation  and  due to the  Company's  adoption  of  Statement  of  Financial
Accounting  Standards  No.  145  effective  April  1,  2002.  See  Note 2 to the
Consolidated  Financial  Statements.  Such reclassification had no effect on the
Company's previously reported net income.

<TABLE>

<CAPTION>
                                                                          Years ended December,
                                                  ----------------------------------------------------------------------
                                                      2002         2001         2000           1999           1998
                                                  ------------- ------------ ------------  ------------- ---------------
                                                                 (In millions, except per share amounts)

INCOME STATEMENT DATA:
<S>                                                 <C>           <C>         <C>            <C>         <C>
Net sales                                           $  875.2      $   835.1   $    922.3     $   908.4   $       894.7
Income from continuing operations                       36.8          121.4        154.6         159.8            80.5
Net income                                              36.8          121.4        154.6         159.8           366.7

Earnings per share:
    Basic:
        Income from continuing operations         $      .76    $     2.44   $      3.07   $     3.09    $        1.56
        Net income                                       .76          2.44          3.07         3.09             7.13
    Diluted:
        Income from continuing operations         $      .76    $     2.44   $      3.05   $     3.08    $        1.55
        Net income                                       .76          2.44          3.05         3.08             7.05

Cash dividends per share                           $    3.30    $      .80   $       .65    $      .14   $         .09

BALANCE SHEET DATA at year end:
Cash, cash equivalents, current and
  noncurrent restricted cash equivalents and
  current and noncurrent restricted marketable
  debt securities                                   $  130.4      $   199.0   $    207.6     $   151.8   $       163.1
Current assets                                         486.3          561.8        554.9         506.4           546.8
Total assets                                         1,111.5        1,151.1      1,120.8       1,056.2         1,155.6
Current liabilities                                    238.0          299.1        298.0         264.8           310.7
Long-term debt including current maturities            325.9          196.5        196.1         244.5           357.6
Shareholders' equity                                   265.3          386.9        344.5         271.1           152.3

CASH FLOW DATA:
Operating activities                               $    98.3      $   129.7   $    139.7     $   108.3   $         45.1
Investing activities                                   (27.2)         (57.2)       (56.2)        (38.4)          417.3
Financing activities                                  (132.5)         (75.5)       (95.7)        (88.0)         (396.2)
Operating, investing and financing activities          (61.4)          (3.0)       (12.2)        (18.1)           66.2
</TABLE>








<PAGE>



<TABLE>
<CAPTION>
                                                                        Years ended December,
                                                  ------------------------------------------------------------------
                                                  ------------------------------------------------------------------
                                                      2002         2001         2000         1999          1998
                                                  ------------- ----------- ------------- ------------ -------------
                                                               (In millions, except per share amounts)





TiO2 OPERATING STATISTICS:
    Average selling price
<S>                                                      <C>           <C>          <C>          <C>          <C>
      index (1983=100)                                   142           156          161          153          154
    Sales volumes*                                       455           402          436          427          408
    Production volume*                                   442           412          441          411          434
    Production capacity at beginning of year*            455           450          440          440          420
    Production rate as a percentage of
      capacity                                           96%          91%          Full         93%          Full

*  Metric tons in thousands
</TABLE>





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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     The  accompanying   "Management's  Discussion  and  Analysis  of  Financial
Condition and Results of Operations"  are based upon the Company's  consolidated
financial  statements,  which have been  prepared in accordance  with  generally
accepted  accounting  principles in the U.S. ("GAAP").  The preparation of these
financial  statements  requires the Company to make estimates and judgments that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amount of revenues and expenses during the reported  period.  On an
on-going basis, the Company evaluates its estimates,  including those related to
inventory  reserves,  impairments of investments in marketable equity securities
and investments  accounted for by the equity method, the recoverability of other
long-lived assets,  pension and other postretirement benefit obligations and the
underlying  actuarial  assumptions  related  thereto,  and  the  realization  of
deferred  income  tax  assets  and  accruals  for   environmental   remediation,
litigation, income tax and other contingencies.  The Company bases its estimates
on historical  experience and on various other  assumptions that are believed to
be reasonable under the  circumstances,  the results of which form the basis for
making judgments about the reported amounts of assets, liabilities, revenues and
expenses.  Actual  results may differ from  previously-estimated  amounts  under
different assumptions or conditions.

     The Company believes the following critical  accounting policies affect its
more  significant  judgments  and  estimates  used  in  the  preparation  of its
consolidated financial statements:

o    Inventory   allowances.   The  Company  provides   reserves  for  estimated
     obsolescence  or  unmarketable   finished  goods  inventory  equal  to  the
     difference  between the cost of inventory  and the  estimated  market value
     based upon  assumptions  about  future  demand for its  products and market
     conditions.  If actual  market  conditions  are less  favorable  than those
     projected by management,  additional  finished goods inventory reserves may
     be required. The Company provides reserves for tools and supplies inventory
     generally based on both historical and expected future usage requirements.

o    Valuation and impairment of marketable equity securities.  The Company owns
     investments  in  certain   companies  that  are  accounted  for  either  as
     marketable  equity  securities or under the equity method.  For all of such
     investments,  the Company records an impairment  charge when it believes an
     investment  has  experienced  a decline  in fair  value  that is other than
     temporary.  Future adverse  changes in market  conditions or poor operating
     results of underlying investments could result in losses or an inability to
     recover the carrying value of the investments  that may not be reflected in
     an investment's  current  carrying  value,  thereby  possibly  requiring an
     impairment charge in the future.

     At December 31, 2002, the carrying value of all of the Company's marketable
securities exceeded the cost basis of each of such investments.  With respect to
the  Company's  direct and indirect  investment  in Tremont,  which  represented
approximately  75% of  the  aggregate  carrying  value  of all of the  Company's
marketable  equity  securities at December 31, 2002, the $30.9 million aggregate
carrying value of such investment exceeded its $26.5 million cost basis by about
17%. In February 2003 Valhi completed a series of merger  transactions  pursuant
to which, among other things,  Tremont Group, Inc. ("Tremont Group") and Tremont
both became wholly owned subsidiaries of Valhi. Under these merger transactions,
(i) Valhi issued 3.5 million shares of its common stock to the Company in return
for the Company's 20% ownership  interest in Tremont Group and (ii) Valhi issued
3.4 shares of its common stock (plus cash in lieu of  fractional  shares) to all
Tremont  stockholders  (other than Valhi and Tremont Group) in exchange for each
share of Tremont common stock held by such  stockholders.  The Company  received
approximately 27,770 shares of Valhi common stock in the second transaction. The
number of shares of Valhi common stock issued to the Company in exchange for the
Company's 20% ownership interest in Tremont Group was equal to the Company's 20%
pro-rata  interest in the shares of Tremont  common stock held by Tremont Group,
adjusted  for the same 3.4 exchange  ratio.  The Valhi common stock owned by the
Company is restricted under SEC Rule 144.

o    Impairments  of  long-lived  assets.  The Company  recognizes an impairment
     charge  associated  with its  long-lived  assets,  including  property  and
     equipment, whenever it determines that recovery of such long-lived asset is
     not probable. Such determination is made in accordance with applicable GAAP
     requirement  associated with the long-lived asset, and is based upon, among
     other  things,  estimates  of the  amount  of future  net cash  flows to be
     generated by the  long-lived  asset and estimates of the current fair value
     of the asset. Adverse changes in such estimates of future net cash flows or
     estimates  of fair  value  could  result in an  inability  to  recover  the
     carrying  value of the  long-lived  asset,  thereby  possibly  requiring an
     impairment charge to be recognized in the future.

     Under applicable GAAP (Statement of Financial Accounting Standards ("SFAS")
     No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"),
     property  and  equipment  is not assessed  for  impairment  unless  certain
     impairment  indicators,  as defined,  are  present.  During  2002,  no such
     impairment  indicators  were  present  with  respect to the  Company's  net
     property and equipment.

     Under  applicable  GAAP  (SFAS No.  142,  "Goodwill  and  Other  Intangible
     Assets"), goodwill is required to be reviewed for impairment at least on an
     annual basis. The Company's goodwill relates to an acquisition completed in
     January 2002,  and such goodwill will  initially be reviewed for impairment
     during 2003.

o    Deferred  income tax valuation  allowance.  The Company records a valuation
     allowance  to reduce its  deferred  income tax assets to the amount that is
     believed  to be  realizable  under the  "more-likely-than-not"  recognition
     criteria.  While the  Company  has  considered  future  taxable  income and
     ongoing prudent and feasible tax planning  strategies in assessing the need
     for a valuation  allowance,  it is possible  that in the future the Company
     may change its  estimate  of the amount of the  deferred  income tax assets
     that would  "more-likely-than-not" be realized,  resulting in an adjustment
     to the  deferred  income tax asset  valuation  allowance  that would either
     increase or decrease, as applicable, reported net income in the period such
     change in estimate was made.

o    Defined benefit  pension and  postretirement  benefit plans.  The Company's
     defined  benefit  pension and  postretirement  benefits other than pensions
     ("OPEB")   expenses  and  obligations  are  calculated   based  on  several
     estimates,  including  discount  rates,  expected  rates of returns on plan
     assets and expected healthcare trend rates. The Company reviews these rates
     annually with the  assistance of its actuaries.  See further  discussion of
     the  potential  effect of these  estimates  in the  Assumptions  on defined
     benefit  pension plans and OPEB plans sections in the Liquidity and Capital
     Resources section of this MD&A.

o    Other  contingencies.  The Company  records an accrual  for  environmental,
     legal,   income  tax  and  other   contingencies   when  estimated   future
     expenditures  associated with such contingencies  become probable,  and the
     amounts can be reasonably  estimated.  However,  new information may become
     available,  or circumstances  (such as applicable laws and regulations) may
     change, thereby resulting in an increase or decrease in the amount required
     to be accrued  for such  matters  (and  therefore a decrease or increase in
     reported net income in the period of such change).

     Other significant accounting policies and use of estimates are described in
the Notes to the Consolidated Financial Statements.

RESULTS OF OPERATIONS

  General


     The Company's  operations are conducted by Kronos in the TiO2 business.  As
discussed  below,  average  TiO2  selling  prices in billing  currencies  (which
excludes the effects of foreign currency  translation) were generally increasing
during most of 2000, were generally  decreasing during all of 2001 and the first
quarter of 2002,  were flat during the second quarter of 2002 and were generally
increasing during the third and fourth quarters of 2002.


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



<TABLE>

<CAPTION>
                                                        Years ended December 31,                  % Change
                                                 ---------------------------------------- --------------------------
                                                     2002         2001          2000       2002-01      2001-00
                                                 ------------ ------------  ------------- ------------ -------------
                                                    (In millions)

<S>                                                  <C>          <C>           <C>                <C>           <C>
Net sales                                             $875.2       $835.1        $922.3            +5%           -9%
Cost of sales                                          671.8        578.1         610.4           +16%           -5%
                                                      ------       ------        ------
  Gross margin                                         203.4        257.0         311.9           -21%          -18%

Selling, general and administrative expense            107.7         98.7         107.5            +9%           -8%
Insurance recoveries, net                                  -          7.2           -
Currency transaction gains (losses), net                (.5)          1.2           6.5
Litigation settlement gains, net                         5.2         11.7          69.5
Noncompete agreement income                              4.0          4.0           4.0
Corporate expense                                     (37.9)        (25.8)        (29.6)
Other operating income (expense), net                   (.3)           .7           (.6)
                                                     ------        ------         -----

    Income from operations                             $66.2       $157.3        $254.2           -58%          -38%
                                                     =======      =======        ======

TiO2 operating statistics

    Percent change in average selling prices:
        Using actual foreign currency
           exchange rates                                                                        -7%         -5%
        Impact of changes in foreign currency
           exchange rates                                                                        -2%         +2%
                                                                                                ----         ---
        In billing currencies                                                                    -9%         -3%
                                                                                                ====         ===
    Sales volume (metric tons in thousands)           455           402            436           +13%         -8%
    Production volume (metric tons in
      thousands)                                      442           412            441            +7%         -6%
    Production rate as a percent of capacity           96%           91%          Full
</TABLE>


     The Company's  sales  increased $40.1 million (5%) in 2002 compared to 2001
due primarily to higher TiO2 sales volumes, offset by lower average TiO2 selling
prices. The Company's record TiO2 sales volumes in 2002 were 13% higher compared
to 2001 primarily due to higher  volumes in European and North American  markets
of 14% and 17%, respectively. By volume, approximately one-half of the Company's
2002 TiO2 sales  volumes  were  attributable  to  markets  in  Europe,  with 39%
attributable to North America and the balance to export markets.  The lower TiO2
sales  volumes in 2001 were due in part to the effect of a fire at the Company's
Leverkusen,  Germany facility in March 2001 that disrupted  operations discussed
in Note 20 to the Consolidated Financial Statements.

     The Company's cost of sales  increased $93.8 million (16%) in 2002 compared
to 2001 due to the higher  sales  volume  partially  offset by lower unit costs,
which resulted primarily from the higher production levels. The effects of lower
TiO2 sales and production  volumes in 2001 were  partially  offset by receipt of
the business interruption proceeds discussed above. The Company's cost of sales,
as a  percentage  of net  sales,  increased  from  69% in  2001  to 77% in  2002
primarily  due to the impact on net sales of the lower  average  selling  prices
partially offset by lower unit costs.

     The Company's gross margin declined $53.6 million (21%) in 2002 compared to
2001 as the effect of lower average TiO2 selling prices (which  decreased  gross
margin by $81.4  million)  more than  offset the effect of higher TiO2 sales and
production volumes (which combined increased gross margin by $46.7 million). The
effect of the  higher  sales and  production  volumes  was offset in part by the
$27.3 million of business  interruption  proceeds received in 2001, as discussed
below.  Excluding  the effect of  fluctuations  in the value of the U.S.  dollar
relative to other  currencies,  the Company's average TiO2 selling price in 2002
was 9% lower  than  2001,  with  prices  lower in all major  regions.  While the
Company's average TiO2 selling prices had generally been declining during all of
2001 and the first quarter of 2002,  and were flat during the second  quarter of
2002, average TiO2 selling prices increased during the third and fourth quarters
of 2002. the Company's average TiO2 selling prices in the fourth quarter of 2002
were 2% higher  compared to the third quarter of the year, with increases in all
major markets.  When  translated from billing  currencies to U.S.  dollars using
actual foreign currency exchange rates prevailing during the respective periods,
the Company's average TiO2 selling prices in 2002 decreased 7% compared to 2001.

     The Company's  sales are denominated in various  currencies,  including the
U.S. dollar, the euro, other major European  currencies and the Canadian dollar.
The disclosure of the percentage  change in Kronos average TiO2 selling price in
billing  currencies  (which excludes the effects of fluctuations in the value of
the U.S.  dollar  relative  to other  currencies)  is  considered  a  "non-GAAP"
financial measure under regulations of the SEC. The disclosure of the percentage
change in the  Company's  average  TiO2  selling  prices  using  actual  foreign
currency exchange rates prevailing  during the respective  periods is considered
the most directly  comparable  financial  measure  presented in accordance  with
accounting  principles generally accepted in the United States ("GAAP measure").
The Company discloses  percentage  changes in its average TiO2 prices in billing
currencies  because  the  Company  believes  such  disclosure   provides  useful
information  to  investors  to allow them to analyze  such  changes  without the
impact of changes in  foreign  currency  exchange  rates,  thereby  facilitating
period-to-period  comparisons of the relative  changes in average selling prices
in the actual various billing currencies. Generally, when the U.S. dollar either
strengthens  or weakens  against  other  currencies,  the  percentage  change in
average  selling  prices  in  billing   currencies  will  be  higher  or  lower,
respectively,  than such percentage changes would be using actual exchange rates
prevailing during the respective periods. The difference between the 7% decrease
in the  Company's  average TiO2 selling  prices  during 2002 as compared to 2001
using actual foreign currency  exchange rates  prevailing  during the respective
periods  (the GAAP  measure)  and the 9%  percentage  decrease in the  Company's
average TiO2 selling price in billing  currencies (the non-GAAP  measure) during
such periods is due to the effect of changes in foreign currency exchange rates.
As discussed above, the Company discloses percentage changes in its average TiO2
prices in billing  currencies  because Kronos believes such disclosure  provides
useful  information  to investors to allow them to analyze such changes  without
the impact of changes in foreign currency exchange rates,  thereby  facilitating
period-to-period  comparisons of the relative  changes in average selling prices
in the actual various billing currencies.  The above table presents in a tabular
format (i) the  percentage  change in the Company's  average TiO2 selling prices
using actual foreign currency  exchange rates  prevailing  during the respective
periods ( the GAAP measure),  (ii) the percentage  change in Kronos average TiO2
selling  price in  billing  currencies  (the  non-GAAP  measure)  and  (iii) the
percentage  change due to changes in  foreign  currency  exchange  rates (or the
reconciling item between the non-GAAP measure and the GAAP measure).

     The Company's  average  selling  prices in the fourth  quarter of 2002 were
higher than the third quarter of the year,  with increases in all major markets.
Selling  prices have  continued to trend upward in the first quarter of 2003 and
the Company expects higher average selling prices for full-year 2003 compared to
full-year 2002.

     The  Company's  record  TiO2  production  volume in 2002 was 7% higher than
2001.  Kronos'  operating rates in 2001 were lower as compared to 2002 primarily
due to lost production resulting from the Leverkusen fire.

     The Company's  income from  operations  in 2001  includes  $27.3 million of
business  interruption  insurance  proceeds as payment  for losses  (unallocated
period costs and lost margin) caused by the Leverkusen  fire. The effects of the
lower TiO2 sales and  production  volumes  were  offset in part by the  business
interruption  insurance proceeds. Of such $27.3 million of business interruption
insurance  proceeds,  $20.1 million was recorded as a reduction of cost of sales
to offset unallocated  period costs that resulted from lost production,  and the
remaining  $7.2  million,  presenting  recovery of lost  margin,  is included in
income from operations (as shown on the table above). The business  interruption
insurance  proceeds  distorted the income from operations  margin  percentage in
2001 as there  are no sales  associated  with the $7.2  million  of lost  margin
recognized. See Note 20 to the Consolidated Financial Statements.

     The Company also recognized  insurance  recoveries of $29.1 million in 2001
for property damage and related cleanup and other extra expenses  related to the
Leverkusen  fire,  resulting  in an  insurance  gain of  $17.5  million,  as the
insurance  recoveries  exceeded the carrying value of the property destroyed and
the  cleanup and other  extra  expenses  incurred.  Such  insurance  gain is not
reported  as a  component  of income  from  operations  but is included in other
income and expense, as discussed below. The Company does not expect to recognize
any additional  insurance recoveries related to the Leverkusen fire. See Note 20
to the Consolidated Financial Statements.

     The  Company's  selling,   general  and   administrative   expenses  ("SG&A
expenses") increased $9.0 million (9%) in 2002 as compared to 2001 primarily due
to higher  distribution  expenses  ($600,000)  associated  with the higher sales
volume in 2002 and higher  administrative  expenses of $5.8 million,  as well as
the impact of  relative  changes  in  foreign  currency  exchange  rates,  which
increased  Kronos'  expenses  in 2002  compared  to  2001.  SG&A  expenses  were
approximately 12% of sales in both 2001 and 2002.

     The Company's  sales  decreased $87.2 million (9%) in 2001 compared to 2000
due primarily to lower TiO2 sales volumes and lower TiO2 average selling prices.
Excluding the effect of fluctuations in the value of the U.S. dollar relative to
other  currencies,  the  Company's  average  TiO2  selling  prices  (in  billing
currencies) during 2001 were 3% lower compared to 2000, with prices lower in all
major regions.  When  translated from billing  currencies to U.S.  dollars using
actual foreign currency exchange rates prevailing during the respective periods,
The Company's average TiO2 selling prices in 2001 decreased 5% compared to 2000.
The  difference  between the 5% decrease in the  Company's  average TiO2 selling
prices during 2001 as compared to 2000 using actual  foreign  currency  exchange
rates  prevailing  during the  respective  periods (the GAAP measure) and the 3%
decrease  in Kronos'  average  TiO2  selling  price in billing  currencies  (the
non-GAAP measure) during such periods is due to the effect of changes in foreign
currency  exchange rates. As discussed above, the Company  discloses  percentage
changes in its average TiO2 prices in billing currencies because Kronos believes
such  disclosure  provides  useful  information  to  investors  to allow them to
analyze such changes without the impact of changes in foreign currency  exchange
rates, thereby facilitating period-to-period comparisons of the relative changes
in average  selling prices in the actual various billing  currencies.  The above
table presents in a tabular  format (i) the  percentage  change in the Company's
average  TiO2  selling  prices  using actual  foreign  currency  exchange  rates
prevailing  during  the  respective  periods  (  the  GAAP  measure),  (ii)  the
percentage  change  in  the  Company  average  TiO2  selling  price  in  billing
currencies (the non-GAAP measure) and (iii) the percentage change due to changes
in foreign currency exchange rates (or the reconciling item between the non-GAAP
measure and the GAAP measure).

     The  Company's  TiO2  sales  volumes  in 2001 were 8% lower  than the prior
record sales  volumes of 2000,  primarily  due to lower volumes in North America
and Europe of 6% and 13%, respectively.

     The Company's cost of sales  decreased  $32.4 million (5%) in 2001 compared
to 2000 primarily due to the lower sales volume, partially offset by higher unit
costs, which resulted primarily from lower production levels. The Company's cost
of sales,  as a percentage  of net sales,  increased  from 66% in 2000 to 69% in
2001  primarily  due to the  impact on net sales of the  lower  average  selling
prices  and  higher  unit  costs,  partially  offset  by  business  interruption
insurance recoveries.

     The Company's  gross margin in 2001 decreased  $54.9 million (18%) compared
to 2000 due primarily to the lower TiO2 sales volumes and average selling prices
as well as lower TiO2 production  volume.  The Company's TiO2 production  volume
was 6% lower in 2001 compared to the prior record production volume in 2000. The
lower  production  volume  in  2001  was due  primarily  to the  effects  of the
Leverkusen fire. The lower average TiO2 selling prices decreased gross margin by
$19.2  million  in 2001  compared  to 2000,  while  the  lower  TiO2  sales  and
production  volumes  decreased  gross margin by $22.3 million and $21.8 million,
respectively. The effect of the lower sales and production volumes was offset in
part by the $27.3 million of business interruption proceeds received in 2001, as
discussed above.

     The Company's SG&A expenses decreased by $8.9 million (8%) in 2001 compared
to 2000 due to lower selling  expenses ($3.2 million)  associated with the lower
2001 sales volume and lower administrative  expenses of $3.7 million, as well as
the effect of  relative  changes  in  foreign  currency  exchange  rates,  which
decreased  Kronos'  expenses  in 2001 as compared to 2000.  SG&A  expenses  were
approximately 12% of sales in both 2000 and 2001.

     Pricing  within the TiO2  industry  is  cyclical,  and  changes in industry
economic  conditions  can  significantly   impact  the  Company's  earnings  and
operating cash flows. The average TiO2 selling price index (using 1983 = 100) of
142 in 2002 was 9% lower  than the 2001 index of 156 (2001 was 3% lower than the
2000 index of 161). In  comparison,  the 2002 index was 19% below the 1990 price
index of 176 and 9%  higher  than  the 1993  price  index of 130.  Many  factors
influence TiO2 pricing levels,  including  industry  capacity,  worldwide demand
growth and customer inventory levels and purchasing decisions.

     The Company's  efforts to  debottleneck  its production  facilities to meet
long-term  demand  continue to prove  successful.  The Company  expects its TiO2
production  capacity will increase by about 10,000 metric tons (primarily at its
chloride-process  facilities),  with moderate capital expenditures,  to increase
its aggregate production capacity to about 480,000 metric tons during 2005.



     As  discussed  above,  the Company has  substantial  operations  and assets
located  outside the United States  (primarily in Germany,  Belgium,  Norway and
Canada). Overall, fluctuations in the value of the U.S. dollar relative to other
currencies,  primarily the euro,  increased the Company's sales in 2002 by a net
$21 million  compared to 2001,  and decreased  the Company's  sales by a net $19
million in 2001 compared to 2000.  Overall,  the net impact of currency exchange
rate  fluctuations  decreased the Company's gross margin by $1.6 million in 2002
compared to 2001,  and decreased  the Company's  gross margin by $8.2 million in
2001 compared to 2000.

     Litigation  settlement  gains of $5.2  million,  $11.7  million  and  $69.5
million in 2002, 2001 and 2000, respectively, related principally to settlements
with former insurance carrier groups. No further material  settlements  relating
to litigation concerning  environmental  remediation coverage are expected.  See
Note 19 to the Consolidated  Financial  Statements.  The Company recognized $4.0
million in each of 2002,  2001,  2000 of income  related  to the  straight-line,
five-year  amortization of $20 million of proceeds  received in conjunction with
the 1998 sale of its specialty  chemicals  business  attributable to a five-year
agreement by the Company not to compete in the  rheological  products  business.
The agreement  became fully  amortized in January 2003 with 2003 income totaling
$.3 million.

     Corporate expenses in 2002 increased $12.1 million from 2001,  primarily as
a result of higher legal  expenses  related to lead paint  defense costs and the
stock  option  compensation  expense  discussed  below.  Corporate  expenses are
expected to be higher in 2003 as compared to 2002 due to higher  expected  legal
expenses associated with the defense of lead pigment  litigation,  including two
trials scheduled for 2003.

     During the  fourth  quarter  of 2002,  and  following  the  Company's  cash
settlement  of options to purchase NL common stock held by certain  individuals,
the  Company  commenced  accounting  for its stock  options  using the  variable
accounting method because the Company could not overcome the presumption that it
would not similarly cash settle its remaining stock options.  Under the variable
accounting  method,  the  intrinsic  value  of  all  unexercised  stock  options
(including  those with an exercise  price at least equal to the market  price on
the date of grant) are accrued as an expense  over their  vesting  period,  with
subsequent  increases  (decreases) in NL's market price  resulting in additional
compensation expense (income).  See Notes 2 and 22 to the Consolidated Financial
Statements.  The Company recognized $3.2 million of compensation  expense in the
fourth  quarter of 2002 related to its stock  options  (including  those options
which were cash settled  during the quarter),  of which $1.6 million was charged
to income  from  operations  and $1.6  million  was  charged to other  expenses.
Subsequent  increases  or  decreases  in the price of the  Company's  stock will
result in an adjustment to the previously accrued compensation expense until all
stock options are exercised, cancelled or forfeited.

     The Company expects TiO2 industry demand in 2003 to increase  slightly over
2002  levels.  The  Company's  TiO2  production  volume in 2003 is  expected  to
approximate  the Company's 2003 TiO2 sales volume.  In December 2002 and January
2003,  the Company  announced  additional  price  increases  in Europe and North
America  which  averaged  8% in Europe and 7% in North  America.  The Company is
hopeful that it will realize  prices  increases,  but the extent to which Kronos
can  realize  price  increases  during  2003  will  depend on  improving  market
conditions and global economic recovery, which may be negatively impacted by the
potential  for  international  conflict.  The Company's  expectations  as to the
future prospects of the Company and the TiO2 industry are based upon a number of
factors  beyond  the  Company's  control,  including  worldwide  growth of gross
domestic   product,   competition   in   the   market   place,   unexpected   or
earlier-than-expected  capacity additions and technological  advances. If actual
developments  differ from the Company's  expectations,  the Company's results of
operations could be unfavorably affected.





