SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


X    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 - For the quarterly period ended September 30, 2003

                                       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:        (972)  233-1700
                                                           -------------------

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

Number of shares of common stock outstanding on October 31, 2003:   47,764,084

<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                                      INDEX




                                                                         Page
PART I.                  FINANCIAL INFORMATION

  Item 1.  Financial Statements.

           Consolidated Balance Sheets - September 30, 2003
            and December 31, 2002                                         3

           Consolidated Statements of Income - Three months and
            nine months ended September 30, 2003 and 2002                 5

           Consolidated Statements of Comprehensive Income
            - Three months and nine months ended
            September 30, 2003 and 2002                                  6

           Consolidated Statement of Shareholders' Equity
            - Nine months ended September 30, 2003                       7

           Consolidated Statements of Cash Flows - Nine
            months ended September 30, 2003 and 2002                     8

           Notes to Consolidated Financial Statements                   10

  Item 2.  Management's Discussion and Analysis of Financial
            Condition and Results of Operations                         22


  Item 4.  Controls and Procedures                                      32


PART II.   OTHER INFORMATION

  Item 1.  Legal Proceedings                                            34

  Item 6.  Exhibits and Reports on Form 8-K                             35


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)


<TABLE>
<CAPTION>
                                                        September 30, December 31,
              ASSETS                                        2003          2002
                                                        ------------- ------------

Current assets:
<S>                                                      <C>          <C>
    Cash and cash equivalents ........................   $   59,656   $   58,091
    Restricted cash equivalents ......................       22,058       52,089
    Restricted marketable debt securities ............        8,212        9,670
    Accounts and other receivables ...................      176,010      136,858
    Receivable from affiliates .......................        1,012          207
    Refundable income taxes ..........................          591        1,782
    Inventories ......................................      203,321      209,882
    Prepaid expenses .................................        7,882        7,207
    Deferred income taxes ............................       10,543       10,511
                                                         ----------   ----------

        Total current assets .........................      489,285      486,297
                                                         ----------   ----------

Other assets:
    Marketable equity securities .....................       53,095       40,901
    Receivable from affiliate ........................       16,000       18,000
    Investment in TiO2 manufacturing joint venture ...      127,834      130,009
    Prepaid pension cost .............................       17,249       17,572
    Restricted marketable debt securities ............        3,565        9,232
    Other ............................................       26,738       30,671
                                                         ----------   ----------

        Total other assets ...........................      244,481      246,385
                                                         ----------   ----------

Property and equipment:
    Land .............................................       30,944       29,072
    Buildings ........................................      164,817      150,406
    Machinery and equipment ..........................      702,053      640,297
    Mining properties ................................       84,381       84,778
    Construction in progress .........................       19,210        8,702
                                                         ----------   ----------
                                                          1,001,405      913,255
    Less accumulated depreciation and depletion ......      596,266      534,436
                                                         ----------   ----------

        Net property and equipment ...................      405,139      378,819
                                                         ----------   ----------

                                                         $1,138,905   $1,111,501
                                                         ==========   ==========
</TABLE>


<PAGE>



          See accompanying notes to consolidated financial statements.


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>
<CAPTION>
    LIABILITIES AND SHAREHOLDERS' EQUITY            September 30,   December 31,
                                                        2003            2002
                                                    -------------   ------------

Current liabilities:
<S>                                                 <C>             <C>
    Current maturities of long-term debt .......    $       476     $     1,298
    Accounts payable and accrued liabilities ...        147,510         167,574
    Payable to affiliates ......................          8,649           8,027
    Accrued environmental costs ................         22,867          51,307
    Income taxes ...............................          8,536           6,624
    Deferred income taxes ......................          1,684           3,219
                                                    -----------     -----------

        Total current liabilities ..............        189,722         238,049
                                                    -----------     -----------


Noncurrent liabilities:
    Long-term debt .............................        327,275         324,608
    Deferred income taxes ......................        152,118         143,518
    Accrued environmental costs ................         64,990          47,189
    Accrued pension cost .......................         43,194          43,757
    Accrued postretirement benefits cost .......         23,916          26,477
    Other ......................................         14,226          14,060
                                                    -----------     -----------

        Total noncurrent liabilities ...........        625,719         599,609
                                                    -----------     -----------


Minority interest ..............................          8,719           8,516
                                                    -----------     -----------


Shareholders' equity:
    Common stock ...............................          8,355           8,355
    Additional paid-in capital .................        777,819         777,819
    Retained earnings ..........................        127,779         101,554
    Accumulated other comprehensive loss .......       (163,729)       (186,221)
    Treasury stock .............................       (435,479)       (436,180)
                                                    -----------     -----------

        Total shareholders' equity .............        314,745         265,327
                                                    -----------     -----------

                                                    $ 1,138,905     $ 1,111,501
                                                    ===========     ===========
</TABLE>

Commitments and contingencies (Notes 11 and 13)


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

<TABLE>
<CAPTION>
                                                Three months ended          Nine months ended
                                                   September 30,               September 30,
                                               ----------------------    ----------------------
                                                 2003         2002          2003        2002
                                               ---------    ---------    ----------   ---------

<S>                                            <C>          <C>          <C>          <C>
Net sales ..................................   $ 242,931    $ 234,061    $ 762,535    $ 663,327
Cost of sales ..............................     177,432      177,521      563,498      510,021
                                               ---------    ---------    ---------    ---------

    Gross margin ...........................      65,499       56,540      199,037      153,306

Selling, general and administrative expense       29,705       28,479       90,059       78,105
Other operating income (expense):
    Currency transaction gains (losses), net        (458)         648       (4,299)        (803)
    Disposition of property and equipment ..       7,205         (146)       8,260          451
    Noncompete agreement income ............        --          1,000          333        3,000
    Legal settlement gains .................        --              5          650        2,360
    Corporate expense ......................      (9,721)     (10,664)     (48,238)     (28,272)
    Other income ...........................         152          321          415          464
    Other expense ..........................         (24)          (8)         (76)        (125)
                                               ---------    ---------    ---------    ---------

        Income from operations .............      32,948       19,217       66,023       52,276

Other income (expense):
    Trade interest income ..................         200          757          561        1,312
    Other interest income ..................         786        1,799        2,572        4,359
    Securities gains (losses), net .........         (54)         (47)       2,398          (59)
    Foreign currency transaction gain ......        --           --           --          6,271
    Interest expense .......................      (8,338)      (7,554)     (24,690)     (22,167)
                                               ---------    ---------    ---------    ---------

        Income before income taxes and
          minority interest ................      25,542       14,172       46,864       41,992

Income tax expense (benefit) ...............       8,939        4,677       (8,162)      11,695
Minority interest ..........................          18          713          176        1,083
                                               ---------    ---------    ---------    ---------

        Net income .........................   $  16,585    $   8,782    $  54,850    $  29,214
                                               =========    =========    =========    =========

Basic and diluted net income per share .....   $     .35    $     .18    $    1.15    $     .60
                                               =========    =========    =========    =========

Weighted-average shares used in the
 calculation of net income per share:
  Basic ....................................      47,717       48,623       47,702       48,772
  Dilutive impact of stock options .........          61           58           57           85
                                               ---------    ---------    ---------    ---------

  Diluted ..................................      47,778       48,681       47,759       48,857
                                               =========    =========    =========    =========
</TABLE>







<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                 (In thousands)


<TABLE>
<CAPTION>
                                                Three months ended       Nine months ended
                                                   September 30,            September 30,
                                               ----------------------  ----------------------
                                                 2003         2002          2003        2002
                                               ---------    ---------  ----------   ---------

<S>                                              <C>         <C>        <C>         <C>
Net income ...................................   $ 16,585    $ 8,782    $ 54,850    $29,214
                                                 --------    -------    --------    -------

Other comprehensive income (loss), net of tax:
    Marketable securities adjustment:
        Unrealized holding (loss) gain arising
          during the period ..................      5,548     (2,890)      8,217        239
        Less reclassification adjustment for
          realized gain included in net income       --         --        (1,474)      --
                                                 --------    -------    --------    -------

                                                    5,548     (2,890)      6,743        239

    Currency translation adjustment ..........      3,181     (4,601)     15,749     31,755
                                                 --------    -------    --------    -------

        Total other comprehensive
          income (loss) ......................      8,729     (7,491)     22,492     31,994
                                                 --------    -------    --------    -------

            Comprehensive income .............   $ 25,314    $ 1,291    $ 77,342    $61,208
                                                 ========    =======    ========    =======
</TABLE>





<PAGE>



          See accompanying notes to consolidated financial statements.


