SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q


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

                                       OR

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

                          Commission file number 1-640


                               NL INDUSTRIES, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)



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



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



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



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


Number of shares of common stock outstanding on November 9, 2001: 49,399,984



<PAGE>



                     NL INDUSTRIES, INC. AND SUBSIDIARIES

                                    INDEX
                                    -----




                                                                         Page
                                                                         ----
PART I.     FINANCIAL INFORMATION

  Item 1.   Financial Statements.

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

            Consolidated Statements of Income - Three months
              and nine months ended September 30, 2001 and 2000            5

            Consolidated  Statements of Comprehensive  Income -
              Three months and nine months ended September 30, 2001
              and 2000                                                     6

            Consolidated Statement of Shareholders' Equity
              - Nine months ended September 30, 2001                       7

            Consolidated Statements of Cash Flows - Nine
              months ended September 30, 2001 and 2000                    8-9

            Notes to Consolidated Financial Statements                   10-27

  Item 2.   Management's Discussion and Analysis of Financial
              Condition and Results of Operations                        28-35


PART II.    OTHER INFORMATION

  Item 1.   Legal Proceedings                                            35-36

  Item 6.   Exhibits and Reports on Form 8-K                              36


                                       -2-

<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>


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

<S>                                                    <C>            <C>
Current assets:
    Cash and cash equivalents ....................     $   97,000     $  120,378
    Restricted cash equivalents ..................         80,198         69,242
    Accounts and notes receivable ................        145,042        131,540
    Receivable from affiliates ...................         21,659            214
    Refundable income taxes ......................            337         12,302
    Inventories ..................................        186,793        205,973
    Prepaid expenses .............................          6,977          2,458
    Deferred income taxes ........................         11,829         11,673
                                                       ----------     ----------

        Total current assets .....................        549,835        553,780
                                                       ----------     ----------

Other assets:
    Marketable securities ........................         44,614         47,186
    Receivable from affiliate ....................         11,900           --
    Investment in TiO2 manufacturing joint venture        144,228        150,002
    Prepaid pension cost .........................         22,516         22,789
    Restricted cash equivalents ..................         12,656         17,942
    Other ........................................          5,977          4,707
                                                       ----------     ----------

        Total other assets .......................        241,891        242,626
                                                       ----------     ----------

Property and equipment:
    Land .........................................         24,640         24,978
    Buildings ....................................        125,038        129,019
    Machinery and equipment ......................        523,005        530,920
    Mining properties ............................         67,310         67,134
    Construction in progress .....................         27,124          4,586
                                                       ----------     ----------
                                                          767,117        756,637
    Less accumulated depreciation and depletion ..        442,274        432,255
                                                       ----------     ----------

        Net property and equipment ...............        324,843        324,382
                                                       ----------     ----------

                                                       $1,116,569     $1,120,788
                                                       ==========     ==========
</TABLE>

                                       -3-
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>
<CAPTION>

                                                  September 30,     December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY                   2001            2000
                                                  -------------     ------------
<S>                                                <C>              <C>
Current liabilities:
    Notes payable ............................     $    47,435      $    69,970
    Current maturities of long-term debt .....             917              730
    Accounts payable and accrued liabilities .         140,275          147,877
    Payable to affiliates ....................           9,543           10,634
    Accrued environmental costs ..............          64,634           53,307
    Income taxes .............................          13,976           13,616
    Deferred income taxes ....................           1,319            1,822
                                                   -----------      -----------

        Total current liabilities ............         278,099          297,956
                                                   -----------      -----------

Noncurrent liabilities:
    Long-term debt ...........................         195,920          195,363
    Deferred income taxes ....................         151,927          145,673
    Accrued environmental costs ..............          41,749           57,133
    Accrued pension cost .....................          17,360           21,220
    Accrued postretirement benefits cost .....          29,680           29,404
    Other ....................................          16,813           23,272
                                                   -----------      -----------

        Total noncurrent liabilities .........         453,449          472,065
                                                   -----------      -----------


Minority interest ............................           7,211            6,279
                                                   -----------      -----------

Shareholders' equity:
    Common stock .............................           8,355            8,355
    Additional paid-in capital ...............         777,597          777,528
    Retained earnings ........................         191,697          141,073
    Accumulated other comprehensive loss .....        (190,009)        (181,872)
    Treasury stock ...........................        (409,830)        (400,596)
                                                   -----------      -----------

        Total shareholders' equity ...........         377,810          344,488
                                                   -----------      -----------

                                                   $ 1,116,569      $ 1,120,788
                                                   ===========      ===========
</TABLE>

Commitments and contingencies (Note 14)


          See accompanying notes to consolidated financial statements.
                                      - 4 -

<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                          Three months ended     Nine months ended
                                             September 30,         September 30,
                                          -------------------   -------------------
                                            2001       2000       2001       2000
                                          --------   --------   --------   --------

<S>                                       <C>        <C>        <C>        <C>
Revenues and other income:
    Net sales .........................   $206,952   $242,309   $653,117   $724,444
    Litigation settlement gains, net ..       --         --       10,582     43,000
    Insurance recoveries, net .........      3,900       --        5,829       --
    Other, net ........................      2,926      4,906     11,144     20,352
                                          --------   --------   --------   --------

                                           213,778    247,215    680,672    787,796
                                          --------   --------   --------   --------

Costs and expenses:
    Cost of sales .....................    145,945    159,021    447,167    482,319
    Selling, general and administrative     30,665     33,972     92,323    104,194
    Interest ..........................      6,949      7,717     20,812     23,470
                                          --------   --------   --------   --------

                                           183,559    200,710    560,302    609,983
                                          --------   --------   --------   --------

        Income before income taxes and
          minority interest ...........     30,219     46,505    120,370    177,813

Income tax expense ....................      9,681     14,882     38,896     58,843
                                          --------   --------   --------   --------

        Income before minority interest     20,538     31,623     81,474    118,970

Minority interest .....................       --        1,454        953      1,655
                                          --------   --------   --------   --------

        Net income ....................   $ 20,538   $ 30,169   $ 80,521   $117,315
                                          ========   ========   ========   ========

Earnings per share:
    Basic .............................   $    .41   $    .60   $   1.61   $   2.32
                                          ========   ========   ========   ========
    Diluted ...........................   $    .41   $    .60   $   1.61   $   2.31
                                          ========   ========   ========   ========

Weighted average shares used in the
    calculation of earnings per share:
      Basic ...........................     49,621     50,203     49,876     50,539
      Dilutive impact of stock options          84        403        153        330
                                          --------   --------   --------   --------


      Diluted .........................     49,705     50,606     50,029     50,869
                                          ========   ========   ========   ========
</TABLE>


          See accompanying notes to consolidated financial statements.
                                      - 5 -


<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                                 (In thousands)

<TABLE>
<CAPTION>

                                                 Three months ended       Nine months ended
                                                    September 30,           September 30,
                                              ----------------------    ----------------------
                                                2001         2000          2001         2000
                                              ---------    ---------    ---------    ---------

<S>                                           <C>          <C>          <C>          <C>
Net income ................................   $  20,538    $  30,169    $  80,521    $ 117,315
                                              ---------    ---------    ---------    ---------

Other comprehensive income (loss),
    net of tax:
        Marketable securities adjustment:
            Unrealized holding gain (loss)
              arising during the period ...      (5,258)       2,021       (1,669)       2,729
            Reclassification adjustment for
              loss (gain) included in net
              income ......................        --            (50)         736          (50)
                                              ---------    ---------    ---------    ---------


                                                 (5,258)       1,971         (933)       2,679

    Currency translation adjustment .......      13,161      (18,623)      (7,204)     (41,219)
                                              ---------    ---------    ---------    ---------
        Total other comprehensive income
            (loss) ........................       7,903      (16,652)      (8,137)     (38,540)
                                              ---------    ---------    ---------    ---------

            Comprehensive income ..........   $  28,441    $  13,517    $  72,384    $  78,775
                                              =========    =========    =========    =========
</TABLE>



          See accompanying notes to consolidated financial statements.
                                      - 6 -
<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

                      Nine months ended September 30, 2001

                                 (In thousands)
<TABLE>
<CAPTION>

                                                                                    Accumulated other
                                                                                      comprehensive
                                                                                      income (loss)
                                                       Additional               -------------------------
                                            Common      paid-in      Retained    Currency      Marketable     Treasury
                                            stock       capital      earnings   translation    securities       stock       Total
                                          ---------    ---------    ---------   -----------    ----------     ---------   ---------
<S>                                       <C>          <C>          <C>           <C>           <C>           <C>         <C>
Balance at December 31, 2000 .........    $   8,355    $ 777,528    $ 141,073     $(190,757)    $   8,885     $(400,596)  $ 344,488