Other Income (Expense)

     The following table sets forth certain  information  regarding other income
and expense items .

<TABLE>

<CAPTION>
                                                        Years ended December 31,                   Change
                                                 --------------------------------------- ---------------------------
                                                 --------------------------------------- ---------------------------
                                                    2002         2001          2000        2002-01       2001-00
                                                 ------------ ------------  ------------ ------------- -------------
                                                                           (In millions)


<S>                                              <C>          <C>           <C>           <C>          <C>
Trade interest  income                            $     1.7  $      2.3     $      2.3    $      (.6)  $       -
Other interest income                                   5.7         8.9            8.3          (3.2)         .6
Securities transactions, net                            (.1)       (1.1)           2.5           1.0        (3.6)
Currency transaction gains                              6.3         -              -             6.3         -
Insurance recoveries, net                               -          17.5            -           (17.5)       17.5
Interest expense                                      (29.8)      (27.6)         (32.4)         (2.2)        4.8
                                                 ------------ ------------  ------------ ------------- -------------

                                                 $    (16.2)  $   -  ()     $    (19.3)   $    (16.2)    $  19.3
                                                 ============ ============  ============ ============= =============
</TABLE>


     Interest  income,  including  noncash  interest  income on restricted  cash
balances and restricted  marketable  debt  securities,  fluctuates in part based
upon the amount of funds  invested and yields  thereon.  Aggregate  interest and
dividend  income  declined $3.8 million in 2002 compared with 2001 primarily due
to lower average  yields on invested  funds.  Average funds invested in 2001 and
2000 were higher  compared with the  respective  prior year primarily due to the
increase in restricted cash related to litigation  settlement  proceeds received
in  January  2001  and July  2000.  See  Note 19 to the  Consolidated  Financial
Statements.  The Company expects interest income will be lower in 2003 than 2002
due to lower  average  yields and lower  average  levels of funds  available for
investment.


     Securities  transactions,  net in 2001  related  to a  second-quarter  $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.  Securities
transactions, net in 2000 included a second-quarter $5.6 million securities gain
related  to common  stock  received  from the  demutualization  of an  insurance
company from which the Company had purchased  certain  insurance  policies and a
fourth-quarter   $3.1   million   noncash   securities   loss   related   to  an
other-than-temporary  decline in value of certain available-for-sale  securities
held by the Company. See Note 7 to the Consolidated Financial Statements.

     In June 2002 Kronos  International,  Inc. ("KII"), an indirect wholly owned
subsidiary of the Company,  completed a private placement  offering of (euro)285
million  8.875% Senior  Secured  Notes (the "Notes") due 2009.  KII used the net
proceeds of the Notes offering to repay certain  intercompany  indebtedness owed
to the Company,  a portion of which the Company used to redeem at par all of its
outstanding  11.75% Senior Secured Notes due 2003, plus accrued  interest.  As a
result of the refinancing, the Company recognized a foreign currency transaction
gain  of  $6.3  million  in  2002  related  to  the  extinguishment  of  certain
intercompany indebtedness. See Note 13 to the Consolidated Financial Statements.


     The insurance recoveries, net of $17.5 million in 2001 related to insurance
proceeds  received from property damage  resulting from the Leverkusen  fire, as
the  insurance  proceeds  received  exceeded the carrying  value of the property
destroyed and cleanup costs incurred.  See Note 20 to the Consolidated Financial
Statements.




     Interest  expense in 2002  increased  $2.2 million  compared with the prior
year  primarily due to $2.0 million of additional  second-quarter  2002 interest
expense  related to the early  extinguishment  of the  Company's  11.75%  Senior
Secured Notes. See Note 13 to the Consolidated  Financial Statements.  Excluding
this item,  interest expense in 2002 was comparable to 2001. Interest expense in
2001  declined  $4.8  million  compared  to 2000 due to  reduced  levels  of its
outstanding  11.75%  Senior  Secured  Notes  and  lower  euro-denominated  debt.
Assuming no significant  change in interest rates,  interest  expense in 2003 is
expected to be higher  compared  with 2002 due to higher  levels of  outstanding
indebtedness, partially offset by lower average interest rates.

  Provision for income taxes

     The principal reasons for the difference between the U.S. Federal statutory
income tax rates and the Company's  effective  income tax rates are explained in
Note 17 to the Consolidated  Financial Statements.  The Company's operations are
conducted  on  a  worldwide   basis  and  the   geographic  mix  of  income  can
significantly  impact  the  Company's  effective  income  tax rate.  In 2002 the
Company's  effective  income tax rate varied from the normally  expected rate in
part due to a reduction in the Belgian  income tax rate and the  recognition  of
certain   deductible   tax   assets   which   previously   did  not   meet   the
"more-likely-than-not"  recognition  criteria.  In 2001 the Company's  effective
income tax rate varied from the  normally  expected  rate  primarily  due to the
recognition  of certain German income tax  attributes  which  previously did not
meet the "more-likely-than-not"  recognition criteria and incremental U.S. taxes
on  undistributed  earnings  of  certain  non-U.S.  subsidiaries.  In  2000  the
Company's  effective  income tax rate varied  from the  normally  expected  rate
primarily due to the geographic mix of income,  changes in the German income tax
"base"  rate  and  the  recognition  of  certain  deductible  tax  assets  which
previously did not meet the "more-likely-than-not" recognition criteria. Also in
2000 the Company  recognized  certain  one-time  benefits  related to German tax
settlements.

     Effective January 1, 2001, the Company and its qualifying subsidiaries were
included in the  consolidated  U.S.  federal tax return of Contran (the "Contran
Tax Group").  As a member of the Contran Tax Group,  the Company is a party to a
tax sharing  agreement (the "Contran Tax Agreement").  The Contran Tax Agreement
provides  that the Company  compute its  provision  for U.S.  income  taxes on a
separate-company basis using the tax elections made by Contran.  Pursuant to the
Contran Tax Agreement and using the tax elections  made by Contran,  the Company
makes payments to or receives  payments from Valhi in amounts it would have paid
to or received from the U.S.  Internal  Revenue Service had it not been a member
of the Contran Tax Group.  Refunds are limited to amounts  previously paid under
the Contran Tax  Agreement  unless the Company was entitled to a refund from the
U.S.  Internal  Revenue  Service on a  separate-company  basis.  Pursuant to the
Contran Tax  Agreement,  the Company  received  $2.3  million from Valhi in 2002
related to capital loss carrybacks  which would have been  recoverable  from the
U.S.  Internal  Revenue  Service.  See  Note  17 to the  Consolidated  Financial
Statements.

  Other

         Minority interest

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

         Related party transactions

     The Company is a party to certain  transactions  with related parties.  See
"Liquidity  and Capital  Resources  -  Investing  Cash Flows" and Note 22 to the
Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's  consolidated cash flows for each of the past three years are
presented below.

<TABLE>

<CAPTION>
                                                                                 Years ended December 31,
                                                                        --------------------------------------------
                                                                        -------------- -------------- --------------
                                                                              2002          2001          2000
                                                                        -------------- -------------- --------------
                                                                                       (In millions)



                                                                        -------------- -------------- --------------
                                                                        -------------- -------------- --------------
<S>                                                                       <C>            <C>             <C>
    Operating activities                                                  $    98.3      $  129.7        $  139.7
    Investing activities                                                      (27.2)        (57.2)          (56.2)
    Financing activities                                                     (132.5)        (75.5)          (95.7)
                                                                        -------------- -------------- --------------
                                                                        -------------- -------------- --------------

Net cash used by operating, investing and financing activities           $    (61.4)   $      (3.0)     $   (12.2)
                                                                        ============== ============== ==============
</TABLE>


  Operating cash flows

     Certain items included in the  determination of net income do not represent
current inflows or outflows of cash. For example, the net litigation  settlement
proceeds  of  $10.3  million  received  in 2001  that  were  transferred  by the
insurance  carriers to special  purpose  trusts did not result in an increase in
operating cash flow. Further, insurance recoveries, net of $17.5 million in 2001
are excluded from the  determination  of operating  cash flow.  These  insurance
proceeds are shown in the statement of cash flows under investing  activities to
partially offset the cash outflow impact of capital  expenditures related to the
Leverkusen  sulfate plant  reconstruction.  Noncash  interest income consists of
earnings on restricted cash and restricted  marketable debt securities  which is
not available for general  corporate  purposes.  Certain other items included in
the  determination  of net income  have an impact on cash  flows from  operating
activities,  but the impact of such items on cash will differ from their  impact
on net income. For example, the amount of income or expense recorded for pension
and  OPEB  assets  and  obligations  (which  depend  upon a number  of  factors,
including actuarial assumptions used to value obligations) will generally differ
from the  outflows of cash for such  benefits.  See Note 14 to the  Consolidated
Financial Statements.


     The TiO2 industry is cyclical and changes in economic conditions within the
industry  significantly  impact the  earnings  and  operating  cash flows of the
Company. Cash flow from operations is considered the primary source of liquidity
for the Company. Changes in TiO2 pricing, production volume and customer demand,
among other things, could significantly affect the liquidity of the Company.

     Relative changes in assets and liabilities generally result from the timing
of production,  sales, purchases and income tax payments.  Such relative changes
can  significantly  impact the  comparability  of cash flow from operations from
period to period,  as the income  statement  impact of such items may occur in a
different period from when the underlying cash transaction  occurs. For example,
raw  materials  may be  purchased  in one  period,  but the payment for such raw
materials may occur in a subsequent period. Similarly,  inventory may be sold in
one period,  but the cash collection of the receivable may occur in a subsequent
period.  In  addition,  accruals  for  environmental  remediation  costs  may be
recognized in one period but paid out over several future periods.

     Cash flows from operating  activities decreased from $129.7 million in 2001
to $98.3 million in 2002.  This $31.4 million  decrease was due primarily to the
net effect of (i) lower net income of $84.6  million,  (ii) higher  depreciation
expense of $3.6 million,  (iii) legal  settlement gains of $10.3 million in 2001
as compared to nil in 2002, (iv) insurance  recoveries,  net of $17.5 million in
2001 as compared to nil in 2002, (v) lower  distributions from the manufacturing
joint  venture  of $3.4  million  in 2002 and (vi) a higher  amount  of net cash
generated from relative changes in Kronos'  inventories,  receivables,  payables
and accruals and accounts  with  affiliates of $26.7 million in 2002 as compared
to 2001  Relative  changes in accounts  receivable  are affected by, among other
things,  the timing of sales and the  collection  of the  resulting  receivable.
Relative changes in inventories and accounts payable and accrued liabilities are
affected by, among other  things,  the timing of raw material  purchases and the
payment for such purchases and the relative difference between production volume
and sales volume.  Relative changes in accrued  environmental costs are affected
by, among other things,  the period in which  recognition  of the  environmental
accrual is recognized  and the period in which the  remediation  expenditure  is
actually made.

     Cash flows from operating  activities decreased from $139.8 million in 2000
to $129.7 million in 2001. This $10.1 million  decrease was due primarily to the
net effect of (i) lower net income of $33.2 million,  (ii) lower deferred income
tax  expense  of  $36.9  million  in 2001 as  compared  to  2000,  (iii)  higher
distributions from the manufacturing joint venture of $3.8 million in 2001, (iv)
legal  settlement gains of $10.3 million in 2001 as compared to $69.5 million in
2000, (v) insurance recoveries,  net of $17.5 million in 2001 as compared to nil
in 2000 and (vi) a lower  amount  of net cash  used  from  relative  changes  in
Kronos'  inventories,  receivables,  payables and  accruals  and  accounts  with
affiliates  of $14.8  million in 2001 as  compared to 2000  Relative  changes in
accounts receivable are affected by, among other things, the timing of sales and
the collection of the resulting receivable.  Relative changes in inventories and
accounts  payable and accrued  liabilities  are affected by, among other things,
the timing of raw material  purchases and the payment for such purchases and the
relative difference between production volume and sales volume. Relative changes
in accrued  environmental  costs are affected by, among other things, the period
in which recognition of the  environmental  accrual is recognized and the period
in which the remediation expenditure is actually made.



  Investing cash flows

     The Company's capital  expenditures  were $32.6 million,  $53.7 million and
$31.1 million in 2002, 2001 and 2000, respectively. Capital expenditures in 2002
and 2001 included an aggregate of $3.1 million and $22.3 million,  respectively,
for the rebuilding of the Company's  Leverkusen,  Germany sulfate plant. In 2001
the Company  received  $23.4 million of insurance  proceeds for property  damage
resulting from the Leverkusen fire and paid $3.2 million of expenses  related to
repairs and clean-up costs.  Capital expenditures at LPC were approximately $4.0
million in each of 2002,  2001 and 2000 and are not  included  in the  Company's
capital expenditures.

     The Company's capital  expenditures  during the past three years include an
aggregate  of  approximately  $18.2  million  ($5.0  million  in  2002)  for the
Company's  ongoing  environmental   protection  and  compliance  programs.   The
Company's  estimated  2003 capital  expenditures  are $34.0  million and include
approximately  $5.0  million  in  the  area  of  environmental   protection  and
compliance.

     In  February  2001 EMS loaned  $13.4  million  to Tremont  under a reducing
revolving  loan  agreement  that matured in March 2003. See Notes 1 and 8 to the
Consolidated  Financial Statements.  The loan was approved by special committees
of the  Company's  and EMS's  Boards of  Directors.  In  October  2002 a special
committee of the Company's  Board of Directors  approved new loan terms proposed
by Tremont,  whereby  Tremont  repaid the  outstanding  principal  and  interest
balance on the EMS loan with  proceeds  from a new $15  million  revolving  loan
agreement  with  the  Company.  As  such,  the EMS  loan  was  extinguished  and
cancelled. Similar to the EMS loan, the Company's loan to Tremont bears interest
at prime plus 2% (6.25% at December 31, 2002 with interest  payable  quarterly),
and is  collateralized  by 10.2  million  shares  of NL  common  stock  owned by
Tremont.  The loan is due December 31, 2004, with no principal payments required
prior to that date. The maximum amount  available to Tremont under the revolving
loan agreement is $15 million.  The  creditworthiness of Tremont is dependent in
part on the  value of the  Company  as  Tremont's  interest  in the  Company  is
Tremont's  most  substantial  asset.  At  December  31,  2002,  no amounts  were
outstanding  under this  facility  and  Tremont  had $15  million  of  borrowing
availability.  As a result of the merger of Tremont with Valhi in February 2003,
the  revolving  loan  agreement  is now  between  Tremont  LLC (a  wholly  owned
subsidiary  of  Valhi  and  successor  to  Tremont)  and NL.  See  Note 7 to the
Consolidated Financial Statements.

     In May 2001 a wholly owned  subsidiary  of EMS loaned $20.0  million to the
Harold C. Simmons  Family Trust No. 2 (the  "Family  Trust"),  one of the trusts
described in Notes 1 and 8 to the  Consolidated  Financial  Statements,  under a
$25.0  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  (4.25% at December 31,  2002),  is due on demand with 60 days
notice  and is  collateralized  by  13,749  shares,  or  approximately  35%,  of
Contran's  outstanding Class A voting common stock and 5,000 shares, or 100%, of
Contran's Series E Cumulative  preferred  stock,  both of which are owned by the
Family Trust. The value of the collateral is dependent, in part, on the value of
the  Company as  Contran's  interest  in the  Company,  through  its  beneficial
ownership of Valhi,  is one of Contran's more  substantial  assets.  In November
2002 the Family Trust repaid $2 million principal amount of the revolving credit
agreement.  At December 31,  2002,  $7.0 million was  available  for  additional
borrowing by the Family Trust. The loan was classified as noncurrent at December
31, 2002, as the Company does not expect to demand repayment within one year.

     In November 2001 $7.9 million of restricted cash related to certain letters
of credit supporting certain insurance related contracts was released.

     In January 2002 the Company acquired all of the stock and limited liability
company  units  of  EWI  RE,  Inc.  and  EWI  RE,  Ltd.   (collectively  "EWI"),
respectively,  for an aggregate of $9.2 million in cash,  including  capitalized
acquisition  costs  of $.2  million.  See Note 3 to the  Consolidated  Financial
Statements.

     During 2000 the Company  purchased  1,000,000  shares of  Tremont's  common
stock in market  transactions  for an aggregate of $26 million.  At December 31,
2002,  Tremont owned 10.2 million  shares,  or 21%, of NL's  outstanding  common
stock. See Notes 1 and 7 to the Consolidated Financial Statements.

  Financing cash flows

     In March 2002 the  Company  redeemed  $25 million  principal  amount of its
11.75% Senior  Secured Notes using  available cash on hand, and in June 2002 the
Company  redeemed the  remaining  $169 million  principal  amount of such 11.75%
Senior Secured Notes using a portion of the proceeds from the June 2002 issuance
of the (euro)285 million principal amount of the KII 8.875% Senior Secured Notes
($280 million when issued).  Also in June 2002, KII's operating  subsidiaries in
Germany,  Belgium and Norway  entered  into a new  three-year  (euro)80  million
secured  revolving  credit facility  ("European  Credit  Facility") and borrowed
(euro)13  million ($13 million) and NOK 200 million ($26 million)  which,  along
with  available  cash,  was used to repay and  terminate  KII's short term notes
payable ($53.2 million when repaid).  In the third and fourth  quarters of 2002,
the Company  repaid a net  euro-equivalent  12.7  million  ($12.4  million  when
repaid)  and 1.7  million  ($1.6  million  when  repaid),  respectively,  of the
European Credit Facility. See Note 13 to the Consolidated Financial Statements.

     In September 2002 the Company's U.S. operating  subsidiaries entered into a
three-year $50 million  asset-based  revolving  credit  facility  ("U.S.  Credit
Facility").  As of December 31, 2002, no borrowings were  outstanding  under the
U.S. Credit Facility and Borrowing  Availability was  approximately $30 million.
See Note 13 to the Consolidated Financial Statements.

     Deferred  financing  costs of $10.7  million  for the Notes,  the  European
Credit  Facility and the U.S.  Credit Facility are being amortized over the life
of the respective  agreements and are included in other noncurrent  assets as of
December 31, 2002.

     In 2001 the Company repaid  (euro)7.6  million ($6.5 million when paid) and
(euro)16.4   million   ($14.9   million   when  paid),   respectively,   of  its
euro-denominated short-term debt with excess cash flow from operations.

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

     Other  than  operating  lease  commitments  disclosed  in  Note  23 to  the
Consolidated  Financial Statements,  the Company is not party to any off-balance
sheet financing arrangements.

     Dividends paid during 2002, 2001 and 2000 totaled $158.0 million (including
an additional  $2.50 per share cash  dividend paid in December 2002  aggregating
$119.2 million), $39.8 million and $32.7 million,  respectively.  On February 5,
2003, the Company's Board of Directors  declared a regular quarterly dividend of
$.20 per share to  shareholders  of  record  as of March 14,  2003 to be paid on
March 26, 2003. Pursuant to its share repurchase program,  the Company purchased
1,384,000  shares of its common stock in the open market at an aggregate cost of
$21.3 million in 2002, 1,059,000 shares of its common stock at an aggregate cost
of $15.5  million in 2001 and  1,682,000  shares of its common stock in the open
market at an  aggregate  cost of $30.9  million  in 2000.  In  October  2002 the
Company's  Board of  Directors  authorized  a 1,500,000  share  extension of the
repurchase program.  Approximately 1,323,000 additional shares are available for
purchase under the Company's share repurchase program.  The available shares may
be purchased over an unspecified  period of time, and are to be held as treasury
shares available for general corporate purposes.

     Cash,  cash  equivalents,  restricted  cash and restricted  marketable debt
securities and borrowing availability


     At December  31, 2002,  the Company had current  cash and cash  equivalents
aggregating  $58.1  million  ($25  million  held by non-U.S.  subsidiaries).  At
December 31, 2002,  The  Company's  U.S. and non-U.S.  subsidiaries  had current
restricted cash equivalents of $52.1 million, current restricted marketable debt
securities of $9.7  million,  noncurrent  restricted  cash  equivalents  of $1.3
million and noncurrent restricted marketable debt securities of $9.2 million. At
December 31, 2002,  certain of the Company's  subsidiaries had approximately $87
million  available for borrowing with  approximately $57 million available under
non-U.S.  credit  facilities  (including  approximately  $54  million  under the
European Credit Facility) and approximately $30 million available under the U.S.
Credit Facility (based on Borrowing Availability). At December 31, 2002, KII had
approximately   $36  million  available  for  payment  of  dividends  and  other
restricted payments as defined in the Notes indenture. At December 31, 2002, the
Company had complied with all financial covenants governing its debt agreements.


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

  Income taxes

     A reduction in the German "base"  income tax rate from 30% to 25%,  enacted
in October 2000,  became effective  January 1, 2001. The reduction in the German
income tax rate  resulted  in $5.7  million of  additional  deferred  income tax
expense  in the  fourth  quarter  of 2000 due to a  reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.

     A reduction in the Belgian  income tax rate from 40.17% to 33.99%,  enacted
in December 2002, became effective January 1, 2003. The reduction in the Belgian
income tax rate  resulted in a $2.3  million  decrease  in  deferred  income tax
expense  in the  fourth  quarter  of 2002 due to a  reduction  of the  Company's
deferred   income  tax  liabilities   related  to  certain   Belgian   temporary
differences.

     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 penalties and interest.  See Note 17 to the
Consolidated Financial Statements.

     The Company's and EMS' 1998 U.S.  federal  income tax returns are currently
being examined by the U.S. Internal Revenue Service ("IRS"), and the Company and
EMS have each granted extensions of the statute of limitations for assessment of
such returns until September 30, 2003.  Based upon the course of the examination
to date,  the Company  anticipates  that the IRS may propose a  substantial  tax
deficiency.  The Company has  received a  notification  from the  Norwegian  tax
authorities of their intent to assess tax deficiencies of approximately NOK 12.2
million ($1.7 million at December 31, 2002)  relating to 1998 through 2000.  The
Company has objected to this proposed  assessment  in a written  response to 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)10.4 million ($10.8 million at December
31, 2002).  The Company has filed protests to the assessments for the years 1991
to 1997.  The Company is in  discussions  with the Belgian tax  authorities  and
believes that a significant portion of the assessments is without merit.

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

     At December 31, 2002, the Company had net deferred tax  liabilities of $134
million. The Company operates in numerous tax jurisdictions, in certain of which
it has temporary  differences that net to deferred tax assets (before  valuation
allowance).  The Company has provided a deferred tax valuation allowance of $185
million  at  December  31,  2002,  principally  related  to  Germany,  partially
offsetting  deferred tax assets which the Company believes do not currently meet
the "more-likely-than-not" recognition criteria.

     At December 31, 2002, the Company had the equivalent of approximately  $414
million of income tax loss  carryforwards  in Germany with no  expiration  date.
However,  the Company has provided a deferred tax  valuation  allowance  against
substantially  all of these  income tax loss  carryforwards  because the Company
currently  believes  they do not  meet  the  "more-likely-than-not"  recognition
criteria.  The German  federal  government has proposed  certain  changes to its
income tax law,  including certain changes that would impose  limitations on the
annual  utilization of income tax loss  carryforwards  that, as proposed,  would
become  effective  retroactively  to  January  1, 2003.  Since the  Company  has
provided a deferred income tax asset valuation  allowance against  substantially
all of the  German  tax loss  carryforwards,  any  limitation  on the  Company's
ability to utilize such  carryforwards  resulting from enactment of any of these
proposals  would not have a material impact on the Company's net deferred income
tax liability.  However, if enacted,  the proposed changes could have a material
impact on the Company's ability to make full annual use of its German income tax
loss carryforwards, which would significantly affect the Company's future income
tax expense and future income tax payments.

     At  December  31,  2002,  the  Company  had,  for U.S.  federal  income tax
purposes,  a net operating loss  carryforward of approximately  $45 million,  of
which $3 million  expires in 2019,  $23 million  expires in 2021 and $19 million
expires in 2022 and approximately $7.4 million of alternative minimum tax credit
carryforwards with no expiration date.

     Environmental matters and litigation

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

     The Company is also a defendant  in a number of legal  proceedings  seeking
damages for personal  injury and property damage arising out of the sale of lead
pigments and lead-based paints.  There is no assurance that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
paint  litigation is without merit.  The Company has not accrued any amounts for
such pending litigation. Liability that may result, if any, cannot reasonably be
estimated.  The Company  currently  believes the  disposition  of all claims and
disputes,  individually and in the aggregate, should not have a material adverse
effect on the Company's consolidated  financial position,  results of operations
or liquidity. Considering the Company's previous involvement in the lead pigment
and  lead-based  paint  businesses,  the Company  expects that  additional  lead
pigment and lead-based paint  litigation,  asserting  similar or different legal
theories  and seeking  similar or  different  types of damage and relief to that
described  in Item 3.  "Legal  Proceedings,"  may be filed.  See Item 3.  "Legal
Proceedings" and Note 23 to the Consolidated Financial Statements.



     The exact time frame over which the Company makes  payments with respect to
its accrued  environmental  costs is unknown and is dependent upon,  among other
things,  the timing of the actual  remediation  process which in part depends on
factors  outside the control of the  Company.  At each balance  sheet date,  the
Company makes an estimate of the amount of its accrued environmental costs which
will be paid out over the subsequent 12 months,  and the Company classifies such
amount as a current liability.  The remainder of the accrued environmental costs
are classified as a noncurrent liability.

     At  December  31,  2002,  there  are  approximately  15 sites for which the
Company is unable to estimate a range of costs.  For these sites,  generally the
investigation is in the early stages,  and it is either unknown as to whether or
not the Company  actually had any  association  with the site, or if the Company
had association with the site, the nature of its responsibility, if any, for the
contamination  at the site and the extent of  contamination.  The timing on when
information  would  become  available  to the  Company  to allow the  Company to
estimate a range of loss is unknown and dependent on events  outside the control
of the Company,  such as when the party alleging liability provides  information
to the COmpany.


  Foreign operations

     As discussed above, the Company has substantial  operations located outside
the United States for which the functional currency is not the U.S. dollar. As a
result,  the reported amount of the Company's assets and liabilities  related to
its non-U.S.  operations,  and therefore the Company's  consolidated net assets,
will fluctuate  based upon changes in currency  exchange rates. As of January 1,
2001, the functional currency of the Company's German, Belgian, Dutch and French
operations  have been  converted  to the euro  from  their  respective  national
currencies.  At  December  31,  2002,  the Company  had  substantial  net assets
denominated in the euro,  Canadian  dollar,  Norwegian kroner and United Kingdom
pound sterling.

     New accounting principles not yet adopted

     See Note 2 to the Consolidated Financial Statements.

  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 dividend  policy,  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 related companies. In the
event of any acquisition or joint venture transaction,  the Company may consider
using available cash,  issuing equity  securities or increasing its indebtedness
to the extent permitted by the agreements governing the Company's existing debt.
See Note 13 to the Consolidated Financial Statements.