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                      Nine months ended September 30, 2003

                                 (In thousands)


<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, 2002  $   8,355   $ 777,819   $    101,554  $  (170,670)  $ (21,447)  $  5,896    $  (436,180) $  265,327

Net income                          -          -            54,850         -           -           -             -         54,850
Other comprehensive income,
 net of tax                         -          -              -          15,749        -         6,743           -         22,492
Dividends                           -          -           (28,625)        -           -           -             -       (28,625)

Treasury stock - reissued           -          -              -            -           -           -              701         701
                              ---------   ---------   ------------  -----------   ---------   --------    -----------  ----------

Balance at September 30, 2003 $   8,355   $ 777,819   $    127,779  $  (154,921)  $ (21,447)  $ 12,639    $  (435,479) $  314,745
                              =========   =========   ============  ===========   =========   ========    ===========  ==========
</TABLE>




<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Nine months ended September 30, 2003 and 2002

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                2003          2002
                                                              --------    ---------

Cash flows from operating activities:
<S>                                                           <C>         <C>
    Net income ............................................   $ 54,850    $ 29,214
    Depreciation and amortization .........................     29,671      24,590
    Deferred income taxes .................................      1,795       3,549
    Distributions from TiO2 manufacturing joint
      venture, net ........................................      2,175       6,350
    Net (gains) losses from:
      Securities transactions .............................     (2,398)         59
      Disposition of property and equipment ...............     (8,260)       (451)
    Other, net ............................................     (5,227)     (3,895)
    Change in assets and liabilities:
        Accounts and other receivables ....................    (31,216)    (33,767)
        Insurance receivable ..............................      2,505      11,218
        Inventories .......................................     22,993      72,532
        Prepaid expenses ..................................       (340)     (5,208)
        Accounts payable and accrued liabilities ..........    (30,461)    (49,584)
        Income taxes ......................................      3,161         377
        Accrued environmental costs .......................     28,193       8,255
        Other, net ........................................        405       4,870
                                                              --------    --------

            Net cash provided by operating activities .....     67,846      68,109
                                                              --------    --------

Cash flows from investing activities:
    Capital expenditures ..................................    (23,819)    (18,070)
    Collection of loans to affiliates .....................      2,000         750
    Acquisition of business ...............................       --        (9,149)
    Change in restricted cash equivalents .................      1,053         821
    Proceeds from the disposition of property and equipment     10,638         848
                                                              --------    --------

            Net cash used by investing activities .........    (10,128)    (24,800)
                                                              --------    --------
</TABLE>


<PAGE>



          See accompanying notes to consolidated financial statements.


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Nine months ended September 30, 2003 and 2002

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                  2003        2002
                                                               ----------  ----------

Cash flows from financing activities:
<S>                                                            <C>         <C>
    Dividends paid .........................................   $(28,625)   $ (29,214)
    Treasury stock:
        Purchased ..........................................       --        (10,559)
        Reissued ...........................................        701          354
    Indebtedness:
        Borrowings .........................................     16,106      330,800
        Principal payments .................................    (45,868)    (271,939)
        Deferred financing costs ...........................       --        (10,590)
    Other, net .............................................        (14)         (11)
                                                               --------    ---------

            Net cash (used) provided by financing activities    (57,700)       8,841
                                                               --------    ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ......         18       52,150
        Currency translation ...............................      1,547        2,455
        Acquisition of business ............................       --            196
                                                               --------    ---------
                                                                  1,565       54,801

    Balance at beginning of period .........................     58,091      116,037
                                                               --------    ---------

    Balance at end of period ...............................   $ 59,656    $ 170,838
                                                               ========    =========

Supplemental disclosures - cash paid (received) for:
    Interest ...............................................   $ 15,120    $  19,354
    Income taxes, net ......................................    (12,127)       7,837

    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.
("Kronos"),  formerly known as Kronos,  Inc. At September 30, 2003,  Valhi, Inc.
("Valhi") and its subsidiaries held approximately 84% of NL's outstanding common
stock,  and  Contran   Corporation   ("Contran")  and  its   subsidiaries   held
approximately  90% of Valhi'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 and Chief  Executive
Officer  of NL and  Kronos,  as well as the  Chairman  of the  Board  of each of
Contran and Valhi, may be deemed to control each of such companies.  See Notes 5
and 6.

     The  consolidated  balance sheet of NL  Industries,  Inc. and  subsidiaries
(collectively,  the  "Company") at December 31, 2002 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated balance sheet at September 30, 2003 and the consolidated statements
of income,  comprehensive  income,  shareholders'  equity and cash flows for the
interim  periods  ended  September  30, 2003 and 2002 have been  prepared by the
Company without audit. In the opinion of management all adjustments,  consisting
only  of  normal  recurring   adjustments,   necessary  to  present  fairly  the
consolidated financial position,  results of operations and cash flows have been
made.  The results of  operations  for the interim  periods are not  necessarily
indicative of the operating results for a full year or of future operations.

     Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting  principles generally accepted
in the  United  States of America  ("GAAP")  have been  condensed  or omitted in
accordance  with  the  GAAP  requirements  for  interim  financial   statements,
including  the   applicable   requirements   of  the   Securities  and  Exchange
Commission's  Regulation S-X. Certain prior year amounts have been  reclassified
to conform to the  current  year  presentation.  The  accompanying  consolidated
financial  statements  should  be  read in  conjunction  with  the  consolidated
financial  statements  included in the Company's  Annual Report on Form 10-K, as
amended, for the year ended December 31, 2002 (the "2002 Annual Report").

     In November  2003,  NL announced  that its board of directors  had formally
approved a plan to distribute  approximately  48.7% of the outstanding shares of
Kronos' common stock to NL shareholders in the form of a pro-rata dividend.  The
shares of Kronos  common  stock will be  distributed  on  December 8, 2003 to NL
shareholders  of  record  as of  November  17,  2003.  Upon  completion  of  the
distribution,  NL,  Valhi and a  wholly-owned  subsidiary  of Valhi  will own an
aggregate  of  approximately  92.5%  of  Kronos'  common  stock,  and  other  NL
shareholders  would own the  remaining  7.5%.  As part of the plan,  immediately
prior to such  distribution of shares of Kronos common stock,  Kronos will pay a
$200 million  dividend to NL in the form of a long-term  note payable.  The $200
million  long-term  note payable to NL will be unsecured and bear interest at 9%
per annum, with interest payable quarterly and all principal due in 2010. Kronos
has  applied to list its shares of common  stock on the New York Stock  Exchange
under the trading symbol KRO.  Completion of the  distribution is subject to the
satisfaction or waiver of certain conditions.

     As  disclosed  in  the  2002  Annual  Report,   the  Company  accounts  for
stock-based employee compensation in accordance with Accounting Principles Board
Opinion  ("APBO")  No. 25,  Accounting  for Stock Issued to  Employees,  and its
various  interpretations.  Under APBO No. 25, no compensation  cost is generally
recognized  for fixed stock options in which the exercise  price is greater than
or equal to the market  price on the grant  date.  During the fourth  quarter of
2002,  following the cash  settlement of certain stock options held by employees
of the Company, the Company commenced accounting for its remaining 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 the Company's  market price
resulting in additional  compensation expense (income).  Net compensation income
recognized by the Company in accordance with APBO No. 25 was $400,000 in each of
the third quarter and first nine months of 2003,  and net  compensation  expense
(income)  recognized  by the  Company  was nil in each of the third  quarter and
first nine months of 2002.