Net income ...........................         --           --         80,521          --            --            --        80,521

Other comprehensive income (loss), net         --           --           --          (7,204)         (933)         --        (8,137)

Dividends ............................         --           --        (29,897)         --            --            --       (29,897)

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

Treasury stock:
    Acquired (677 shares) ............         --           --           --            --            --          (9,853)     (9,853)
    Reissued  (37 shares) ............         --           --           --            --            --             619         619
                                          ---------    ---------    ---------     ---------     ---------     ---------   ---------

Balance at September 30, 2001 ........    $   8,355    $ 777,597    $ 191,697     $(197,961)    $   7,952     $(409,830)  $ 377,810
                                          =========    =========    =========     =========     =========     =========   =========
</TABLE>

          See accompanying notes to consolidated financial statements.
                                      - 7 -


<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Nine months ended September 30, 2001 and 2000

                                 (In thousands)

<TABLE>
<CAPTION>


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

<S>                                                               <C>          <C>
Cash flows from operating activities:
    Net income ................................................   $  80,521    $ 117,315
    Depreciation, depletion and amortization ..................      22,335       22,790
    Deferred income taxes .....................................       7,340       33,301
    Distributions from TiO2 manufacturing joint venture .......       5,513        7,550
    Litigation settlement gain, net included in restricted cash     (10,307)     (43,000)
    Pension cost, net .........................................      (2,458)     (10,488)
    Net (gains) losses from securities transactions ...........       1,133       (5,630)
    Insurance recoveries, net .................................      (5,829)        --
    Other, net ................................................        (624)       1,357
                                                                  ---------    ---------

                                                                     97,624      123,195

    Change in assets and liabilities:
        Accounts and notes receivable .........................     (15,494)     (37,921)
        Inventories ...........................................      15,676       27,740
        Prepaid expenses ......................................      (3,891)      (4,123)
        Accounts payable and accrued liabilities ..............      (7,872)       7,910
        Income taxes ..........................................      12,018        6,708
        Other, net ............................................      (5,637)      (4,347)
                                                                  ---------    ---------

            Net cash provided by operating activities .........      92,424      119,162
                                                                  ---------    ---------

Cash flows from investing activities:
    Capital expenditures ......................................     (32,391)     (19,757)
    Property damaged by fire:
        Insurance proceeds ....................................      10,500         --
        Other, net ............................................      (2,100)        --
    Loans to affiliates:
        Loans .................................................     (33,400)        --
        Collections ...........................................         500         --
    Purchase of Tremont Corporation common stock ..............        --        (26,040)
    Change in restricted cash equivalents, net ................         700         (102)
    Other, net ................................................          84          249
                                                                  ---------    ---------

        Net cash used by investing activities .................     (56,107)     (45,650)
                                                                  ---------    ---------
</TABLE>


                                      - 8 -

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Nine months ended September 30, 2001 and 2000

                                 (In thousands)

<TABLE>
<CAPTION>


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

<S>                                                      <C>          <C>
Cash flows from financing activities:
    Dividends paid ...................................   $ (29,897)   $ (22,721)
    Treasury stock:
        Purchased ....................................      (9,853)     (29,180)
        Reissued .....................................         619        1,581
    Indebtedness:
        Borrowings ...................................       1,437         --
        Principal payments ...........................     (22,132)     (29,034)
    Other, net .......................................          (5)          (6)
                                                         ---------    ---------


        Net cash used by financing activities ........     (59,831)     (79,360)
                                                         ---------    ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities      (23,514)      (5,848)
        Currency translation .........................         136       (3,312)
    Balance at beginning of period ...................     120,378      134,224
                                                         ---------    ---------

    Balance at end of period .........................   $  97,000    $ 125,064
                                                         =========    =========


Supplemental disclosures - cash paid for:
    Interest .........................................   $  14,239    $  16,428
    Income taxes, net ................................      19,538       18,838

</TABLE>


          See accompanying notes to consolidated financial statements.
                                      - 9 -

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

        NL Industries,  Inc.  conducts its titanium  dioxide  pigments  ("TiO2")
operations  through its wholly owned subsidiary,  Kronos,  Inc. At September 30,
2001,  Valhi,  Inc.  and  Tremont   Corporation,   each  affiliates  of  Contran
Corporation,  held approximately 61% and 21%, respectively,  of NL's outstanding
common  stock.  At  September  30,  2001,  Contran  and  its  subsidiaries  held
approximately 94% of Valhi's  outstanding  common stock, and a company 80% owned
by Valhi and 20% owned by NL held  approximately  80% of  Tremont's  outstanding
common stock. Substantially all of Contran's outstanding voting stock is held by
trusts  established  for the benefit of certain  children and  grandchildren  of
Harold C.  Simmons,  of which Mr.  Simmons is sole  trustee.  Mr.  Simmons,  the
Chairman of the Board of NL and the  Chairman  of the Board and Chief  Executive
Officer of Contran and Valhi and a director of Tremont, may be deemed to control
each of such companies. See Note 6.

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

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

        The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 133,  Accounting  for  Derivative  Instruments  and Hedging  Activities,  as
amended,  effective  January  1,  2001.  SFAS  No.  133  establishes  accounting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives  are recognized as either assets or liabilities and measured at fair
value. The accounting for changes in fair value of derivatives is dependent upon
the intended use of the derivative.  As permitted by the transition requirements
of SFAS No. 133, as amended, the Company exempted from the scope of SFAS No. 133
all host contracts containing embedded derivatives which were issued or acquired
prior  to  January  1,  1999.  The  Company  is not a party  to any  significant
derivative or hedging  instrument covered by SFAS No. 133 at September 30, 2001,
and there was no impact on the Company's financial statements from adopting SFAS
No. 133.

                                      - 10 -
<PAGE>

Note 2 - Earnings per share:

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

Note 3 - Business segment information:

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

                                                 Three months ended        Nine months ended
                                                    September 30,            September 30,
                                              ----------------------    ----------------------
                                                  2001        2000         2001         2000
                                              ---------    ---------    ---------    ---------
                                                              (In thousands)

<S>                                           <C>          <C>          <C>          <C>
Net sales .................................   $ 206,952    $ 242,309    $ 653,117    $ 724,444
Other income (expense), excluding corporate        (337)       1,404        1,673        5,518
                                              ---------    ---------    ---------    ---------
                                                206,615      243,713      654,790      729,962

Cost of sales .............................     145,945      159,021      447,167      482,319
Selling, general and administrative,
  excluding corporate .....................      24,448       27,181       74,315       81,154
                                              ---------    ---------    ---------    ---------

        Operating income ..................      36,222       57,511      133,308      166,489

Insurance recoveries, net .................       3,900         --          5,829         --
                                              ---------    ---------    ---------    ---------

        Income before corporate items,
          income taxes and minority
          interest ........................      40,122       57,511      139,137      166,489

General corporate income (expense):
    Securities earnings, net ..............       2,145        2,494        5,937       11,602
    Litigation settlement gains, net
      and other income ....................       1,129        1,008       14,127       46,232
    Corporate expenses ....................      (6,228)      (6,791)     (18,019)     (23,040)
    Interest expense ......................      (6,949)      (7,717)     (20,812)     (23,470)
                                              ---------    ---------    ---------    ---------

        Income before income taxes and
          minority interest ...............   $  30,219    $  46,505    $ 120,370    $ 177,813
                                              =========    =========    =========    =========
</TABLE>

                                      - 11 -
<PAGE>

Note 4 - Inventories:
<TABLE>
<CAPTION>

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

<S>                                                  <C>                <C>
Raw materials ............................           $ 40,160           $ 66,061
Work in process ..........................              7,321              7,117
Finished products ........................            111,879            107,120
Supplies .................................             27,433             25,675
                                                     --------           --------

                                                     $186,793           $205,973
                                                     ========           ========
</TABLE>


Note 5 - Marketable securities:
<TABLE>
<CAPTION>

                                                    September 30,   December 31,
                                                        2001           2000
                                                    -------------   ------------
                                                           (In thousands)
<S>                                                    <C>             <C>
Available-for-sale marketable equity securities:
    Unrealized gains ...........................       $ 15,004        $ 14,912
    Unrealized losses ..........................         (2,770)         (1,244)
    Cost .......................................         32,380          33,518
                                                       --------        --------

        Aggregate fair value ...................       $ 44,614        $ 47,186
                                                       ========        ========
</TABLE>

        In June 2001, the Company  recognized a $1.1 million noncash  securities
loss   related   to  an   other-than-temporary   decline  in  value  of  certain
available-for-sale securities held by the Company. See Note 11.