  Summary of debt and other contractual commitments

     As  more  fully  described  in  the  Notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in the  future.  See  Notes  13 and  23 to the  Consolidated  Financial
Statements.  The Company's  obligations related to the long-term supply contract
for the purchase of  chloride-process  TiO2 feedstock and certain  landfills are
more fully  described in Note 23 to the  Consolidated  Financial  Statements.The
following table summarizes such contractual  commitments that are  unconditional
both in terms of timing and amount by the type and date of payment.


<TABLE>

<CAPTION>
                                                          Unconditional Payment Due Date
                                -------------------------------------------------------------------------------------
                                     2003             2004 -            2006 -          2008 and
Contractual Commitment                                 2005              2007             after           Total
----------------------
                                ---------------    --------------   ---------------   --------------  --------------
                                                                   (In millions)

<S>                             <C>                 <C>             <C>                 <C>             <C>
Indebtedness                    $     1.3           $  27.5         $       .2          $ 296.9         $ 325.9
                                ---------------    --------------   ---------------   --------------  --------------

Property and equipment                6.4             -                 -                 -                 6.4
                                ---------------    --------------   ---------------   --------------  --------------

Operating leases                      4.7               7.0               3.8              19.4            34.9
                                ---------------    --------------   ---------------   --------------  --------------

                                ---------------    --------------   ---------------   --------------  --------------
Long-term supply contract
  for the purchase of
 chloride-process TiO2
 feedstock                          172.0             308.0             145.0                -            625.0
                                ---------------    --------------   ---------------   --------------  --------------

                                ---------------    --------------   ---------------   --------------  --------------
Landfills                             1.3               2.1               -                 3.1             6.5
                                ---------------    --------------   ---------------   --------------  --------------

                                $   185.7          $  344.6         $     149.0         $ 319.4         $ 998.7
                                ===============    ==============   ===============   ==============  ==============
</TABLE>

     The  timing  and  amount  shown for the  Company's  commitments  related to
indebtedness,  property and equipment  and  operating  leases are based upon the
contractual   payment  amount  and  the   contractual   payment  date  for  such
commitments. The timing and amount shown for the Company's commitment related to
the long-term  supply contract is based upon the Company's  current  estimate of
the quantity of feedstock that will be purchased in each time period shown,  and
the  contractual  payment that would be due based upon such estimated  purchased
quantity.  The actual  amount of feedstock  purchased,  and therefore the actual
amount  that  would be  payable  by the  Company,  may vary from such  estimated
amounts.  The timing and amount shown for the  Company's  commitment  related to
certain  landfills  is based upon the  Company's  current  estimate of when such
payments will be made.  The actual  timing of such  payments may vary  depending
upon the actual timing of the closure activities for such landfills.


  Assumptions on defined benefit pension plans and OPEB plans

     Defined  benefit  pension  plans.  The Company  maintains  various  defined
benefit pension plans in the U.S.,  Europe and Canada.  The Company accounts for
its defined benefit pension plans using SFAS No. 87, "Employer's  Accounting for
Pensions."  Under SFAS No. 87, defined  benefit pension plan expense and prepaid
and  accrued  pension  cost  are each  recognized  based  on  certain  actuarial
assumptions,  principally the assumed discount rate, the assumed  long-term rate
of return on plan assets and the assumed increase in future compensation levels.
The Company recognized consolidated defined benefit pension plan expense of $7.0
million in 2002,  $4.6 million in 2001 and $4.7  million in 2000.  The amount of
funding  requirements for these defined benefit pension plans is generally based
upon  applicable  regulation  (such as ERISA in the  U.S.),  and will  generally
differ from pension expense recognized under SFAS No. 87 for financial reporting
purposes.  Contributions  made  by the  Company  to all of its  defined  benefit
pension plans  aggregated  $9.3 million in 2002,  $7.6 million in 2001 and $16.6
million in 2000.

     The discount rates the Company  utilizes for  determining  defined  benefit
pension  expense  and the  related  pension  obligations  are  based on  current
interest  rates  earned on  long-term  bonds that receive one of the two highest
ratings given by recognized rating agencies in the applicable  country where the
defined  benefit  pension  benefits  are being paid.  In  addition,  the Company
receives advice about  appropriate  discount rates to use based upon discussions
with the Company's  third-party  actuaries,  who may in some cases utilize their
own market  indices.  The discount  rates are adjusted as of each valuation date
(September 30th for the Company's plans) to reflect then-current  interest rates
on such long-term bonds. Such discount rates are used to determine the actuarial
present value of the pension  obligations  as of December 31st of that year, and
such discount rates are also used to determine the interest component of defined
benefit pension expense for the following year.

     At December 31, 2002,  approximately 17%, 53%, 10% and 14% of the projected
benefit  obligations for all of the Company's defined benefit pension plans were
attributable to the U.S., Germany, Canada and Norway, respectively.  Because the
Company maintains  defined benefit pension plans in several different  countries
in North America and Europe,  and because the interest rate environment  differs
from  country to country,  the Company  uses  several  different  discount  rate
assumptions in determining  its defined  benefit  pension plan  obligations  and
expense.

     The Company  used the  following  discount  rates for its  defined  benefit
pension plans:

<TABLE>
<CAPTION>
                                                Discount rates used for the following periods:
                                    ------------------------------------------------------------------
                                         Obligation at         Obligation at        Obligation at
                                    December 31, 2002 and  December 31, 2001 and December 31, 2000 and
                                       expense in 2003        expense in 2002      expense in 2001
                                    ---------------------  --------------------- ---------------------

<S>                                           <C>                   <C>                <C>
U.S. ...........................              6.5%                  7.3%               7.8%
Germany ........................              5.5%                  5.8%               6.0%
Canada .........................              7.0%                  7.3%               7.5%
Norway .........................              6.0%                  6.0%               6.0%
</TABLE>

     The  assumed  long-term  rate of  return  on  plan  assets  represents  the
estimated  average rate of earnings  expected to be earned on the funds invested
or to be invested  in the plans'  assets  provided to fund the benefit  payments
inherent in the projected benefit obligation. Unlike the discount rate, which is
adjusted each year based on changes in current  long-term  interest  rates,  the
assumed  long-term  rate of return on plan  assets will not  necessarily  change
based upon the actual,  short-term  performance  of the plan assets in any given
year.  Defined  benefit  pension  expense  each year is based  upon the  assumed
long-term  rate of return on plan assets for each plan and the actual fair value
of the plan  assets as of the  beginning  of the year.  Differences  between the
expected  return on plan  assets  for a given  year and the  actual  return  are
deferred  and  amortized  over future  periods  based  either upon the  expected
average  remaining  service life of the active plan  participants (for plans for
which  benefits  are still  being  earned by active  employees)  or the  average
remaining  life  expectancy  of the inactive  participants  (for plans for which
benefits are not still being earned by active employees).

     At December 31, 2002,  approximately  19%,  50%, 8% and 18% related to plan
assets  for the  Company's  plans  in the  U.S.,  Germany,  Canada  and  Norway,
respectively.  Because the Company  maintains  defined  benefit pension plans in
several different countries in North America and Europe, because the plan assets
in  different  countries  are  invested in a different  mix of  investments  and
because the  long-term  rates of return for different  investments  differs from
country to country,  the Company uses several different long-term rate of return
on plan asset  assumptions  in  determining  its defined  benefit  pension  plan
expense.

     In  determining  the  expected  long-term  rate of  return  on  plan  asset
assumptions,  the Company  considers  the long-term  asset mix (e.g.  equity vs.
fixed  income) for the assets for each of its plans and the  expected  long-term
rates of return for such asset  components.  In addition,  the Company  receives
advice about appropriate long-term rates of return to use based upon discussions
with  the  Company's  third-party  actuaries.   Such  assumed  asset  mixes  are
summarized below:

o    In the U.S.,  the Company  currently has a plan asset target  allocation of
     50% to equity managers and 50% to fixed income managers (current plan asset
     allocation at December 31, 2002 was 39% to equity managers and 61% to fixed
     income  managers),  with an  expected  long-term  rate of  return  for such
     investments of approximately 10% and 6%, respectively.

o    In Germany,  the  composition  of plan assets is established to satisfy the
     requirements of the German insurance  commissioner.  The current plan asset
     allocation at December 31, 2002 was 30% to equity managers and 70% to fixed
     income managers.

o    In Canada,  the Company currently has a plan asset target allocation of 65%
     to equity  managers  and 35% to fixed  income  managers,  with an  expected
     long-term rate of return for such investments to average  approximately 125
     basis points above the applicable equity or fixed income index. The current
     plan asset  allocation at December 31, 2002 was 54% to equity  managers and
     46% to fixed income managers.

o    In Norway,  the Company currently has a plan asset target allocation of 15%
     to equity  managers  and 85% to fixed  income  managers,  with an  expected
     long-term rate of return for such  investments of  approximately 8% and 6%,
     respectively.  The current plan asset  allocation  at December 31, 2002 was
     13% to equity managers and 87% to fixed income managers.

     The Company  regularly  reviews its actual asset allocation for each of its
plans,  and will  periodically  rebalance the  investments  in each plan to more
accurately reflect the targeted allocation when considered appropriate.

     The Company's  assumed  long-term  rates of return on plan assets for 2002,
2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                     2002                           2001                           2000
                         ------------------------------ ------------------------------  ----------------------------

<S>                                  <C>                              <C>                           <C>
  U.S.                               8.5%                             8.5%                          9.0%
  Germany                            6.8%                             7.3%                          7.5%
  Canada                             7.0%                             7.8%                          8.0%
  Norway                             7.0%                             7.0%                          7.0%
</TABLE>

     The Company  currently expects to utilize the same long-term rate of return
on plan asset assumptions in 2003 as it used in 2002 for purposes of determining
the 2003 defined benefit pension plan expense.

     To the extent that a plan's particular  pension benefit formula  calculates
the pension benefit in whole or in part based upon future  compensation  levels,
the projected  benefit  obligation and the pension expense will be based in part
upon expected increases in future compensation  levels. For all of the Company's
plans for which the benefit  formula is so  calculated,  the  Company  generally
bases the assumed  expected  increase in future  compensation  levels based upon
average long-term inflation rates for the applicable country.

     In addition  to the  actuarial  assumptions  discussed  above,  because the
Company  maintains  defined benefit pension plans outside the U.S. the amount of
recognized defined benefit pension expense and the amount of prepaid and accrued
pension cost will vary based upon relative changes in foreign currency  exchange
rates.

     Based  on the  actuarial  assumptions  described  above  and the  Company's
current expectation for what actual average foreign currency exchange rates will
be during 2003, the Company  expects its defined  benefit  pension  expense will
approximate  $8  million  in 2003.  In  comparison,  the  Company  expects to be
required to make approximately $12 million of contributions to such plans during
2003.

     Defined benefit  pension  expense and the amount  recognized as prepaid and
accrued pension costs are based upon the actuarial  assumptions discussed above.
The Company  believes all of the actuarial  assumptions  used are reasonable and
appropriate.  If the Company had lowered the assumed  discount  rate by 25 basis
points for all of its plans as of December 31,  2002,  the  Company's  aggregate
projected benefit obligation would have increased by approximately $10.5 million
at that  date,  and the  Company's  defined  benefit  pension  expense  would be
expected to increase by approximately  $1.4 million during 2003.  Similarly,  if
the Company  lowered the assumed  long-term  rate of return on plan assets by 25
basis points for all of its plans, the Company's defined benefit pension expense
would be expected to increase by approximately $.6 million during 2003.

     OPEB plans.  Certain  subsidiaries of the Company currently provide certain
health care and life  insurance  benefits for eligible  retired  employees.  The
Company  provides  such OPEB  benefits to retirees in the U.S.  and Canada.  The
Company accounts for such OPEB costs under SFAS No. 106,  "Employers  Accounting
for  Postretirement  Benefits  other than  Pensions."  Under SFAS No. 106,  OPEB
expense  and  accrued  OPEB  costs are based on certain  actuarial  assumptions,
principally  the assumed  discount  rate and the assumed  rate of  increases  in
future  health care costs.  The Company  recognized  consolidated  OPEB  expense
(income) of $.1 million in 2002,  $(.2) million in 2001 and $.2 million in 2000.
Similar to defined benefit pension  benefits,  the amount of funding will differ
from the expense recognized for financial reporting purposes,  and contributions
to the plans to cover  benefit  payments  aggregated  $3.5 million in 2002,  $.5
million in 2001 and $7.8 million in 2000.  Company  contributions  were lower in
2002 and 2001  compared  with 2000 due to the  contribution  by the Company to a
trust in 2000 of shares of common  stock  received  from  demutualization  of an
insurance  company  from  which the  Company  had  purchased  certain  insurance
policies.  The  shares  were sold by the trust for $7.8  million in 2000 and the
proceeds were used to pay OPEB benefit claims in 2002, 2001 and 2000.

     The  assumed  discount  rates the Company  utilizes  for  determining  OPEB
expense and the related  accrued OPEB  obligation is generally based on the same
discount rates the Company  utilizes for its U.S. and Canadian  defined  benefit
pension plans.

     In estimating  the health care cost trend rate,  the Company  considers its
actual healthcare cost experience,  future benefit  structures,  industry trends
and advice from its third-party actuaries.  During each of the past three years,
the  Company has assumed  that the  relative  increase in health care costs will
generally  trend downward over the next several years,  reflecting,  among other
things,   assumed  increases  in  efficiency  in  the  health  care  system  and
industry-wide cost containment  initiatives.  For example, at December 31, 2002,
the  expected  rate of  increase in future  health care costs  ranges from 9% in
2003, declining to 5.5% in 2007 and thereafter.

     Based  on the  actuarial  assumptions  described  above  and the  Company's
current expectation for what actual average foreign currency exchange rates will
be during  2003,  the Company  expects its OPEB  expense  will  approximate  $.3
million in 2003.  In  comparison,  the  Company  expects to be  required to make
approximately $4.8 million of contributions to such plans during 2003.

     OPEB expense and the amount recognized as accrued OPEB costs are based upon
the  actuarial  assumptions  discussed  above.  The Company  believes all of the
actuarial  assumptions used are reasonable and  appropriate.  If the Company had
lowered the assumed  discount  rate by 25 basis points for all of its OPEB plans
as of December 31, 2002, the Company's  aggregate  accumulated  OPEB  obligation
would  have  increased  by  approximately  $.7  million  at that  date,  and the
Company's  OPEB  expense  would be expected  to increase by a nil amount  during
2003.  Similarly,  if the  assumed  future  health care cost trend rate had been
increased by 100 basis points,  the Company's  accumulated OPEB obligation would
have  increased by  approximately  $2.1  million at December 31, 2002,  and OPEB
expense would have increased by $.1 million in 2002.


Non-GAAP Financial Measures

     In an effort to provide investors with additional information regarding the
Company's  results as  determined  by GAAP,  the Company has  disclosed  certain
non-GAAP  information which the Company believes provides useful  information to
investors:

o    As discussed above, the Company discloses percentage changes in its average
     TiO2 prices in billing  currencies,  which  excludes the effects of foreign
     currency  translation.  Such  disclosure  of the  percentage  change in the
     Company's average TiO2 selling price in billing  currencies is considered a
     "non-GAAP"  financial  measure under regulations of the SEC. The disclosure
     of the percentage change in the Company's average TiO2 selling prices using
     actual foreign  currency  exchange rates  prevailing  during the respective
     periods is  considered  the most  directly  comparable  GAAP  measure.  The
     Company discloses  percentage changes in its average TiO2 prices in billing
     currencies  because the Company  believes such  disclosure  provides useful
     information to investors to allow them to analyze such changes  without the
     impact of changes in foreign currency exchange rates,  thereby facilitating
     period-to-period  comparisons  of the relative  changes in average  selling
     prices in the actual various billing currencies.  Generally,  when the U.S.
     dollar  either  strengthens  or  weakens  against  other  currencies,   the
     percentage  change in average selling prices in billing  currencies will be
     higher or lower, respectively,  than such percentage changes would be using
     actual exchange rates prevailing during the respective periods.




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  General

     The  Company is exposed to market risk from  changes in  currency  exchange
rates,  interest rates and equity security prices.  In the past, the Company has
periodically  entered  into  interest  rate swaps or other types of contracts in
order to manage a portion of its  interest  rate  market  risk.  Otherwise,  the
Company has not  generally  entered into  forward or option  contracts to manage
such market risks,  nor has the Company  entered into any such contract or other
type of derivative instrument for trading purposes.  The Company was not a party
to any forward or  derivative  option  contracts  related to  currency  exchange
rates,  interest rates or equity  security  prices at December 31, 2002 or 2001.
See Notes 2 and 24 to the Consolidated Financial Statements.

  Interest rates

     The  Company is  exposed to market  risk from  changes in  interest  rates,
primarily related to indebtedness. At December 31, 2002, the Company's aggregate
indebtedness  was  split  between  92%  of  fixed-rate  instruments  and  8%  of
variable-rate  borrowings  (2001 - 81%  fixed-rate and 19%  variable-rate).  The
large percentage of fixed-rate debt instruments  minimizes  earnings  volatility
which would result from changes in interest rates.  The following table presents
principal amounts and  weighted-average  interest rates, by contractual maturity
dates, for the Company's  aggregate  indebtedness at December 31, 2002 and 2001.
At December 31, 2002, all outstanding fixed-rate indebtedness was denominated in
euros (2001-all fixed-rate  indebtedness  denominated in U.S. dollars),  and all
outstanding  variable-rate  indebtedness  was  denominated  in  either  euros or
Norwegian  kroner.   Information  shown  below  for  such  euro-  and  Norwegian
kroner-denominated  indebtedness is presented in its U.S.  dollar  equivalent at
December 31, 2002 using that date's  exchange  rate of .96 euro per U.S.  dollar
(2001 - 1.13 euro per U.S.  dollar) and 6.99  Norwegian  kroner per U.S.  dollar
(2001  -  9.02   Norwegian   kroner   per  U.S.   dollar).   Certain   Norwegian
kroner-denominated  capital  leases  totaling  $1.9  million  in 2002  have been
excluded from the table below.

<TABLE>
<CAPTION>
                                                                   Amount
                                                        ------------------------------
                                                           Carrying         Fair         Interest       Maturity
         Indebtedness                                       value          value           rate           date
         ------------
                                                        ------------------------------ -------------- --------------
                                                                (In millions)

Fixed-rate indebtedness (euro-denominated):
<S>                                                      <C>             <C>                <C>             <C>
    KII Notes                                            $    296.9      $   299.9          8.875%          2009
                                                        ------------------------------ --------------
                                                              296.9          299.9          8.875%
                                                        ------------------------------ --------------

Variable-rate indebtedness (non U.S. dollar
  denominated):
    European Credit Facility:
    euro-denominated                                           15.6           15.6          4.8%            2005
    Norwegian kroner-denominated                               11.5           11.5          8.9%            2005
                                                        ------------------------------ --------------
                                                               27.1           27.1          6.5%
                                                        ------------------------------ --------------

                                                         $    324.0      $   327.0          8.7%
                                                        ============================== ==============
</TABLE>

     At December 31, 2001,  fixed-rate  indebtedness  aggregated  $194.0 million
(fair value - $194.9 million) with a  weighted-average  interest rate of 11.75%;
variable  rate  indebtedness  at  such  date  aggregated  $46.2  million,  which
approximated fair value, with a weighted-average  interest rate of 5.45%. All of
such fixed rate indebtedness was denominated in U.S. dollars. Such variable rate
indebtedness  was denominated in the euro (52%) and the Norwegian  kroner (48%).
Certain  Norwegian  kroner-denominated  capital leases  totaling $2.5 million at
December 31, 2001 have been excluded from the above analysis.

  Currency exchange rates

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

     At  December  31,  2002,  the Company  had $312.5  million of  indebtedness
denominated  in euros (2001 - $24.0  million) and $11.5 million of  indebtedness
denominated in Norwegian kroner (2001 - $22.2 million).  The potential  increase
in the U.S. dollar equivalent of the principal amount outstanding resulting from
a hypothetical 10% adverse change in exchange rates would be approximately $32.4
million (2001 - $4.6 million).

  Marketable equity and marketable debt security prices

     The  Company  is  exposed  to market  risk due to  changes in prices of the
marketable  equity  securities  which are held.  The fair  value of such  equity
securities  at December 31, 2002 and 2001 was $40.9  million and $45.2  million,
respectively.  The  potential  change  in the  aggregate  fair  value  of  these
investments,  assuming a 10% change in prices,  would be $4.1  million  and $4.5
million,  respectively.  The fair value of restricted marketable debt securities
at December 31, 2002 and 2001 was $18.9 million and $19.7 million, respectively.
The potential change in the aggregate fair value of these investments assuming a
10% change in prices would be $1.9 million and $2.0 million, respectively.

  Other

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

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

ITEM 8.           FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item is incorporated by reference to the
NL Proxy Statement. See also Note 22 to the Consolidated Financial Statements.

ITEM 14. CONTROLS AND PROCEDURES


     The Company maintains a system of disclosure  controls and procedures.  The
term  "disclosure  controls and  procedures,"  as defined by  regulations of the
Securities and Exchange Commission ("SEC"),  means controls and other procedures
that are  designed to ensure that  information  required to be  disclosed in the
reports  that the  Company  files or  submits  to the SEC under  the  Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by the
Company  in the  reports  that it files or  submits  to the SEC under the Act is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive  officer and its principal  financial  officer,  or persons
performing  similar  functions,  as appropriate to allow timely  decisions to be
made regarding  required  disclosure.  Each of Harold C. Simmons,  the Company's
Chief Executive Officer, and Gregory M. Swalwell,  the Company's Vice President,
Finance,  have evaluated the Company's  disclosure controls and procedures as of
December 31, 2002. Based upon their  evaluation,  these executive  officers have
concluded that the Company's disclosure controls and procedures are effective as
of the date of such evaluation.

     The Company also  maintains a system of internal  controls  over  financial
reporting.  The term "internal control over financial  reporting," as defined by
regulations  of the SEC, means a process  designed by, or under the  supervision
of, the  Company's  principal  executive and principal  financial  officers,  or
persons  performing  similar  functions,  and effected by the Company's board of
directors,  management  and other  personnel,  to provide  reasonable  assurance
regarding  the  reliability  of  financial  reporting  and  the  preparation  of
financial  statements  for  external  purposes  in  accordance  with  accounting
principles  generally  accepted in the United  States of America  ("GAAP)",  and
includes those policies and procedures that:

o    Pertain to the maintenance of records that in reasonable  detail accurately
     and fairly reflect the  transactions  and dispositions of the assets of the
     Company,
o    Provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with GAAP, and
     that  receipts  and  expenditures  of the  Company  are being  made only in
     accordance with  authorizations of management and directors of the Company,
     and
o    Provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or disposition of the Company's assets that
     could  have a  material  effect  on the  Company's  consolidated  financial
     statements.

There has been no change to the  Company's  system  of  internal  controls  over
financial  reporting  during  the  quarter  ended  December  31,  2002  that has
materially affected, or is reasonably likely to materially affect, the Company's
system of internal controls over financial reporting.


                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  and (d)   Financial Statements and Schedules

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

          (b)  Reports on Form 8-K

     There were no Reports on Form 8-K filed during the quarter  ended  December
31, 2002.

               January 31, 2003 - reported items 5 and 7.

          (c)  Exhibits

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


<PAGE>


Item No.                                  Exhibit Index

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

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

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

     4.2  Indenture  governing the 8.875% Senior  Secured Notes due 2009,  dated
          June 28, 2002, between Kronos International,  Inc. and The Bank of New
          York,  as Trustee -  incorporated  by  reference to Exhibit 4.1 to the
          Registrant's  Quarterly Report on Form 10-Q for the quarter ended June
          30, 2002.

     4.3  Form of  certificate of 8.875% Senior Secured Notes due 2009 of Kronos
          International,   Inc.  (included  as  Exhibit  A  to  Exhibit  4.1)  -
          incorporated by reference to Exhibit 4.2 to the Registrant's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2002.

     4.4  Form of  certificate of 8.875% Senior Secured Notes due 2009 of Kronos
          International,   Inc.  (included  as  Exhibit  B  to  Exhibit  4.1)  -
          incorporated by reference to Exhibit 4.3 to the Registrant's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2002.

     4.5  Purchase Agreement,  dated June 19, 2002, among Kronos  International,
          Inc.,  Deutsche  Bank AG London,  Dresdner  Bank AG London  Branch and
          Commerzbank  Aktiengesellschaft,   London  Branch  -  incorporated  by
          reference to Exhibit 4.4 to the Registrant's  Quarterly Report on Form
          10-Q for the quarter ended June 30, 2002.

     4.6  Registration  Rights  Agreement,  dated June 28,  2002,  among  Kronos
          International,  Inc., Deutsche Bank AG London, Dresdner Bank AG London
          and  Commerzbank  Aktiengesellschaft,  London Branch - incorporated by
          reference to Exhibit 4.5 to the Registrant's  Quarterly Report on Form
          10-Q for the quarter ended June 30, 2002.

     4.7  Collateral  Agency  Agreement,  dated June 28, 2002, among The Bank of
          New  York,   U.S.  Bank,  N.A.  and  Kronos   International,   Inc.  -
          incorporated by reference to Exhibit 4.6 to the Registrant's Quarterly
          Report on Form 10-Q for the quarter ended June 30, 2002.

     4.8  Security Over Shares  Agreement,  dated June 28, 2002,  between Kronos
          International,  Inc.  and  The  Bank  of New  York -  incorporated  by
          reference to Exhibit 4.7 to the Registrant's  Quarterly Report on Form
          10-Q for the quarter ended June 30, 2002.

     4.9  Pledge of Shares (shares in Kronos Denmark ApS),  dated June 28, 2002,
          between Kronos International,  Inc. and U.S. Bank, N.A. - incorporated
          by reference to Exhibit 4.8 to the  Registrant's  Quarterly  Report on
          Form 10-Q for the quarter ended June 30, 2002.

     4.10 Pledge  Agreement  (shares in Societe  Industrielle  du Titane  S.A.),
          dated June 28, 2002, between Kronos International, Inc. and U.S. Bank,
          N.A. -  incorporated  by reference to Exhibit 4.9 to the  Registrant's
          Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.

     4.11 Partnership  Interest  Pledge  Agreement  (relating  to fixed  capital
          contribution in Kronos Titan GmbH & Co.), dated June 28, 2002, between
          Kronos  International,  Inc. and U.S.  Bank,  N.A. -  incorporated  by
          reference to Exhibit 4.10 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended June 30, 2002.

     4.12 Deposit Agreement, dated June 28, 2002, among NL Industries,  Inc. and
          JP Morgan  Chase  Bank,  as trustee -  incorporated  by  reference  to
          Exhibit 4.11 to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended June 30, 2002.

     4.13 Satisfaction  and  Discharge of  Indenture,  Release,  Assignment  and
          Transfer,  dated June 28, 2002,  made by JP Morgan Chase Bank pursuant
          to the  Indenture  for NL  Industries,  Inc.'s 11 3/4% Senior  Secured
          Notes due 2003 -  incorporated  by  reference  to Exhibit  4.12 to the
          Registrant's  Quarterly Report on Form 10-Q for the quarter ended June
          30, 2002.