     The following  table presents what the Company's  consolidated  net income,
and  related  per share  amounts,  would have been in the 2002 and 2003  periods
presented  if the Company had  elected to account for its  stock-based  employee
compensation  related to stock options in accordance  with the fair  value-based
recognition  provisions of Statement of Financial  Accounting Standards ("SFAS")
No.  123,  Accounting  for  Stock-Based  Compensation,  for all  awards  granted
subsequent to January 1, 1995.

<TABLE>
<CAPTION>
                                                         Three months ended                Nine months ended
                                                            September 30,                    September 30,
                                                   -------------------------------- --------------------------------
                                                        2003            2002             2003            2002
                                                   --------------- ---------------- --------------- ----------------
                                                               (In thousands, except per share amounts)

<S>                                                   <C>            <C>               <C>            <C>
Net income - as reported                              $  16,585      $    8,782        $   54,850     $   29,214
Deduct:  Stock-based compensation income,
  net of tax, included in reported net income             (268)              -              (268)             -
Deduct:  Stock-based compensation cost, net
  of tax, determined under fair value based
  method for all awards                                   (120)           (271)             (361)          (813)
                                                   --------------- ---------------- --------------- ----------------

Net income - pro forma                                $  16,197      $    8,511        $   54,221     $   28,401
                                                   =============== ================ =============== ================

Net income per basic common share:
    As reported                                       $     .35      $      .18        $     1.15     $      .60
    Pro forma                                         $     .34      $      .18        $     1.14     $      .58
Net income per diluted common share:
    As reported                                       $     .35      $      .18        $     1.15     $      .60
                       Pro forma                      $     .34      $      .17        $     1.14     $      .58
</TABLE>

     The  Company  adopted  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 is  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 is accreted to its future value, and the capitalized cost is
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  recognized (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 were measured using information, assumptions and interest rates all
as of January 1, 2003. The amount  recognized as the asset  retirement  cost was
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, were 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 between the amounts recognized
as  described  above and the  associated  amounts  recognized  in the  Company's
balance sheet as of December 31, 2002 was  recognized as a cumulative  effect of
change in  accounting  principle  as of January 1, 2003.  The effect of adopting
SFAS No.  143 as of  January  1,  2003,  as  summarized  in the table  below (in
millions),  did  not  have  a  material  effect  on the  Company's  consolidated
financial  position,  results of operations or liquidity,  and is not separately
recognized in the accompanying statement of income.

Increase in carrying value of net property,
 plant and equipment:
    Cost                                                     $          .4
    Accumulated depreciation                                           (.1)
Decrease in liabilities previously accrued for
 closure and post closure activities                                    .3
Asset retirement obligation recognized                                 (.6)
                                                             -------------

        Net impact                                           $          -
                                                             =============

     At September 30, 2003, the asset  retirement  obligation was  approximately
$700,000 and was included in other noncurrent liabilities.  Accretion expense on
the asset retirement  obligation during the first nine months of 2003,  included
in cost of sales, was nil. If the Company had adopted SFAS No. 143 as of January
1, 2002, the asset retirement obligation would have been approximately  $500,000
at January 1, 2002 and  $600,000 at September  30,  2002,  and the effect on the
Company's reported net income for the nine months ended September 30, 2002 would
not have been material.

Note 2 - Earnings per share:

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

Note 3 - Accounts and other receivables:

<TABLE>
<CAPTION>
                                                    September 30,     December 31,
                                                        2003              2002
                                                    -------------     ------------
                                                              (In thousands)

<S>                                                   <C>             <C>
Trade receivables ..............................      $ 164,425       $ 124,044
Insurance claims receivable ....................             53           2,558
Recoverable VAT and other receivables ..........         14,168          12,861
Allowance for doubtful accounts ................         (2,636)         (2,605)
                                                      ---------       ---------

                                                      $ 176,010       $ 136,858
                                                      =========       =========
</TABLE>

Note 4 - Inventories:

<TABLE>
<CAPTION>
                                                    September 30,       December 31,
                                                        2003               2002
                                                    ------------       -------------
                                                            (In thousands)

<S>                                                  <C>                <C>
Raw materials ............................           $ 33,049           $ 54,077
Work in process ..........................             17,028             15,936
Finished products ........................            119,414            109,203
Supplies .................................             33,830             30,666
                                                     --------           --------

                                                     $203,321           $209,882
                                                     ========           ========
</TABLE>

Note 5 - Marketable equity securities:

<TABLE>
<CAPTION>
                                                    September 30,      December 31,
                                                        2003               2002
                                                    -------------      ------------
                                                             (In thousands)

Available-for-sale marketable
 equity securities:
<S>                                                    <C>               <C>
Valhi ......................................           $53,025           $ 9,845
Tremont Group ..............................              --              30,634
Tremont ....................................              --                 243
Other ......................................                70               179
                                                       -------           -------

    Aggregate fair value ...................           $53,095           $40,901
                                                       =======           =======
</TABLE>

     In February 2003 Valhi completed a series of merger  transactions  pursuant
to which, among other things,  Tremont Group, Inc. ("Tremont Group") and Tremont
Corporation  ("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  subject  to  the
restrictions  on resale  pursuant to certain  provisions of the  Securities  and
Exchange  Commission ("SEC") Rule 144. The Company reported a pre-tax securities
transaction  gain of  approximately  $2.3  million in the first  quarter of 2003
which represented 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 owned 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
(based on quoted  market  prices).  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,  when  declared  and paid.  For
financial reporting purposes,  Valhi reports its proportional  interest in these
shares as treasury stock.

Note 6 - Receivable from affiliates:

     In May 2001 a  wholly  owned  subsidiary  of the  Company's  majority-owned
environmental management subsidiary,  NL Environmental Management Services, Inc.
("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 (4.0%
at  September  30,  2003),  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. At September 30, 2003, the outstanding
loan balance was $16.0  million and $9.0 million was  available  for  additional
borrowing  by the  Family  Trust.  The  loan was  classified  as  noncurrent  at
September  30, 2003, as the Company does not expect to demand  repayment  within
one year.

Note 7 - Other noncurrent assets:

<TABLE>
<CAPTION>
                                                       September 30,    December 31,
                                                           2003            2002
                                                       -------------    ------------
                                                             (In thousands)
<S>                                                       <C>            <C>
Deferred financing costs, net ....................        $10,008        $10,550
Goodwill .........................................          6,406          6,406
Unrecognized net pension obligations .............          6,439          5,561
Intangible asset, net ............................          1,982          2,230
Restricted cash equivalents ......................           --            1,344
Other ............................................          1,903          4,580
                                                          -------        -------

                                                          $26,738        $30,671
                                                          =======        =======
</TABLE>

Note 8 - Accounts payable and accrued liabilities:

<TABLE>
<CAPTION>
                                                   September 30,      December 31,
                                                       2003              2002
                                                   -------------      ------------
                                                            (In thousands)
<S>                                                  <C>                <C>
Accounts payable .........................           $ 62,188           $ 97,140
                                                     --------           --------
Accrued liabilities:
    Employee benefits ....................             35,073             34,349
    Interest .............................              7,451                240
    Deferred income ......................               --                  333
    Other ................................             42,798             35,512
                                                     --------           --------

                                                       85,322             70,434
                                                     --------           --------

                                                     $147,510           $167,574
                                                     ========           ========
</TABLE>

Note 9 - Other noncurrent liabilities:

<TABLE>
<CAPTION>
                                                       September 30,   December 31,
                                                           2003           2002
                                                       -------------   ------------
                                                              (In thousands)

<S>                                                      <C>             <C>
Insurance claims and expenses ..................         $ 6,870         $ 7,674
Employee benefits ..............................           4,422           4,025
Other ..........................................           2,934           2,361
                                                         -------         -------

                                                         $14,226         $14,060
                                                         =======         =======
</TABLE>

Note 10 - Long-term debt:

<TABLE>
<CAPTION>
                                                              September 30, December 31,
                                                                  2003        2002
                                                              ------------- ------------
                                                                    (In thousands)

<C>                                                              <C>        <C>
8.875% Senior Secured Notes,(euro)285 million principal amount   $326,924   $296,942
Revolving credit facility ....................................       --       27,077
Other ........................................................        827      1,887
                                                                 --------   --------
                                                                  327,751    325,906

Less current maturities ......................................        476      1,298
                                                                 --------   --------

                                                                 $327,275   $324,608
                                                                 ========   ========
</TABLE>

     In March 2003 the Company borrowed  (euro)15.0  million ($16.1 million when
borrowed),  in April 2003 the Company  repaid NOK 80 million ($11.0 million when
repaid),  and in the third quarter of 2003 the Company repaid (euro)30.0 million
($33.9 million when repaid) under the revolving credit facility.