Note 6 - Receivable from affiliates:

        A majority-owned  subsidiary of the Company, NL Environmental Management
Services,  Inc.  ("EMS"),  loaned  $13.4  million  to  Tremont  under a reducing
revolving  loan agreement in the first quarter of 2001. See Note 1. The loan was
approved by special  committees  of the Company's and EMS's Boards of Directors.
The loan bears  interest at prime plus 2% (8.75% at September 30, 2001),  is due
March 31, 2003 and is  collateralized  by 10.2 million shares of NL common stock
owned by Tremont.  The maximum amount available for borrowing by Tremont reduces
by  $250,000  per  quarter.  In each of the second and third  quarters  of 2001,
Tremont repaid $250,000 of the loan. At September 30, 2001, the outstanding loan
balance  was  $12.9  million  and  no  amounts  were  available  for  additional
borrowings by Tremont.

        In May 2001, a wholly owned  subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"),  one of the trusts described in
Note 1, under a $25 million revolving credit agreement. The loan was approved by
special  committees of the  Company's  and EMS's Boards of  Directors.  The loan
bears interest at prime (6.75% at September 30, 2001),  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
Trust. At September 30, 2001, $5 million was available for additional  borrowing
by the Trust.

                                      - 12 -
<PAGE>


Note 7 - Accounts payable and accrued liabilities:
<TABLE>
<CAPTION>

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

<S>                                               <C>                   <C>
Accounts payable ...................              $ 54,643              $ 64,553
                                                  --------              --------
Accrued liabilities:
    Employee benefits ..............                29,367                34,160
    Interest .......................                11,241                 5,019
    Deferred income ................                 4,000                 4,000
    Other ..........................                41,024                40,145
                                                  --------              --------

                                                    85,632                83,324
                                                  --------              --------

                                                  $140,275              $147,877
                                                  ========              ========

</TABLE>


Note 8 - Other noncurrent liabilities:

<TABLE>
<CAPTION>

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

<S>                                                   <C>                <C>
Insurance claims and expenses ............            $ 9,592            $10,314
Employee benefits ........................              3,703              7,721
Deferred income ..........................              1,333              4,333
Other ....................................              2,185                904
                                                      -------            -------

                                                      $16,813            $23,272
                                                      =======            =======
</TABLE>

Note 9 - Notes payable and long-term debt:
<TABLE>
<CAPTION>

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

<S>                                                   <C>               <C>
Notes payable - Kronos .....................          $ 47,435          $ 69,970
                                                      ========          ========

Long-term debt:
    NL Industries, Inc. - 11.75% Senior
        Secured Notes (See Note 13) ........          $194,000          $194,000
    Kronos .................................             2,837             2,093
                                                      --------          --------

                                                       196,837           196,093
Less current maturities ....................               917               730
                                                      --------          --------

                                                      $195,920          $195,363
                                                      ========          ========
</TABLE>

        Notes  payable  consists  of euro 27.2  million  and NOK 200  million at
September 30, 2001 and euro 51 million and NOK 200 million at December 31, 2000.

                                      - 13 -
<PAGE>

Note 10 - Income taxes:

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

                                                               Nine months ended
                                                                  September 30,
                                                              --------------------
                                                                2001        2000
                                                              --------    --------
                                                                 (In thousands)

<S>                                                           <C>         <C>
Expected tax expense ......................................   $ 42,130    $ 62,235
Non-U.S. tax rates ........................................     (3,451)     (3,917)
Incremental tax on income of companies not included in NL's
  consolidated U.S. federal income tax return .............        416       1,015
Valuation allowance .......................................     (1,343)     (2,116)
U.S. state income taxes ...................................        444         691
Other, net ................................................        700         935
                                                              --------    --------

        Income tax expense ................................   $ 38,896    $ 58,843
                                                              ========    ========
</TABLE>

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

  Litigation settlement gains, net

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

  Other income, net
<TABLE>
<CAPTION>

                                               Three months ended       Nine months ended
                                                  September 30,          September 30,
                                              --------------------    --------------------
                                                2001        2000        2001       2000
                                              --------    --------    --------    --------
                                                               (In thousands)

<S>                                           <C>         <C>         <C>         <C>
Securities earnings:
    Interest and dividends ................   $  2,145    $  2,417    $  7,070    $  5,972
    Securities transactions ...............       --            77      (1,133)      5,630
                                              --------    --------    --------    --------
                                                 2,145       2,494       5,937      11,602
Currency transactions, net ................     (1,183)        602          98       4,256
Noncompete agreement income ...............      1,000       1,000       3,000       3,000
Disposition of property and equipment .....          3        (271)       (416)     (1,219)
Trade interest income .....................        611         648       1,680       1,475
Other, net ................................        350         433         845       1,238
                                              --------    --------    --------    --------

                                              $  2,926    $  4,906    $ 11,144    $ 20,352
                                              ========    ========    ========    ========
</TABLE>

                                     - 14 -
<PAGE>


        In the second  quarter of 2000,  the Company  recognized  a $5.6 million
securities gain related to common stock received from the  demutualization of an
insurance  company  from  which the  Company  had  purchased  certain  insurance
policies.

Note 12 - Leverkusen fire and insurance claim:

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

        On  April  8,  2001,  repairs  to the  damaged  support  equipment  were
substantially  completed and full production  resumed at the Chloride Plant. The
Sulfate Plant became  approximately 50% operational in September 2001 and became
fully operational in late October 2001.

        During  the third  quarter of 2001,  the  Company's  insurance  carriers
approved  payment of $8 million ($6.8 million received as of September 30, 2001)
as a partial payment for property damage costs and business  interruption losses
caused by the Leverkusen fire. Three million dollars of this payment represented
partial  compensation for business  interruption  losses which was recorded as a
reduction of cost of sales to offset unallocated period costs that resulted from
lost production. The remaining $5 million represented property damage recoveries
against which the Company  recorded $1.1 million of expenses related to clean-up
costs,  resulting  in a net gain of $3.9  million.  In the first nine  months of
2001, the Company's  insurance carriers approved payment of $18.5 million ($17.3
million  received as of September 30, 2001) for losses caused by the  Leverkusen
fire,  including the $8 million  discussed above.  Eight million dollars of this
payment was for business interruption losses and the remaining $10.5 million was
for property  damage losses  against which the Company  recorded $4.7 million of
expenses resulting in a net gain of $5.8 million.

        In October 2001, the Company  reached an agreement in principle with its
insurance  carriers to settle the coverage claim involving the Leverkusen  fire.
The  Company   expects  to  receive  an  additional  $38  million  in  insurance
recoveries, of which approximately $13 million relates to property damage costs,
and approximately $25 million relates to business  interruption losses and extra
expenses  resulting from the fire. The Company  expects to report a gain, net of
certain expenses,  related to this insurance settlement in the fourth quarter of
2001.

Note 13 - Condensed consolidating financial information:

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

                                     - 15 -
<PAGE>

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

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

        Investments  in  subsidiaries  are  accounted for by NL under the equity
method,  wherein  the parent  company's  share of  earnings  is  included in net
income.   Elimination   entries  eliminate  (i)  the  parent's   investments  in
subsidiaries  and the equity in  earnings  of  subsidiaries,  (ii)  intercompany
payables and receivables and (iii) other transactions between subsidiaries.