     10.1 (euro)80,000,000 Facility Agreement, dated June 25, 2002, among Kronos
          Titan GmbH & Co. OHG,  Kronos Europe  S.A./N.V.,  Kronos Titan A/S and
          Titania A/S, as borrowers,  Kronos Titan GmbH & Co. OHG, Kronos Europe
          S.A./N.V.  and Kronos Norge AS, as guarantors,  Kronos Denmark ApS, as
          security  provider,  Deutsche  Bank AG,  as  mandated  lead  arranger,
          Deutsche Bank Luxembourg  S.A., as agent and security  agent,  and KBC
          Bank NV, as fronting  bank, and the financial  institutions  listed in
          Schedule 1 thereto,  as lenders - incorporated by reference to Exhibit
          10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter
          ended June 30, 2002.

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

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

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

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

   10.6** Amendment  to  Richards  Bay Slag Sales  Agreement  dated June 1, 2001
          between  Richards  Bay Iron and  Titanium  (Proprietary)  Limited  and
          Kronos,  Inc. -  incorporated  by  reference  to  Exhibit  10.5 to the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2001.

  10.7**  Amendment to Richards Bay Slag Sales Agreement dated December 20, 2002
          between  Richards  Bay Iron and  Titanium  (Proprietary)  Limited  and
          Kronos,  Inc. 10.8 Agreement between Sachtleben Chemie GmbH and Kronos
          Titan-GmbH  effective December 30, 1986 - incorporated by reference to
          Exhibit  10.1 of  KII's  Quarterly  Report  on  Form  10-Q  (File  No.
          333-100047) for the quarter ended September 30, 2002.

     10.9 Supplementary  Agreement to the Agreement of December 30, 1986 between
          Sachtleben  Chemie  GmbH and  Kronos  Titan-GmbH  dated  May 3, 1996 -
          incorporated by reference to Exhibit 10.2 of KII's Quarterly Report on
          Form 10-Q (File No.  333-100047)  for the quarter ended  September 30,
          2002.

    10.10 Second  Supplementary  Agreement  to the Contract  dated  December 30,
          1986  between  Sachtleben  Chemie  GmbH and  Kronos  Titan-GmbH  dated
          January 8, 2002 -  incorporated  by reference to Exhibit 10.3 of KII's
          Quarterly  Report on Form 10-Q (File No.  333-100047)  for the quarter
          ended September 30, 2002.

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

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

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

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

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

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

    10.17 TCI/KCI Output Purchase Agreement dated as of October 18, 1993 between
          Tioxide  Canada  Inc.  and  Kronos  Canada,  Inc.  -  incorporated  by
          reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended  September 30, 1993.  10.18 TAI/KLA  Output
          Purchase  Agreement  dated as of  October  18,  1993  between  Tioxide
          Americas Inc. and Kronos  Louisiana,  Inc. - incorporated by reference
          to Exhibit 10.7 to the Registrant's  Quarterly Report on Form 10-Q for
          the quarter ended September 30, 1993.

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

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



<PAGE>


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

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

   10.23* 1989 Long Term  Performance  Incentive Plan of NL  Industries,  Inc. -
          incorporated  by  reference  to  Exhibit B to the  Registrant's  Proxy
          Statement on Schedule 14A for the annual meeting of shareholders  held
          on May 8, 1996.

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

   10.25* NL Industries,  Inc.  Variable  Compensation  Plan -  incorporated  by
          reference to Exhibit B to the Registrant's Proxy Statement on Schedule
          14A for the annual meeting of shareholders held on May 9, 2001.

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

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

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

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

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

   10.31* Amended  and  Restated  Supplemental  Executive  Retirement  Plan  for
          Executives and Officers of NL Industries,  Inc. effective as of May 1,
          2001 - incorporated by reference to Exhibit 10.30 to the  Registrant's
          Annual Report on Form 10-K for the year ended December 31, 2001.

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

   10.33* Agreement to Defer Bonus  Payment  dated  January 10, 2002 between the
          Registrant  and  Lawrence  A. Wigdor and related  trust  agreements  -
          incorporated by reference to Exhibit 10.32 to the Registrant's  Annual
          Report on Form 10-K for the year ended December 31, 2001.

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

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

    10.36 Tax Agreement between Valhi, Inc. and NL Industries, Inc. effective as
          of January 1, 2001-  incorporated by reference to Exhibit 10.36 to the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2000.

    10.37 Subscription Agreement by and among Valhi, Inc., Tremont Holdings, LLC
          and  Tremont  Group,  Inc.   effective  as  of  December  31,  2000  -
          incorporated by reference to Exhibit 10.37 to the Registrant's  Annual
          Report on Form 10-K for the year ended December 31, 2000.

    10.38 Intercorporate  Services Agreement by and between Contran  Corporation
          and the Registrant  effective as of January 1, 2002 - incorporated  by
          reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
          10-Q for the  quarter  ended  March  31,  2002.  10.39  Intercorporate
          Services  Agreement  by  and  between  Tremont   Corporation  and  the
          Registrant effective as of January 1, 2002 - incorporated by reference
          to Exhibit 10.2 to the Registrant's  Quarterly Report on Form 10-Q for
          the quarter ended March 31, 2002.

    10.40 Intercorporate  Services  Agreement  by and  between  Titanium  Metals
          Corporation  and the  Registrant  effective  as of  January  1, 2002 -
          incorporated  by  reference  to  Exhibit  10.3  to  the   Registrant's
          Quarterly Report on Form 10-Q for the quarter ended March 31, 2002.

    10.41 Revolving  Loan Note dated May 4, 2001 with Harold C.  Simmons  Family
          Trust No. 2 and EMS  Financial,  Inc. -  incorporated  by reference to
          Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended September 30, 2001.

    10.42 Security  Agreement dated May 4, 2001 by and between Harold C. Simmons
          Family Trust No. 2 and EMS Financial, Inc. - incorporated by reference
          to Exhibit 10.2 to the Registrant's  Quarterly Report on Form 10-Q for
          the quarter ended September 30, 2001.

    10.43 Revolving  Loan Note  Agreement  dated  October 22, 2002 with  Tremont
          Corporation as Maker and NL  Industries,  Inc. as Payee - incorporated
          by reference to Exhibit 10.4 to the  Registrant's  Quarterly Report on
          Form 10-Q for the quarter ended September 30, 2002.

    10.44 Security  Agreement  dated  October 22,  2002 by and  between  Tremont
          Corporation  and NL Industries,  Inc. -  incorporated  by reference to
          Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q for the
          quarter ended September 30, 2002.

    10.45 Purchase Agreement dated January 4, 2002 by and among Kronos,  Inc. as
          the  Purchaser,  and  Big  Bend  Holdings  LLC and  Contran  Insurance
          Holdings,  Inc., as Sellers regarding the sale and purchase of EWI RE,
          Inc. and EWI RE, Ltd. - incorporated  by reference to Exhibit 10.40 to
          the  Registrant's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2001.

   10.46* StockOption  Purchase  Agreement  dated  November 20, 2002 between the
          Registrant (Purchaser) and J. Landis Martin (Seller).

   10.47* Stock Option  Purchase  Agreement  dated November 20, 2002 between the
          Registrant (Purchaser) and Dr. Lawrence A. Wigdor (Seller).

   10.48* Stock Option  Purchase  Agreement  dated November 20, 2002 between the
          Registrant (Purchaser) and David B. Garten (Seller).

   10.49* Stock Option  Purchase  Agreement  dated November 20, 2002 between the
          Registrant (Purchaser) and Robert D. Hardy (Seller).

     21.1 Subsidiaries of the Registrant.

     23.1 Consent of Independent Accountants.


    31.11 Certification
     31.2 Certification
     32.1 Certification




<PAGE>


    99.3  Annual Report of NL  Industries,  Inc.  Retirement  Savings Plan (Form
          11-K) to be filed under Form 10-K/A to the Registrant's  Annual Report
          on Form 10-K within 180 days after December 31, 2002.

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

*    Management contract, compensatory plan or arrangement.

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


<PAGE>

                                   SIGNATURES


     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                  NL Industries, Inc.
                                     (Registrant)



                            By /s/ Gregory M. Swalwell
                               -----------------------------------
                               Gregory M. Swalwell
                               October 31, 2003
                               Vice President, Finance
                               Principal   Financial  and
                               Accounting Officer


<PAGE>





                               NL INDUSTRIES, INC.

                           ANNUAL REPORT ON FORM 10-K

                            Items 8, 15(a) and 15(d)

                   Index of Financial Statements and Schedules


Financial Statements                                                Pages

Report of Independent Accountants                                   F-2

Consolidated Balance Sheets - December 31, 2002 and 2001         F-3 / F-4

Consolidated Statements of Income - Years ended
December 31, 2002, 2001 and 2000                                    F-5

Consolidated Statements of Comprehensive Income - Years
ended December 31, 2002, 2001 and 2000                              F-6

Consolidated Statements of Shareholders' Equity - Years
ended December 31, 2002, 2001 and 2000                              F-7

Consolidated Statements of Cash Flows - Years ended
December 31, 2002, 2001 and 2000                                 F-8 / F-10

Notes to Consolidated Financial Statements                       F-11 / F-50


Financial Statement Schedules

Report of Independent Accountants                                   S-1

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

Schedule II - Valuation and Qualifying Accounts                     S-8



<PAGE>






                        REPORT OF INDEPENDENT ACCOUNTANTS



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

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated statements of income,  comprehensive income,  shareholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial position of NL Industries, Inc. at December 31, 2002 and 2001, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2002 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.




                                              PricewaterhouseCoopers LLP

Houston, Texas
February 12, 2003





<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2002 and 2001

                      (In thousands, except per share data)


<TABLE>

<CAPTION>
                                        ASSETS                                  2002                   2001
                                                                         --------------------   --------------------

Current assets:
<S>                                                                       <C>                     <C>
    Cash and cash equivalents                                             $      58,091           $     116,037
    Restricted cash equivalents                                                  52,089                  63,257
    Restricted marketable debt securities                                         9,670                   3,583
    Accounts and other receivable                                               136,858                 125,721
    Receivable from affiliates                                                      207                   3,698
    Refundable income taxes                                                       1,782                   1,530
    Inventories                                                                 209,882                 231,056
    Prepaid expenses                                                              7,207                   5,912
    Deferred income taxes                                                        10,511                  11,011
                                                                         --------------------   --------------------

        Total current assets                                                    486,297                 561,805
                                                                         --------------------   --------------------


Other assets:
    Marketable equity securities                                                 40,901                  45,227
    Receivable from affiliates                                                   18,000                  31,650
    Investment in TiO2 manufacturing joint venture                              130,009                 138,428
    Prepaid pension cost                                                         17,572                  18,411
    Restricted marketable debt securities                                         9,232                  16,121
    Other                                                                        30,671                   9,699
                                                                         --------------------   --------------------

        Total other assets                                                      246,385                 259,536
                                                                         --------------------   --------------------


Property and equipment:
    Land                                                                         29,072                  24,579
    Buildings                                                                   150,406                 130,710
    Machinery and equipment                                                     640,297                 537,958
    Mining properties                                                            84,778                  67,649
    Construction in progress                                                      8,702                   5,071
                                                                         --------------------   --------------------
                                                                                913,255                 765,967
    Less accumulated depreciation and depletion                                 534,436                 436,217
                                                                         --------------------   --------------------

        Net property and equipment                                              378,819                 329,750
                                                                         --------------------   --------------------

                                                                             $1,111,501            $  1,151,091
                                                                         ====================   ====================
</TABLE>



<PAGE>






                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2002 and 2001

                      (In thousands, except per share data)


<TABLE>
<CAPTION>
     LIABILITIES AND SHAREHOLDERS' EQUITY                                         2002                 2001
                                                                           -------------------  --------------------

Current liabilities:

<S>                                                                        <C>                  <C>
    Notes payable                                                          $             -      $        46,201
    Current maturities of long-term debt                                             1,298                1,033
    Accounts payable and accrued liabilities                                       167,574              176,223
    Payable to affiliates                                                            8,027                6,919
    Accrued environmental costs                                                     51,307               59,891
    Income taxes                                                                     6,624                7,277
    Deferred income taxes                                                            3,219                1,530
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

        Total current liabilities                                                  238,049              299,074
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

Noncurrent liabilities:
    Long-term debt                                                                 324,608              195,465
    Deferred income taxes                                                          143,518              143,256
    Accrued environmental costs                                                     47,189               47,589
    Accrued pension cost                                                            43,757               26,985
    Accrued postretirement benefits cost                                            26,477               29,842
    Other                                                                           14,060               14,729
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

        Total noncurrent liabilities                                               599,609              457,866
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

Minority interest                                                                    8,516                7,208
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

Shareholders' equity:
    Preferred stock - 5,000 shares authorized, no shares
      issued or outstanding                                                              -                    -
    Common stock - $.125 par value; 150,000 shares
      authorized; 66,845 and 66,845 shares issued                                    8,355                8,355
    Additional paid-in capital                                                     777,819              777,597
    Retained earnings                                                              101,554              222,722
    Accumulated other comprehensive income (loss):
        Currency translation                                                      (170,670)            (208,349)
        Marketable securities                                                        5,896                8,350
        Pension liabilities                                                        (21,447)              (6,352)
    Treasury stock, at cost (19,155 and 17,808 shares)                            (436,180)            (415,380)
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

        Total shareholders' equity                                                 265,327              386,943
                                                                           -------------------  --------------------
                                                                           -------------------  --------------------

                                                                             $   1,111,501        $   1,151,091
                                                                           ===================  ====================
</TABLE>
Commitments and contingencies (Notes 8, 17 and 23)


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2002, 2001 and 2000

                      (In thousands, except per share data)

<TABLE>

<CAPTION>
                                                                    2002               2001              2000
                                                               ----------------   ---------------   ----------------
                                                               ----------------   ---------------   ----------------


<S>                                                              <C>              <C>                 <C>
Net sales                                                        $   875,188      $    835,099        $   922,319
Cost of sales                                                        671,830           578,060            610,449
                                                                     -------           -------            -------

        Gross margin                                                 203,358           257,039            311,870

Selling, general and administrative expense                          107,675            98,667            107,554
Other operating income (expense):
    Currency transaction gains (losses), net                            (547)            1,188              6,510
    Disposition of property and equipment                               (625)             (735)            (1,562)
    Insurance recoveries, net                                              -             7,222                  -
    Noncompete agreement income                                        4,000             4,000              4,000
    Litigation settlement gains, net                                   5,225            11,730             69,465
    Other income                                                         544             1,454              1,355
    Corporate expense                                                (37,860)          (25,845)           (29,624)
    Other expense                                                       (172)              (78)              (230)
                                                                    ---------         ---------          ---------

        Income from operations                                        66,248           157,308            254,230

Other income (expense):
    Currency transaction gain                                          6,271                 -                  -
    Insurance recoveries, net                                              -            17,468                  -
    Trade interest income                                              1,709             2,332              2,333
    Other interest income                                              5,739             8,886              8,346
    Securities gains (losses), net                                      (105)           (1,133)             2,531
    Interest                                                         (29,752)          (27,569)           (32,369)
                                                               ----------------   ---------------   ----------------

        Income before income taxes and minority interest              50,110           157,292            235,071

Income tax expense                                                    12,036            34,925             78,026
                                                               ----------------   ---------------   ----------------

        Income before minority interest                               38,074           122,367            157,045

Minority interest                                                      1,264               960              2,436
                                                               ----------------   ---------------   ----------------

        Net income                                              $     36,810       $   121,407        $   154,609
                                                               ================   ===============   ================




Net income per share:
    Basic                                                      $          .76     $        2.44     $         3.07
                                                               ================   ===============   ================
    Diluted                                                    $          .76     $        2.44     $         3.05
                                                               ================   ===============   ================

Weighted average shares used in the calculation of net income per share:
    Basic                                                             48,530            49,732             50,415
    Dilutive impact of stock options                                      82               124                334
                                                               ----------------   ---------------   ----------------

    Diluted                                                           48,612            49,856             50,749
                                                               ================   ===============   ================
</TABLE>




<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                             2002                 2001                  2000
                                                      -------------------  -------------------   -------------------

<S>                                                    <C>                   <C>                    <C>
Net income                                             $       36,810        $    121,407           $   154,609
                                                      -------------------  -------------------   -------------------

Other comprehensive (loss) income, net of tax: Marketable securities adjustment:
        Unrealized holding (losses) gains
          arising during the period                            (2,454)             (1,275)                4,064
        Add:  reclassification adjustment for loss
          included in net income                                    -                 740                 1,964
                                                      -------------------  -------------------   -------------------

                                                               (2,454)               (535)                6,028

    Minimum pension liabilities adjustment                    (15,095)             (6,352)                1,756

    Currency translation adjustment                            37,679             (17,592)              (30,735)
                                                      -------------------  -------------------   -------------------

        Total other comprehensive income (loss)                20,130             (24,479)              (22,951)
                                                      -------------------  -------------------   -------------------

    Comprehensive income                               $       56,940        $     96,928           $   131,658
                                                      ===================  ===================   ===================
</TABLE>




<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                  Years ended December 31, 2002, 2001 and 2000

                      (In thousands, except per share data)


<TABLE>
<CAPTION>
                                                                                   Accumulated other
                                                                              comprehensive income (loss)
                                                     Additional            ----------------------------------
                                               Common  paid-in   Retained   Currency     Pension    Marketable  Treasury
                                                stock  capital   earnings  translation  liabilities securities   stock       Total
                                               ------ -------- ---------- ------------ ------------ ---------- ---------- ---------
<S>                                            <C>    <C>        <C>       <C>          <C>         <C>      <C>        <C>
Balance at December 31, 1999                   $8,355 $774,304   $ 19,150  $(160,022)   $ (1,756)   $2,857   $(371,801) $271,087

Net income                                        -       -       154,609       -           -         -           -      154,609
Other comprehensive (loss) income, net of tax     -       -          -       (30,735)      1,756     6,028        -      (22,951)
Common dividends declared - $.65 per share        -       -       (32,686)      -           -         -           -      (32,686)
Tax benefit of stock options exercised            -      3,224       -          -           -         -           -        3,224
Treasury stock:
    Acquired                                      -       -          -          -           -         -        (30,886)   (30,886)

    Reissued                                      -       -          -          -           -         -          2,091      2,091
                                               ------ -------    --------  ---------    -------    ------    ---------   --------

Balance at December 31, 2000                    8,355  777,528    141,073   (190,757)       -       8,885     (400,596)   344,488

Net income                                        -       -       121,407       -           -        -             -      121,407
Other comprehensive loss, net of tax              -       -          -       (17,592)    (6,352)     (535)         -      (24,479)
Common dividends declared - $.80 per share        -       -       (39,758)      -           -        -             -      (39,758)
Tax benefit of stock options exercised            -         69       -          -           -        -             -           69
Treasury stock:
    Acquired                                      -       -          -          -           -        -         (15,502)   (15,502)
    Reissued                                      -       -          -          -           -        -             718        718
                                               ------ -------    --------  ---------    -------    ------    ---------   --------

Balance at December 31, 2001                    8,355  777,597    222,722   (208,349)    (6,352)    8,350     (415,380)   386,943

Net income                                        -       -        36,810       -           -        -             -       36,810
Other comprehensive income (loss), net of tax     -       -          -        37,679    (15,095)   (2,454)         -       20,130
Common dividends declared -  $3.30 per share      -       -      (157,978)      -           -        -             -     (157,978)
Tax benefit of stock options exercised            -        222       -          -           -        -             -          222
Treasury stock:
    Acquired                                      -       -          -          -           -        -         (21,254)   (21,254)
    Reissued                                      -       -          -          -           -        -             454        454
                                               ------  -------   --------  ---------    -------    ------    ---------   --------

Balance at December 31, 2002                   $8,355 $777,819   $101,554  $(170,670)  $(21,447)  $ 5,896    $(436,180)  $265,327
                                               ====== ========   ========  =========   ========   =======    =========   ========
</TABLE>


<PAGE>
                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>

<CAPTION>
                                                                   2002               2001               2000
                                                             -----------------   ----------------   ----------------

Cash flows from operating activities:
<S>                                                           <C>                <C>                <C>
    Net income                                                $     36,810       $     121,407      $     154,609
    Depreciation, depletion and amortization                        33,221              29,599             29,733
    Noncash interest income on restricted cash and
      restricted marketable debt securities                         (1,762)             (3,580)            (1,531)
    Noncash interest expense                                         1,768                 467              1,725
    Deferred income taxes                                            1,506               3,256             40,186
    Minority interest                                                1,264                 960              2,436
    Net losses (gains) from:
        Securities transactions                                        105               1,133             (2,531)
        Disposition of property and equipment                          625                 735              1,562
    Pension cost, net                                               (2,316)             (2,967)           (11,816)
    Other postretirement benefits, net                              (3,385)                531              1,062
    Distributions from TiO2 manufacturing joint venture              7,950              11,313              7,550
    Litigation settlement gains, net                                     -             (10,307)           (69,465)
    Insurance recoveries, net                                            -             (17,468)                 -
    Other, net                                                           -                 261                  -
    Change in assets and liabilities:
      Accounts and other receivable                                  4,788                 902              1,417
      Inventories                                                   42,249             (32,698)           (23,395)
      Prepaid expenses                                                (545)             (2,200)              (617)
      Accounts payable and accrued liabilities                     (32,310)             31,091              9,301
      Income taxes                                                  (2,036)              4,107              4,449
      Accounts with affiliates                                       3,800              (5,670)              (123)
      Accrued environmental costs                                    8,913               7,068             (1,279)
      Other noncurrent assets                                          150                (263)               205
      Other noncurrent liabilities                                  (2,544)             (7,944)            (3,723)
                                                             -----------------   ----------------   ----------------

          Net cash provided by operating activities                 98,251             129,733            139,755
                                                             -----------------   ----------------   ----------------
</TABLE>



<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                    2002              2001               2000
                                                               ---------------   ---------------    ----------------

Cash flows from investing activities:
<S>                                                             <C>               <C>                <C>
    Capital expenditures                                        $   (32,600)      $   (53,669)       $     (31,089)
    Loans to affiliates:
        Loans                                                             -           (33,400)                   -
        Collections                                                  14,650               750                    -
    Acquisition of business                                          (9,149)                -                    -
    Property damaged by fire:
        Insurance proceeds                                                -            23,361                    -
        Other, net                                                        -            (3,205)                   -
    Purchase of Tremont Corporation common stock                          -                 -              (26,040)
    Change in restricted cash equivalents and
      restricted marketable debt securities, net                       (960)            8,509                  630
    Proceeds from disposition of property and equipment                 873               419                  139
    Proceeds from disposition of marketable securities                    -                 4                  158
    Other, net                                                            -                 -                  (33)
                                                               ---------------   ---------------    ----------------

        Net cash used by investing activities                       (27,186)          (57,231)             (56,235)
                                                               ---------------   ---------------    ----------------

Cash flows from financing activities:
    Indebtedness:
        Borrowings                                                  335,768             1,437               44,923
        Principal payments                                         (278,814)          (22,428)             (79,162)
        Deferred financing fees                                     (10,706)                -                    -
    Dividends paid                                                 (157,978)          (39,758)             (32,686)
    Treasury stock:
        Purchased                                                   (21,254)          (15,502)             (30,886)
        Reissued                                                        454               718                2,091
    Distributions to minority interests                                 (11)               (5)                  (6)
                                                               ---------------   ---------------    ----------------

        Net cash used by financing activities                      (132,541)          (75,538)             (95,726)
                                                               ---------------   ---------------    ----------------

        Net change during the year from operating,                                     (3,036)
          investing and financing activities                    $   (61,476)     $                   $     (12,206)
                                                               ===============   ===============    ================
</TABLE>


<PAGE>
                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                      2002              2001              2000
                                                                 ---------------   ---------------   ---------------

Cash and cash equivalents: Net change during the year from:
<S>                                                                <C>             <C>                <C>
        Operating, investing and financing activities              $  (61,476)     $    (3,036)       $   (12,206)
        Currency translation                                            3,334           (1,305)            (1,640)
        Acquisition of business                                           196                -                  -
                                                                 ---------------   ---------------   ---------------

                                                                      (57,946)          (4,341)           (13,846)

        Balance at beginning of year                                  116,037          120,378            134,224
                                                                 ---------------   ---------------   ---------------

        Balance at end of year                                     $   58,091        $ 116,037         $  120,378
                                                                 ===============   ===============   ===============

Supplemental disclosures - cash paid for:
    Interest                                                       $   32,896       $   27,143        $    32,354
    Income taxes                                                        9,715           29,770             33,398

    Acquisition of business:
        Cash and cash equivalents                                $        196
                                                                                   $         -       $          -
        Restricted cash                                                 2,685                -                  -
        Goodwill and other intangible assets                            9,007                -                  -
        Other noncash assets                                            1,259                -                  -
        Liabilities                                                    (3,998)               -                  -
                                                                 ---------------   ---------------   ---------------

            Cash paid                                             $     9,149      $         -       $          -
                                                                 ===============   ===============   ===============
</TABLE>


<PAGE>

                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:


     NL Industries,  Inc. ("NL") conducts its titanium dioxide pigments ("TiO2")
operations  through  its  wholly  owned  subsidiary,  Kronos  Worldwide,  Inc. ,
formerly known as Kronos,  Inc.  ("Kronos").  At December 31, 2002,  Valhi, Inc.
("Valhi")  and  Tremont  Corporation  ("Tremont"),  each  affiliates  of Contran
Corporation ("Contran"),  held approximately 63% and 21%, respectively,  of NL's
outstanding  common stock.  At December 31, 2002,  Contran and its  subsidiaries
held  approximately 93% of Valhi's  outstanding common stock, and Tremont Group,
Inc.  ("Tremont  Group"),  which is 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 each of Contran,
Valhi and NL and a director  of Tremont,  may be deemed to control  each of such
companies. See Notes 7, 8 and 22.


Note 2 - Summary of significant accounting policies:

Principles of consolidation and management's estimates

     The accompanying  consolidated financial statements include the accounts of
NL and  its  majority-owned  subsidiaries  (collectively,  the  "Company").  All
material  intercompany  accounts  and  balances  have been  eliminated.  Certain
prior-year  amounts  have been  reclassified  to  conform  to the  current  year
presentation.  The  preparation  of  financial  statements  in  conformity  with
generally  accepted   accounting   principles  in  the  U.S.  ("GAAP")  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements,  and the reported  amount of revenues and
expenses during the reporting period.  Actual results may differ from previously
estimated amounts under different assumptions or conditions.  The Company has no
involvement  with any  variable  interest  entity  covered  by the scope of FASB
Interpretation ("FIN") No. 46, " Consolidation of Variable Interest Entities."

