FORM 10Q - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10Q

(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934

    For the period ended            September 30, 2001
                              --------------------------------------------------

( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

    For the transition period from                 to
                                   ---------------    --------------------------

    Commission File Number:             1-8676
                            ----------------------------------------------------

                             FANSTEEL INC.
    ----------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

             Delaware                                     36-1058780
    ----------------------------------------------------------------------------
    (State or other jurisdiction               (IRS Employer Identification No.)
    of incorporation or organization)

     Number One Tantalum Place, North Chicago, IL          60064
    ----------------------------------------------------------------------------
       (Address of principal executive offices)             (Zip Code)

                              (847) 689-4900
    ----------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


                               Not applicable
    ----------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


    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 (or for such shorter period that the
    registrant  was required to file such reports),  and (2) has been subject to
    such filing requirements for the past 90 days.

                                                  (X) Yes          ( ) No

                                     8,698,858
    ----------------------------------------------------------------------------
          (Number of shares of $2.50 par value common stock outstanding
                            as of September 30, 2001)


<PAGE>



PART 1 - FINANCIAL INFORMATION                                         Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                             Page 2

                                  FANSTEEL INC.
                           CONSOLIDATED BALANCE SHEET
                         ------------------------------


                                              September 30,       December 31,
                                                  2001                2000
                                           ------------------  -----------------
                                              (Unaudited)              *
ASSETS
Current Assets
 Cash and cash equivalents                  $     11,798         $     19,793
 Accounts receivable - net                    24,765,903           23,118,698
 Income tax refunds receivable                   378,588                    -
 Inventories
  Raw material and supplies                    5,700,160            4,811,195
  Work-in-process                             18,494,338           18,789,057
  Finished goods                               8,765,305            7,868,894
                                           -------------        -------------
                                              32,959,803           31,469,146
  Less reserve to state certain
   Inventories at LIFO cost                    6,512,129            6,674,530
                                           -------------        -------------
                                              26,447,674           24,794,616
 Other assets - current
  Deferred income taxes                        3,735,600            1,768,470
  Other                                        1,502,726              998,776
                                           -------------        -------------
          Total current assets                56,842,289           50,700,353
                                           -------------        -------------
Net Assets of Discontinued Operations                  -           30,198,580
                                           -------------        -------------
Property, Plant and Equipment
 Land                                          1,872,631            1,872,631
 Buildings                                    13,046,957           13,046,957
 Machinery and equipment                      60,674,231           59,659,748
                                           -------------        -------------
                                              75,593,819           74,579,336
 Less accumulated depreciation                55,204,371           54,500,736
                                           -------------        -------------
   Net Property, Plant and Equipment          20,389,448           20,078,600
                                           -------------        -------------
Other Assets
 Prepaid pension asset                         9,602,403            9,007,480
 Goodwill                                      2,264,636            2,437,364
 Other                                            62,158               65,551
                                           -------------        -------------
   Total Other Assets                         11,929,197           11,510,395
                                           -------------        -------------

Total Assets                                $ 89,160,934         $112,487,928
                                           =============        =============

                  * - Derived from audited financial statements

                (See Notes to Consolidated Financial Statements)


<PAGE>



PART 1 - FINANCIAL INFORMATION                                         Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                             Page 3

                                  FANSTEEL INC.
                       CONSOLIDATED BALANCE SHEET (Contd.)
                       --------------------------


                                             September 30,      December 31,
                                                 2001               2000
                                           -----------------  ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY          (Unaudited)            *
Current Liabilities
 Accounts payable                            $ 15,752,920        $ 13,759,578
 Accrued liabilities                           14,435,326          11,103,324
 Accrued income taxes                             323,315             841,449
 Current maturities of long-term debt          10,859,782             267,325
                                            -------------       -------------
    Total current liabilities                  41,371,343          25,971,676
                                            -------------       -------------

Long-term Debt                                  2,553,872           3,646,149
                                            -------------       -------------