                                     - 16 -
<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet
                               September 30, 2001
                                 (In thousands)
<TABLE>
<CAPTION>

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

<S>                                                    <C>             <C>             <C>              <C>              <C>
Current assets:
    Cash and cash equivalents ....................     $     3,088     $    65,190     $    28,722      $      --        $    97,000
    Restricted cash equivalents ..................          80,198            --              --               --             80,198
    Accounts and notes receivable ................             750         144,220              72             --            145,042
    Receivable from affiliates ...................          17,394            --            21,714          (17,449)          21,659
    Refundable income taxes ......................            --               337            --               --                337
    Inventories ..................................            --           186,793            --               --            186,793
    Prepaid expenses .............................             510           6,467            --               --              6,977
    Deferred income taxes ........................           4,748           7,081            --               --             11,829
                                                       -----------     -----------     -----------      -----------      -----------

        Total current assets .....................         106,688         410,088          50,508          (17,449)         549,835
                                                       -----------     -----------     -----------      -----------      -----------

Other assets:
    Investment in subsidiaries ...................       1,044,649            --               294       (1,044,943)            --
    Marketable securities ........................             343            --            44,271             --             44,614
    Notes receivable from affiliates .............         194,000         612,183          34,900         (829,183)          11,900
    Investment in TiO2 manufacturing joint venture            --           144,228            --               --            144,228
    Prepaid pension cost .........................           2,228          20,288            --               --             22,516
    Restricted cash equivalents ..................          12,656            --              --               --             12,656
    Other ........................................           1,368           4,609            --               --              5,977
                                                       -----------     -----------     -----------      -----------      -----------
        Total other assets .......................       1,255,244         781,308          79,465       (1,874,126)         241,891
                                                       -----------     -----------     -----------      -----------      -----------

Property and equipment, net ......................           3,900         320,943            --               --            324,843
                                                       -----------     -----------     -----------      -----------      -----------

                                                       $ 1,365,832     $ 1,512,339     $   129,973      $(1,891,575)     $ 1,116,569
                                                       ===========     ===========     ===========      ===========      ===========
</TABLE>

                                     - 17 -

<PAGE>


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

<TABLE>
<CAPTION>

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

<S>                                               <C>              <C>              <C>               <C>               <C>
Current liabilities:
    Notes payable ..........................      $      --        $    47,435      $      --         $      --         $    47,435
    Current maturities of long-term debt ...             --                917             --                --                 917
    Accounts payable and accrued liabilities           29,199          110,884              192              --             140,275
    Payable to affiliates ..................           13,420           12,918              654           (17,449)            9,543
    Accrued environmental costs ............            7,018             --             57,616              --              64,634
    Income taxes ...........................              459           13,517             --                --              13,976
    Deferred income taxes ..................             --              1,319             --                --               1,319
                                                  -----------      -----------      -----------       -----------       -----------


        Total current liabilities ..........           50,096          186,990           58,462           (17,449)          278,099
                                                  -----------      -----------      -----------       -----------       -----------

Noncurrent liabilities:
    Long-term debt .........................          194,000            1,920             --                --             195,920
    Notes payable to affiliate .............          635,183          194,000             --            (829,183)             --
    Deferred income taxes ..................           73,227           78,573              127              --             151,927
    Accrued environmental costs ............            8,005            7,442           26,302              --              41,749
    Accrued pension cost ...................            1,464           15,896             --                --              17,360
    Accrued postretirement benefits cost ...           16,352           13,328             --                --              29,680
    Other ..................................            9,695            7,118             --                --              16,813
                                                  -----------      -----------      -----------       -----------       -----------

        Total noncurrent liabilities .......          937,926          318,277           26,429          (829,183)          453,449
                                                  -----------      -----------      -----------       -----------       -----------

Minority interest ..........................             --                287            6,924              --               7,211
                                                  -----------      -----------      -----------       -----------       -----------

Shareholders' equity .......................          377,810        1,006,785           38,158        (1,044,943)          377,810
                                                  -----------      -----------      -----------       -----------       -----------

                                                  $ 1,365,832      $ 1,512,339      $   129,973       $(1,891,575)      $ 1,116,569
                                                  ===========      ===========      ===========       ===========       ===========
</TABLE>

                                     - 18 -

<PAGE>


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


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

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


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

Other assets:
    Investment in subsidiaries ...................     687,300             --                285          (687,585)             --
    Marketable securities ........................         452             --             46,734              --              47,186
    Notes receivable from affiliates .............     194,000          301,695           23,000          (518,695)             --
    Investment in TiO2 manufacturing joint venture        --            150,002             --                --             150,002
    Prepaid pension cost .........................       1,772           21,017             --                --              22,789
    Restricted cash equivalents ..................      17,942             --               --                --              17,942
    Other ........................................       1,739            2,968             --                --               4,707
                                                   -----------      -----------      -----------       -----------       -----------


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

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


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

                                     - 19 -
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES
               Condensed Consolidating Balance Sheet, (Continued)
                                December 31, 2000
                                 (In thousands)
<TABLE>
<CAPTION>
                                                         NL                           Combined
                                                    Industries                      Non-guarantor
                                                        Inc.        Kronos, Inc.     Subsidiaries    Eliminations     Consolidated
                                                    ----------      ------------    -------------    ------------     ------------

          LIABILITIES AND SHAREHOLDERS' EQUITY

<S>                                               <C>              <C>              <C>               <C>               <C>
Current liabilities:
    Notes payable ..........................      $      --        $    69,970      $      --         $      --         $    69,970
    Current maturities of long-term debt ...             --                730             --                --                 730
    Accounts payable and accrued liabilities           24,098          123,555              224              --             147,877
    Payable to affiliates ..................            2,140           14,073              612            (6,191)           10,634
    Accrued environmental costs ............            5,046             --             48,261              --              53,307
    Income taxes ...........................             --             13,604               12              --              13,616
    Deferred income taxes ..................             --              1,822             --                --               1,822
                                                  -----------      -----------      -----------       -----------       -----------

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

Noncurrent liabilities:
    Long-term debt .........................          194,000            1,363             --                --             195,363
    Notes payable to affiliate .............          324,695          194,000             --            (518,695)             --
    Deferred income taxes ..................           70,985           73,699              989              --             145,673
    Accrued environmental costs ............            6,729            8,699           41,705              --              57,133
    Accrued pension cost ...................            1,438           19,782             --                --              21,220
    Accrued postretirement benefits cost ...           15,039           14,365             --                --              29,404
    Other ..................................           15,460            7,812             --                --              23,272
                                                  -----------      -----------      -----------       -----------       -----------


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

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

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

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

                                     - 20 -
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                   Condensed Consolidating Statement of Income
                      Three months ended September 30, 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                         NL                           Combined
                                                    Industries                      Non-guarantor
                                                        Inc.        Kronos, Inc.    Subsidiaries    Eliminations    Consolidated
                                                    ----------      ------------    -------------   ------------    ------------
<S>                                                  <C>             <C>             <C>             <C>             <C>
Revenues and other income:
    Net sales .................................      $    --         $ 206,952       $    --         $    --         $ 206,952
    Interest and dividends ....................          6,754          10,131           1,482         (15,611)          2,756
    Equity in income of subsidiaries ..........         25,804            --              --           (25,804)           --
    Insurance recoveries, net .................           --             3,900            --              --             3,900
    Other income, net .........................          1,129            (959)            (11)             11             170
                                                     ---------       ---------       ---------       ---------       ---------

                                                        33,687         220,024           1,471         (41,404)        213,778
                                                     ---------       ---------       ---------       ---------       ---------
Costs and expenses:
    Cost of sales .............................           --           145,945            --              --           145,945
    Selling, general and administrative .......         (1,800)         31,355           1,110            --            30,665
    Interest ..................................         15,689           6,871            --           (15,611)          6,949
                                                     ---------       ---------       ---------       ---------       ---------

                                                        13,889         184,171           1,110         (15,611)        183,559
                                                     ---------       ---------       ---------       ---------       ---------

        Income before income taxes and minority
            interest ..........................         19,798          35,853             361         (25,793)         30,219

Income tax expense (benefit) ..................           (740)         10,411              10            --             9,681
                                                     ---------       ---------       ---------       ---------       ---------

        Net income ............................      $  20,538       $  25,442       $     351       $ (25,793)      $  20,538
                                                     =========       =========       =========       =========       =========
</TABLE>

                                     - 21 -
<PAGE>


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


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

<S>                                                          <C>            <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................     $    --        $ 242,309      $    --        $    --        $ 242,309
    Interest and dividends .............................         8,326          6,557          1,563        (13,381)         3,065
    Equity in income of subsidiaries ...................        39,177           --             --          (39,177)          --
    Other income, net ..................................         1,085            756           --             --            1,841
                                                             ---------      ---------      ---------      ---------      ---------


                                                                48,588        249,622          1,563        (52,558)       247,215
                                                             ---------      ---------      ---------      ---------      ---------

Costs and expenses:
    Cost of sales ......................................          --          159,021           --             --          159,021
    Selling, general and administrative ................         5,493         29,530         (1,051)          --           33,972
    Interest ...........................................        13,531          7,567           --          (13,381)         7,717
                                                             ---------      ---------      ---------      ---------      ---------