Note 11 - Income taxes:

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

<TABLE>
<CAPTION>
                                                                                         Nine months ended
                                                                                           September 30,
                                                                                 -----------------------------------
                                                                                      2003               2002
                                                                                 ----------------   ----------------
                                                                                           (In thousands)

<S>                                                                                 <C>                <C>
Expected tax expense                                                                $  16,402          $  14,697
Non-U.S. tax rates                                                                       (239)            (3,918)
Incremental tax on income of companies
  not included in NL's consolidated U.S.
  federal income tax return                                                               120                403
Refund of prior year German taxes                                                     (24,564)                 -
Valuation allowance                                                                    (1,068)            (1,828)
U.S. state income taxes                                                                   290                 38
Tax contingency reserve adjustments, net                                                    -              2,214
Other, net                                                                                897                 89
                                                                                 ----------------   ----------------

        Income tax (benefit) expense                                              $    (8,162)         $  11,695
                                                                                 ================   ================
</TABLE>


     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 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 tax
with respect to their 1998 and 1999 income tax returns until September 30, 2004.
Based upon the course of the examination,  the Company  anticipated that the IRS
would propose a substantial  tax deficiency,  including  penalties and interest,
related  to a  restructuring  transaction.  In an  effort  to  avoid  protracted
litigation and minimize the hazards of such  litigation,  the Company applied to
take part in an IRS settlement  initiative applicable to transactions similar to
the  restructuring   transaction,   and  in  April  2003  the  Company  received
notification  from  the IRS  that  it had  been  accepted  into  the  settlement
initiative.  Under the  initiative,  no  penalties  will be  assessed  and final
settlement with the IRS is to be reached through  negotiation and, if necessary,
through  a  specified  arbitration  procedure.   The  Company  anticipates  that
settlement  of the matter will likely  occur in 2004,  resulting  in payments of
federal and state taxes and  interest  ranging  from $33 million to $45 million.
Additional  payments in later  years may be required as part of the  settlement.
The  Company  believes  that it has  provided  adequate  accruals  to cover  the
currently expected range of settlement outcomes.


     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)10.1  million  ($11.6  million  at
September  30, 2003).  The Company has filed  protests to the  assessments  with
respect to such  years.  The  Company is in  discussions  with the  Belgian  tax
authorities  and  believes  that a  significant  portion of the  assessments  is
without  merit.  In April  2003 the  Company  received a  notification  from the
Belgian tax  authorities of their intent to assess a tax  deficiency  related to
1999. The anticipated assessment, including interest, is expected to approximate
(euro)13.3  million ($15.2 million at September 30, 2003).  The Company believes
the  proposed  assessment  related to 1999 is without  merit,  and in April 2003
filed a written  response in opposition to the notification of intent to assess.
The Belgian tax  authorities  have  indicated  they intend to file a lien on the
fixed assets of the Company's Belgian TiO2 operations.

     In 2002,  the  Company  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 September 30, 2003)  relating to 1998 through 2000. The
Company has objected to this proposed  assessment  in a written  response to the
Norwegian tax authorities.

     In the first  quarter of 2003,  Kronos was  notified by the German  Federal
Fiscal Court (the "Court") that the Court had ruled in Kronos' favor  concerning
a  claim-for-refund  suit in which  Kronos  sought  refunds of prior  taxes paid
during the periods 1990 through 1997.  Kronos has filed certain  amended  German
tax  returns  claiming  such  refunds  for all  years  affected  by the  Court's
decision,  which is  expected  to  result  in an  estimated  refund of taxes and
interest  of  approximately  $40  million.  Receipt of the German tax refunds is
subject to satisfaction of various procedural  requirements,  including a review
and acceptance of the amended German tax returns by the German tax  authorities.
Certain of these procedural requirements were satisfied in the second quarter of
2003 with respect to a portion of the refund claim,  and in July 2003 the German
tax authorities  refunded Kronos a portion of the total anticipated  refund. The
portion  received in July was  (euro)21.5  million ($24.6  million).  Kronos has
reflected this tax refund in its second quarter 2003 results of operations.  The
Company  expects  to receive  the  remaining  refunds  over the next four to six
months, a portion of which may result in an additional income tax benefit.

     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 September 30, 2003, the Company had the equivalent of approximately $452
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  it does  not meet  the  "more-likely-than-not"  recognition
criteria.  In August 2003,  the German federal  government  proposed new tax law
amendments  that  would  limit  the  annual   utilization  of  income  tax  loss
carryforwards,  to become  effective  in 2004.  This  proposal  is  similar to a
proposal  the  German  federal  government  introduced  in 2002  that was  never
enacted.  There can be no assurance that these  proposed law amendments  will be
enacted,  and if enacted,  when they would become effective.  Such proposal,  if
enacted as proposed,  would significantly affect the Company's future income tax
expense and cash tax payments.

     At September 30, 2003, the Company had net deferred tax liabilities of $143
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 $195
million  at  September  30,  2003,  principally  related to  Germany,  partially
offsetting  deferred tax assets that the Company  believes do not currently meet
the "more-likely-than-not" recognition criteria.

     The Company  reduced its deferred  income tax  valuation  allowance by $1.1
million  in the first  nine  months of 2003 and $1.8  million  in the first nine
months of 2002  primarily as a result of  utilization  of certain tax attributes
for  which  the  benefit   had  not  been   previously   recognized   under  the
"more-likely-than-not" recognition criteria.


Note 12 - Other income (expense):

 Operating items

     As part of the sale of Rheox in January  1998,  the Company  received a $20
million  fee for  entering  into a  five-year  covenant  not to  compete  in the
rheological products business. The Company amortized 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.

     In both 2002 and 2003, the Company recognized  litigation  settlement gains
with former insurance carrier groups to settle certain insurance coverage claims
related  to  environmental  remediation.  Income  related  to  these  litigation
settlement  gains is  recognized as part of income from  operations  because the
related environmental  remediation expense to which the recovery related is also
recognized  as a  component  of income  from  operations.  No  further  material
settlements relating to litigation concerning environmental remediation coverage
are expected to be received.


     In the first nine  months of 2003,  the Company  disposed  of certain  real
property and other assets for approximately $10.6 million.

     Corporate   expense   includes   environmental,   legal  and  other   costs
attributable to formerly owned business units, as well as certain administrative
expenses (primarily legal,  finance,  accounting and tax). Corporate expense for
the first nine  months of 2003  increased  approximately  $20  million  from the
comparable  prior-year  period primarily due to higher  environmental  and legal
expenses.

  Nonoperating items

     The foreign currency transaction gain of $6.3 million reported in the first
nine  months of 2002  related to the second  quarter  extinguishment  of certain
intercompany   indebtedness  with  Kronos   International,   Inc.   ("KII"),   a
wholly-owned subsidiary of the Company.