Other Liabilities
 Environmental remediation                     61,123,115          15,151,000
 Deferred income taxes                          1,723,048           5,191,013
                                            -------------       -------------
      Total other liabilities                  62,846,163          20,342,013
                                            -------------       -------------

Shareholders' Equity
 Preferred stock without par value
  Authorized and unissued 1,000,000 shares              -                   -
 Common stock, par value $2.50
  Authorized 12,000,000 shares
  Issued and outstanding 8,698,858 shares      21,747,145          21,747,145
 Capital in excess of par value                   316,000             316,000
 Unamortized cost of restricted stock awards      (60,222)           (202,470)
 Retained earnings (deficit)                  (39,609,232)         40,669,620
 Other comprehensive income
  Foreign currency translation                     (4,135)             (2,205)
                                            -------------       -------------
   Total other comprehensive income                (4,135)             (2,205)
                                            -------------       -------------

     Total Shareholders' Equity (Deficit)     (17,610,444)         62,528,090
                                            -------------       -------------

Total Liabilities and Shareholders' Equity   $ 89,160,934        $112,487,928
                                            =============       =============

                  * - Derived from audited financial statements

                (See Notes to Consolidated Financial Statements)


<PAGE>



PART 1 - FINANCIAL INFORMATION                                        Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                            Page 4

                                  FANSTEEL INC.
                       CONSOLIDATED STATEMENT OF OPERATIONS
                       -----------------------------------
                                   (UNAUDITED)


                                                    For the Three Months Ended
                                                    --------------------------
                                                    September 30,  September 30,
                                                        2001          2000
                                                   -------------- --------------
Net sales                                          $ 33,657,192     $38,972,286

Costs and expenses
 Cost of products sold                               31,414,397      31,306,188
 Selling, general and administrative                  4,873,819       5,141,503
                                                   ------------     -----------
                                                     36,288,216      36,447,691
                                                   ------------     -----------

Operating income (loss)                              (2,631,024)      2,524,595

Other expense
 Interest expense                                      (130,617)        (31,666)
 Other                                                 (274,806)        (61,504)
                                                   ------------     -----------
                                                       (405,423)        (93,170)
                                                   ------------     -----------

Income (loss) from continuing operations
 before income taxes                                 (3,036,447)      2,431,425
Income tax provision (benefit)                       (1,156,000)        822,000
                                                   ------------     -----------
Net income (loss) from continuing operations         (1,880,447)      1,609,425

Loss from discontinued operations,
 net of tax benefit of $ 5,000,000                  (78,500,000)              -
                                                   ------------     -----------

Net income (loss)                                  $(80,380,447)      1,609,425
                                                   ------------     -----------

Weighted average number of common
 shares outstanding                                  $8,665,524       8,632,191
                                                   ============     ===========

Basic and diluted net income (loss) per share:
 Continuing operations                                   ($0.22)          $0.19
 Discontinued operations                                 ( 9.06)              -
                                                         ------           -----
 Net income (loss)                                       ($9.28)          $0.19
                                                         ======           =====

Dividends per common share                               $    -           $   -
                                                         ======           =====

                (See Notes to Consolidated Financial Statements)


<PAGE>



PART 1 - FINANCIAL INFORMATION                                        Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                            Page 5

                                  FANSTEEL INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS
                      ------------------------------------
                                   (UNAUDITED)


                                                    For the Nine Months Ended
                                                    -------------------------
                                                   September 30,   September 30,
                                                       2001            2000
                                                  --------------  --------------
Net sales                                          $110,069,895    $117,025,249

Costs and expenses
 Cost of products sold                               95,820,649      94,311,550
 Selling, general and administrative                 15,463,432      15,267,521
 Plant closure and management changes                 1,121,000               -
                                                   ------------    ------------
                                                    112,405,081     109,579,071
                                                   ------------    ------------