                                                                19,024        196,118         (1,051)       (13,381)       200,710
                                                             ---------      ---------      ---------      ---------      ---------

        Income before income taxes and minority interest        29,564         53,504          2,614        (39,177)        46,505

Income tax expense (benefit) ...........................          (605)        15,487           --             --           14,882
                                                             ---------      ---------      ---------      ---------      ---------


        Income before minority interest ................        30,169         38,017          2,614        (39,177)        31,623

Minority interest ......................................          --                8          1,446           --            1,454
                                                             ---------      ---------      ---------      ---------      ---------


        Net income .....................................     $  30,169      $  38,009      $   1,168      $ (39,177)     $  30,169
                                                             =========      =========      =========      =========      =========
</TABLE>

                                     - 22 -
<PAGE>


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

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

<S>                                                 <C>           <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales .................................     $    --       $ 653,117      $    --        $    --        $ 653,117
    Interest and dividends ....................        20,751        25,590          4,603        (42,194)         8,750
    Equity in income of subsidiaries ..........       100,325          --             --         (100,325)          --
    Litigation settlement gains, net ..........        10,582          --             --             --           10,582
    Insurance recoveries, net .................          --           5,829           --             --            5,829
    Other income, net .........................         2,412           (18)           (11)            11          2,394
                                                    ---------     ---------      ---------      ---------      ---------

                                                      134,070       684,518          4,592       (142,508)       680,672
                                                    ---------     ---------      ---------      ---------      ---------
Costs and expenses:
    Cost of sales .............................          --         447,167           --             --          447,167
    Selling, general and administrative .......         9,257        82,694            372           --           92,323
    Interest ..................................        42,415        20,591           --          (42,194)        20,812
                                                    ---------     ---------      ---------      ---------      ---------


                                                       51,672       550,452            372        (42,194)       560,302
                                                    ---------     ---------      ---------      ---------      ---------

        Income before income taxes and minority
          interest ............................        82,398       134,066          4,220       (100,314)       120,370

Income tax expense ............................         1,877        37,009             10           --           38,896
                                                    ---------     ---------      ---------      ---------      ---------


        Income before minority interest .......        80,521        97,057          4,210       (100,314)        81,474

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


        Net income ............................     $  80,521     $  97,048      $   3,266      $(100,314)     $  80,521
                                                    =========     =========      =========      =========      =========

</TABLE>

                                     - 23 -
<PAGE>



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


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

<S>                                                          <C>           <C>            <C>            <C>            <C>
Revenues and other income:
    Net sales ..........................................     $    --       $ 724,444      $    --        $    --        $ 724,444
    Interest and dividends .............................        23,500        18,136          4,365        (38,554)         7,447
    Equity in income of subsidiaries ...................       153,635          --             --         (153,635)          --
    Litigation settlement gains, net ...................        43,000          --             --             --           43,000
    Other income, net ..................................         8,862         4,043           --             --           12,905
                                                             ---------     ---------      ---------      ---------      ---------

                                                               228,997       746,623          4,365       (192,189)       787,796
                                                             ---------     ---------      ---------      ---------      ---------
Costs and expenses:
    Cost of sales ......................................          --         482,319           --             --          482,319
    Selling, general and administrative ................        19,698        85,012           (516)          --          104,194
    Interest ...........................................        38,661        23,363           --          (38,554)        23,470
                                                             ---------     ---------      ---------      ---------      ---------

                                                                58,359       590,694           (516)       (38,554)       609,983
                                                             ---------     ---------      ---------      ---------      ---------

        Income before income taxes and minority interest       170,638       155,929          4,881       (153,635)       177,813

Income tax expense .....................................        53,323         5,520           --             --           58,843
                                                             ---------     ---------      ---------      ---------      ---------

        Income before minority interest ................       117,315       150,409          4,881       (153,635)       118,970

Minority interest ......................................          --              33          1,622           --            1,655
                                                             ---------     ---------      ---------      ---------      ---------

        Net income .....................................     $ 117,315     $ 150,376      $   3,259      $(153,635)     $ 117,315
                                                             =========     =========      =========      =========      =========

</TABLE>

                                     - 24 -
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES
                 Condensed Consolidating Statement of Cash Flows
                      Nine months ended September 30, 2001
                                 (In thousands)
<TABLE>
<CAPTION>
                                                              NL                       Combined
                                                          Industries                 Non-guarantor
                                                             Inc.      Kronos, Inc.   Subsidiaries   Eliminations   Consolidated
                                                          ---------    ------------  -------------   ------------   ------------

<S>                                                       <C>            <C>            <C>            <C>            <C>
Net cash provided (used) by operating activities ....     $  18,618      $  99,115      $  (2,133)     $ (23,176)     $  92,424
                                                          ---------      ---------      ---------      ---------      ---------
Cash flows from investing activities:
    Capital expenditures ............................          --          (32,391)          --             --          (32,391)
    Loans to affiliates, net ........................          --          (11,938)       (32,900)        11,938        (32,900)
    Change in restricted cash .......................         8,024           --             --           (7,324)           700
    Other, net ......................................             7          8,477             (8)             8          8,484
                                                          ---------      ---------      ---------      ---------      ---------

        Net cash provided (used) by investing
          activities ................................         8,031        (35,852)       (32,908)         4,622        (56,107)
                                                          ---------      ---------      ---------      ---------      ---------

Cash flows from financing activities:
    Dividends, net ..................................       (29,897)       (30,500)          --           30,500        (29,897)
    Treasury stock:
        Purchased ...................................        (9,853)          --             --             --           (9,853)
        Reissued ....................................           619           --             --             --              619
    Indebtedness:
        Borrowings ..................................          --            1,437           --             --            1,437
        Principal payments ..........................          --          (22,132)          --             --          (22,132)
    Loans from affiliates ...........................        11,938           --             --          (11,938)          --
    Other, net ......................................          --                3           --               (8)            (5)
                                                          ---------      ---------      ---------      ---------      ---------
        Net cash provided (used) by financing
          activities ................................       (27,193)       (51,192)          --           18,554        (59,831)
                                                          ---------      ---------      ---------      ---------      ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities          (544)        12,071        (35,041)          --          (23,514)
        Currency translation ........................          --              140             (4)          --              136
                                                          ---------      ---------      ---------      ---------      ---------

                                                               (544)        12,211        (35,045)          --          (23,378)
    Balance at beginning of period ..................         3,632         52,979         63,767           --          120,378
                                                          ---------      ---------      ---------      ---------      ---------


    Balance at end of period ........................     $   3,088      $  65,190      $  28,722      $    --        $  97,000
                                                          =========      =========      =========      =========      =========

</TABLE>

                                     - 25 -

<PAGE>


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

<S>                                                       <C>             <C>             <C>             <C>             <C>
Net cash provided (used) by operating activities ....     $  16,862       $ 145,433       $    (133)      $ (43,000)      $ 119,162
                                                          ---------       ---------       ---------       ---------       ---------

Cash flows from investing activities:
    Capital expenditures ............................           (21)        (19,736)           --              --           (19,757)
    Purchase of Tremont Corporation common stock ....        (9,520)           --           (16,520)           --           (26,040)
    Change in restricted cash .......................          (102)           --              --              --              (102)
    Loans to affiliates .............................          --           (35,872)         30,000           5,872            --
    Investment in subsidiary ........................       (16,600)           --              --            16,600            --
    Other, net ......................................           181              68            --              --               249
                                                          ---------       ---------       ---------       ---------       ---------

        Net cash provided (used) by investing
        activities ..................................       (26,062)        (55,540)         13,480          22,472         (45,650)
                                                          ---------       ---------       ---------       ---------       ---------

Cash flows from financing activities:
    Treasury stock:
        Purchased ...................................       (29,180)           --              --              --           (29,180)
        Reissued ....................................         1,581            --              --              --             1,581
    Dividends, net ..................................       (22,721)        (43,000)           --            43,000         (22,721)
    Principal payments on debt ......................          --           (29,034)           --              --           (29,034)
    Loans from affiliates ...........................        48,872         (43,000)           --            (5,872)           --
    Capital contributions ...........................          --              --            16,600         (16,600)           --
    Other, net ......................................          --                (6)           --              --                (6)
                                                          ---------       ---------       ---------       ---------       ---------

        Net cash provided (used) by financing
            activities ..............................        (1,448)       (115,040)         16,600          20,528         (79,360)
                                                          ---------       ---------       ---------       ---------       ---------

Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities       (10,648)        (25,147)         29,947            --            (5,848)
        Currency translation ........................          --            (3,305)             (7)           --            (3,312)
                                                          ---------       ---------       ---------       ---------       ---------

                                                            (10,648)        (28,452)         29,940            --            (9,160)
    Balance at beginning of period ..................        13,415         113,062           7,747            --           134,224
                                                          ---------       ---------       ---------       ---------       ---------


    Balance at end of period ........................     $   2,767       $  84,610       $  37,687       $    --         $ 125,064
                                                          =========       =========       =========       =========       =========
</TABLE>


                                     - 26 -

<PAGE>



Note 14 - Commitments and contingencies:

        For  descriptions  of certain  legal  proceedings,  income tax and other
commitments and contingencies  related to the Company,  reference is made to (i)
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations,  (ii) Part II,  Item 1 - "Legal  Proceedings,"  (iii) the  Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 2001 and June 30,
2001, and (iv) the 2000 Annual Report.