Translation of foreign currencies


     Assets and liabilities of subsidiaries  whose functional  currency is other
than the U.S.  dollar are  translated at year-end rates of exchange and revenues
and expenses are translated at weighted average exchange rates prevailing during
the year. Resulting translation  adjustments are included in other comprehensive
income  (loss),  net of related  income taxes.  Currency  transaction  gains and
losses are recognized in income  currently,  and in 2002 included a $6.3 million
gain related to the extinguishment of certain intercompany  indebtedness that is
classified  as a  component  of  other  income  (expense)  in  the  accompanying
consolidated statement of income.


Cash equivalents

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

Restricted cash equivalents and restricted marketable debt securities

     Restricted cash  equivalents and restricted  marketable debt securities are
primarily  invested in U.S.  government  securities  and money market funds that
invest primarily in U.S. government  securities.  At December 31, 2002 and 2001,
restricted  cash  equivalents  and  restricted  marketable  debt  securities  of
approximately  $9.6  million  and  $8.6  million,  respectively,  collateralized
undrawn  letters of credit,  and  restricted  cash  equivalents  and  restricted
marketable  debt  securities of  approximately  $59.0 million and $74.4 million,
respectively,  were  held by  trusts  established  to pay  future  environmental
remediation  obligations  and other  environmental  expenditures of the Company.
Generally,  restricted  cash  and  restricted  marketable  debt  securities  are
classified  as  either  a  current  or  noncurrent   asset  depending  upon  the
classification  of  the  liability  to  which  the  restricted  amount  relates.
Additionally,  restricted marketable debt securities are generally classified as
either  current or noncurrent  assets  depending  upon the maturity date of each
restricted marketable debt security and are carried at market which approximates
cost.  Unrealized  gains and losses on  available-for-sale  debt  securities are
included in other  comprehensive  income (loss),  net of related deferred income
taxes.  See Note 7. Gains and losses on  available-for-sale  debt securities are
recognized  in  income  upon  realization  and are  computed  based on  specific
identification of the debt securities sold.

Marketable equity securities and securities transactions

     Marketable  equity  securities are carried at market based on quoted market
prices.  Unrealized gains and losses on available-for-sale equity securities are
included in other  comprehensive  income (loss),  net of related deferred income
taxes. See Note 7. Gains and losses on available-for-sale  equity securities are
recognized  in  income  upon  realization  and are  computed  based on  specific
identification of the equity securities sold.  Declines in value that are judged
to be other-than-temporary are reported in other income, net.

Inventories and cost of goods sold


     Inventories are stated at the lower of cost  (principally  average cost) or
market. Amounts are removed from inventories at average cost. Cost of goods sold
includes  costs for  materials,  packing and  finishing,  utilities,  salary and
benefits, maintenance and depreciation.


Investment in TiO2 manufacturing joint venture

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

Property, equipment, depreciation and depletion

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


     The Company has a governmental concession with an unlimited term to operate
an ilmenite mine in Norway. Mining properties consist of buildings and equipment
used in the Company's Norwegian ilmenite mining operations. The Company does not
own the ilmenite reserves associated with the mine.

     Depreciation  of property and equipment  (including  mining  properties) is
computed principally by the straight-line method over the estimated useful lives
of ten to forty years for  buildings and three to twenty years for machinery and
equipment.


     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Effective  January 1, 2002,  the  Company  commenced  accounting  for
impairment of other long-lived assets (such as property and equipment and mining
properties)  in  accordance  with  Statement of Financial  Accounting  Standards
("SFAS") No. 144 as discussed under "Accounting principles adopted in 2002."

Long-term debt


     Amortization of deferred financing costs,  included in interest expense, is
computed by the interest method over the term of the applicable issue.


Employee benefit plans

     Accounting  and funding  policies for retirement  plans and  postretirement
benefits other than pensions ("OPEB") are described in Note 14.


     The Company has elected the disclosure  alternative  prescribed by SFAS No.
123,  "Accounting  for  Stock-Based  Compensation,"  as amended by SFAS No. 148,
"Accounting for Stock-Based  Compensation - Transition and  Disclosure,"  and to
account for its stock-based  employee  compensation  related to stock options in
accordance with Accounting Principles Board Opinion ("APBO") No. 25, "Accounting
for Stock Issued to Employees," and its various interpretations.  Under APBO No.
25, no  compensation  cost is generally  recognized  for fixed stock  options in
which the  exercise  price is not less than the market  price on the grant date.
During the fourth quarter of 2002,  and following the Company's cash  settlement
of options to purchase NL common stock held by certain individuals,  the Company
commenced  accounting for its stock options using the variable accounting method
because  the  Company  could  not  overcome  the  presumption  that it would not
similarly cash settle its remaining stock options. Under the variable accounting
method,  the intrinsic value of all unexercised  stock options  (including those
with an exercise  price at least equal to the market price on the date of grant)
are accrued as an expense over their vesting period,  with subsequent  increases
(decreases) in NL's market price  resulting in additional  compensation  expense
(income).  Aggregate compensation cost related to NL stock options recognized by
the Company was $3.2 million in 2002, nil in 2001 and $1.7 million in 2000.


     The following  table  illustrates the effect on net income and earnings per
share if the Company had applied the fair value  recognition  provisions of SFAS
No. 123 to stock-based employee compensation.

<TABLE>
<CAPTION>
                                                                            Years ended December 31,
                                                             -------------------------------------------------------
                                                                  2002                2001               2000
                                                             ----------------   -----------------  -----------------
                                                                    (In thousands except per share amounts)

<S>                                                            <C>                <C>                <C>
Net income - as reported                                       $    36,810        $    121,407       $    154,609
Add back:  Stock-based compensation cost, net of tax,
  included in reported net income                                    2,137                   -              1,143
Deduct:  Stock-based compensation cost, net of tax,
  determined under fair value based method
  for all awards                                                    (1,082)             (1,651)            (1,616)
                                                             ----------------   -----------------  -----------------

Net income - pro forma                                         $    37,865        $    119,756       $    154,136
                                                             ================   =================  =================
Net income per basic common share:
    As reported                                              $          .76     $          2.44    $          3.07
    Pro forma                                                $          .78     $          2.41    $          3.06
Net income per diluted common share:
    As reported                                              $          .76     $          2.44    $          3.05
    Pro forma                                                $          .78     $          2.40    $          3.04
</TABLE>

Environmental remediation costs

     Environmental   remediation   costs  are  accrued  when  estimated   future
expenditures  are  probable  and  reasonably  estimable.  The  estimated  future
expenditures  are  generally  not  discounted  to present  value.  Recoveries of
remediation  costs from other parties,  if any, are reported as receivables when
their receipt is deemed probable.  At December 31, 2002 and 2001, no receivables
for recoveries have been recognized.

Net sales


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




Repair and maintenance costs


     The Company performs planned major maintenance  activities during the year.
Repair and maintenance costs estimated to be incurred in connection with planned
major maintenance  activities are accrued in advance and are included in cost of
goods sold.  Accrued  repair and  maintenance  costs,  included in other current
liabilities  (see Note 11),  was $4.0  million and $3.4  million at December 31,
2002 and 2001, respectively.




Selling, general and administrative expenses; Shipping and handling costs


     Selling,  general and  administrative  expenses  include  costs  related to
marketing, sales, distribution,  shipping and handling, research and development
and  administrative  functions  such as  accounting,  treasury and finance,  and
includes costs for salary and benefits,  travel and  entertainment,  promotional
materials and  professional  fees.  Shipping and handling  costs are included in
selling,  general and  administrative  expense and were $51 million in 2002, $49
million in 2001 and $50 million in 2000.


Income taxes

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

     Effective January 1, 2001, the Company and its qualifying subsidiaries were
included in the  consolidated  U.S.  federal tax return of Contran (the "Contran
Tax Group").  As a member of the Contran Tax Group,  the Company is a party to a
tax sharing  agreement (the "Contran Tax Agreement").  The Contran Tax Agreement
provides  that the Company  compute its  provision  for U.S.  income  taxes on a
separate-company basis using the tax elections made by Contran.  Pursuant to the
Contran Tax Agreement and using the tax elections  made by Contran,  the Company
makes payments to or receives  payments from Valhi in amounts it would have paid
to or received from the U.S.  Internal  Revenue Service had it not been a member
of the Contran Tax Group.  Refunds are limited to amounts  previously paid under
the Contran Tax  Agreement  unless the Company was entitled to a refund from the
U.S.  Internal  Revenue  Service on a separate  company  basis.  Pursuant to the
Contran Tax  Agreement,  the Company  received  $2.3  million in 2002 from Valhi
related to  capital  loss  carrybacks  generated  in 2001 which  would have been
recoverable from the U.S. Internal Revenue Service.

Derivatives and hedging activities

     The Company adopted 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. At
December  31,  2002 and 2001,  the  Company  was not a party to any  significant
derivative or hedging instrument covered by SFAS No. 133. There was no impact on
the Company's financial statements from adopting SFAS No. 133.

     The Company periodically uses interest rate swaps, currency swaps and other
types of  contracts  to manage  interest  rate and  foreign  exchange  risk with
respect to  financial  assets or  liabilities.  The Company has not entered into
these  contracts for trading or  speculative  purposes in the past,  nor does it
currently  anticipate doing so in the future. The Company was not a party to any
such contracts during 2002, 2001 and 2000.

Earnings per share

     Basic earnings per share is based on the weighted  average number of common
shares  outstanding  during each period.  Diluted earnings per share is based on
the weighted average number of common shares outstanding and the dilutive impact
of outstanding  stock options.  The weighted average number of outstanding stock
options,  which were excluded from the calculation of diluted earnings per share
because their impact would have been antidilutive,  aggregated 788,000,  876,000
and 222,000 in 2002, 2001 and 2000,  respectively.  There were no adjustments to
net income in the computation of the diluted earnings per share amounts.

Accounting principles adopted in 2002

     The Company adopted SFAS No. 142,  "Goodwill and Other Intangible  Assets,"
effective  January 1, 2002.  Under SFAS No. 142,  goodwill,  including  goodwill
arising from the difference  between the cost of an investment  accounted for by
the equity method and the amount of the underlying  equity in net assets of such
equity method investee  ("equity method  goodwill"),  will not be amortized on a
periodic basis.  Instead,  goodwill (other than equity method  goodwill) will be
subject to an impairment  test to be performed at least on an annual basis,  and
impairment  reviews  may  result  in  future  periodic  write-downs  charged  to
earnings. Equity method goodwill will not be tested for impairment in accordance
with SFAS No. 142;  rather,  the  overall  carrying  amount of an equity  method
investee will continue to be reviewed for impairment in accordance with existing
GAAP. There is currently no equity method goodwill associated with the Company's
equity method investee.  All goodwill arising in a purchase business combination
(including  step  acquisitions)  completed on or after July 1, 2001 would not be
periodically  amortized  from  the date of such  combination.  The  Company  had
goodwill of $6.4 million at December 31, 2002 which was generated during January
2002.  The Company had no goodwill  recognized as of the January 1, 2002 date of
adoption of SFAS No. 142. See Note 3.

     The  Company  adopted  SFAS No.  144,  "Accounting  for the  Impairment  or
Disposal of Long-Lived  Assets," effective January 1, 2002. SFAS No. 144 retains
the fundamental  provisions of existing GAAP with respect to the recognition and
measurement  of  long-lived  asset   impairment   contained  in  SFAS  No.  121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." However, SFAS No. 144 provides new guidance intended to address
certain  significant   implementation  issues  associated  with  SFAS  No.  121,
including expanded guidance with respect to appropriate cash flows to be used to
determine  whether  recognition of any long-lived  asset impairment is required,
and if required how to measure the amount of the  impairment.  SFAS No. 144 also
requires  that any net assets to be  disposed  of by sale to be  reported at the
lower of  carrying  value or fair  value  less  cost to sell,  and  expands  the
reporting of discontinued  operations to include any component of an entity with
operations and cash flows that can be clearly distinguished from the rest of the
entity.  The adoption of SFAS No. 144  effective  January 1, 2002 did not have a
material effect on the Company's  consolidated  financial  position,  results of
operations or liquidity.

     The Company adopted SFAS No. 145,  "Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13 and Technical  Corrections" effective
April  1,  2002.  SFAS  No.  145,  among  other  things,  eliminated  the  prior
requirement that all gains and losses from the early extinguishment of debt were
to be classified as an extraordinary  item. Upon adoption of SFAS No. 145, gains
and  losses  from the  early  extinguishment  of debt are now  classified  as an
extraordinary  item  only if they meet the  "unusual  and  infrequent"  criteria
contained in APBO No. 30. In addition,  upon adoption of SFAS No. 145, all gains
and  losses  from the  early  extinguishment  of debt that had  previously  been
classified  as an  extraordinary  item are to be reassessed to determine if they
would have met the  "unusual and  infrequent"  criteria of APBO No. 30; any such
gain or loss that would not have met the APBO No. 30 criteria are  retroactively
reclassified  and reported as a component of income before  extraordinary  item.
The Company has concluded that all of its previously-recognized gains and losses
from the early  extinguishment of debt that occurred on or after January 1, 1998
would  not  have  met  the  APBO  No.  30  criteria  for  classification  as  an
extraordinary  item, and accordingly such  previously-reported  gains and losses
from the early  extinguishment of debt have been retroactively  reclassified and
reported as a  component  of income  before  extraordinary  item.  The effect of
adoption  for the  year  ended  December  31,  2002  was a  second-quarter  2002
reclassification of a first-quarter 2002 loss of $92,000 ($60,000, net of income
tax benefit) from extraordinary item to interest expense. The effect of adoption
for the year ended December 31, 2000 was a reclassification of a $1,126,000 loss
($732,000,  net of income  tax  benefit)  from  extraordinary  item to  interest
expense.  Previously  reported net income did not change as a result of adopting
SFAS No. 145.

     In November 2002, the FASB issued FIN No. 45,  "Guarantor's  Accounting and
Disclosure  Requirements  for  Guarantees,   Including  Indirect  Guarantees  of
Indebtedness  of  Others."  FIN No. 45  requires  a  guarantor  to  recognize  a
liability at the  inception  of a guarantee  covered by the scope of FIN No. 45,
equal to the fair value of the  obligation  undertaken in issuing the guarantee.
FIN No. 45 also  expands the  disclosures  requirements  with respect to certain
guarantees. The initial recognition and measurement provisions of FIN No. 45 are
applicable on a prospective  basis for any  guarantees  issued or modified after
December  31,  2002,  while the  disclosure  requirements  were  effective  upon
issuance.  The Company is not a party to any guarantees  covered by the scope of
FIN No. 45 as of December 31, 2002.

Accounting principles not yet adopted

     The  Company  will adopt SFAS No.  143,  "Accounting  for Asset  Retirement
Obligations," effective January 1, 2003. Under SFAS No. 143, the fair value of a
liability for an asset retirement obligation covered under the scope of SFAS No.
143 would be recognized  in the period in which the liability is incurred,  with
an offsetting  increase in the carrying amount of the related  long-lived asset.
Over time,  the  liability  would be  accreted  to its  present  value,  and the
capitalized cost would be depreciated over the useful life of the related asset.
Upon  settlement of the liability,  an entity would either settle the obligation
for its recorded amount or incur a gain or loss upon settlement.

     Under the transition provisions of SFAS No. 143, at the date of adoption on
January  1,  2003  the  Company  will  recognize  (i) an asset  retirement  cost
capitalized  as an increase to the  carrying  value of its  property,  plant and
equipment,  (ii)  accumulated  depreciation on such capitalized cost and (iii) a
liability  for the  asset  retirement  obligation.  Amounts  resulting  from the
initial application of SFAS No. 143 are measured using information,  assumptions
and interest rates all as of January 1, 2003. The amount recognized as the asset
retirement cost is measured as of the date the asset  retirement  obligation was
incurred.   Cumulative  accretion  on  the  asset  retirement  obligation,   and
accumulated  depreciation  on the asset  retirement  cost, is recognized for the
time period from the date the asset  retirement  cost and  liability  would have
been  recognized  had the  provisions of SFAS No. 143 been in effect at the date
the liability was incurred,  through  January 1, 2003. The  difference,  if any,
between the  amounts to be  recognized  as  described  above and any  associated
amounts  recognized in the Company's balance sheet as of December 31, 2002 would
be recognized as a cumulative effect of a change in accounting  principles as of
the date of adoption.  The effect of adopting SFAS No. 143 as of January 1, 2003
as  summarized  in the table below is not expected to have a material  effect on
the  Company's  consolidated  financial  position,   results  of  operations  or
liquidity:

<TABLE>
<CAPTION>
                                                                                                       Amount
                                                                                                 -------------------
                                                                                                   (In millions)

Increase in carrying value of net property, plant and equipment:
<S>                                                                                              <C>
    Cost                                                                                         $          .4
    Accumulated depreciation                                                                             (.1)
Decrease in liabilities previously accrued for closure and post closure activities                        .2
Asset retirement obligation recognized                                                                   (.5)
                                                                                                 -------------------
                                                                                                 -------------------

        Net impact                                                                               $         -
                                                                                                 ===================
</TABLE>

     The Company will adopt SFAS No. 146,  "Accounting for Costs Associated with
Exit or  Disposal  Activities,"  effective  January 1, 2003 for exit or disposal
activities initiated on or after the date of adoption. Under SFAS No. 146, costs
associated with exit  activities,  as defined,  that are covered by the scope of
SFAS No. 146 will be recognized and measured initially at fair value,  generally
in the period in which the liability is incurred.  Costs covered by the scope of
SFAS No. 146  include  termination  benefits  provided  to  employees,  costs to
consolidate  facilities or relocate employees,  and costs to terminate contracts
(other than a capital lease).  Under existing GAAP, a liability for such an exit
cost is recognized at the date an exit plan is adopted,  which may or may not be
the date at which the  liability  has been  incurred.  The Company  believes the
adoption  of SFAS  No.  146  will  not have a  material  adverse  effect  on the
Company's consolidated financial position, results of operations or liquidity.

Note 3 - Business combination

     In  January  2002,  the  Company  acquired  all of the  stock  and  limited
liability company units of EWI RE, Inc. and EWI RE, Ltd.  (collectively  "EWI"),
respectively,  for an aggregate of $9.2 million in cash,  including  acquisition
costs  of $.2  million.  An  entity  controlled  by one of  Harold  C.  Simmons'
daughters  owned a majority of EWI,  and a wholly  owned  subsidiary  of Contran
owned the  remainder  of EWI.  Through  December 31,  2000,  Harold C.  Simmons'
son-in-law  managed the  operations of EWI.  Subsequent to December 31, 2000 and
pursuant to an agreement  that,  as amended,  is effective  until  terminated by
either party with 90 days notice,  such son-in-law provides advisory services to
EWI as requested by EWI, for which such son-in-law is paid $11,875 per month and
receives  certain  other  benefits  under  EWI's  benefit  plans.  EWI  provides
reinsurance  brokerage services for insurance policies of the Company, its joint
venture  and  other  affiliates  of  Contran  as  well as  external  third-party
customers.  The purchase was  approved by a special  committee of the  Company's
Board of Directors  consisting of two of its directors unrelated to Contran, and
the  purchase  price was  negotiated  by the  special  committee  based upon its
consideration  of relevant  factors,  including but not limited to due diligence
performed by  independent  consultants  and an appraisal of EWI  conducted by an
independent third party selected by the special committee.

     EWI's  results of  operations  and cash flows are included in the Company's
consolidated  results of operations and cash flows  beginning  January 2002. The
pro forma effect on the  Company's  results of  operations at December 31, 2001,
assuming  the  acquisition  of EWI had  occurred  as of January 1, 2001,  is not
material.   The  aggregate  cash  purchase  price  of  $9.2  million  (including
acquisition  costs of $.2 million) has been allocated to the assets acquired and
liabilities assumed, including definite-lived, customer list intangible asset of
$2.6 million and goodwill of $6.4 million,  based upon  estimates of fair value.
The intangible  asset and goodwill were included in other  noncurrent  assets at
December  31,  2002.  See Note 9. The  intangible  asset will be  amortized on a
straight-line  basis  over a period  of seven  years  (approximately  six  years
remaining at December 31, 2002) with no assumed  residual  value.  Goodwill will
not be  amortized  on a periodic  basis but  instead  will  subject to  periodic
impairment  tests in accordance with the  requirements of SFAS No. 142. See Note
2.

Note 4 - Geographic segments:


     The Company's  operations are conducted by Kronos and are  associated  with
the production and sale of TiO2.  Titanium  dioxide  pigments are used to impart
whiteness,  brightness  and  opacity to a wide  variety of  products,  including
paints, plastics, paper, fibers and ceramics. At December 31, 2002 and 2001, the
net  assets  of  non-U.S.  subsidiaries  included  in  consolidated  net  assets
approximated $159 million and $394 million, respectively.


     For  geographic  information,  net  sales  are  attributed  to the place of
manufacture  (point  of  origin)  and the  location  of the  customer  (point of
destination); property and equipment are attributed to their physical location.



<TABLE>

<CAPTION>
                                                                            Years ended December 31,
                                                             -------------------------------------------------------

                                                                   2002               2001               2000
                                                             -----------------  -----------------  -----------------
                                                                                 (In thousands)

Geographic areas

    Net sales - point of origin:
<S>                                                            <C>                <C>                 <C>
        Germany                                                $  404,299         $   398,470         $   444,050
        United States                                             291,823             278,624             313,426
        Canada                                                    157,773             149,412             154,579
        Belgium                                                   123,760             126,782             137,829
        Norway                                                    111,811             102,843              98,300
        Other                                                      89,560              82,320              92,691
        Eliminations                                             (303,838)           (303,352)           (318,556)
                                                             -----------------  -----------------  -----------------

                                                               $  875,188         $   835,099         $   922,319
                                                             =================  =================  =================

    Net sales - point of destination:
        Europe                                                 $  456,834         $   425,338         $   480,388
        United States                                             271,865             258,347             283,327
        Canada                                                     53,371              47,061              53,060
        Latin America                                              19,970              25,514              27,104
        Asia                                                       47,549              46,169              45,922
        Other                                                      25,599              32,670              32,518
                                                             -----------------  -----------------  -----------------

                                                               $  875,188         $   835,099         $   922,319
                                                             =================  =================  =================



                                                                                  December 31,
                                                             -------------------------------------------------------
                                                                   2002               2001               2000
                                                             -----------------   ----------------  -----------------
                                                                                 (in thousands)

Identifiable assets

    Net property and equipment:
        Germany                                                $    213,170        $    182,387     $    173,385
        Canada                                                       54,719              54,676           57,929
        Belgium                                                      54,625              46,841           46,778
        Norway                                                       49,737              38,549           38,361
        Other                                                         6,568               7,297             7,929
                                                             -----------------   ----------------  -----------------

                                                               $    378,819        $    329,750     $    324,382
                                                             =================   ================  =================
</TABLE>




Note 5 - Accounts and other receivable:


<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             ---------------------------------------
                                                                                   2002                 2001
                                                                             ------------------   ------------------
                                                                                         (In thousands)

<S>                                                                            <C>                <C>
Trade receivables                                                              $    124,044       $       99,989
Insurance claims receivable                                                           2,558               11,505
Recoverable VAT and other receivables                                                12,861               16,585
Allowance for doubtful accounts                                                      (2,605)              (2,358)
                                                                             ------------------   ------------------

                                                                               $    136,858        $     125,721
                                                                             ==================   ==================
</TABLE>

Note 6 - Inventories:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             ---------------------------------------
                                                                                   2002                 2001
                                                                             ------------------   ------------------
                                                                                         (In thousands)

<S>                                                                           <C>                 <C>
Raw materials                                                                 $      54,077       $       79,162
Work in process                                                                      15,936                9,675
Finished products                                                                   109,203              117,201
Supplies                                                                             30,666               25,018
                                                                             ------------------   ------------------

                                                                               $    209,882        $     231,056
                                                                             ==================   ==================
</TABLE>

Note 7- Marketable equity securities and securities transactions:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                              --------------------------------------
                                                                                     2002                2001
                                                                              -------------------  -----------------
                                                                                         (in thousands)

Available-for-sale marketable equity securities:
<S>                                                                           <C>                   <C>
    Tremont Group                                                             $        30,634       $     29,709
    Valhi                                                                               9,845             15,065
    Tremont                                                                               243                236
    Other                                                                                 179                217
                                                                              -------------------  -----------------

        Aggregate fair value                                                  $        40,901       $     45,227
                                                                              ===================  =================
</TABLE>

     At both  December  31,  2002 and  2001,  the  aggregate  cost  basis of the
Company's  investment in Tremont Group, Valhi,  Tremont and all other marketable
equity  securities  was  $26.4  million,  $5.9  million,  $.1  million  and nil,
respectively.

     At December 31, 2002 and 2001,  the Company  owned 20% of Tremont Group and
Valhi owned the remaining  80%.  Tremont  Group's only asset is an 80% ownership
interest in Tremont.  The Company's stock of Tremont Group was redeemable at the
option  of the  Company  for fair  value  based on the  value of the  underlying
Tremont shares, and the Company accounted for its investment in Tremont Group as
an  available-for-sale  marketable  security  carried at fair value based on the
fair value of such underlying Tremont shares. At December 31, 2002 and 2001, the
Company  also  directly  held a nominal  number  of  Tremont  shares,  and owned
1,186,200 shares of Valhi common stock  (approximately 1% of Valhi's outstanding
shares at each date).  The Company  accounts  for its  investment  in its parent
companies as available-for-sale marketable securities carried at fair value. See
Note 1.

     In February 2003 Valhi completed a series of merger  transactions  pursuant
to which, among other things, Tremont Group and Tremont both became wholly owned
subsidiaries  of Valhi.  Under these merger  transactions,  (i) Valhi issued 3.5
million  shares of its common  stock to the Company in return for the  Company's
20% ownership  interest in Tremont Group and (ii) Valhi issued 3.4 shares of its
common  stock  (plus  cash  in  lieu  of  fractional   shares)  to  all  Tremont
stockholders  (other than Valhi and Tremont Group) in exchange for each share of
Tremont  common  stock  held  by  such   stockholders.   The  Company   received
approximately 27,770 shares of Valhi common stock in the second transaction. The
number of shares of Valhi common stock issued to the Company in exchange for the
Company's 20% ownership interest in Tremont Group was equal to the Company's 20%
pro-rata  interest in the shares of Tremont  common stock held by Tremont Group,
adjusted  for the same 3.4 exchange  ratio.  The Valhi common stock owned by the
Company is  restricted  under SEC Rule 144.  The  Company  will report a pre-tax
securities  transaction gain of approximately  $2.3 million in the first quarter
of 2003 which  represents the difference  between the market value of the shares
of Valhi  received  and the cost basis of the Tremont  Group and Tremont  shares
exchanged.  Following these  transactions,  the Company owns  approximately  4.7
million shares of Valhi's outstanding common stock  (approximately 4% of Valhi's
outstanding  shares).  The  Company  will  continue to account for its shares of
Valhi common stock as available-for-sale marketable equity securities carried at
fair  value.  The shares of Valhi  common  stock  cannot be voted by the Company
under  Delaware  Corporation  Law, but the Company does receive  dividends  from
Valhi on these  shares.  For  financial  reporting  purposes,  Valhi reports its
proportional interest in these shares as treasury stock.