Operating income (loss)                              (2,335,186)      7,446,178

Other income (expense)
 Interest expense                                      (330,566)        (81,610)
 Other                                                 (205,100)        115,569
                                                   ------------    ------------
                                                       (535,666)         33,959
                                                   ------------    ------------


Income (loss) from continuing operations
 Before income taxes                                 (2,870,852)      7,480,137
Income tax provision (benefit)                       (1,092,000)      2,545,000
                                                   ------------    ------------
                                                     (1,778,852)      4,935,137

Loss from discontinued operations,
  net of tax benefit of $ 5,000,000                 (78,500,000)              -
                                                   ------------    ------------
Net income (loss)                                  $(80,278,852)   $  4,935,137
                                                   ============    ============


Weighted average number of common
 shares outstanding                                 $(8,662,472)      8,629,150
                                                   ============    ============

Basic and diluted net income (loss) per share:
 Continuing operations                                   ($0.21)          $0.57
 Discontinued operations                                 ( 9.06)              -
                                                         ------           -----
 Net income (loss)                                       ($9.27)          $0.57
                                                         ======           =====

Dividends per common share                               $    -           $   -
                                                         ======           =====


                (See Notes to Consolidated Financial Statements)


<PAGE>



PART 1 - FINANCIAL INFORMATION                                        Form 10-Q
ITEM 1 - FINANCIAL STATEMENTS                                            Page 6
                                  FANSTEEL INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                      ------------------------------------
                                   (UNAUDITED)

FOR THE NINE MONTHS ENDED SEPTEMBER 30,                2001         2000
                                                 -------------   ------------
                                                    Increase (decrease) in
                                                   cash and cash equivalents
Cash flows from operating activities:

 Net income (loss)                                $(80,278,852)   $ 4,935,137

 Adjustments to reconcile net income (loss) to
  Net cash provided by operating activities:
   Depreciation and amortization                     1,960,127      1,914,622
   Provision for environmental remediation          83,500,000              -
   Amortization of unearned stock awards               142,248        142,250
   Net pension credit                                 (594,923)    (1,113,716)
   Deferred income tax (credit) charge              (5,435,095)     1,575,565
   Loss (gain) from disposals of property,
     plant and equipment                               182,100       (220,000)
  Changes in assets and liabilities:
   (Increase) in accounts receivable                (1,647,205)    (5,914,829)
   (Increase) in income tax refunds receivable        (378,588)             -
   (Increase) in inventories                        (1,653,058)      (537,212)
   (Increase) in other assets-current                 (503,950)       (13,020)
   Increase in accounts payable and accruals         1,823,414      3,946,458
   (Decrease) increase in income taxes payable        (518,134)     1,305,931
   Decrease in other assets                              3,393          3,143
                                                  ------------    -----------
  Net cash (used in) provided by operating
    activities                                      (3,398,523)     6,024,329
                                                  ------------    -----------

Cash flows from investing activities:

  Additions to property, plant and equipment        (2,315,847)    (1,457,211)
   Increase in net assets of discontinued
   operations-design, engineering and
    equipment for processing plant                  (3,829,305)    (5,303,561)
  Proceeds from sale of property, plant and
    equipment                                           35,500        259,000
                                                  ------------    -----------
 Net cash used in investing activities              (6,109,652)    (6,501,772)
                                                  ------------    -----------

Cash flows from financing activities:
 Proceeds from long-term debt                        9,792,455      1,000,000
 Payments of long-term debt                           (292,275)      (286,414)
                                                  ------------    -----------
Net cash provided by financing activities            9,500,180        713,586
                                                  ------------    -----------

Net (decrease) increase in cash and cash
   equivalents                                          (7,995)       236,143

Cash and cash equivalents at beginning of
   period                                               19,793         16,516
                                                  ------------    -----------
Cash and cash equivalents at September 30               11,798        252,659
                                                  ============    ===========
                (See Notes to Consolidated Financial Statements)


<PAGE>



                                                                       Form 10-Q
                                                                          Page 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION

                                  FANSTEEL INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                   ------------------------------------------
                                   (UNAUDITED)

Consolidated Financial Statements
---------------------------------

     The consolidated balance sheet at September 30, 2001, and the consolidated
statements of operations for the three months and nine months ended September
30, 2001 and 2000, and the consolidated statements of cash flows for the nine
months ended September 30, 2001 and 2000, are unaudited, but include all
adjustments (consisting only of normal and recurring accruals) which the Company
considers necessary for fair presentation.