Note 13 - Commitments and contingencies:

  Environmental matters and litigation

     Some of the  Company's  current and former  facilities,  including  several
divested secondary lead smelters and former mining locations, are the subject of
civil litigation,  administrative  proceedings or  investigations  arising under
federal and state  environmental  laws.  Additionally,  in connection  with past
disposal  practices,  the  Company  has been named as a  defendant,  potentially
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 ("EPA") 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.  In  addition,  the Company is a party to a number of lawsuits  filed in
various jurisdictions alleging CERCLA or other environmental claims.

     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 or 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.

     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.  At September
30,  2003,  the  Company  had   approximately  $88  million  accrued  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  $127 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
discussed in Note 12.

     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  September  30,  2003,  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 unknown either 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 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.

     At  September  30,  2003,  the  Company  had  approximately  $21 million in
restricted  cash,  restricted cash  equivalents  and restricted  marketable debt
securities held by certain  trusts,  the assets of which can only be used to pay
for  certain  of  the  Company's  future  environmental  remediation  and  other
environmental  expenditures.  Restricted  cash and  marketable  debt  securities
decreased  approximately  $38 million in the first nine months of 2003 primarily
due  to a  $30.8  million  payment  related  to  the  final  settlement  of  the
previously-reported  Granite City,  Illinois lead smelter site.  The Company may
have to pay up to an additional $.7 million related to this site upon completion
of an EPA audit of certain response costs. No further material  expenditures are
expected to be made for this site.

  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  or 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.  Several  former cases have been
dismissed or  withdrawn.  Most of the remaining  cases are in various  pre-trial
stages;  some are on appeal  following  dismissal or summary judgment rulings in
favor of the defendants.

     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.  Liability that may result,  if any,  cannot  reasonably be
estimated.

     Various legislation and administrative regulations have, from time to time,
been enacted or proposed that seek to (i) 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 (ii)
effectively  overturn the precedent set by 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 that are  expected  to have a  material
adverse  effect on the Company's  consolidated  financial  position,  results of
operations  or  liquidity,   imposition  of  market  share  liability  or  other
legislation could have such an effect.

     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 may be filed against the Company in the future,
asserting  similar or different  legal theories and seeking similar or different
types of damages and relief.

  Other litigation

     The Company had 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 390 of these cases involving a total of approximately
31,500 plaintiffs and their spouses remain pending.  The Company has not accrued
any amounts for this litigation because liability that may result to NL, if any,
can not be reasonably estimated. 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.

     The Company's  Belgian  subsidiary and various of its Belgian employees are
the subject of civil and  criminal  proceedings  relating  to an  accident  that
resulted in two fatalities at the Company's  Langerbrugge,  Belgium  facility in
October 2000.  The  investigation  stage of these  proceedings  was completed in
2002. In May 2003 the Belgian  authorities  referred the proceedings against the
Company's  Belgian  subsidiary  and  certain  of its  Belgian  employees  to the
criminal court for trial. Trial briefs have been submitted to the criminal court
by the parties and a final hearing and  determination  by the court is scheduled
for January 2004.

     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.

     For descriptions of certain other legal proceedings,  environmental, income
tax and other commitments and contingencies related to the Company, reference is
made to (i) the  Company's  2002 Annual  Report,  (ii) the  Company's  Quarterly
Reports on Form 10-Q, as amended, for the quarters ended March 31, 2003 and June
30, 2003, and (iii) Note 11.

Note 14 -  Accounting principle not yet adopted:

     The Company is required to comply with the  consolidation  requirements  of
FASB Interpretation ("FIN") No. 46, Consolidation of Variable Interest Entities,
an interpretation  of ARB No. 51, as amended,  at December 31, 2003. The Company
is still studying this newly-issued interpretation.  While the Company currently
does not believe it has any  involvement  with any variable  interest entity (as
that term is defined in FIN No 46), the interpretation is complex, and the staff
of the FASB continues to provide  implementation  guidance,  and therefore,  the
impact of adopting the consolidation requirements of FIN No. 46 has not yet been
determined.


<PAGE>


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

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
                                            Three months ended                         Nine Months ended
                                               September 30,                             September 30,
                                   ---------------------------------------- ----------------------------------------
                                                                   %                                        %
                                      2003          2002         Change        2003          2002         Change
                                   ------------  ------------ ------------- ------------  ------------ -------------
                                                       (In millions, except percentages and metric tons)

Net sales and operating
  income
<S>                                  <C>           <C>              <C>      <C>            <C>              <C>
    Net sales                        $   242.9     $  234.1        +4%       $   762.5      $   663.3       +15%
    Cost of sales                        177.4        177.5          *           563.5          510.0       +10%
                                   ------------  ------------               ------------  ------------

      Gross margin                        65.5         56.6       +16%           199.0          153.3       +30%
    Selling, general and
     administrative expense               29.8         28.5        +4%            90.1           78.2       +15%
    Other operating income
      (expense):
      Currency transaction gains
       (losses), net                       (.4)          .7                       (4.3)           (.8)
      Disposition of property and
       equipment                           7.2          (.2)                       8.3             .5
      Noncompete agreement
       income                             -             1.0                         .3            3.0
      Legal settlement gains              -            -                            .7            2.3
      Corporate expense                   (9.7)       (10.6)                     (48.2)         (28.2)
      Other income                          .1           .3                         .4             .5
      Other expense                       -            -                           (.1)           (.1)
                                   ------------  ------------               ------------  ------------

        Income from operations       $    32.9     $   19.3       +70%       $    66.0      $    52.3       +26%
                                   ============  ============               ============  ============

TiO2 operating statistics Percent change in average selling price:
        Using actual foreign
          currency exchange rates                                 +10%                                      +15%
        Impact of changes in
         foreign currency
         exchange rates                                            -8%                                      -10%
                                                              -------------                            -------------
        In billing currencies                                      +2%                                       +5%

    Sales volume (metric tons in
      thousands)                         110.9        117.4        -6%           350.3          352.4        -1%

    Production volume (metric
      tons in thousands)                 117.5        116.0        +1%           354.2          334.9        +6%
</TABLE>


------------------------------------
* less than 1%



<PAGE>


Comparison of three months ended  September  30, 2003 and 2002 - Sales,  cost of
sales, gross margin and selling, general and administrative expenses

     The Company's  sales and gross margin  increased $8.8 million (4%) and $8.9
million (16%), respectively,  in the third quarter of 2003 compared to the third
quarter of 2002 due primarily to higher  average TiO2 selling  prices  partially
offset by lower TiO2 sales volumes.  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 in the third quarter of 2003 were 2%
higher than the third quarter of 2002, with the greatest improvement in European
and export  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 the third quarter of 2003
increased  10%  compared  to the third  quarter of 2002.  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  were 1% lower in the third  quarter  of 2003 as  compared  to the second
quarter of the year.

     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 the Company's  average TiO2 selling
prices 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 10% changes in the  Company's  average TiO2 selling  prices during the third
quarter of 2003 as  compared  to the same  period in 2002 using  actual  foreign
currency  exchange  rates  prevailing  during the  respective  periods (the GAAP
measure)  and the 2% change in the  Company's  average  TiO2  selling  prices in
billing  currencies  (the  non-GAAP  measure)  during  such period is due to the
effect of changes in foreign  currency  exchange rates. 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's  average  TiO2  selling  prices 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 volume in the third quarter of 2003 was 6% lower
than the third quarter of 2002, with substantially all of the decrease occurring
in export markets.  The Company's TiO2 production volume in the third quarter of
2003 was 1% higher than the third quarter of 2002,  with operating rates at near
full capacity in both the third quarter of 2003 and 2002.

     The increase in average TiO2 selling prices  increased gross margin by $5.5
million,  while the lower  TiO2  sales  volume  decreased  gross  margin by $5.4
million.  The effect of the increase in TiO2 production volumes during the third
quarter of 2003 as compared to the third quarter of 2002 was not material.