Note 15 - Accounting principles not yet adopted:

        The Company  will adopt SFAS No. 143,  Accounting  for Asset  Retirement
Obligations,  no later than January 1, 2003.  Under SFAS No. 143, the fair value
of a liability  for an asset  retirement  obligation  covered under the scope of
SFAS No.  143  would be  recognized  in the  period in which  the  liability  is
incurred,  with an  offsetting  increase in the  carrying  amount of the related
long-lived  asset.  Over time,  the  liability  would be accreted to its present
value, and the capitalized cost would be depreciated over the useful life of the
related asset.  Upon settlement of the liability,  an entity would either settle
the obligation for its recorded amount or incur a gain or loss upon  settlement.
The Company is still  studying this  newly-issued  standard to determine,  among
other things,  whether it has any asset retirement obligations which are covered
under the scope of SFAS No.  143,  and the  effect,  if any,  to the  Company of
adopting this standard has not yet been determined.

        The Company will adopt SFAS No. 144,  Accounting  for the  Impairment or
Disposal  of  Long-Lived  Assets,  no later than  January 1, 2002.  SFAS No. 144
retains the fundamental  provisions of existing  generally  accepted  accounting
principles with respect to the  recognition and measurement of long-lived  asset
impairment  contained  in  SFAS  No.  121,  Accounting  for  the  Impairment  of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. However, SFAS No.
144 provides new guidance intended to address certain significant implementation
issues associated with SFAS No. 121, including expanded guidance with respect to
appropriate  cash  flows  to be used to  determine  whether  recognition  of any
long-lived  asset  impairment  is  required,  and if required how to measure the
amount of the  impairment.  SFAS No. 144 also requires that any net assets to be
disposed of by sale be  reported  at the lower of  carrying  value or fair value
less cost to sell,  and expands the  reporting  of  discontinued  operations  to
include any  component of an entity with  operations  and cash flows that can be
clearly distinguished from the rest of the entity. The Company is still studying
this newly-issued  standard,  and the effect, if any, to the Company of adopting
SFAS No. 144 has not yet been determined.


                                     - 27 -
<PAGE>


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

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

                                     Three months ended      %      Nine months ended     %
                                       September  30,     Change      September  30,   Change
                                     ------------------   ------   ------------------  ------
                                       2001      2000               2001     2000
                                     --------  --------            ------   ------
                                         (In millions, except percentages and metric tons)

<S>                                    <C>      <C>        <C>     <C>      <C>         <C>
Net sales and operating income
    Net sales ....................     $207.0   $242.3     -15%    $653.1   $724.4      -10%
    Operating income .............     $ 36.2   $ 57.5     -37%    $133.3   $166.5      -20%
    Operating income margin
      percentage .................      18%      24%                          20%        23%

TiO2 operating statistics
    Percent change in average
      selling price (in billing
      currencies) ................                          -6%                          n/c
    Sales volume (metric tons in
      thousands) .................      103      113        -9%     311      343        -10%
    Production volume (metric tons
      in thousands) ..............      109      113        -4%     315      329         -4%
</TABLE>


        Kronos'  operating  income in the third quarter of 2001 decreased  $21.3
million  or 37% from the  third  quarter  of 2000 due to lower  average  selling
prices in billing  currencies  and lower sales and production  volumes.  Kronos'
operating income in the first nine months of 2001 decreased $33.2 million or 20%
from the first nine months of 2000 due to lower sales and production volumes.

        Kronos' average selling price in billing  currencies (which excludes the
effects of foreign currency translation) during the third quarter of 2001 was 6%
lower than the third  quarter  of 2000 and 4% lower  than the second  quarter of
2001.  Compared to the second quarter of 2001, prices in billing currencies were
lower in all major markets.  The average selling price in billing  currencies in
September  was 1% lower than the average  selling price during the third quarter
as prices continued to trend downward.  Kronos' average selling price in billing
currencies  for the first nine months of 2001 was  comparable  to the first nine
months of 2000. Due to the global  economic  slowdown,  the Company  expects its
average  selling price in billing  currencies  will  continue to trend  downward
through  the end of the year and  perhaps  into the first  quarter of 2002.  The
Company expects a lower average selling price for full-year 2001 compared to the
full-year average selling price in 2000.

        Kronos'  third-quarter  2001  sales  volume  decreased  9% from the near
record third quarter of 2000 and  decreased 2% from the second  quarter of 2001.
Sales  volume in the third  quarter  of 2001 was 17% and 4% lower in Europe  and
North America, respectively, compared to the third quarter of 2000, while export
volume  increased  moderately.  Compared  to the second  quarter of 2001,  sales
volume  decreased  in Europe and North  America  while  sales  volume  increased
moderately in the export markets.  Sales volume in the first nine months of 2001
was 10% lower  than in the first nine  months of 2000.  Kronos  anticipates  its
sales volume for full-year 2001 will be lower than that of 2000.  Finished goods
inventory levels at the end of September represented about two months of sales.

        Third-quarter  2001  production  volume was 4% lower than the comparable
2000 period with operating rates at 95% in the third quarter of 2001 compared to
near full capacity in the third quarter of 2000.  Kronos'

                                     - 28 -

<PAGE>


production  volume in the first nine  months of 2001 was 4% lower than the first
nine months of 2000 with operating rates at 94% in the first nine months of 2001
compared  to near full  capacity  in the first  nine  months of 2000.  The lower
production  volume was primarily related to lost  sulfate-process  production at
the Company's  Leverkusen  facility due to the previously reported fire in March
2001.  See Note 12 to the  Consolidated  Financial  Statements.  The  Leverkusen
sulfate-process plant became approximately 50% operational in September 2001 and
became fully operational in late October 2001. Kronos anticipates its production
volume for full-year 2001 will be lower than that of 2000.

        During  the third  quarter of 2001,  the  Company's  insurance  carriers
approved  payment of $8 million ($6.8 million received as of September 30, 2001)
as a partial payment for property damage costs and business  interruption losses
caused by the Leverkusen fire. Three million dollars of this payment represented
partial  compensation for business  interruption  losses which was recorded as a
reduction of cost of sales to offset unallocated period costs that resulted from
lost production. The remaining $5 million represented property damage recoveries
against which the Company  recorded $1.1 million of expenses related to clean-up
costs,  resulting  in a net gain of $3.9  million.  In the first nine  months of
2001, the Company's  insurance carriers approved payment of $18.5 million ($17.3
million  received as of September 30, 2001) for losses caused by the  Leverkusen
fire,  including the $8 million  discussed above.  Eight million dollars of this
payment was for business interruption losses and the remaining $10.5 million was
for property  damage losses  against which the Company  recorded $4.7 million of
expenses resulting in a net gain of $5.8 million.

        In October 2001, the Company  reached an agreement in principle with its
insurance  carriers to settle the coverage claim involving the Leverkusen  fire.
The  Company   expects  to  receive  an  additional  $38  million  in  insurance
recoveries, of which approximately $13 million relates to property damage costs,
and approximately $25 million relates to business  interruption losses and extra
expenses  resulting from the fire. The Company  expects to report a gain, net of
certain expenses,  related to this insurance settlement in the fourth quarter of
2001.