     The accompanying consolidated financial statements do not include all
disclosures normally provided in annual financial statements and, therefore,
should be read in conjunction with the year-end financial statements.

     The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

     The Company has a $30 million unsecured revolving credit agreement
renewable on May 20, 2002 and a credit agreement for $3 million renewable on
June 30, 2002. As of September 30, 2001, $10.4 million was borrowed from the
lines of credit and $8.5 million was being used for letters of credit needed for
funding assurance related to environmental issues, self-insurance policies and
development loans. The third quarter loss, charges and accruals have resulted in
defaults of various provisions of its principal credit facility. The lenders
under that facility gave Fansteel notice today that they have cancelled their
commitments to advance funds and issue letters of credit under that facility and
declared interest, principal and other amounts payable under that facility
immediately due and payable. Although the Company has preferred to obtain
financing outside of a bankruptcy proceeding, such financing is not available to
the Company. As a result, the Company and its domestic subsidiaries will likely
file on or before December 15, 2001 voluntary petitions for protection under
Chapter 11 of the United States Bankruptcy Code in order to protect their
stakeholders, maximize their ability to obtain financing and enable Fansteel to
continue its day-to-day operations. The Company is engaged in discussions with a
number of lenders to obtain additional financing of up to $25,000,000 as a part
of the contemplated Chapter 11 proceeding, and although there is no assurance
that the Company will be able to secure such financing, it is confident that it
will obtain such financing. As a consequence, the Company has reclassified the
borrowing at September 30, 2001 of $10,445,000 from long-term debt to current
portion of long-term debt.

     For the nine months ended September 30, 2001 total comprehensive loss was
$1,930 greater than net loss due to foreign currency translation losses. For the
nine months ended September 30, 2000 total comprehensive income was $1,788 less
than net income due to foreign currency translation losses.

     Included in the nine-month results ended September 30, 2001 for continuing
operations are second quarter non-recurring charges of $1,121,000. Charges of
$782,000 related primarily to severance were recorded for the closure of the
Addison, IL investment casting facility and relocation of its manufacturing to
the Reynosa, Mexico facility. Charges of $339,000 were recorded for
non-recurring management changes related primarily to severance costs. Results
in 2001 also included third quarter charges of $900,000 for write-offs of excess
inventory, as a result of push-outs and cancellations from the aerospace market,
$600,000 for legal costs, $200,000 to retire equipment no
longer used and $200,000 to provide additional reserves for potential increases
in bad debts resulting from the slow economy.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                  Page 8

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)

     Fansteel ceased its Metal Products business segment at its facility in
Muskogee, Oklahoma in 1989. As of the 1989 cessation, various radioactive
materials remained on the Muskogee site. Under regulations enacted in 1988, the
Company was required to obtain the approval of the NRC of a decommissioning plan
(DP) and a decommissioning funding plan (DFP) to remediate the radioactive
materials and to provide financial assurances relating thereto. In 1997, the NRC
in connection with the Company's proposed DP approved an amendment to the
Muskogee license. The amended license authorized Fansteel to construct a
processing plant which, when operable was designed to extract commercially
valuable materials such as tantalum and scandium from certain of the radioactive
residues and cause the resulting new residues to be disposed of at licensed
facilities off the Muskogee site. The Company posted $4.5 million in letters of
credit with the NRC as financial assurance for its DP responsibilities.