     In 2001 the Company  recognized  noncash  securities losses of $1.1 million
related to other-than-temporary  declines in value of certain available-for-sale
marketable equity securities held by the Company. See Note 18.

Note 8 - Receivable from affiliates:

     In February 2001 NL Environmental  Management  Services,  Inc. ("EMS"), the
Company's  majority-owned  environmental  management  subsidiary,  loaned  $13.4
million to Tremont under a reducing  revolving  loan  agreement  that matured in
March  2003.  See Note 1. The loan was  approved  by special  committees  of the
Company's and EMS's Boards of Directors.  In October 2002 a special committee of
the Company's  Board of Directors  approved new loan terms  proposed by Tremont,
whereby Tremont repaid the outstanding principal and interest balance on the EMS
loan with  proceeds from a new $15 million  revolving  loan  agreement  with the
Company.  As such, the EMS loan was extinguished  and cancelled.  Similar to the
EMS loan,  the Company's  loan to Tremont bears interest at prime plus 2% (6.25%
at December 31, 2002 with interest payable quarterly),  and is collateralized by
10.2  million  shares  of NL  common  stock  owned by  Tremont.  The loan is due
December 31, 2004, with no principal  payments  required prior to that date. The
maximum  amount  available to Tremont under the revolving  loan agreement is $15
million.  The  creditworthiness  of Tremont is dependent in part on the value of
the Company as Tremont's  interest in the Company is Tremont's most  substantial
asset. At December 31, 2002, no amounts were outstanding under this facility and
Tremont had $15 million of borrowing availability.  As a result of the merger of
Tremont with Valhi in February 2003, the revolving loan agreement is now between
Tremont LLC (a wholly owned  subsidiary  of Valhi and  successor to Tremont) and
NL.

     In May 2001 a wholly owned  subsidiary  of EMS loaned $20.0  million to the
Harold C. Simmons  Family Trust No. 2 (the  "Family  Trust"),  one of the trusts
described in Note 1, under a $25.0 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 (4.25% at December 31, 2002), is due
on  demand  with 60 days  notice  and is  collateralized  by 13,749  shares,  or
approximately  35%, of  Contran's  outstanding  Class A voting  common stock and
5,000 shares, or 100%, of Contran's Series E Cumulative preferred stock, both of
which are owned by the Family Trust.  The value of the  collateral is dependent,
in part,  on the value of the  Company as  Contran's  interest  in the  Company,
through its beneficial  ownership of Valhi, is one of Contran's more substantial
assets.  In November 2002 the Family Trust repaid $2 million principal amount of
the revolving credit agreement. At December 31, 2002, $7.0 million was available
for  additional  borrowing  by the  Family  Trust.  The loan was  classified  as
noncurrent  at  December  31,  2002,  as the  Company  does not expect to demand
repayment within one year.

Note 9 - Other noncurrent assets:

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                            ----------------------------------------
                                                                                   2002                    2001
                                                                            -------------------   ------------------
                                                                                        (In thousands)

<S>                                     <C>                                   <C>                 <C>
Deferred financing costs, net (see Note 13)                                   $    10,550         $           848
Goodwill (see Note 3)                                                               6,406                      -
Unrecognized net pension obligations (see Note 14)                                  5,561                  5,901
Intangible asset, net of accumulated amortization of $372
  and nil (see Note 3)                                                              2,230                      -
Restricted cash equivalents                                                         1,344                      -
Other                                                                               4,580                  2,950
                                                                            -------------------   ------------------

                                                                              $    30,671         $        9,699
                                                                            ===================   ==================
</TABLE>

Note 10 - Investment in TiO2 manufacturing joint venture:

     Kronos Louisiana, Inc. ("KLA"), a wholly owned subsidiary of Kronos, owns a
50% interest in Louisiana Pigment Company,  L.P. ("LPC"). LPC is a manufacturing
joint venture that is also  50%-owned by Tioxide  Americas Inc.  ("Tioxide"),  a
wholly owned  subsidiary  of Huntsman  International  Holdings  LLC, a 60%-owned
subsidiary  of Huntsman  Corporation.  LPC owns and operates a  chloride-process
TiO2 plant in Lake Charles, Louisiana.


     KLA is  required  to purchase  one-half  of the TiO2  produced by LPC.  LPC
operates on a break-even basis and,  accordingly,  the Company reports no equity
in earnings of LPC.  Kronos' cost for its share of the TiO2 produced is equal to
its share of LPC's  costs.  Kronos'  share of net costs is  reported  as cost of
sales as the related TiO2  acquired  from LPC is sold.  Distributions  from LPC,
which  generally  relate  to  excess  cash  generated  by LPC from its  non-cash
production  costs,  and  contributions  to LPC, which  generally  relate to cash
required by LPC when it builds  working  capital,  are  reported as part of cash
generated by operating  activities in the Company's  Consolidated  Statements of
Cash Flows. Such distributions are reported net of any contributions made to LPC
during the periods.  Net distributions of $8.0 million in 2002, $11.3 million in
2001 and $7.6 million in 2000 are stated net of  contributions  of $14.2 million
in 2002, $6.2 million in 2001 and nil in 2000.




     LPC made cash distributions of $15.9 million in 2002, $22.6 million in 2001
and $15.1 million in 2000, equally split between the partners.

         Summary balance sheets of LPC are shown below.

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                              --------------------------------------
                                                                                    2002                2001
                                                                              ------------------  ------------------
                                                                                         (In thousands)

           ASSETS

<S>                                                                             <C>               <C>
Current assets                                                                  $     56,745      $      45,872
Property and equipment, net                                                          235,739            250,501
                                                                              ------------------  ------------------

                                                                                 $   292,484       $    296,373
                                                                              ==================  ==================

   LIABILITIES AND PARTNERS' EQUITY

Other liabilities, primarily current                                            $     29,716      $      16,767
Partners' equity                                                                     262,768            279,606
                                                                              ------------------  ------------------

                                                                                 $   292,484       $    296,373
                                                                              ==================  ==================
</TABLE>

         Summary income statements of LPC are shown below.

<TABLE>
<CAPTION>
                                                                         Years ended December 31,
                                                        ------------------------------------------------------------
                                                              2002                 2001                 2000
                                                        ------------------   ------------------   ------------------
                                                                              (In thousands)

Revenues and other income:
<S>                                                       <C>                  <C>                  <C>
    Kronos                                                $     92,428         $      93,393        $      92,530
    Tioxide                                                     93,833                94,009               93,366
    Interest                                                        53                   303                  578
                                                        ------------------   ------------------   ------------------

                                                               186,314               187,705              186,474
                                                        ------------------   ------------------   ------------------
Cost and expenses:
    Cost of sales                                              185,946               187,295              186,045
    General and administrative                                     368                   410                  429
                                                        ------------------   ------------------   ------------------

                                                               186,314               187,705              186,474
                                                        ------------------   ------------------   ------------------

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

Note 11 - Accounts payable and accrued liabilities:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             ---------------------------------------
                                                                                   2002                 2001
                                                                             ------------------   ------------------
                                                                                         (In thousands)

<S>                                                                            <C>                   <C>
Accounts payable                                                               $     97,140          $    99,358
                                                                             ------------------   ------------------
Accrued liabilities:
    Employee benefits                                                                34,349               29,722
    Interest                                                                            240                4,980
    Deferred income                                                                     333                4,000
    Other                                                                            35,512               38,163
                                                                             ------------------   ------------------

                                                                                     70,434               76,865
                                                                             ------------------   ------------------

                                                                                $   167,574           $  176,223
                                                                             ==================   ==================
</TABLE>

Note 12 - Other noncurrent liabilities:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                              --------------------------------------
                                                                                    2002                2001
                                                                              -----------------   ------------------
                                                                                         (In thousands)

<S>                                                                            <C>                <C>
Insurance claims expense                                                       $       7,674      $        8,789
Employee benefits                                                                      4,025              3,476
Deferred income                                                                            -                333
Other                                                                                  2,361              2,131
                                                                              -----------------   ------------------

                                                                                $     14,060      $      14,729
                                                                              =================   ==================
</TABLE>

Note 13 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                              --------------------------------------
                                                                                    2002                2001
                                                                              -----------------   ------------------
                                                                                         (In thousands)

<S>                                                                              <C>                <C>
Notes payable - Kronos International, Inc. and subsidiaries                      $        -         $     46,201
                                                                              =================   ==================

Long-term debt:
    NL Industries, Inc.:
        11.75% Senior Secured Notes                                              $        -          $   194,000

    Kronos International, Inc. and subsidiaries:
        8.875% Senior Secured Notes                                                 296,942                    -
        Revolving credit facility                                                    27,077                    -
        Other                                                                         1,887                2,498
                                                                              -----------------   ------------------
                                                                                    325,906              196,498
Less current maturities                                                               1,298                1,033
                                                                              -----------------   ------------------

                                                                                $   324,608          $   195,465
                                                                              =================   ==================
</TABLE>

     Notes payable at December 31, 2001,  consisted of (euro)27  million  ($24.0
million) and NOK 200 million  ($22.2  million).  Notes  payable  totaling  $53.2
million were repaid on June 28, 2002 with  proceeds  from the  revolving  credit
facility and available cash and the agreements were terminated.  See description
of revolving credit facility below.

     In June 2002 Kronos International,  Inc. ("KII"),  issued (euro)285 million
($280  million  when issued and $297  million at December  31,  2002)  principal
amount of 8.875%  Senior  Secured  Notes (the  "Notes") due 2009.  The Notes are
collateralized  by  first  priority  liens on 65% of the  common  stock or other
equity  interests  of certain of KII's  first-tier  subsidiaries.  The Notes are
issued  pursuant  to an  indenture  which  contains  a number of  covenants  and
restrictions  which,  among other  things,  restricts the ability of KII and its
subsidiaries to incur debt,  incur liens,  pay dividends or merge or consolidate
with,  or sell or transfer all or  substantially  all of their assets to another
entity. In addition, the indenture contains customary  cross-default  provisions
with respect to other debt and obligations of KII or its subsidiaries. The Notes
are  redeemable,  at KII's option,  on or after  December 30, 2005 at redemption
prices  ranging from 104.437% of the principal  amount,  declining to 100% on or
after December 30, 2008. In addition, on or before June 30, 2005, KII may redeem
up to 35% of its  Notes  with the net  proceeds  of a  qualified  public  equity
offering  at  108.875%  of the  principal  amount.  In the  event of a change of
control of KII, as  defined,  KII would be required to make an offer to purchase
its Notes at 101% of the principal amount. KII would also be required to make an
offer to purchase a specified portion of its Notes at par value in the event KII
generates a certain  amount of net proceeds from the sale of assets  outside the
ordinary  course of business,  and such net proceeds are not otherwise  used for
specified purposes within a specified time period. At December 31, 2002, KII was
in compliance  with all the covenants,  and the quoted market price of the Notes
was  (euro)1,010  per  (euro)1,000  principal  amount.  The Notes  require  cash
interest  payments on June 30 and December 30,  commencing on December 30, 2002.
KII  completed an exchange  offer on November 18, 2002 to exchange the Notes for
registered publicly traded notes that have substantially  identical terms as the
Notes.

     In March 2002 the  Company  redeemed  $25 million  principal  amount of its
11.75% Senior Secured Notes due October 2003 at par value,  using available cash
on hand.  In addition,  the Company used a portion of the net proceeds  from the
issuance of the Notes to redeem in full the  remaining  $169  million  principal
amount of the Company's  11.75% Senior  Secured  Notes.  In accordance  with the
terms of the indenture  governing the 11.75% Senior Secured  Notes,  on June 28,
2002,  the Company  irrevocably  placed on deposit with the trustee  funds in an
amount  sufficient  to pay in full the  redemption  price plus all  accrued  and
unpaid  interest  due  on  the  July  28,  2002  redemption  date.   Immediately
thereafter,  the Company was released from its obligations under such indenture,
the indenture was  discharged  and all  collateral  was released to the Company.
Because  the Company had been  released as being the primary  obligor  under the
indenture as of June 30, 2002, the 11.75% Senior Secured Notes were derecognized
as of that date  along  with the funds  placed on  deposit  with the  trustee to
effect the July 28, 2002 redemption.  The Company recognized a loss on the early
extinguishment  of debt of  approximately  $2 million  in the second  quarter of
2002,  consisting  primarily of the interest on the 11.75% Senior  Secured Notes
for the  period  from July 1 to July 28,  2002.  Such loss was  recognized  as a
component of interest expense.

     In June 2002 KII's operating  subsidiaries  in Germany,  Belgium and Norway
(the "European  Borrowers"),  entered into a three-year (euro)80 million secured
revolving  credit facility  ("European  Credit  Facility").  The European Credit
Facility is available in multiple currencies,  including U.S. dollars, euros and
Norwegian  kroner.  In addition,  the European  Credit  Facility has a (euro)5.0
million sub limit  available  for issuance of letters of credit.  As of December
31, 2002,  (euro)15  million ($15.6  million) and NOK 80 million ($11.5 million)
were outstanding  under the European Credit Facility and (euro)1.8 million ($1.8
million) of letters of credit was also  outstanding  under the  European  Credit
Facility. At December 31, 2002,  approximately  (euro)52 million  (approximately
$54 million) was available for additional  borrowings.  Borrowings bear interest
at the applicable interbank market rate plus 1.75%. As of December 31, 2002, the
interest rate was 4.80% and 8.86% on the euro and Norwegian  kroner  borrowings,
respectively, and the weighted average interest rate was 6.51%.

     The European Credit Facility is collateralized  by accounts  receivable and
inventory  of the European  Borrowers,  plus a limited  pledge of certain  other
assets of the Belgian  borrower.  The European Credit Facility  contains,  among
others,  various  restrictive  covenants,  including  restrictions  on incurring
liens, asset sales, additional financial indebtedness,  mergers, investments and
acquisitions,  transactions  with  affiliates  and dividends.  In addition,  the
European  Credit  Facility  contains  customary  cross-default  provisions  with
respect to other debt and  obligations  of the European  Borrowers,  KII and its
other  subsidiaries.  The European  Borrowers  were in  compliance  with all the
covenants as of December 31, 2002.


     Under  the  cross-default  provisions  of  the  Notes,  the  Notes  may  be
accelerated  prior to their stated maturity if KII or any of KII's  subsidiaries
default under any other  indebtedness  in excess of $20 million due to a failure
to pay such  other  indebtedness  at its due date  (including  any due date that
arises  prior to the stated  maturity as a result of a default  under such other
indebtedness).  Under  the  cross-default  provisions  of  the  European  Credit
Facility,  any outstanding  borrowings under the European Credit Facility may be
accelerated  prior to their  stated  maturity if the  European  Borrowers or KII
default  under any other  indebtedness  in excess of  (euro)5  million  due to a
failure to pay such other  indebtedness  at its due date (including any due date
that arises  prior to the stated  maturity  as a result of a default  under such
other  indebtedness).  In the event the  cross-default  provisions of either the
Notes or the European Credit Facility become  applicable,  and such indebtedness
is accelerated,  the Company would be required to repay such indebtedness  prior
to their stated maturity.


     In September  2002 the Company's  U.S.  operating  subsidiaries  (the "U.S.
Borrowers") entered into a three-year $50 million  asset-based  revolving credit
facility ("U.S. Credit Facility").  Under the terms of the U.S. Credit Facility,
the amount available for borrowing is based on a formula-derived  borrowing base
using  eligible  accounts  receivable  and eligible  inventory and is subject to
maintaining   $5   million   of   minimum   excess   availability    ("Borrowing
Availability").  The maximum amount  available under the U.S. Credit Facility is
$45 million.  Borrowings bear interest at either prime rate or eurodollar  rates
plus a margin spread based on average excess  availability under the U.S. Credit
Facility or certain levels of EBITDA (as defined) of the U.S. Borrowers.  Margin
spreads range from 0.25% to 1.00% for prime rate  borrowings  and 2.00% to 2.75%
for eurodollar rate borrowings. The U.S. Credit Facility is available for future
working  capital  requirements  and  general  corporate  purposes  of  the  U.S.
Borrowers,  including  dividend  distributions.   The  U.S.  Borrowers  were  in
compliance  with all the  covenants  as of December 31,  2002.  The U.S.  Credit
Facility is collateralized by accounts  receivable,  inventory and certain fixed
assets of the U.S.  Borrowers.  The U.S. Credit Facility  contains,  among other
things,  various restrictive and financial  covenants including  restrictions on
incurring liens,  asset sales,  mergers,  and minimum EBITDA (as defined) of the
U.S.  Borrowers  and  Kronos.  As of  December  31,  2002,  no  borrowings  were
outstanding  under the U.S.  Credit  Facility  and  Borrowing  Availability  was
approximately $30 million.

     Deferred  financing  costs of $10.7  million  for the Notes,  the  European
Credit  Facility and the U.S.  Credit Facility are being amortized over the life
of the respective  agreements and are included in other noncurrent  assets as of
December 31, 2002.

     Unused lines of credit available for borrowing under the Company's non-U.S.
credit  facilities  approximated  $57  million at December  31, 2002  (including
approximately   $54  million  under  the  European   Credit  Facility  of  which
approximately $3.2 million is available for letters of credit).

     The aggregate  maturities of long-term  debt at December 31, 2002 are shown
in the table below.

<TABLE>
<CAPTION>
Years ending December 31,                                                                               Amount
-------------------------
                                                                                                --------------------
                                                                                                  (In thousands)

         <S>                                                                                    <C>
         2003                                                                                   $         1,298
         2004                                                                                               279
         2005                                                                                            27,224
         2006                                                                                               145
         2007                                                                                                18
         2008 and thereafter                                                                            296,942
                                                                                                --------------------

                                                                                                  $     325,906
                                                                                                ====================
</TABLE>

Note 14 - Employee benefit plans:

Company-sponsored pension plans

     The Company  maintains  various  defined  benefit and defined  contribution
pension plans  covering  substantially  all  employees.  Non-U.S.  employees are
covered by plans in their respective  countries and a majority of U.S. employees
are eligible to participate in a contributory  savings plan. The Company amended
its defined  benefit  pension plans in Belgium and Norway in 2002 to exclude the
admission of new  employees  to the plans.  New  employees  of these  particular
locations are eligible to participate in Company-sponsored  defined contribution
plans.

     The Company  contributes  to eligible  U.S.  employees'  accounts an amount
equal to  approximately  4% (in each of 2002,  2001 and 2000) of the  employee's
annual eligible  earnings and partially  matches  employee  contributions to the
U.S.  contributory  savings plan.  The Company also has a  nonqualified  defined
contribution plan covering certain executives, and participants receive benefits
based on a formula involving eligible earnings. The Company's expense related to
the U.S.  and  non-U.S.  plans was $.4 million in 2002,  $.8 million in 2001 and
$1.6 million in 2000.

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

<TABLE>
<CAPTION>
                                                                                 December 31,
                                                        ---------------------------------------------------------------
                                                              2002                   2001                  2000
                                                        -----------------      -----------------     ------------------
                                                                                (Percentages)

<S>                                                        <C>                    <C>                   <C>
Discount rate                                              5.5 to 7.0             5.8 to 7.3            6.0 to 7.8
Rate of increase in future compensation levels             2.5 to 4.5             2.8 to 4.5            3.0 to 4.5
Long-term rate of return on plan assets                    6.8 to 8.5             6.8 to 8.5            7.0 to 9.0
</TABLE>

     Plan assets are  comprised  primarily of  investments  in U.S. and non-U.S.
corporate equity and debt securities,  short-term investments,  mutual funds and
group annuity contracts.

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

     The  components of the net periodic  defined  benefit  pension cost are set
forth below.

<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                                ----------------------------------------------------
                                                                     2002              2001              2000
                                                                ----------------  ----------------  ----------------
                                                                                  (In thousands)

Net periodic pension cost:
<S>                                                              <C>              <C>               <C>
    Service cost benefits                                        $     4,538      $       3,976     $       4,063
    Interest cost on projected benefit obligation ("PBO")             16,510            15,605            15,088
    Expected return on plan assets                                   (16,099)          (16,143)          (15,403)
    Amortization of prior service cost                                   307               201               238
    Amortization of net transition obligation                            515               510               530
    Recognized actuarial losses                                        1,223               443               226
                                                                ----------------  ----------------  ----------------

                                                                 $     6,994      $       4,592     $       4,742
                                                                ================  ================  ================
</TABLE>

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

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                              --------------------------------------
                                                                                    2002                2001
                                                                              -----------------   ------------------
                                                                                         (In thousands)

Change in PBO:
<S>                                                                             <C>                 <C>
    Beginning of year                                                           $    261,805        $    248,355
    Service cost                                                                       4,538               3,976
    Interest                                                                          16,510              15,605
    Participant contributions                                                          1,057               1,005
    Amendments                                                                             -               1,819
    Actuarial loss (gain)                                                             (1,704)             10,149
    Benefits paid                                                                    (16,862)            (15,849)
    Change in currency exchange rates                                                 37,033              (3,255)
                                                                              -----------------   ------------------

        End of year                                                                  302,377             261,805
                                                                              -----------------   ------------------

Change in fair value of plan assets:
    Beginning of year                                                                208,267             216,984
    Actual return on plan assets                                                      (3,087)              4,711
    Employer contributions                                                             9,310               7,559
    Participant contributions                                                          1,057               1,005
    Benefits paid                                                                    (16,862)            (15,849)
    Change in currency exchange rates                                                 28,076              (6,143)
                                                                              -----------------   ------------------

        End of year                                                                  226,761             208,267
                                                                              -----------------   ------------------

Funded status at year end:
    Plan assets less than PBO                                                 $      (75,616)      $     (53,538)
    Unrecognized actuarial loss                                                       68,390              44,744
    Unrecognized prior service cost                                                    4,881               4,371
    Unrecognized net transition obligation                                             5,011               4,269
                                                                              -----------------   ------------------

                                                                              $         2,666     $          (154)
                                                                              =================   ==================

Amounts recognized in the balance sheet:
    Prepaid pension cost                                                      $       17,572       $      18,411
    Accrued pension cost:
        Current                                                                       (7,019)             (5,993)
        Noncurrent                                                                   (43,757)            (26,985)
    Unrecognized net pension obligations                                               5,561               5,901
    Accumulated other comprehensive loss                                              30,309               8,512
                                                                              -----------------   ------------------

                                                                              $         2,666     $          (154)
                                                                              =================   ==================
</TABLE>

     Selected information related to the Company's defined benefit pension plans
that have accumulated benefit obligations in excess of fair value of plan assets
is presented below. At December 31, 2002 and 2001, 79% and 78%, respectively, of
the projected benefit obligations of such plans relate to non-U.S. plans.

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                      2002               2001
                                                                                 ----------------   ----------------
                                                                                           (In thousands)

<S>                                                                                <C>                <C>
Projected benefit obligation                                                       $  252,316         $   228,647
Accumulated benefit obligation                                                        229,373             206,669
Fair value of plan assets                                                             179,437             174,832

Incentive bonus programs
</TABLE>

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

Postretirement benefits other than pensions

     In addition to providing pension benefits,  the Company currently  provides
certain health care and life insurance  benefits for eligible retired employees.
Certain  of the  Company's  Canadian  employees  may  become  eligible  for such
postretirement  health care and life insurance benefits if they reach retirement
age while  working for the Company.  In 1989 the Company  began phasing out such
benefits for active U.S.  employees  over a ten-year  period and U.S.  employees
retiring after 1998 are not entitled to any such  benefits.  The majority of all
retirees are required to contribute a portion of the cost of their  benefits and
certain  current  and future  retirees  are  eligible  for  reduced  health care
benefits at age 65. The Company's  policy is to fund medical  claims as they are
incurred,  net of any  contributions  by the  retirees.  For  measuring the OPEB
liability  at December 31,  2002,  the expected  rate of increase in health care
costs  is  9%  in  2003  decreasing  to  5.5%  in  2007  and  thereafter.  Other
weighted-average  assumptions  used to measure  the  liability  and  expense are
presented below.

<TABLE>
<CAPTION>
                                                                                         December 31,
                                                                         ----------------------------------------------
                                                                            2002             2001             2000
                                                                         ------------     ------------     ------------
                                                                                         (Percentages)

<S>                                                                            <C>             <C>             <C>
Discount rate                                                                  6.5             7.0             7.3
Long-term rate for compensation increases                                      6.0             6.0             6.0
Long-term rate of return on plan assets                                        6.0             7.7             7.7
</TABLE>

     Variances  from   actuarially   assumed  rates  will  change  accrued  OPEB
liabilities,  net  periodic  OPEB  expense  and funding  requirements  in future
periods.  If the health care cost trend rate was  increased  (decreased)  by one
percentage  point for each  year,  postretirement  benefit  expense  would  have
increased  approximately $.1 million (decreased by $.1 million) in 2002, and the
projected  benefit  obligation  at  December  31, 2002 would have  increased  by
approximately $2.1 million (decreased by $1.8 million).

     The  components of the Company's net periodic  postretirement  benefit cost
are set forth below.

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                 ---------------------------------------------------
                                                                      2002              2001              2000
                                                                 ---------------   ---------------   ---------------
                                                                                   (In thousands)

Net periodic OPEB cost (benefit):
<S>                                                              <C>               <C>               <C>
    Service cost benefits                                        $         103     $           94    $           84
    Interest cost on PBO                                                2,028             2,536            2,646
    Expected return on plan assets                                         (3)             (773)            (521)
    Amortization of prior service cost                                 (2,075)           (2,075)          (2,075)
    Recognized actuarial losses                                            27                27               24
                                                                 ---------------   ---------------   ---------------

                                                                 $           80    $        (191)    $         158
                                                                 ===============   ===============   ===============
</TABLE>

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                      2002               2001
                                                                                 ----------------   ----------------
                                                                                           (In thousands)

Change in PBO:
<S>                                                                               <C>                <C>
    Beginning of year                                                             $    35,137        $    37,040
    Service cost                                                                          103                 94
    Interest cost                                                                       2,028              2,536
    Actuarial losses                                                                    5,436                792
    Release of insurance obligations                                                   (5,778)                 -
    Plan asset reimbursements                                                               -              1,197
    Benefits paid:
        Company funds                                                                  (3,464)                 -
        Plan assets                                                                      (595)            (6,377)
    Change in currency exchange rates                                                      32               (145)
                                                                                 ----------------   ----------------

        End of year                                                                    32,899             35,137
                                                                                 ----------------   ----------------

Change in fair value of plan assets:
    Beginning of year                                                                   6,400             11,842
    Actual return on plan assets                                                          (27)               460
    Employer contributions                                                                  -                475
    Benefits paid                                                                        (595)            (6,377)
    Release of insurance obligations                                                   (5,778)                 -
                                                                                 ----------------   ----------------

        End of year                                                                         -              6,400
                                                                                 ----------------   ----------------

Funded status at year end:
    Plan assets less than PBO                                                         (32,899)           (28,737)
    Unrecognized actuarial gain                                                         5,345               (105)
    Unrecognized prior service cost                                                    (3,708)            (5,783)
                                                                                 ----------------   ----------------

                                                                                  $   (31,262)       $   (34,625)
                                                                                 ================   ================

Amounts recognized in the balance sheet:
    Current                                                                      $     (4,785)      $     (4,783)
    Noncurrent                                                                        (26,477)           (29,842)
                                                                                 ----------------   ----------------

                                                                                  $   (31,262)       $   (34,625)
                                                                                 ================   ================
</TABLE>

     Based on  communications  with a  certain  insurance  provider  of  retiree
benefits,  and consultations with the Company's actuaries,  the Company has been
released from certain life insurance retiree benefit  obligations  totaling $5.8
million as of  December  31,  2002  through  the use of an equal  amount of plan
assets.