     The Company's  cost of sales in the third quarter of 2003 was comparable to
the third quarter of 2002.  The  Company's  cost of sales as a percentage of net
sales  decreased  from  76% in the  third  quarter  of 2002 to 73% in the  third
quarter of 2003  primarily due to the higher  average  selling prices and higher
production volumes.

     The increase in the Company's gross margin, quantified above, is due to the
net effects of the changes in sales and cost of sales during such periods.

     The Company's  selling,  general and  administrative  expenses in the third
quarter of 2003 were  approximately  $1.3  million  (4%)  higher  than the third
quarter of 2002  primarily due to the effects of foreign  currency  translation,
which increased the Company's  expenses in the third quarter of 2003 as compared
to the same period in 2002. Offsetting the effect of changes in foreign currency
exchange  rates,  distribution  and selling  expenses  associated with the lower
sales volume were approximately $600,000 (3%) lower in the third quarter of 2003
as compared  to the same  period in 2002.  The  Company's  selling,  general and
administrative  expenses  were  approximately  12% of sales  in both  the  third
quarter of 2003 and 2002.

     The Company  has  substantial  operations  and assets  located  outside the
United States (primarily in Germany,  Belgium, Norway and Canada). A significant
amount  of the  Company's  sales  generated  from its  non-U.S.  operations  are
denominated  in currencies  other than the U.S.  dollar,  principally  the euro,
other  major  European  currencies  and the  Canadian  dollar.  A portion of the
Company's  sales  generated from its non-U.S.  operations are denominated in the
U.S. dollar. Certain raw materials,  primarily  titanium-containing  feedstocks,
are  purchased  in U.S.  dollars,  while  labor and other  production  costs are
denominated  primarily in local  currencies.  Consequently,  the translated U.S.
dollar value of the Company's foreign sales and operating results are subject to
currency  exchange rate  fluctuations  which may  favorably or adversely  impact
reported earnings and may affect the comparability of period-to-period operating
results. Overall, fluctuations in the value of the U.S. dollar relative to other
currencies,  primarily  the euro,  increased  the  Company's  sales in the third
quarter  of 2003 by a net $16.6  million  compared  to the same  period in 2002.
Fluctuations  in the  value  of the U.S.  dollar  relative  to other  currencies
similarly   impacted  the  Company's  foreign   currency-denominated   operating
expenses.  The Company's  operating  costs that are not  denominated in the U.S.
dollar,  when translated into U.S. dollars,  were higher in the third quarter of
2003  compared to the same period in 2002.  Overall,  the net impact of currency
exchange  rate  fluctuations   slightly  increased  the  Company's  income  from
operations  in the third  quarter of 2003 as  compared  to the third  quarter of
2002.

Comparison  of nine months ended  September  30, 2003 and 2002 - Sales,  cost of
sales, gross margin and selling, general and administrative expenses

     The  Company's  sales and gross margin  increased  $99.2  million (15%) and
$45.7 million (30%), respectively,  in the first nine months of 2003 compared to
the first nine  months of 2002 due  primarily  to higher  average  TiO2  selling
prices and higher TiO2  production  volume,  partially  offset by slightly lower
TiO2 sales volume and higher operating costs  (particularly  energy costs, which
increased by approximately $8 million).  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 billing currencies in the first nine months of 2003 was 5%
higher  than the  first  nine  months  of 2002.  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 the first nine months of 2003 increased 15% compared to the first nine
months of 2002.

     The difference between the 15% change in the Company's average TiO2 selling
prices  during the first nine  months of 2003 as  compared to the same period in
2002  using  actual  foreign  currency  exchange  rates  prevailing  during  the
respective periods (the GAAP measure) and the 5% change in the Company's average
TiO2 selling prices in billing  currencies  (the non-GAAP  measure)  during such
period is due to the effect of changes in foreign  currency  exchange rates. 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's  average  TiO2  selling  prices 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 the first nine months of 2003 were 1%
lower than the first nine months of 2002. The Company's TiO2 production  volumes
in the first nine  months of 2003 were 6% higher  than the first nine  months of
2002,  with operating  rates at near full capacity in both the first nine months
of 2003 and 2002.

     The  increase in average  TiO2  selling  prices and higher TiO2  production
volumes increased gross margin by $28.8 million and $9.1 million,  respectively.
The effect of the decrease in TiO2 sales volumes during the first nine months of
2003 as compared to the same period in 2002 was not material.

     The Company's cost of sales increased $53.5 million (10%) in the first nine
months of 2003 compared to the first nine months of 2002.  The Company's cost of
sales as a percentage of net sales  decreased  from 77% in the first nine months
of 2002 to 74% in the first  nine  months of 2003  primarily  due to the  higher
average selling prices and higher  production  volume,  partially  offset by the
higher operating costs.

     The increase in the Company's gross margin, quantified above, is due to the
net effects of the changes in sales and cost of sales during such periods.

     The Company's selling,  general and administrative expenses increased $11.9
million  (15%) in the first nine  months of 2003 as  compared  to the first nine
months of 2002  primarily  due to the effects of foreign  currency  translation,
which  increased  the  Company's  expenses  in the first nine  months of 2003 as
compared  to the same  period  in  2002.  The  Company's  selling,  general  and
administrative expenses were approximately 12% of sales in the first nine months
of both 2003 and 2002.

     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 the first nine
months of 2003 by a net $71.0 million  compared to the same period in 2002,  and
decreased the Company's income from operations by $2.3 million.



<PAGE>


Other operating income (expense)

     The  noncompete  agreement  income  relates  to a  covenant  not to compete
related to the sale of Rheox in 1998.  The agreement  became fully  amortized in
January  2003.  The  litigation  settlement  gains in all  periods  relate  to a
settlement with former insurance carrier groups. No further material settlements
relating  to  litigation  concerning  environmental   remediation  coverage  are
expected.  The gain on disposal of fixed assets in 2003 related primarily to the
disposal  of certain  real  property  not  associated  with the  Company's  TiO2
operations.

     Corporate expense for the first nine months of 2003 increased $20.0 million
from the  comparable  prior-year  period  primarily due to higher  environmental
expenses  related  to  remediation  of  formerly  owned  business  units  of  NL
(principally  related  to one  formerly  owned  site for which  the  remediation
process is  expected  to occur  over the next  several  years) and higher  legal
expenses of NL. Corporate  expenses are expected to be higher for full-year 2003
as compared to full-year 2002 due to higher environmental  expenses and slightly
higher legal expenses associated with the defense of lead pigment litigation.

     As a net result of the items  discussed  above,  the Company's  income from
operations  increased  70% from $19.3  million  in the third  quarter of 2002 to
$32.9 million in the third  quarter of 2003.  For the first nine months of 2003,
the  Company's  income from  operations  increased 26% from $52.3 million in the
first nine months of 2002 to $66.0 million in the first nine months of 2003.