     Pilot production from the plant began in late 1999; however, production
problems were encountered, and, to date, processing at commercially viable
production levels has not been achieved. Exacerbating the processing problems
and the additional costs related thereto was the recent severe decline in the
market price of tantalum. As a consequence, Fansteel has concluded that at the
present time, aggregate projected revenues in the processing operation at the
site would be insufficient to recover operating costs (including depreciation)
of the facility and has, therefore, suspended its effort to commence commercial
processing. The Company, therefore, no longer anticipates commencing commercial
operations at the processing plant. Instead, the Company currently intends to
decommission the Muskogee site by off-site disposal of all contaminated
materials and soils. The disposal would occur over a period of 7-10 years
followed by a period of up to 20 years for monitoring the Muskogee site.

     The determination not to operate the Muskogee processing plant requires
that the Company record a third quarter 2001 pre-tax loss from discontinued
operations of $83,500,000 ($78,500,000 after tax), which represents a charge off
of $31.5 million in the third quarter representing the construction, engineering
and pilot testing production costs of the processing facility and a reserve of
$52 million (in addition to the existing reserve of $4.9 million) representing
total current estimated costs for off-site decommissioning of all contaminated
residues and soils consisting of $27.6 million for offsite disposal costs, $15.3
million for operating, safety, security and site management, and consulting
costs, and $14.0 million for groundwater monitoring. The Company determined
these estimates based on current available information with assistance from
third party environmental consultants. Fansteel will continue to expend such
funds (currently estimated to be $1 million per year) at Muskogee as may be
necessary to maintain the safety and security of the Muskogee facility.

     Although the Company currently anticipates that the site will be
decommissioned using off-site disposal, Fansteel is exploring a range of
alternative approaches to decommissioning the Muskogee site including
recommencing Muskogee processing operations. There can be no assurance that the
commercial processing operations will commence at any time.

     Fansteel expects that the NRC will request additional financial assurances
covering potential decommissioning costs. Fansteel does not expect to be in a
position to provide such financial assurance in the manner required by the NRC
regulations and will request an exemption based on Fansteel's financial
condition. While there is no assurance that such exemption will be granted,
Fansteel understands that such exemptions have been granted based upon the
financial condition of the recipient.


<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                  Page 9

                               FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     Actual costs to be incurred in future periods to decommission the site may
vary, which could result in adjustment to future accruals, from the estimates
due to, among other things, assumptions related to which decommissioning
alternative will be approved by the NRC, the quantities of soils to be
remediated and inherent uncertainties in costs over time of actual disposal.

     In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets. Under the new rules, goodwill and
intangible assets deemed to have indefinite lives will no longer be amortized
but will be subject to annual impairment tests in accordance with the
Statements. Other intangible assets will continue to be amortized over their
useful lives.

     The Company will apply the new rules on amortization of goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
non-amortization provisions of the Statement is expected to result in an
increase in net income of $230,000 per year, subject to the outcome of the
impairment tests. During 2002, the Company will perform the first of the
required impairment tests of goodwill and indefinite life intangible assets as
of January 1, 2002 and has not yet determined what the effect of these tests
will be on the earnings and financial position of the Company.

     In June 2001, the Financial Accounting Standards Board issued Statement
143, Accounting for Asset Retirement Obligations, effective for fiscal years
beginning after June 15, 2002. This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets, except for certain obligations of lessees, and the associated asset
retirement costs. The Company has not yet assessed what the impact of the
Statement will be on the Company's future earnings and financial position.