Note 15 - Minority interest:

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

Note 16 - Shareholders' equity:

Common stock
<TABLE>
<CAPTION>
                                                                            Shares of common stock
                                                            --------------------------------------------------------
                                                                                  Treasury
                                                                Issued             stock             Outstanding
                                                            ---------------   -----------------   ------------------
                                                                                (In thousands)

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

Balance at December 31, 2000                                     66,839               16,787              50,052
    Treasury shares acquired                                          -                1,059              (1,059)
    Treasury shares reissued                                    -                        (38)                 38
    Other                                                             6                    -                   6
                                                            ---------------   -----------------   ------------------

Balance at December 31, 2001                                     66,845               17,808              49,037
    Treasury shares acquired                                          -                1,384              (1,384)
    Treasury shares reissued                                          -                  (37)                 37
                                                            ---------------   -----------------   ------------------
                                                            ---------------   -----------------   ------------------

Balance at December 31, 2002                                     66,845               19,155              47,690
                                                            ===============   =================   ==================
</TABLE>

     Pursuant to its share repurchase  program,  the Company purchased 1,384,000
shares  of its  common  stock at an  aggregate  cost of $21.3  million  in 2002,
1,059,000  shares of its common stock in the open market at an aggregate cost of
$15.5 million in 2001 and  1,682,000  shares of its common stock at an aggregate
cost of $30.9 million in 2000.  Approximately  1,323,000  additional  shares are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.

     In February 2000 the Company  increased the regular  quarterly  dividend to
$.15 per  share and  subsequently  paid  three  quarterly  $.15 per  share  cash
dividends  in the  first  nine  months  of 2000.  In  October  2000 the  Company
increased the regular quarterly dividend to $.20 per share and subsequently paid
a  quarterly  $.20 per share cash  dividend in the fourth  quarter of 2000.  The
Company paid four  quarterly  $.20 per share cash  dividends in each of 2001 and
2002. In December 2002 the Company paid an additional cash dividend of $2.50 per
share (aggregating $119.2 million).  On February 5, 2003, the Company's Board of
Directors   declared  a  regular  quarterly   dividend  of  $.20  per  share  to
shareholders of record as of March 14, 2003 to be paid on March 26, 2003.

Common stock options

     The NL Industries,  Inc. 1998  Long-Term  Incentive Plan ("NL Option Plan")
provides for the discretionary  grant of restricted common stock, stock options,
stock appreciation rights ("SARs") and other incentive  compensation to officers
and other key  employees  of the Company and  non-employee  directors.  Although
certain stock options  granted  pursuant to a similar plan which preceded the NL
Option Plan ("Predecessor Option Plan") remain outstanding at December 31, 2002,
no additional options may be granted under the Predecessor Option Plan.



<PAGE>


     Up to five million shares of NL common stock may be issued  pursuant to the
NL Option Plan and, at December 31, 2002,  3,651,000  shares were  available for
future grants. The NL Option Plan provides for the grant of options that qualify
as  incentive  options and for options  which are not so  qualified.  Generally,
stock options and SARs (collectively, "options") are granted at a price equal to
or greater than 100% of the market price at the date of grant,  vest over a five
year  period  and expire  ten years  from the date of grant.  Restricted  stock,
forfeitable  unless  certain  periods of employment  are  completed,  is held in
escrow in the name of the grantee until the restriction period expires.  No SARs
have been granted under the NL Option Plan.

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

<TABLE>
<CAPTION>
                                                                                                         Weighted
                                                                                                          average
                                                                                 Amount     Weighted       fair
                                                          Exercise price         payable     average       value
                                                             per share            upon      exercise     at grant
                                                      ------------------------
                                            Shares        Low         High      exercise      price        date
                                          ------------------------ ----------- ------------------------ ------------
                                                          (In thousands, except per share amounts)

<S>                                           <C>       <C>         <C>          <C>        <C>               <C>
Outstanding at December 31, 1999              2,437     $   5.00    $   24.19    $ 34,943   $   14.34

    Granted                                     432        14.25        14.44       6,165       14.25   $     4.83
    Exercised                                  (918)        5.00        17.97      (9,508)      10.36
    Forfeited                                  (349)        8.69        24.19      (7,237)      21.03
                                          ------------------------ ----------- ------------------------
                                          ------------------------ ----------- ------------------------

Outstanding at December 31, 2000              1,602         5.00        21.97      24,363       15.21

    Granted                                     484        20.11        20.51       9,737       20.12   $     7.52
    Exercised                                   (38)       11.28        21.97        (627)      16.45
    Forfeited                                   (34)       11.28        20.11        (513)      15.38
                                          ------------------------ ----------- ------------------------
                                          ------------------------ ----------- ------------------------

Outstanding at December 31, 2001              2,014         5.00        21.97      32,960       16.36

    Granted                                      12        13.81        13.81         166       13.81   $     5.71
    Exercised                                  (545)        5.00        15.75      (7,444)      13.65
    Forfeited                                  (220)       11.88        21.97      (3,623)      16.43
                                          ------------------------ ----------- ------------------------
                                          ------------------------ ----------- ------------------------

Outstanding at December 31, 2002              1,261    $    8.69   $    21.97    $ 22,059   $   17.50
                                          ======================== =========== ========================
</TABLE>

     At December 31, 2002,  2001 and 2000 options to purchase  428,400,  658,560
and  363,480  shares,  respectively,  were  exercisable  and options to purchase
372,800 shares become exercisable in 2003. Of the exercisable  options,  options
to purchase  127,000  shares at December 31, 2002 had exercise  prices less than
the  Company's  December  31,  2002  quoted  market  price of $17.00  per share.
Outstanding options at December 31, 2002 expire at various dates through 2011.

     The following table summarizes the Company's stock options  outstanding and
exercisable as of December 31, 2002 by price range.

<TABLE>
<CAPTION>
                               Options outstanding                                       Options exercisable
--------------------------------------------------------------------------------------------------------------------
                                                     Weighted-
                                                      average         Weighted-                        Weighted-
                                    Outstanding      remaining         average       Exercisable        average
            Range of                    at          contractual       exercise           at            exercise
        exercise prices              12/31/02          life             price         12/31/02           price
--------------------------------- -------------------------------- -------------------------------- ----------------

<C>                 <C>                   <C>           <C>        <C>                    <C>       <C>
$    7.26      -    $   9.68              2,000         1.1        $       8.69           2,000     $       8.69
     9.68      -       12.09             72,900         5.5               11.46          47,500            11.56
    12.09      -       14.51            350,100         6.6               13.96          52,500            14.14
    14.51      -       16.93             57,400         5.4               15.34          25,000            15.55
    16.93      -       19.35            168,400         4.6               17.84         141,400            17.81
    19.35      -       21.77            515,000         7.5               20.09          84,000            20.02
    21.77      -       24.19             95,000         5.1               21.97          76,000            21.97
                                  -------------------------------- -------------------------------- ----------------

                                      1,260,800         6.4         $     17.50         428,400      $     17.66
                                  ================================ ================================ ================
</TABLE>



<PAGE>


     The  pro  forma  information  required  by  SFAS  No.  123 is  based  on an
estimation  of the fair value of options  issued  subsequent to January 1, 1995.
See Note 2. The  weighted-average  fair values of options  granted  during 2002,
2001 and 2000 were  $5.71,  $7.52 and $4.83 per  share,  respectively.  The fair
values of employee stock options were calculated using the  Black-Scholes  stock
option  valuation  model with the following  weighted  average  assumptions  for
grants in 2002,  2001 and 2000:  stock price  volatility  of 47%, 46% and 48% in
2002, 2001 and 2000, respectively; risk-free rate of return of 4% in 2002 and 5%
in each of 2001 and 2000;  dividend yield of 5.8% in 2002, 4.0% in 2001 and 4.9%
in 2000; and an expected term of 7 years in 2002 and 9 years in each of 2001 and
2000.  For purposes of pro forma  disclosures,  the estimated  fair value of the
options is amortized to expense over the options' vesting period. See Note 22.

Preferred stock

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

Note 17 - Income taxes:

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


<PAGE>


<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                               -----------------------------------------------------
                                                                    2002               2001              2000
                                                               ----------------   ---------------   ----------------
                                                                                  (In thousands)

Pretax income (loss):
<S>                                                             <C>               <C>                 <C>
    U.S.                                                        $   (17,439)      $      3,267        $    72,520
    Non-U.S.                                                         67,549           154,025             162,551
                                                               ----------------   ---------------   ----------------

                                                                $    50,110        $  157,292          $  235,071
                                                               ================   ===============   ================

Expected tax expense                                            $    17,539       $    55,052         $    82,275
Non-U.S. tax rates                                                   (3,235)           (3,887)             (6,445)
Resolution of German income tax audits                                    -                 -              (5,500)
Change in valuation allowance:
    Corporate restructuring in Germany and other                          -           (23,247)                  -
    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not"
      recognition criteria                                           (3,382)           (1,460)             (2,600)
Incremental tax on income of companies not included in
  the NL Tax Group                                                      548             6,009               1,943
Rate change adjustment of deferred taxes                             (2,332)                -               5,695
U.S. state income taxes                                                (148)              459               1,348
Tax contingency reserve adjustments, other, net                       2,860               985                 252
Other, net                                                              186             1,014               1,058
                                                               ----------------   ---------------   ----------------

    Income tax expense                                          $    12,036       $    34,925         $    78,026
                                                               ================   ===============   ================

Provision for income taxes:
    Current income tax expense (benefit):
        U.S. federal                                           $        (453)     $      1,352       $     (8,649)
        U.S. state                                                      558             1,309                 622
        Non-U.S.                                                     10,425            29,008              45,867
                                                               ----------------   ---------------   ----------------

                                                                     10,530            31,669              37,840
                                                               ----------------   ---------------   ----------------
    Deferred income tax expense (benefit):
        U.S. federal                                                 (3,294)           12,369              32,128
        U.S. state                                                     (752)             (850)                726
        Non-U.S.                                                      5,552            (8,263)              7,332
                                                               ----------------   ---------------   ----------------

                                                                      1,506             3,256              40,186
                                                               ----------------   ---------------   ----------------

                                                                $    12,036       $    34,925         $    78,026
                                                               ================   ===============   ================

Comprehensive provision (benefit) for income taxes allocable to:
    Pretax income                                               $    12,036       $    34,925         $    78,026
    Additional paid-in capital                                         (222)              (69)             (3,224)
    Acquired definite-lived intangible asset                            908                 -                   -
    Other comprehensive income (loss):
        Marketable equity securities                                 (1,318)             (287)              3,244
        Pension liabilities                                          (7,171)           (2,160)                  -
                                                               ----------------   ---------------   ----------------

                                                               $      4,233       $    32,409         $    78,046
                                                               ================   ===============   ================
</TABLE>



<PAGE>


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

<TABLE>
<CAPTION>
                                                                             December 31,
                                                    ----------------------------------------------------------------
                                                                 2002                            2001
                                                    ----------------------------------------------------------------
                                                             Deferred tax                    Deferred tax
                                                    ----------------------------------------------------------------
                                                        Assets        Liabilities       Assets        Liabilities
                                                    --------------- -------------------------------- ---------------
                                                                            (In thousands)

Tax effect of temporary differences relating to:
<S>                                                 <C>              <C>            <C>              <C>
    Inventories                                     $     3,427      $    (3,302)   $     3,202      $     (2,849)
    Property and equipment                               44,255          (59,058)        42,721           (54,084)
    Accrued postretirement benefits cost                 10,594                -         11,398                 -
    Accrued (prepaid) pension cost                        8,486          (24,785)         2,711           (21,224)
    Accrued environmental costs                          32,914                -         35,508                 -
    Noncompete agreement                                    117                -          1,517                 -
    Other accrued liabilities and deductible
      differences                                        16,368                -         18,647                 -
    Other taxable differences                                 -         (137,713)             -          (131,094)
Tax on unremitted earnings of non-U.S.
  subsidiaries                                                -           (4,156)             -            (3,933)
Tax loss and tax credit carryforwards                   163,844                -        118,828                 -
Valuation allowance                                    (185,283)               -       (154,437)                -
                                                    --------------- -------------------------------- ---------------

    Gross deferred tax assets (liabilities)              94,722         (229,014)        80,095          (213,184)

Reclassification, principally netting by
  tax jurisdiction                                      (82,277)          82,277        (68,398)           68,398
                                                    --------------- -------------------------------- ---------------

    Net total deferred tax assets (liabilities)          12,445         (146,737)        11,697          (144,786)
    Net current deferred tax assets (liabilities)        10,511           (3,219)        11,011            (1,530)
                                                    --------------- -------------------------------- ---------------

    Net noncurrent deferred tax assets                                                       686
      (liabilities)                                 $     1,934        $(143,518)   $                  $ (143,256)
                                                    =============== ================================ ===============
</TABLE>


<PAGE>


     Changes in the  Company's  deferred  income  tax  valuation  allowance  are
summarized below.

<TABLE>
<CAPTION>
                                                                              Years ended December 31,
                                                                  --------------------------------------------------
                                                                       2002             2001              2000
                                                                  ---------------   --------------   ---------------
                                                                                   (In thousands)

<S>                                                                  <C>              <C>              <C>
Balance at the beginning of year                                     $ 154,437        $  190,312       $  233,595

    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not"
      recognition criteria                                              (3,382)          (24,707)          (2,600)
    Offset to the change in gross deferred income tax assets
      due principally to redeterminations of certain tax
      attributes and implementation of certain tax planning
      strategies                                                        12,610            (3,681)         (24,955)
    Foreign currency translation                                        21,618            (7,487)         (15,728)
                                                                  ---------------   --------------   ---------------

Balance at the end of year                                           $ 185,283        $  154,437       $  190,312
                                                                  ===============   ==============   ===============
</TABLE>

     A reduction in the German "base"  income tax rate from 30% to 25%,  enacted
in October 2000,  became effective  January 1, 2001. The reduction in the German
income tax rate  resulted  in $5.7  million of  additional  deferred  income tax
expense  in the  fourth  quarter  of 2000 due to a  reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.

     A reduction in the Belgian  income tax rate from 40.17% to 33.99%,  enacted
in December 2002, became effective January 1, 2003. The reduction in the Belgian
income tax rate  resulted in a $2.3  million  decrease  in  deferred  income tax
expense  in the  fourth  quarter  of 2002 due to a  reduction  of the  Company's
deferred   income  tax  liabilities   related  to  certain   Belgian   temporary
differences.

     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 penalties and interest.

     The Company's and EMS' 1998 U.S.  federal  income tax returns are currently
being examined by the U.S. Internal Revenue Service ("IRS"), and the Company and
EMS have each granted extensions of the statute of limitations for assessment of
such returns until September 30, 2003.  Based upon the course of the examination
to date,  the Company  anticipates  that the IRS may propose a  substantial  tax
deficiency.

     The Company has received a notification  from the Norwegian tax authorities
of their intent to assess tax  deficiencies  of  approximately  NOK 12.2 million
($1.7 million at December 31, 2002)  relating to 1998 through 2000.  The Company
has objected to this proposed  assessment in a written response to 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)10.4 million ($10.8 million at December
31, 2002).  The Company has filed protests to the assessments for the years 1991
to 1997.  The Company is in  discussions  with the Belgian tax  authorities  and
believes that a significant portion of the assessments is without merit.

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

     During the fourth quarter of 2001, the Company completed a restructuring of
its German  subsidiaries,  and as a result recognized a $17.6 million net income
tax  benefit.  This  benefit is  comprised  of a $23.2  million  decrease in the
valuation  allowance  due to a change in  estimate of the  Company's  ability to
utilize  certain German income tax attributes  that did not previously  meet the
"more-likely-than-not"   recognition   criteria   offset  by  $5.6   million  of
incremental   U.S.   taxes  on   undistributed   earnings  of  certain   foreign
subsidiaries.

     At December 31, 2002, the Company had the equivalent of approximately  $414
million of income tax loss  carryforwards  in Germany with no  expiration  date.
However,  the Company has provided a deferred tax  valuation  allowance  against
substantially  all of these  income tax loss  carryforwards  because the Company
currently  believes  they do not  meet  the  "more-likely-than-not"  recognition
criteria.  The German  federal  government has proposed  certain  changes to its
income tax law,  including certain changes that would impose  limitations on the
annual  utilization of income tax loss  carryforwards  that, as proposed,  would
become  effective  retroactively  to  January  1, 2003.  Since the  Company  has
provided a deferred income tax asset valuation  allowance against  substantially
all of the  German  tax loss  carryforwards,  any  limitation  on the  Company's
ability to utilize such  carryforwards  resulting from enactment of any of these
proposals  would not have a material impact on the Company's net deferred income
tax liability.  However, if enacted,  the proposed changes could have a material
impact on the Company's ability to make full annual use of its German income tax
loss carryforwards, which would significantly affect the Company's future income
tax expense and future income tax payments.

     At  December  31,  2002,  the  Company  had,  for U.S.  federal  income tax
purposes,  a net operating loss  carryforward of approximately  $45 million,  of
which $3 million  expires in 2019,  $23 million  expires in 2021 and $19 million
expires in 2022 and approximately $7.4 million of alternative minimum tax credit
carryforwards with no expiration date.


Note 18 - Noncompete agreement income :

     The  Company  received  a $20  million  fee as part of the sale of Rheox in
January 1998 in payment for entering into a five-year covenant not to compete in
the rheological  products business.  The Company is amortizing the fee to income
using the  straight-line  method over the five-year  noncompete period beginning
January 30, 1998. The agreement became fully amortized in January 2003 with 2003
income totaling $.3 million.


Note 19 - Litigation settlement gains, net:

     In  June  2000  the  Company  recognized  a $43  million  net  gain  from a
settlement  with one of its two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement  proceeds of $72.6 million were transferred by the carriers to trusts
established to pay future  remediation and other  environmental  expenditures of
the Company.

     A settlement with remaining members of the second carrier group was reached
in January  2001,  and the Company  recognized a $10.3 million gain in the first
quarter of 2001. The gross settlement proceeds of $10.7 million were transferred
by the  carriers  to the above  mentioned  trusts.  In 2002 and 2001 the Company
recognized  $5.2 million and $1.4  million,  respectively,  of other  litigation
settlement gains.

     The settlements  resolved court  proceedings that the Company  initiated to
seek  reimbursement  for legal defense  expenditures and indemnity  coverage for
certain of its  environmental  remediation  expenditures.  No  further  material
settlements relating to litigation concerning environmental remediation coverage
are expected.

Note 20 - 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. The
Sulfate Plant became  approximately 50% operational in September 2001 and became
fully operational in late October 2001. The damages to property and the business
interruption losses caused by the fire were covered by insurance as noted below,
but the effect on the financial  results of the Company on a  quarter-to-quarter
basis was impacted by the timing and amount of insurance recoveries.


     The Company  reached an agreement and settled the coverage claim  involving
the  Leverkusen  fire for $56.4 million during the fourth quarter of 2001 ($46.9
million  received as of December  31,  2001,  with the  remaining  $9.5  million
received  in  January  2002),   of  which  $27.3  million  related  to  business
interruption  and $29.1 million related to property  damage,  clean-up costs and
other extra  expenses.  The Company  recognized a $17.5 million  pre-tax gain in
2001 related to the property  damage  recovery after  deducting $11.6 million of
clean-up  costs and other extra  expenses  incurred  and the  carrying  value of
assets  destroyed in the fire. The gain was excluded from the  determination  of
income from  operations.  The $27.3  million of business  interruption  proceeds
recognized in 2001 were  allocated  between other income,  excluding  corporate,
which reflects recovery of lost margin ($7.2 million) and as a reduction of cost
of sales to offset  unallocated  period costs  ($20.1  million).  No  additional
recoveries related to the Leverkusen fire are expected to be received.


Note 21 - Other items:

     Advertising  costs are  expensed as incurred and were $1 million in each of
2002, 2001 and 2000.

     Research,  development  and  certain  sales  technical  support  costs  are
expensed as incurred and approximated $6 million in each of 2002, 2001 and 2000.

     Interest  capitalized in connection with long-term capital projects was nil
in each of 2002, 2001 and 2000.


     Corporate expense include environmental, legal and other costs attributable
to formerly owned business  units,  as well as certain  administrative  expenses
(primarily legal, finance accounting and tax).


Note 22 - Related party transactions:

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

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

     The  Company  is a party  to  various  intercorporate  services  agreements
("ISA") with various related parties discussed below. Under the ISA's, employees
of one company will provide  certain  management,  tax  planning,  financial and
administrative  services to the other  company on a fee basis.  Such charges are
based upon estimates of the time devoted by the employees of the provider of the
services to the affairs of the recipient,  and the compensation of such persons.
Because of the number of companies affiliated with Contran, the Company believes
it  benefits  from cost  savings  and  economies  of scale  gained by not having
certain  management,  financial  and  administrative  staffs  duplicated at each
entity,  thus  allowing  certain  individuals  to provide  services  to multiple
companies but only be  compensated  by one entity.  These ISA's are reviewed and
approved  by the  Company's  Board of  Directors  including  members who are not
officers or  directors  of any other  entity that may be deemed to be related to
the Company.

     The Company is a party to an intercorporate services agreement with Contran
("Contran  ISA") whereby Contran  provides  certain  management  services to the
Company on a fee  basis.  Intercorporate  services  fee  expense  related to the
Contran ISA was $1.5  million in 2002,  $1.2 million in 2001 and $1.0 million in
2000.

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

     The Company is party to an intercorporate  services  agreement with Tremont
("Tremont ISA").  Under the terms of the contract,  the Company provides certain
management  and  financial  services  to Tremont on a fee basis.  Intercorporate
services fee income  related to the Tremont ISA was $.1 million in each of 2002,
2001 and 2000. See Note 7.

     The Company is party to an intercorporate  services agreement ("TIMET ISA")
with Titanium Metals Corporation ("TIMET"), approximately 39% of the outstanding
common stock of which is currently  held by Tremont at December 31, 2002.  Under
the terms of the contract, the Company provides certain management and financial
services to TIMET on a fee basis.  Intercorporate services fee income related to
the TIMET ISA was $.3  million in 2002,  $.2  million in 2001 and $.4 million in
2000.

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

     Purchases  of TiO2 from LPC were $92.4  million in 2002,  $93.4  million in
2001 and $92.5 million in 2000.

     The Company and Tall Pines  Insurance  Company ("Tall Pines")  (formerly NL
Insurance,  Ltd. of Vermont),  a wholly owned subsidiary of Tremont, are parties
to an Insurance  Sharing  Agreement  with  respect to certain loss  payments and
reserves  established  by Tall Pines that (i) arise out of claims  against other
entities for which the Company is contractually responsible and (ii) are subject
to payment by Tall Pines under certain reinsurance  contracts.  Also, Tall Pines
will credit the Company with respect to certain  underwriting  profits or credit
recoveries that Tall Pines receives from  independent  reinsurers that relate to
retained  liabilities.  At December  31,  2002,  the Company has $1.6 million of
restricted cash that  collateralizes  certain of Tall Pines' outstanding letters
of credit.

     Tall Pines,  Valmont Insurance Company ("Valmont") and EWI RE, Inc. and EWI
RE, Ltd.  (collectively  "EWI")  provide for or broker certain of the Company's,
its joint venture's and its affiliates' insurance policies.  Valmont is a wholly
owned  insurance  company  of Valhi.  An entity  controlled  by one of Harold C.
Simmons'  daughters and Contran owned all of the outstanding common stock of EWI
at December 31, 2001.  On January 7, 2002,  the Company  purchased  EWI for $9.2
million.  See Note 3. Through December 31, 2000,  Harold C. Simmons'  son-in-law
managed the  operations of EWI.  Subsequent to December 31, 2000 and pursuant to
an agreement  that, as amended,  is effective  until  terminated by either party
with 90 days  notice,  such  son-in-law  provides  advisory  services  to EWI as
requested  by EWI,  for which  such  son-in-law  is paid  $11,875  per month and
receives  certain other  benefits  under EWI's benefit  plans.  Consistent  with
insurance industry  practices,  Tall Pines,  Valmont and EWI receive commissions
from the  insurance  and  reinsurance  underwriters  for the policies  that they
provide or broker.  The Company and its joint venture paid  approximately  $11.2
million,  $10.1 million and $5.7 million in 2002,  2001 and 2000,  respectively,
for policies  provided or brokered by Tall Pines,  Valmont and EWI. The premiums
paid by affiliates  (other than the Company and its joint  venture) for policies
provided  or  brokered  by EWI in 2002 was  approximately  $6.5  million.  These
amounts  principally  included  payments for reinsurance and insurance  premiums
paid to unrelated  third  parties,  but also included  commissions  paid to Tall
Pines,  Valmont and EWI. In the Company's opinion,  the amounts that the Company
paid for these insurance  policies and the allocation  among the Company and its
affiliates of relative  insurance  premiums are  reasonable and similar to those
they could have obtained through unrelated  insurance  companies and/or brokers.
The Company expects that these  relationships  with Tall Pines,  Valmont and EWI
will continue in 2003.

     During 2002 the Company and certain  officers of the Company  entered  into
agreements  whereby stock options held by such officers to purchase an aggregate
of 513,800  shares of the Company's  common stock were exercised or canceled for
value.  The officers  tendered  52,179 shares of their own Company common stock,
held by such officers for at least six months, to pay for a portion of the stock
option  exercise  price,  and such shares were valued at the market price of the
Company's common stock on the date of exercise. The remaining aggregate exercise
price was paid by such officers by tendering of a portion of the shares acquired
upon  exercise of the options,  also based on the market price of the  Company's
common stock on the date of exercise. On a net basis, the Company made aggregate
cash  payments  to  the  officers  of  approximately  $2.2  million,   of  which
approximately   $1.7   million  was   recorded  as   compensation   expense  and
approximately $.5 million (equal to the intrinsic value of the options exercised
through the tender of the 52,179  shares) was recorded as a direct  reduction to
equity through  treasury stock.  The aggregate number of treasury shares held by
the  Company  did not  change  as a result  of these  transactions.  Payment  of
required  tax  withholding  related  to these  transactions  were  funded by the
officers using a portion of the cash payments made to them.