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

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

        A  significant   amount  of  Kronos'  sales  and  operating   costs  are
denominated in currencies other than the U.S. dollar.  Fluctuations in the value
of the U.S.  dollar  relative to other  currencies,  primarily  a stronger  U.S.
dollar  compared to the euro in the third  quarter and first nine months of 2001
versus the  year-earlier  periods,  decreased  the dollar  value of sales in the
third quarter and first nine months of 2001 by a net $6 million and $24 million,
respectively,  when compared to the year-earlier  periods.  When translated from
billing  currencies to U.S.  dollars using currency  exchange  rates  prevailing
during the respective periods,  Kronos' third-quarter 2001 average selling price
in U.S. dollars was 9% lower than in the third quarter of 2000 and 4% lower than
the second quarter of 2001.  Kronos' average  selling price in U.S.  dollars for
the first nine months of 2001  decreased  4% from the first nine months of 2000.
The effect of the stronger U.S.  dollar on Kronos'  operating


                                     - 29 -
<PAGE>


costs that are not denominated in U.S.  dollars  reduced  operating costs in the
third  quarter  and first  nine  months  of 2001  compared  to the  year-earlier
periods. In addition,  sales to export markets are typically denominated in U.S.
dollars  and a stronger  U.S.  dollar  improves  margins  on these  sales at the
Company's non-U.S.  subsidiaries.  The favorable margin on export sales tends to
offset the  unfavorable  effect of translating  local  currency  profits to U.S.
dollars  when the dollar is  stronger.  As a result,  the net impact of currency
exchange rate  fluctuations  on operating  income in the third quarter and first
nine  months  of 2001 was not  significant  when  compared  to the  year-earlier
periods.

  General corporate

        The following  table sets forth certain  information  regarding  general
corporate income (expense).
<TABLE>
<CAPTION>

                              Three months ended                 Nine months ended
                                  September 30,    Difference       September 30,   Difference
                             -------------------   ----------  -------------------  ----------
                               2001        2000                 2001        2000
                             -------     -------               -------     -------
                                                    (In millions)

<S>                          <C>         <C>        <C>        <C>        <C>        <C>
Securities earnings ......   $   2.1     $   2.5    $   (.4)   $   6.0    $  11.6    $  (5.6)
Corporate income .........       1.1         1.0         .1       14.1       46.2      (32.1)
Corporate expense ........      (6.2)       (6.8)        .6      (18.0)     (23.0)       5.0
Interest expense .........      (6.9)       (7.7)        .8      (20.8)     (23.5)       2.7
                             -------     -------    -------    -------    -------    -------

                             $  (9.9)    $ (11.0)   $   1.1    $ (18.7)   $  11.3    $ (30.0)
                             =======     =======    =======    =======    =======    =======
</TABLE>

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

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

        Corporate  expense in the first  nine  months of 2001 was lower than the
year-earlier period,  primarily due to lower environmental  remediation accruals
and lower legal fees.

        Interest  expense in the third  quarter  and first  nine  months of 2001
decreased  10% and  11%,  respectively,  from  the  comparable  periods  in 2000
primarily due to lower average  interest  rates as a result of the December 2000
refinancing  of $50 million of the Company's  fixed-rate  public debt with lower
variable-rate bank debt, and lower levels of outstanding debt. In the second and
third  quarters of 2001,  the Company  repaid  $6.5  million and $14.9  million,
respectively, of its euro-denominated short-term debt with excess cash flow from
operations.  The Company  expects its full-year  2001  interest  expense will be
lower than full-year 2000.

                                     - 30 -
<PAGE>

  Provision for income taxes

        The Company reduced its deferred income tax valuation  allowance by $1.3
million  in the first  nine  months of 2001 and $2.1  million  in the first nine
months of 2000  primarily as a result of  utilization  of certain tax attributes
for  which  the  benefit   had  not  been   previously   recognized   under  the
"more-likely-than-not" recognition criteria.

  Accounting principles not yet adopted

        See Note 15 to the Consolidated Financial Statements.

  Other

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

LIQUIDITY AND CAPITAL RESOURCES

        The  Company's  consolidated  cash flows from  operating,  investing and
financing  activities for the nine months ended  September 30, 2001 and 2000 are
presented below.
<TABLE>
<CAPTION>

                                                                       Nine months ended
                                                                         September 30,
                                                                       ------------------
                                                                         2001      2000
                                                                       --------  --------
                                                                          (In millions)

<S>                                                                     <C>       <C>
Net cash provided (used) by:
    Operating activities:
        Before changes in assets and liabilities ....................   $   97.2  $  123.2
        Changes in assets and liabilities ...........................       (4.8)     (4.0)
                                                                        --------  --------
                                                                            92.4     119.2
    Investing activities ............................................      (56.1)    (45.6)
    Financing activities ............................................      (59.8)    (79.4)
                                                                        --------  --------

      Net cash used by operating, investing, and financing activities   $  (23.5) $   (5.8)
                                                                        ========  ========
</TABLE>

  Operating activities

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


                                     - 31 -

<PAGE>



  Investing activities

        In February  2001,  EMS loaned $13.4 million to Tremont under a reducing
revolving loan agreement.  See Note 1 to the Consolidated  Financial Statements.
The loan was approved by special committees of the Company's and EMS's Boards of
Directors.  The loan bears  interest  at prime plus 2% (8.75% at  September  30,
2001), is due March 31, 2003 and is  collateralized by 10.2 million shares of NL
common stock owned by Tremont.  The maximum  amount  available  for borrowing by
Tremont  reduces  by  $250,000  per  quarter.  In each of the  second  and third
quarters of 2001,  Tremont  repaid  $250,000 of the loan. At September 30, 2001,
the outstanding loan balance was $12.9 million and no amounts were available for
additional borrowings by Tremont.

        In May 2001, a wholly owned  subsidiary of EMS loaned $20 million to the
Harold C. Simmons Family Trust #2 (the "Trust"),  one of the trusts described in
Note 1 to the Consolidated  Financial Statements,  under a $25 million revolving
credit agreement.  The loan was approved by special  committees of the Company's
and EMS's  Boards of  Directors.  The loan  bears  interest  at prime  (6.75% at
September 30, 2001), 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 Trust. At September 30, 2001, $5
million was available for additional borrowing by the Trust.

        In the  second  and  third  quarters  of  2001,  the  Company's  capital
expenditures  include an aggregate of $11.7  million for the  rebuilding  of its
Leverkusen sulfate plant.

        In the second and third  quarters  of 2001,  the Company  received  $5.5
million and $5 million,  respectively, of insurance proceeds for property damage
resulting  from  the  Leverkusen  fire  and paid $1  million  and $1.1  million,
respectively, of expenses related to repairs and clean-up costs.

  Financing activities

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

        In the third  quarter  of 2001,  the  Company  paid a regular  quarterly
dividend to shareholders of $.20 per share, aggregating $9.9 million.  Dividends
paid  during  the  first  nine  months of 2001  totaled  $.60 per share or $29.9
million.  On October 24,  2001,  the  Company's  Board of  Directors  declared a
regular  quarterly  dividend of $.20 per share to  shareholders  of record as of
December 10, 2001 to be paid on December 24, 2001.

        Pursuant to its share repurchase program,  the Company purchased 465,000
shares of its common  stock at an  aggregate  cost of $7.1  million in the third
quarter of 2001 and 677,000  shares at an aggregate  cost of $9.9 million in the
first nine months of 2001.  In October 2001,  the  Company's  Board of Directors
authorized the purchase of up to an additional 1.5 million shares. An additional
13,000  shares at an  aggregate  cost of $.2 million  were  purchased in October
2001, with 1,576,000 shares remaining for purchase under the repurchase program.


                                     - 32 -
<PAGE>


  Cash, cash equivalents, restricted cash equivalents and borrowing availability

        At  September  30,  2001,  the  Company  had cash  and cash  equivalents
aggregating  $97 million  ($59  million  held by non-U.S.  subsidiaries)  and an
additional $93 million of restricted cash equivalents held by U.S. subsidiaries,
of which $13  million  was  classified  as a  noncurrent  asset.  The  Company's
subsidiaries had $25 million available for borrowing at September 30, 2001 under
existing non-U.S. credit facilities.

  Income tax contingencies

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

        The Company  received tax assessments from the Norwegian tax authorities
proposing tax  deficiencies,  including  related  interest,  of NOK 39.3 million
pertaining to 1994 and 1996. The Company was  unsuccessful  in appealing the tax
assessments  and in June 2001 paid NOK 39.3 million  ($4.3 million when paid) to
the  Norwegian tax  authorities.  The Company was  adequately  reserved for this
contingency.  The lien on the Company's Fredrikstad,  Norway TiO2 plant in favor
of the Norwegian tax authorities has been released.