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (FAS 144), which addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supersedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, and the accounting and reporting provisions
of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a
segment of a business. FAS 144 is effective for fiscal years beginning after
December 15, 2001, with earlier application encouraged. The Company expects to
adopt FAS 144 as of January 1, 2002 and it has not determined the effect, if
any, the adoption of FAS 144 will have on the Company's financial position and
results of operations.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 10

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)

Business Segment Information
----------------------------

     The Company is engaged in the manufacture of specialty metal products,
which it classifies into three business segments: Industrial Tools, Advanced
Structures, and Industrial Metal Components. Net sales and operating income
(loss) for the third quarter and nine months ended September 30, 2001 and 2000
for each of the Company's business segments are summarized below:

                                Third Quarter                Nine Months
                           -----------------------------------------------------
                              2001         2000          2001          2000
                           -----------------------------------------------------
NET SALES:

Industrial Tools
  Sales                   $11,637,276   $15,334,633   $39,929,803  $44,955,991
  Intersegment sales           (1,421)         (281)       (6,532)      (2,835)
                          -----------   -----------   -----------  -----------
                           11,635,855    15,334,352    39,923,271   44,953,156
                          -----------   -----------   -----------  -----------
Advanced Structures
  Sales                    13,945,011    14,213,952    41,983,667   39,649,006
  Intersegment sales                -             -             -            -
                           13,945,011    14,213,952    41,983,667   39,649,006
                          -----------   -----------   -----------  -----------
Industrial Metal
 Components
  Sales                     8,076,363     9,431,971    28,174,379   32,448,323
  Intersegment sales              (37)       (7,989)      (11,422)     (25,236)
                          -----------   -----------   -----------  -----------
                            8,076,326     9,423,982    28,162,957   32,423,087
                          -----------   -----------   -----------  -----------

Total Net Sales           $33,657,192   $38,972,286  $110,069,895 $117,025,249
                          ===========   ===========  ============ ============

Operating Income
(Loss):
 Industrial Tools         $  (979,206)  $ 1,308,888   $      (869) $ 3,688,931
 Advanced Structures       (1,068,555)    1,135,784      (658,494)   2,165,653
 Industrial Metal
  Components                 (572,733)       89,631    (1,308,681)   1,626,512
 Corporate                    (10,530)       (9,708)     (367,142)     (34,918)
                          -----------   -----------   -----------  -----------

Total Operating
 Income (Loss   )         $(2,631,024) $ 2,524,595    $(2,335,186) $ 7,446,178
                          ===========  ===========    ===========  ===========


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 11

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     The following Management's Discussion and Analysis of Financial Condition
and Results of Operations may contain various "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which can be
identified by the use of forward-looking terminology such as "believes",
"expects", "prospects", "estimated", "should", "may" or the negative thereof or
other variations thereon or comparable terminology indicating the Company's
expectations or beliefs concerning future events. Actual results could differ
materially from those projected in the forward-looking statements as a result of
certain risk factors, including but not limited to: (i) further adverse changes
in general economic conditions; (ii) inability to obtain the necessary approvals
for an amended or revised DP and DFP and further costs in decommissioning the
Muskogee facility; (iii) the Company's ability to obtain sufficient financing to
continue its operations in the ordinary course and manage its relationships with
its creditors, including its lenders, vendors and suppliers, employees and
customers given the Company's financial condition; (iv) the effects of war or
acts of terrorism, including the effect on the economy generally, on particular
industry segments, and on the company's ability to manage logistics in such an
environment, including receipt of materials and equipment and distribution of
products; (v) the Company's ability to execute on its plans; and (vi) other
one-time events and other important factors disclosed previously and from time
to time in Fansteel's filings with the U.S. Securities and Exchange Commission.
The Company is not obligated to update the forward-looking statements included
in this discussion except as required by law.

     The following discussion should be read in conjunction with the
consolidated financial statements of the Company and the related notes to the
consolidated financial statements.

Overview
--------

     The results for the most recent quarter include both charges and reserves
relating to the Company's processing plant and planned operations at Fansteel's
facility in Muskogee, Oklahoma and from operating losses in several areas of the
Company's business.