Outlook

     The Company  expects  that its gross  margin in 2003 will be higher than in
2002  primarily due to higher  average TiO2 selling  prices and higher sales and
production  volumes,  partially offset by higher  operating costs  (particularly
energy costs).  The Company's TiO2  production  volume in 2003 is expected to be
higher  than  the  Company's  2003  TiO2  sales  volume,   with  finished  goods
inventories  rising  modestly.  The  Company's  expectations  as to  the  future
prospects  for 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  by  competitors  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) Items

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

<TABLE>
<CAPTION>
                                          Three months ended                          Nine months ended
                                            September 30,                               September 30,
                               -----------------------------------------  ------------------------------------------
                                   2003          2002       Difference        2003          2002        Difference
                               ------------- ------------- -------------  ------------- -------------  -------------
                                                                  (In millions)

<S>                              <C>            <C>           <C>            <C>            <C>           <C>
Trade interest income            $     .2       $    .7       $   (.5)       $    .6        $   1.3       $   (.7)
Other interest
 Income                                .8           1.8          (1.0)           2.6            4.4          (1.8)
Securities gains (losses),
 net                                  (.1)         -              (.1)           2.4            (.1)          2.5
Foreign currency
 transaction gain                    -             -             -              -               6.3          (6.3)
Interest expense                     (8.3)         (7.6)          (.7)         (24.7)         (22.2)         (2.5)
                               ------------- ------------- -------------  ------------- -------------  -------------

                                 $   (7.4)      $  (5.1)      $  (2.3)       $ (19.1)       $ (10.3)      $  (8.8)
                               ============= ============= =============  ============= =============  =============
</TABLE>

     Interest income was lower in the third quarter and the first nine months of
2003 as compared to the year  earlier  periods due to lower  levels of available
funds invested and lower average yields.  The Company expects interest income to
be lower for full-year  2003 than full-year 2002 due to lower average yields and
lower average levels of funds available for investment. Securities gains for the
first  nine  months  of 2003 were  higher  than the  first  nine  months of 2002
primarily due to a $2.3 million noncash  securities  transaction gain related to
the exchange of the Company's  holdings of Tremont  Corporation common stock for
shares  of  Valhi,  Inc.  common  stock  as a  result  of  a  series  of  merger
transactions  completed  in  February  2003.  See  Note  5 to  the  Consolidated
Financial Statements.

     The  foreign  currency  transaction  gain in the first nine  months of 2002
related to the extinguishment of certain intercompany indebtedness with KII.

     Interest  expense  in the  third  quarter  and  first  nine  months of 2003
increased  $.7  million  and $2.5  million,  respectively,  from the  comparable
prior-year  periods,  primarily  due to higher  levels of  outstanding  debt and
associated currency effects,  partially offset by lower interest rates. Interest
expense in the first nine months of 2002  included  $2.0 million  related to the
early  extinguishment of the Company's 11.75% Senior Secured Notes.  Assuming no
significant  change in interest  rates,  interest  expense for full-year 2003 is
expected to be higher than  full-year  2002 due to higher levels of  outstanding
indebtedness, partially offset by lower average interest rates.

  Provision for income taxes

     See Note 11 to the Consolidated Financial Statements.

  Other

     Minority interest in all periods presented primarily relates to EMS.

  Recently adopted accounting principle

     As  described  in  Note 1 to the  Consolidated  Financial  Statements,  the
Company  adopted SFAS No. 143,  "Accounting for Asset  Retirement  Obligations,"
effective January 1, 2003.

  Accounting principle not yet adopted

     See Note 14 to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  consolidated  cash  flows  from  operating,  investing  and
financing  activities for the nine months ended  September 30, 2003 and 2002 are
presented below.

<TABLE>
<CAPTION>
                                                                                           Nine months ended
                                                                                             September 30,
                                                                                     -------------------------------
                                                                                         2003             2002
                                                                                     --------------   --------------
                                                                                             (In millions)

Net cash provided (used) by:
<S>                                                                                   <C>                <C>
    Operating activities                                                              $     67.8           $ 68.1
    Investing activities                                                                   (10.1)           (24.8)
    Financing activities                                                                   (57.7)             8.8
                                                                                     --------------   --------------

      Net cash provided by operating,
       investing, and financing activities                                           $        -        $     52.1
                                                                                     ==============   ==============
</TABLE>

  Operating activities

     The TiO2 industry is cyclical and changes in economic conditions within the
industry  significantly  affect the  earnings  and  operating  cash flows of the
Company.  Cash flows from  operations is 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  statement  of income  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.

     Cash flows from  operating  activities  decreased from $68.1 million in the
first nine  months of 2002 to $67.8  million  in the first nine  months of 2003.
This  $300,000  decrease  was due  primarily to the net effect of (i) higher net
income of $25.6 million, (ii) higher depreciation expense of $5.1 million, (iii)
$7.8 million of higher  gains on  disposition  of property and  equipment in the
first nine months of 2003, (iv) lower distributions from the manufacturing joint
venture of $4.2 million and (v) a higher amount of net cash used to fund changes
in the Company' inventories,  receivables, payables and accrued environmental of
$16.6  million in the first nine  months of 2003.  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,
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 activities

     The Company's capital  expenditures were $23.8 million and $18.1 million in
the first nine months of 2003 and 2002,  respectively.  Capital  expenditures in
the first nine months of 2002  included  approximately  $2.6 million  related to
reconstruction of the Company's Leverkusen, Germany sulfate plant damaged in the
March 2001 fire.

     In May 2003 the  Family  Trust  repaid $2 million  principal  amount on the
revolving credit agreement. See Note 6 to the Consolidated Financial Statements.

     In the first nine  months of 2003,  the Company  disposed  of certain  real
property and other assets for approximately $10.6 million.

     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.

  Financing activities

     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 when  borrowed)  and NOK 200 million ($26 million
when borrowed) 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 quarter
of 2002,  the Company repaid a net  euro-equivalent  12.7 million ($12.4 million
when repaid) of the European Credit  Facility.  See Note 10 to the  Consolidated
Financial Statements.

     In March 2003 the Company  borrowed  (euro)15  million  ($16.1 million when
borrowed),  in April 2003 the Company  repaid NOK 80 million ($11.0 million when
repaid) and in the third quarter of 2003 the Company repaid  (euro)30.0  million
($33.9 million when repaid) under the European Credit Facility.

     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").

     Deferred financing costs of $10.6 million for the KII 8.875% Senior Secured
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 September 30, 2003.

     In the third quarter of 2003, the Company paid a regular quarterly dividend
to  shareholders  of $.20 per share,  aggregating  $9.5 million.  Dividends paid
during the first nine months of 2003 and 2002 totaled  $.60 per share,  or $28.6
million and $29.2  million,  respectively.  On October 21, 2003,  the  Company's
Board of Directors  declared a regular  quarterly  dividend of $.20 per share to
shareholders of record as of December 12, 2003 to be paid on December 29, 2003.

     In the first nine months of 2003 the Company made no  repurchases of common
stock. During the first nine months of 2002, the Company purchased approximately
719,000  shares of its common stock in the open market at an  aggregate  cost of
approximately $10.6 million.

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

     At  September  30,  2003,  the  Company  had  cash  and  cash   equivalents
aggregating $59.7 million, current restricted cash equivalents of $22.1 million,
current  restricted  marketable  debt  securities of $8.2 million and noncurrent
restricted  marketable debt securities of $3.6 million.  Of such aggregate $93.6
million amount, $21.9 million was held by non-U.S. subsidiaries. Restricted cash
equivalents and restricted  marketable debt securities  decreased  approximately
$38 million in the first nine months of 2003  primarily  due to a $30.8  million
payment in the second  quarter of 2003  related to the final  settlement  of the
previously-reported  Granite City,  Illinois lead smelter site.  The Company may
have to pay up to an additional $.7 million related to this site upon completion
of an EPA audit of certain response costs. No further material  expenditures are
expected  to be made for this  site.  At  September  30,  2003,  certain  of the
Company's  subsidiaries had  approximately  $136 million available for borrowing
with  approximately  $92 million  available  under  non-U.S.  credit  facilities
(including  approximately  $89 million under the European  Credit  Facility) and
approximately $44 million under the U.S. Credit Facility. At September 30, 2003,
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  actual  developments  differ from the  Company's  expectations,  the
Company could be adversely affected.

  Income tax contingencies

     See Note 11 to the Consolidated Financial Statements.

  Lead pigment litigation, environmental matters and other litigation

     See Note 13 to the Consolidated  Financial  Statements and Part II, Item 1.
"Legal Proceedings."

  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.

     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.