        The Company has received  preliminary tax assessments for the years 1991
to 1998 from the Belgian tax authorities  proposing tax deficiencies,  including
related interest, of approximately euro 13.6 million ($12.5 million at September
30, 2001).  The Company has filed protests to the assessments for the years 1991
to 1997 and  expects to file a protest for 1998.  The Company is in  discussions
with the Belgian tax authorities and believes that a significant  portion of the
assessments is without merit.

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

  Environmental matters and litigation

        The Company has been named as a defendant, potentially responsible party
("PRP"), or both, in a number of legal proceedings associated with environmental
matters,  including  waste  disposal  sites,  mining  locations  and  facilities
currently or previously owned, operated or used by the Company, certain of which
are on the U.S.  Environmental  Protection  Agency's (the "U.S.  EPA") Superfund
National  Priorities  List or similar  state lists.  On a quarterly  basis,  the
Company  evaluates  the  potential  range of its liability at sites where it has
been  named  as  a  PRP  or  defendant,   including  sites  for  which  EMS  has
contractually  assumed the  Company's  obligation.  The Company  believes it has
adequate accruals ($106 million at September 30, 2001) for reasonably  estimable
costs of such matters, but the Company's ultimate liability may be affected by a
number of factors,  including changes in remedial alternatives and costs and the
allocations  of such costs among PRPs.  It is not possible to estimate the range
of costs for certain  sites.  The upper end of the range of reasonably  possible
costs to the Company  for sites for which it is  possible  to estimate  costs is
approximately $170 million. The Company's estimates of such liabilities have not
been  discounted to present  value.  No assurance can be given that actual costs
will not exceed either  accrued  amounts or the upper end of the range for sites
for which  estimates  have been made,  and no assurance  can be given that costs
will not be incurred with respect to sites as to which no estimate presently can
be made.  The  imposition  of more  stringent  standards or  requirements


                                     - 33 -
<PAGE>


under  environmental  laws or  regulations,  new  developments  or changes  with
respect to site  cleanup  costs or  allocation  of such costs among  PRPs,  or a
determination  that the Company is  potentially  responsible  for the release of
hazardous  substances at other sites,  could result in expenditures in excess of
amounts  currently  estimated  by the Company to be required  for such  matters.
Furthermore,  there can be no assurance that  additional  environmental  matters
will not arise in the future.

  Lead pigment litigation

        The Company is also a defendant in a number of legal proceedings seeking
damages for personal  injury and property damage arising out of the sale of lead
pigments and lead-based paints.  There is no assurance that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
paint  litigation is without merit.  The Company has not accrued any amounts for
such pending litigation. Liability that may result, if any, cannot reasonably be
estimated. In addition, various legislation and administrative regulations have,
from time to time,  been  enacted or  proposed  that seek to (a) impose  various
obligations on present and former  manufacturers  of lead pigment and lead-based
paint with respect to asserted health  concerns  associated with the use of such
products and (b)  effectively  overturn court decisions in which the Company and
other  pigment  manufacturers  have been  successful.  Examples of such proposed
legislation  include bills which would permit civil liability for damages on the
basis of market  share,  rather  than  requiring  plaintiffs  to prove  that the
defendant's  product  caused the alleged  damage,  and bills which would  revive
actions barred by the statute of limitations. The Company currently believes the
disposition  of all  claims and  disputes,  individually  and in the  aggregate,
should  not  have  a  material  adverse  effect  on the  Company's  consolidated
financial  position,  results  of  operations  or  liquidity.  There  can  be no
assurance that additional matters of these types will not arise in the future.
See Item 1 - "Legal Proceedings."

  Other

        The  Company   periodically   evaluates  its   liquidity   requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things,  its debt service and capital  expenditure  requirements
and estimated  future  operating  cash flows.  As a result of this process,  the
Company  in the  past  has  sought,  and in the  future  may  seek,  to  reduce,
refinance,  repurchase or restructure  indebtedness;  raise additional  capital;
issue additional  securities;  repurchase shares of its common stock; modify its
dividend policy; restructure ownership interests; sell interests in subsidiaries
or other assets;  or take a  combination  of such steps or other steps to manage
its liquidity and capital resources.  In the normal course of its business,  the
Company may review opportunities for the acquisition, divestiture, joint venture
or other business combinations in the chemicals or other industries,  as well as
the acquisition of interests in, and loans to, related  companies.  In the event
of any acquisition or joint venture transaction,  the Company may consider using
available cash,  issuing equity securities or increasing its indebtedness to the
extent permitted by the agreements governing the Company's existing debt.

  Special note regarding forward-looking statements

        The  statements  contained  in  this  Report  on Form  10-Q  ("Quarterly
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements  found under the captions  "Results of Operations" and "Liquidity and
Capital  Resources"  above,  are   forward-looking   statements  that  represent
management's  beliefs and assumptions based on currently available  information.
Forward-looking  statements  can be  identified  by the  use



                                     - 34 -
<PAGE>



of words such as "believes," "intends," "may," "will," "should,"  "anticipates,"
"expects," or comparable  terminology  or by  discussions of strategy or trends.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve risks and uncertainties,  including, but not limited to, the cyclicality
of the titanium  dioxide  industry,  global  economic and political  conditions,
global  productive  capacity,  customer  inventory  levels,  changes  in product
pricing, changes in product costing, changes in foreign currency exchange rates,
competitive technology positions,  operating interruptions  (including,  but not
limited to, labor disputes,  leaks,  fires,  explosions,  unscheduled  downtime,
transportation  interruptions,  war and terrorist  activities),  recoveries from
insurance claims and the timing thereof,  the ultimate  resolution of pending or
possible future lead pigment litigation and legislative  developments related to
the lead paint litigation,  the outcome of other litigation, and other risks and
uncertainties  included in this Quarterly  Report and in the 2000 Annual Report,
and the  uncertainties set forth from time to time in the Company's other public
reports  and  filings.  Should one or more of these  risks  materialize  (or the
consequences of such a development worsen), or should the underlying assumptions
prove incorrect, actual results could differ materially from those forecasted or
expected.  The Company  disclaims any intention or obligation to update publicly
or revise such statements whether as a result of new information,  future events
or otherwise.


                           PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

           Reference  is made  to the  2000  Annual  Report  and  the  Company's
Quarterly Report on Form 10-Q for the quarters ended March 31, 2001 and June 30,
2001 for descriptions of certain previously reported legal proceedings.

           Brenner,  et al. v.  American  Cyanamid,  et al. (No.  12596-93).  In
November 2001, the Fourth  Department  intermediate  appellate court unanimously
affirmed the dismissal of plaintiff's complaint by the trial court.

           County of Santa  Clara v.  Atlantic  Richfield  Company,  et al. (No.
CV788657).  In September 2001, the trial judge dismissed  without leave to amend
plaintiffs'  nuisance claim and their product  liabilities claims for properties
not owned by plaintiffs.

           Sabater,  et  al.  v.  Lead  Industries  Association,   et  al.  (No.
25533/98).  In September 2001, the Federal Court dismissed the Federal Home Loan
Mortgage Corporation and remanded the case to state court.

           City of  Milwaukee  v. NL  Industries,  Inc.  and  Mautz  Paint  (No.
01CV003066).  In October 2001,  the trial court denied the  Company's  motion to
dismiss plaintiff's conspiracy claim for lack of particularity.

           Jefferson County School District v. Lead Industries  Association,  et
al. (No. 2001-69).  In July 2001, plaintiff filed a motion to remand the case to
state court.



                                     - 35 -

<PAGE>



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

           Since the filing of the 2000  Annual  Report,  the  Company  has been
named as a defendant  in asbestos  cases in various  jurisdictions  on behalf of
approximately 2,000 additional personal injury claimants.

ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

           (a)  Exhibits

                10.1  Revolving  Loan Note  dated  May 4,  2001  with  Harold C.
                      Simmons Family Trust No. 2 and EMS Financial, Inc.

                10.2  Security Agreement dated May 4, 2001 by and between Harold
                      C. Simmons Family Trust No. 2 and EMS Financial, Inc.

           (b)  Reports on Form 8-K

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

                                     - 36 -

<PAGE>


                                   SIGNATURES


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





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



Date:  November 9, 2001                      By /s/ Susan E. Alderton
-----------------------                         --------------------------------
                                                Susan E. Alderton
                                                  Vice President and
                                                  Chief Financial Officer
                                                  (Principal Financial Officer)



Date:  November 9, 2001                      By /s/ Robert D. Hardy
-----------------------                         --------------------------------
                                                Robert D. Hardy
                                                  Vice President and Controller
                                                  (Principal Accounting Officer)


                                     - 37 -