     During 2000 the Company and certain  officers and  directors of the Company
entered into agreements  whereby stock options held by such officers to purchase
an aggregate of 755,800 shares of the Company's common stock were exercised. The
officers  and  directors  tendered  298,709  shares of their own Company  common
stock, held by such officers and directors for at least six months, to pay for a
portion of the stock option exercise  price,  and such shares were valued at the
market  price  of the  Company's  common  stock  on the  date of  exercise.  The
remaining  aggregate  exercise  price was paid by such  officers  and  directors
through the  tendering of 39,721  shares  acquired upon exercise of the options,
also  based on the market  price of the  Company's  common  stock on the date of
exercise. In addition,  (i) 139,118 shares acquired upon exercise of the options
were  tendered to the Company to pay required tax  withholding  related to these
transactions,  (ii) 150,501 additional shares held by such officers for at least
six months were sold to the  Company  and (iii)  123,902  shares  acquired  upon
exercise of the options were also sold to the Company,  with such shares  valued
in each case at the market  price of the  Company's  common stock on the date of
exercise.  On a net basis,  the  Company  made  aggregate  cash  payments to the
officers and directors of  approximately  $9.4 million,  of which  approximately
$1.7 million was recorded as compensation expense and approximately $7.7 million
(equal to the sum of (i) the intrinsic  value of the options  exercised  through
the tender of the 298,709 shares and (ii) the market value of the 150,501 shares
sold to the  Company)  was  recorded  as a direct  reduction  to equity  through
treasury stock.  Overall,  these transactions resulted in a net 274,403 increase
in the number of the Company's  treasury  shares and a net 3,844 increase in the
number of the Company's common shares outstanding. See Note 2.

     From time to time, the Company loans funds to related parties.  See Note 8.
These  loans  permit  the  Company  to earn a higher  rate of return on cash not
needed at the time for use in its operations than it could otherwise earn. While
such  loans are of a lesser  credit  quality  than cash  equivalent  instruments
otherwise  available to the Company,  the Company believes that it has evaluated
the credit risks involved,  and that those risks are reasonable and reflected in
the terms of the loans.

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

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                      2002               2001
                                                                                 ----------------   ----------------
                                                                                           (In thousands)
Current receivable from affiliates:


<S>                                                                              <C>                  <C>
    Tremont                                                                      $          -         $     1,000
    Valhi - income taxes                                                                    -               2,194
    TIMET                                                                                  84                 459
    CompX                                                                                  20                  45
    Other                                                                                 103                   -
                                                                                 ----------------   ----------------

                                                                                 $         207        $     3,698
                                                                                 ================   ================
Noncurrent receivable from affiliates (see Note 8):
    Family Trust                                                                  $    18,000          $   20,000
    Tremont                                                                                 -              11,650
                                                                                 ----------------   ----------------

                                                                                  $    18,000          $   31,650
                                                                                 ================   ================

Current payable to affiliates:
    Tremont                                                                      $         181       $        544
    LPC                                                                                 7,614               6,362
    Other                                                                                 232                  13
                                                                                 ----------------   ----------------

                                                                                 $      8,027         $     6,919
                                                                                 ================   ================
</TABLE>

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

Note 23 - Commitments and contingencies:

Leases

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

     Kronos'  principal  German operating  subsidiary  leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with  approximately  one-third  of Kronos'  current  TiO2
production  capacity,  is located  within the lessor's  extensive  manufacturing
complex.  Rent  for the  Leverkusen  facility  is  periodically  established  by
agreement  with the lessor for periods of at least two years at a time.  Under a
separate supplies and services  agreement  expiring in 2011, the lessor provides
some raw  materials,  including  chlorine and certain  amounts of sulfuric acid,
auxiliary and operating  materials and utilities  services  necessary to operate
the Leverkusen facility. Both the lease and the supplies and services agreements
restrict the Company's  ability to transfer  ownership or use of the  Leverkusen
facility.

     Net rent expense  aggregated  $10 million in 2002 and $9 million in each of
2001 and 2000. At December 31, 2002,  minimum rental commitments under the terms
of noncancellable operating leases were as follows:

<TABLE>
<CAPTION>
                                                                                   Real Estate         Equipment
                                                                                 ----------------   ----------------
                                                                                           (In thousands)
Years ending December 31,

         <S>                                                                      <C>                <C>
         2003                                                                     $      2,449       $     2,258
         2004                                                                            2,406             1,658
         2005                                                                            1,982               986
         2006                                                                            1,672               382
             2007                                                                        1,534               174
         2008 and thereafter                                                            18,706               692
                                                                                 ----------------   ----------------

                                                                                  $     28,749       $     6,150
                                                                                 ================   ================
</TABLE>

     Approximately $16.5 million of the $28.7 million real estate minimum rental
commitment is  attributable  to the Leverkusen,  Germany  facility.  The minimum
commitment is  determined by taking the current  annual rental rate in effect at
December 31, 2002 and extending out the annual rate to the year 2050.

Capital expenditures

     At December 31, 2002,  the estimated cost to complete  capital  projects in
process approximated $6 million.

Purchase commitments

     The Company has long-term  supply  contracts that provide for the Company's
chloride feedstock requirements through 2006. The agreements require the Company
purchase  certain  minimum  quantities of feedstock with average  minimum annual
purchase commitments aggregating approximately $156 million.

Legal proceedings

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

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

     The Company  believes  that these  actions are  without  merit,  intends to
continue to deny all  allegations  of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending lead
pigment litigation.  Considering the Company's previous  involvement in the lead
pigment and lead-based  paint  businesses,  the Company  expects that additional
lead pigment and lead-based  paint  litigation,  asserting  similar or different
legal  theories and seeking  similar or different  types of damage and relief to
that described in Item 3. "Legal Proceedings," may be filed.


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


     The  Company's  production   facilities  operate  within  an  environmental
regulatory  framework in which  governmental  authorities  typically are granted
broad  discretionary  powers which allow them to issue  operating  permits under
which the plants must  operate.  The Company  believes  all of its plants are in
substantial  compliance with applicable  environmental laws. With respect to the
Company's  plants,  neither the Company  nor any of its  subsidiaries  have been
notified  of  any  environmental  claim  in the  United  States  or any  foreign
jurisdiction by the U.S. EPA or any applicable  foreign  authority or any state,
provincial or local authority.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory  actions  after the EU. The  Company  believes  it has
obtained all required  permits and is in substantial  compliance with applicable
EU requirements,  including EU Directive 92/112/EEC  regarding  establishment of
procedures for reduction and eventual  elimination of pollution  caused by waste
from the TiO2 industry.

     At all of the Company's  sulfate plant facilities  other than  Fredrikstad,
Norway,  the Company  recycles  spent acid either  through  contracts with third
parties or using the Company's own facilities. At its Fredrikstad, Norway plant,
the Company ships its spent acid to a third party  location  where it is treated
and  disposed.  The Company has a contract  with a third party to treat  certain
by-products of its German sulfate-process plants. Either party may terminate the
contract  after giving four years advance  notice with regard to its  Nordenham,
Germany plant.  Under certain  circumstances,  Kronos may terminate the contract
after giving six months notice with respect to treatment of by-products from the
Leverkusen, Germany plant.

     The  Company  landfills  waste  generated  at its  Nordenham,  Germany  and
Langerbrugge,  Belgium  plants and mine tailings  waste  generated at its mining
facility in Norway. The Company maintains  reserves,  as required under GAAP, to
cover  the  anticipated  cost  of  closure  of  these   landfills,   which  were
approximately  $.1 million  and $.5  million as of  December  31, 2001 and 2002,
respectively.

     The Company is responsible  for certain closure costs at landfills used and
formerly used by its Leverkusen,  Germany TiO2 plants. The Company has a reserve
of  approximately  $5 million  and $6 million  related to such  landfills  as of
December 31, 2001 and 2002, respectively.


     Some of the  Company's  current and former  facilities,  including  several
divested secondary lead smelters and former mining locations, are the subject of
civil litigation,  administrative  proceedings or  investigations  arising under
federal and state  environmental  laws.  Additionally,  in connection  with past
disposal  practices,  the  Company  has  been  named as a  defendant,  potential
responsible party ("PRP") or both,  pursuant to the Comprehensive  Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and  Reauthorization  Act ("CERCLA") and similar state laws in  approximately 70
governmental  and private actions  associated with waste disposal sites,  mining
locations, and facilities currently or previously owned, operated or used by the
Company or its subsidiaries, or their predecessors,  certain of which are on the
U.S.  Environmental  Protection  Agency's Superfund National  Priorities List or
similar state lists. These proceedings seek cleanup costs,  damages for personal
injury or  property  damage  and/or  damages  for injury to  natural  resources.
Certain of these proceedings  involve claims for substantial  amounts.  Although
the Company may be jointly and severally liable for such costs, in most cases it
is only one of a number of PRPs who may also be jointly and severally liable.

     At  December  31,  2002,  the  Company  had  accrued  $98 million for those
environmental  matters  which are  reasonably  estimable.  It is not possible to
estimate  the range of costs for  certain  sites.  The upper end of the range of
reasonably  possible  costs to the  Company  for sites  which it is  possible to
estimate costs is approximately  $140 million.  The Company's  estimates of such
liabilities  have not been discounted to present value,  and the Company has not
recognized any potential insurance recoveries other than the settlements in 2001
and 2000 discussed in Note 19.

     The exact time frame over which the Company makes  payments with respect to
its accrued  environmental  costs is unknown and is dependent upon,  among other
things,  the timing of the actual  remediation  process which in part depends on
factors  outside the control of the  Company.  At each balance  sheet date,  the
Company makes an estimate of the amount of its accrued environmental costs which
will be paid out over the subsequent 12 months,  and the Company classifies such
amount as a current liability.  The remainder of the accrued environmental costs
are classified as a noncurrent liability.

     At  December  31,  2002,  there  are  approximately  15 sites for which the
Company is unable to estimate a range of costs.  For these sites,  generally the
investigation is in the early stages,  and it is either unknown as to whether or
not the Company  actually had any  association  with the site, or if the Company
had association with the site, the nature of its responsibility, if any, for the
contamination  at the site and the extent of  contamination.  The timing on when
information  would  become  available  to the  Company  to allow the  Company to
estimate a range of loss is unknown and dependent on events  outside the control
of the Company,  such as when the party alleging liability provides  information
to the COmpany.


     The  imposition  of  more  stringent   standards  or   requirements   under
environmental  laws or regulations,  new developments or changes respecting site
cleanup costs or allocation of such costs among PRPs, solvency of other 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.  In
addition,  with  respect  to other  PRPs and the fact  that the  Company  may be
jointly and severally  liable for the total  remediation  cost at certain sites,
the Company could ultimately be liable for amounts in excess of its accruals due
to, among other things,  reallocation  of costs among PRPs or the  insolvency of
one of more PRPs.  No  assurance  can be given that actual costs will not exceed
accrued amounts or the upper end of the range for sites for which estimates have
been made and no  assurance  can be given that costs will not be  incurred  with
respect to sites as to which no estimate presently can be made.  Further,  there
can be no assurance that additional  environmental matters will not arise in the
future.

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

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

     The Company  currently  believes the disposition of all claims and disputes
individually or in the aggregate,  should not have a material  adverse effect on
the  Company's  consolidated  financial  condition,  results  of  operations  or
liquidity. See Item 3. "Legal Proceedings."

Concentrations of credit risk

     Sales of TiO2  accounted  for more  than 90% of net sales  from  continuing
operations  during each of the past three years. The remaining sales result from
the mining and sale of ilmenite ore (a raw material used in the sulfate  pigment
production process),  and the manufacture and sale of iron-based water treatment
chemicals (derived from co-products of the TiO2 production  processes).  TiO2 is
generally  sold to the paint,  plastics and paper  industries.  Such markets are
generally  considered   "quality-of-life"  markets  whose  demand  for  TiO2  is
influenced  by  the  relative  economic  well-being  of the  various  geographic
regions.  TiO2 is  sold to over  4,000  customers,  with  the top ten  customers
approximating  25% of net sales in each of the last three  years.  Approximately
one-half  of the  Company's  TiO2 sales by volume  were to Europe in each of the
past three years and  approximately  39% in 2002, 38% in 2001 and 37% in 2000 of
sales were attributable to North America.

     Consolidated cash, cash equivalents, current and noncurrent restricted cash
equivalents  includes  $80 million and $121  million  invested in U.S.  Treasury
securities purchased under short-term  agreements to resell at December 31, 2002
and 2001, respectively,  of which $24 million and $62 million,  respectively, of
such securities are held in trust for the Company by a single U.S. bank.

Note 24 - Financial instruments:

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

<TABLE>
<CAPTION>
                                                                     December 31,                December 31,
                                                                         2002                        2001
                                                              ---------------------------  -------------------------
                                                                Carrying        Fair        Carrying       Fair
                                                                 Amount        Value         Amount        Value
                                                              ------------- -------------  ------------ ------------
                                                                                  (In millions)
Cash, cash equivalents, current and noncurrent
  restricted cash equivalents and current and
<S>                                                            <C>           <C>            <C>          <C>
  noncurrent restricted marketable debt securities             $    130.4    $    130.4     $   199.0    $   199.0
Marketable equity securities - classified as
  available-for-sale                                                 40.9          40.9          45.2         45.2

Notes payable and long-term debt: Fixed rate with market quotes:
        8.875% Senior Secured Notes                            $    296.9    $    299.9    $        -   $        -
        11.75% Senior Secured Notes                                   -             -           194.0        194.9
    Variable rate debt                                               29.0          29.0          48.7         48.7

Common shareholders' equity                                    $    265.3    $    810.7     $   386.9    $   748.8
</TABLE>

     Fair  value  of the  Company's  marketable  equity  securities,  restricted
marketable debt securities, Notes and 11.75% Senior Secured Notes are based upon
quoted market prices and the fair value of the  Company's  common  shareholder's
equity is based upon quoted  market  prices for NL's common  stock at the end of
the year. The Company held no derivative  financial  instruments at December 31,
2002 or 2001.

Note 25 - Quarterly financial data (unaudited):

<TABLE>
<CAPTION>
                                                                           Quarter ended
                                                 -------------------------------------------------------------------
                                                    March 31          June 30        Sept. 30          Dec. 31
                                                 ---------------- -------------------------------- -----------------
                                                              (In thousands, except per share amounts)
Year ended December 31, 2002:

<S>                                                <C>              <C>             <C>              <C>
    Net sales                                      $  202,357       $   226,909     $   234,061      $   211,861
    Cost of sales                                     156,253           176,247         177,521          161,809

    Net income                                          6,384            14,048(a)        8,782            7,596

    Net income per share:
                                                            .13   $
        Basic                                    $                          .29(a)$           .18  $            .16
                                                 ================ ================================ =================
        Diluted                                  $          .13   $               $           .18  $            .16
                                                                            .29(a)
                                                 ================ ================================ =================

    Weighted average common shares and potential common shares outstanding:
        Basic                                          48,870            48,827          48,623           47,812
        Diluted                                        48,938            48,953          48,681           47,887

Year ended December 31, 2001:

    Net sales                                      $  226,060          $220,105        $206,952       $  181,982
    Cost of sales                                     149,902           151,320         145,945          130,893

    Net income                                   34,55934,559            25,424          20,538           40,886(b)

    Net income per share:
                                                            .69                                    $
        Basic                                    $                $           .51 $           .41               .83(b)
                                                 ================ ================================ =================
        Diluted                                  $          .69   $           .51 $           .41  $
                                                                                                                .83(b)
                                                 ================ ================================ =================
    Weighted average common shares and potential common shares outstanding:
        Basic                                          50,079            49,932          49,621           49,304
                                                 ================ ================================ =================
        Diluted                                        50,349            50,027          49,705           49,339
                                                 ================ ================================ =================
</TABLE>


     The sum of the  quarterly  per share  amounts  may not equal the annual per
share amounts due to relative  changes in the weighted  average number of shares
used in the per share computations.

(a)  Net income in the  second  quarter  of 2002  included  a  one-time  foreign
     currency  transaction gain of $6.3 million related to the extinguishment of
     certain intercompany  indebtedness.  Net income in second quarter 2002 also
     included $2.0 million pretax of additional  interest expense related to the
     early extinguishment of the Company's 11.75% Senior Secured Notes.

(b)  Net income in the fourth  quarter of 2001 included  $16.6 million of pretax
     insurance  recoveries  for  business  interruption  related  to prior  2001
     quarters due to the  Leverkusen  fire.  Net income in the fourth quarter of
     2001 also included  $11.6 million net of pretax  insurance  recoveries  for
     property  damage  related to the  Leverkusen  fire and a $17.6  million net
     income tax  benefit  related to a  restructuring  of the  Company's  German
     subsidiaries.



<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES


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

     Our audits of the  consolidated  financial  statements  referred  to in our
report dated  February 12, 2003  appearing on page F-2 in the 2002 Annual Report
to  Shareholders  on  Form  10-K  of  NL  Industries,  Inc.  (which  report  and
consolidated  financial  statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item 15(a) and (d) of this Form 10-K. In our opinion,  these financial
statement  schedules present fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.




                                              PricewaterhouseCoopers LLP

Houston, Texas
February 12, 2003


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES
            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            Condensed Balance Sheets
                           December 31, 2002 and 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                   2002                 2001
                                                                             ------------------   ------------------
                                   ASSETS
Current assets:
<S>                                                                          <C>                  <C>
    Cash and cash equivalents                                                $        1,034       $        10,413
    Restricted cash equivalents                                                      50,798                63,257
    Restricted marketable debt securities                                             9,670                 3,583
    Accounts and other receivable                                                     2,476                 1,621
    Receivable from subsidiaries                                                      1,467                 8,106
    Prepaid expenses                                                                  1,055                   551
    Deferred income taxes                                                             6,107                 6,371
                                                                             ------------------   ------------------

        Total current assets                                                         72,607                93,902
                                                                             ------------------   ------------------

Other assets:
    Marketable equity securities                                                     31,056                   216
    Notes receivable from subsidiary                                                      -               194,000
    Investment in subsidiaries                                                      329,460             1,072,551
    Restricted marketable debt securities                                             6,740                16,121
    Prepaid pension cost                                                                  -                 2,368
    Other                                                                             2,327                 1,318
                                                                             ------------------   ------------------

        Total other assets                                                          369,583             1,286,574
                                                                             ------------------   ------------------

Property and equipment, net                                                           3,033                 3,725
                                                                             ------------------   ------------------

                                                                               $    445,223         $   1,384,201
                                                                             ==================   ==================
                    LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities                                  $      17,344       $        23,544
    Payable to affiliates                                                             1,656                 1,083
    Accrued environmental costs                                                      11,904                10,529
    Income taxes                                                                        325                    96
                                                                             ------------------   ------------------

        Total current liabilities                                                    31,229                35,252
                                                                             ------------------   ------------------

Noncurrent liabilities:
    Long-term debt                                                                        -               194,000
    Notes payable to affiliates                                                      44,600               655,918
    Deferred income taxes                                                            64,509                78,708
    Accrued environmental costs                                                       7,989                 7,489
    Accrued pension cost                                                             10,659                 1,427
    Accrued postretirement benefits cost                                             14,671                16,806
    Other                                                                             6,239                 7,658
                                                                             ------------------   ------------------

        Total noncurrent liabilities                                                148,667               962,006
                                                                             ------------------   ------------------

Shareholders' equity                                                                265,327               386,943
                                                                             ------------------   ------------------

                                                                               $    445,223         $   1,384,201
                                                                             ==================   ==================
</TABLE>
Contingencies (Note 5)


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

      SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                         Condensed Statements of Income

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                       2002             2001             2000
                                                                 ---------------------------------- ----------------

Revenues and other income:
    Equity in income from continuing operations of
<S>                                                                <C>               <C>               <C>
      subsidiaries                                                 $    68,911       $  154,410        $  173,620
    Interest and dividends                                               2,494            4,354             2,961
    Interest income from subsidiaries                                   12,165           22,969            28,637
    Securities transactions, net                                          (105)          (1,133)            8,356
    Litigation settlement gains, net                                     5,225           11,730            69,465
    Other income, net                                                    4,081            4,597             4,239
                                                                 ---------------------------------- ----------------

                                                                        92,771          196,927           287,278
                                                                 ---------------------------------- ----------------
Costs and expenses:
    General and administrative                                          35,431           13,831            25,381
    Interest                                                            34,217           58,263            53,827
                                                                 ---------------------------------- ----------------

                                                                        69,648           72,094            79,208
                                                                 ---------------------------------- ----------------

        Income before income taxes                                      23,123          124,833           208,070

Income tax expense (benefit)                                           (13,687)           3,426            53,461
                                                                 ---------------------------------- ----------------

        Net income                                                 $    36,810       $  121,407        $  154,609
                                                                 ================================== ================
</TABLE>



<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

      SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                       2002             2001             2000
                                                                  ---------------- ---------------- ----------------

Cash flows from operating activities:
<S>                                                                 <C>              <C>               <C>
    Net income                                                      $    36,810      $  121,407        $  154,609
    Equity in income of subsidiaries                                    (68,911)       (154,410)         (173,620)
    Distributions from Kronos                                           111,000          30,500            55,000
    Noncash interest expense (income), net                               15,704          (3,113)             (932)
    Deferred income taxes                                                (9,119)          7,498            71,837
    Securities gains, net                                                   105           1,133            (8,356)
    Litigation settlement gains, net                                          -         (10,307)          (69,465)
    Other, net                                                           (1,899)          1,824            (4,399)
                                                                  ---------------- ---------------- ----------------

                                                                         83,690         ( 5,468)           24,674

    Change in assets and liabilities, net                                 4,480           1,563           (12,356)
                                                                  ---------------- ---------------- ----------------

        Net cash provided (used) by operating activities                 88,170          (3,905)           12,318
                                                                  ---------------- ---------------- ----------------

Cash flows from investing activities:
    Change in restricted cash equivalents and restricted
      marketable debt securities, net                                    16,622          18,539             4,480
    Capital expenditures                                                     (2)            (13)              (23)
    Purchase of Tremont Corporation common stock                              -               -           (26,040)
    Repayment of loans to affiliates                                    194,000               -            50,000
    Investments in subsidiaries                                               -               -               (80)
    Proceeds from disposition of marketable equity securities                 -               4               158
    Other, net                                                                9              20                29
                                                                  ---------------- ---------------- ----------------

        Net cash provided by investing activities                       210,629          18,550            28,524
                                                                  ---------------- ---------------- ----------------
</TABLE>


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

      SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                 Condensed Statements of Cash Flows (Continued)

                  Years ended December 31, 2002, 2001 and 2000

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                          2002            2001            2000
                                                                     --------------- --------------- ---------------

Cash flows from financing activities:
<S>                                                                    <C>           <C>             <C>
    Dividends                                                          $  (157,978)  $   (39,758)    $   (32,686)
    Treasury stock:
        Purchased                                                          (21,254)      (15,502)        (30,886)
        Reissued                                                               454           718           2,091
    Indebtedness - principal payments                                     (194,000)            -         (50,000)
    Loans from affiliates                                                   64,600        46,678          60,856
                                                                     --------------- --------------- ---------------

        Net cash used by financing activities                             (308,178)       (7,864)        (50,625)
                                                                     --------------- --------------- ---------------

    Net change from operating, investing and financing activities           (9,379)        6,781          (9,783)
    Balance at beginning of year                                            10,413         3,632          13,415
                                                                     --------------- --------------- ---------------

    Balance at end of year                                           $       1,034   $    10,413     $      3,632
                                                                     =============== =============== ===============
</TABLE>



<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                    Notes to Condensed Financial Information

Note 1 - Basis of presentation:

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

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

<TABLE>
<CAPTION>
                                                                                          December 31,
                                                                             ---------------------------------------
                                                                                   2002                 2001
                                                                             ------------------   ------------------
                                                                                         (In thousands)

Current:
    Receivable from:
        Kronos:
<S>                                                                             <C>               <C>
            Income taxes                                                        $         -       $            64
            Other, net                                                                  417                 4,943
        Valhi - income taxes                                                              -                 2,194
        EWI - income taxes                                                              350                     -
        153506 Canada                                                                   392                   392
        TIMET                                                                            84                   459
        CompX                                                                            20                    45
        Other                                                                           204                     9
                                                                             ------------------   ------------------

                                                                             $        1,467        $        8,106
                                                                             ==================   ==================
    Payable to:
                                                                                        (978)     $
        Kronos - income taxes                                                $                                  -
        Tremont                                                                        (281)                 (553)
        EMS                                                                             (79)                  (74)
        Other                                                                          (318)                 (456)
                                                                             ------------------   ------------------

                                                                             $       (1,656)       $       (1,083)
                                                                             ==================   ==================
Noncurrent:

    Notes receivable from Kronos                                             $            -          $    194,000
                                                                             ==================   ==================

    Notes payable to Kronos                                                   $     (44,600)         $   (655,918)
                                                                             ==================   ==================
</TABLE>

     During   2002  the  Company   completed   certain   capital   restructuring
transactions  whereby Kronos  distributed to the Company certain affiliate notes
receivable,  net  and the  Company  recorded  a  corresponding  decrease  in its
investment in Kronos. See Note 3.

Note 3 - Investment in subsidiaries:

<TABLE>
<CAPTION>
                                                                                            December 31,
                                                                                 -----------------------------------
                                                                                      2002               2001
                                                                                 ----------------   ----------------
                                                                                           (In thousands)

Investment in:
<S>                                                                                <C>                 <C>
    Kronos                                                                         $  313,479          $1,033,762
    Other                                                                              15,981              38,789
                                                                                 ----------------   ----------------

                                                                                   $  329,460          $1,072,551
                                                                                 ================   ================
</TABLE>

<TABLE>
<CAPTION>
                                                                                Years ended December 31,
                                                                     -----------------------------------------------
                                                                          2002            2001            2000
                                                                     --------------- --------------- ---------------
                                                                                     (In thousands)

Equity in income from continuing operations of subsidiaries:
<S>                                                                   <C>              <C>              <C>
    Kronos                                                            $     66,264     $ 150,742        $131,475
    Other                                                                    2,647         3,668          42,145
                                                                     --------------- --------------- ---------------

                                                                      $     68,911     $ 154,410        $173,620
                                                                     =============== =============== ===============
</TABLE>




<PAGE>


Note 4 - Long-term debt:

     The Company's  $194 million of 11.75% Senior  Secured Notes at December 31,
2001 were redeemed at par value in 2002.

Note 5 - Contingencies:

     See Legal proceedings in Note 23 to the Consolidated Financial Statements.


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In thousands)

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

Year ended December 31, 2002:
<S>                                                                <C>          <C>    <C>            <C>         <C>
    Allowance for doubtful accounts and other receivable           $ 2,358      $481   $   (533)(a)   $    299    $ 2,605
                                                                   =======      ====   ========       ========    =======

    Amortization of intangibles .......................            $  --        $372   $   --             --      $   372
                                                                   =======      ====   ========       ========    =======

Year ended December 31, 2001:
    Allowance for doubtful accounts and other receivable           $            $485   $   (245)(a)   $   (104)   $ 2,358
                                                                   =======      ====   ========       ========    =======

    Amortization of intangibles ........................           $  --        $--    $   --         $   --      $  --
                                                                   =======      ====   ========       ========    =======

Year ended December 31, 2000:
    Allowance for doubtful accounts and other receivable           $ 2,075      $342   $    (67)(a)   $   (128)   $ 2,222
                                                                   =======      ====   ========       ========    =======

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


(a)  Amounts written off, less recoveries.

Certain prior-year amounts have been reclassified to conform to the current year
presentation. Certain information has been omitted because it is included in the
Notes to the Consolidated Financial Statements.