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

  Special note regarding forward-looking statements

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Quarterly  Report on Form 10-Q relating to matters that are not historical facts
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,"
"should," "could," "anticipates,"  "expected" or comparable  terminology,  or by
discussions  of  strategies  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 substantial risks and uncertainties that
could  significantly  impact expected  results,  and actual future results could
differ materially from those described in such forward-looking statements. While
it is not possible to identify all factors,  the Company  continues to face many
risks and  uncertainties.  Among the factors that could cause future  results to
differ  materially from those described  herein are the risks and  uncertainties
discussed in this Quarterly  Report and those described from time to time in the
Company's  other  filings  with  the SEC  including,  but not  limited  to,  the
following:

o    Future supply and demand for the Company's products,
o    The cyclicality of the Company's TiO2 business,
o    Customer  inventory  levels  (such as the  extent  to which  the  Company's
     customers may, from time to time,  accelerate  purchases of TiO2 in advance
     of  anticipated  price  increases or defer  purchases of TiO2 in advance of
     anticipated price decreases),
o    Changes in raw material and other operating costs (such as energy costs),
o    The possibility of labor disruptions,
o    General global  economic and political  conditions  (such as changes in the
     level of gross  domestic  product in  various  regions of the world and the
     impact of such changes on demand for, among other things, TiO2),
o    Competitive products and substitute products,
o    Customer and competitor strategies,
o    The impact of pricing and production decisions,
o    Competitive technology positions,
o    Fluctuations  in currency  exchange  rates (such as changes in the exchange
     rate between the U.S. dollar and each of the euro, the Norwegian kroner and
     the Canadian dollar),
o    Operating  interruptions  (including,  but not limited to, labor  disputes,
     leaks,   fires,   explosions,   unscheduled   or  unplanned   downtime  and
     transportation interruptions),
o    Recoveries from insurance claims and the timing thereof,
o    The ability of the Company to renew or refinance credit facilities,
o    Government  laws and  regulations  and possible  changes  therein  (such as
     changes in government regulations which might impose various obligations on
     present and former  manufacturers  of lead  pigment and  lead-based  paint,
     including the Company,  with respect to asserted health concerns associated
     with the use of such products),
o    The ultimate  outcome of income tax audits,  tax settlement  initiatives or
     other tax matters,
o    The ultimate  resolution of pending  litigation (such as the Company's lead
     pigment litigation and litigation surrounding  environmental matters of the
     Company), and
o    Possible future litigation.

     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  or  revise  any
forward-looking statement whether as a result of new information,  future events
or otherwise.


ITEM 4.      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 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 September 30, 2003.  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 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  September  30,  2003 that has
materially affected, or is reasonably likely to materially affect, the Company's
system of internal controls over financial reporting.




<PAGE>


                           PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS

     Reference is made to Note 13 to the Consolidated Financial Statements,  and
for descriptions of certain previously reported legal proceedings,  reference is
made to the 2002 Annual Report and the Company's  Quarterly Reports on Form 10-Q
for the quarters ended March 31, 2003 and June 30, 2003.

     Barker, et al. v. The  Sherwin-Williams  Company,  et al. (Circuit Court of
Jefferson  County,  Mississippi,  Civil Action No. 2000-587)  (formerly known as
Borden et al. vs. The  Sherwin-Williams  Company,  et al.) In October 2003,  the
court set June 24, 2004 as the trial date.

     Quitman  County  School  District v. Lead  Industries  Association,  et al.
(Circuit Court of Quitman County,  Mississippi,  Case No. 2001-0106).  In August
2003, the trial court granted the plaintiff's motion to dismiss the Company with
prejudice.

     Jackson et al., v.  Phillips  Building  Supply of Laurel,  et al.  (Circuit
Court of Jones County, Mississippi,  Case No. 2002-10-CV1).  In August 2003, the
court set a trial date of June 1, 2004.

     City of Chicago v. American Cyanamid, et al. (Circuit Court of Cook County,
Illinois,  No. 02CH16212).  In October 2003, the trial court granted defendants'
motion to dismiss. The time for appeal has not yet run.

     City of Milwaukee v. NL Industries,  Inc. and Mautz Paint  (Circuit  Court,
Civil Division,  Milwaukee County,  Wisconsin,  Case No.  01CV0030066).  In July
2004,  Defendants'  motion for summary  judgment was granted by the trial court,
and the plaintiff has appealed.

     Cole, et al. v. ASARCO  Incorporated  et al. (U.S.  District  Court for the
Northern  District  of  Oklahoma,  Case No. 03C V327 EA (J)).  The  Company  has
answered the complaint and denied all of the plaintiffs' allegations.

     Crawford,  et al. v. ASARCO,  Incorporated,  et al.  (Case No.  CJ-03-304);
Barr, et al. v. ASARCO Incorporated, et al. (Case No. CJ-03-305); Brewer, et al.
v. ASARCO  Incorporated,  et al. (Case No. CJ-03-306);  Kloer, et al. v. ASARCO,
Incorporated,   et  al.  (Case  No.   CJ-03-307);   Rhoten,  et  al.  v.  Asarco
Incorporated,  et al. (Case No. CJ-03-308) (all in the District Court in and for
Ottawa County,  State of Oklahoma).  The Company removed the cases to the United
States  District  Court for the Northern  District of Oklahoma.  The Company has
answered the complaint and has denied all of the plaintiffs' allegations.

     In November  2003,  the Company was served with a complaint in Lauren Brown
v. NL Industries,  Inc., et al. (Circuit Court of Cook County, Illinois,  County
Department,  Law Division,  Case No. 03L 012425).  The  complaint  seeks damages
against  the  Company  and two  local  property  owners on behalf of a minor for
injuries  alleged to be due to exposure to lead paint  contained  in the minor's
residence. The Company intends to deny all allegations of liability.



<PAGE>


ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          The Company has retained a signed original of any exhibit listed below
          that  contains  signatures,  and the  Company  will  provide  any such
          exhibit to the SEC or its staff upon request.

   2.1 -       Form of Distribution  Agreement  between NL Industries,  Inc. and
               Kronos Worldwide, Inc. - incorporated by reference to Exhibit 2.1
               to the Kronos Worldwide,  Inc. Registration  Statement on Form 10
               (File No. 001-31763).

  10.1 -       Form of Tax Agreement  between Valhi,  Inc. and Kronos Worldwide,
               Inc. -  incorporated  by  reference to Exhibit 10.1 to the Kronos
               Worldwide,  Inc.  Registration  Statement  on Form 10  (File  No.
               001-31763).

  10.2 -       Form  of  Intercorporate   Services   Agreement  between  Contran
               Corporation  and  Kronos   Worldwide,   Inc.  -  incorporated  by
               reference  to  Exhibit  10.2  to  the  Kronos   Worldwide,   Inc.
               Registration Statement on Form 10 (File No. 001-31763).

  10.3 -       Form  of  Kronos  Worldwide,  Inc.  Long-Term  Incentive  Plan  -
               incorporated   by   reference  to  Exhibit  10.4  to  the  Kronos
               Worldwide,  Inc.  Registration  Statement  on Form 10  (File  No.
               001-31763).

  10.4 -       Amendment  dated  August 11, 2003 to the Contract on Supplies and
               Services  among Bayer AG, Kronos  Titan-GmbH & Co. OHG and Kronos
               International (English translation of German language document) -
               incorporated   by  reference  to  Exhibit  10.32  to  the  Kronos
               Worldwide,  Inc.  Registration  Statement  on Form 10  (File  No.
               001-31763).

  31.1 -       Certification.

  31.2 -       Certification.

  32.1 -       Certification.

     (b) Reports on Form 8-K

          Reports on Form 8-K for the quarter ended September 30, 2003:

             July 31, 2003 - Reported Items 7 and 9.

             August 8, 2003 - Reported Items 7 and 9.



<PAGE>


                                   SIGNATURES


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





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



Date:  November 11, 2003                By  /s/ Gregory M. Swalwell
------------------------                    -----------------------------------
                                            Gregory M. Swalwell
                                            Vice President, Finance
                                            (Principal Financial Officer and
                                            Accounting Officer)