     The third quarter loss, charges and reserves have resulted in defaults of
various provisions of its principal credit facility. The lenders under that
facility gave Fansteel notice today that they have cancelled their commitments
to advance funds and issue letters of credit under that facility and declared
interest, principal and other amounts payable under that facility immediately
due and payable. Although the Company has preferred to obtain financing outside
of a bankruptcy proceeding, such financing is not available to the Company. As a
result, the Company and its domestic subsidiaries will likely file on or before
December 15, 2001 voluntary petitions for protection under Chapter 11 of the
United States Bankruptcy Code in order to protect their stakeholders, maximize
their ability to obtain financing and enable Fansteel to continue its day-to-day
operations. The Company is engaged in discussions with a number of lenders to
obtain additional financing of up to $25,000,000 as a part of the contemplated
Chapter 11 proceedings, and although there is no assurance that the Company will
be able to secure such financing, it is confident that it will obtain such
financing.



<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 12

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     Fansteel ceased its Metal Products business segment at its facility in
Muskogee, Oklahoma in 1989. The Nuclear Regulatory Commission (NRC) had licensed
that facility in 1967. As of the 1989 cessation, various radioactive materials
remained on the Muskogee site. Under regulations enacted in 1988, the Company
was required to obtain the approval of the NRC of a decommissioning plan (DP)
and a decommissioning funding plan (DFP) to remediate the radioactive materials
and to provide financial assurances relating thereto. In 1997, the NRC in
connection with the Company's proposed DP approved an amendment to the Muskogee
license. The amended license authorized Fansteel to construct a processing
plant, which was designed to extract commercially valuable materials such as
tantalum and scandium from certain of the radioactive residues and cause the
resulting new residues to be disposed of at licensed facilities off the Muskogee
site. It was contemplated that approximately 10 years would be needed to process
and remediate all of the prior radioactive residues, other than the soils
underlying such residues. Thereafter, Fansteel's proposed DP requested NRC
approval for the construction of an on-site concrete-based containment cell into
which the contaminated soils would be placed. The Company posted $4.5 million in
letters of credit with the NRC as financial assurance for its DP
responsibilities.

     Pilot production from the plant began in late 1999; however, production
problems were encountered, and, to date, processing at commercially viable
production levels has not been achieved. Exacerbating the processing problems
and the additional costs related thereto was the recent severe decline in the
market price of tantalum. As a consequence, Fansteel has concluded that
aggregate currently projected revenues in the processing operation at the site
would be insufficient to recover operating costs (including depreciation) of the
facility and has, therefore, suspended its effort to commence commercial
processing. The Company, therefore, no longer anticipates commencing commercial
operations at the processing plant. Instead, the Company currently intends to
decommission the Muskogee site by off-site disposal of all contaminated
materials and soils. The disposal would occur over a period of 7-10 years
followed by a period of up to 20 years for monitoring the Muskogee site.

     The determination not to operate the Muskogee processing plant requires
that the Company record a third quarter 2001 pre-tax loss from discontinued
operations of $83,500,000 ($78,500,000 after tax), which represents a charge off
of $31.5 million in the third quarter representing the construction, engineering
and pilot testing production costs of the processing facility and a reserve of
$52 million (in addition to the existing reserve of $4.9 million) representing
total current estimated costs for off-site decommissioning of all contaminated
residues and soils consisting of $27.6 million for offsite disposal costs, $15.3
million for operating, safety, security and site management, and consulting
costs, and $14.0 million for groundwater monitoring. The Company determined
these estimates based on current available information with assistance from
third party environmental consultants. Fansteel will continue to expend such
funds (currently estimated to be $1 million per year) at Muskogee as may be
necessary to maintain the safety and security of the Muskogee facility.

     Although the Company currently anticipates that the site will be
decommissioned using off-site disposal, Fansteel is exploring a range of
alternative approaches to decommissioning the Muskogee site including


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 13

                                 FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


recommencing Muskogee processing operations. There can be no assurance that the
commercial processing operations will commence at any time.

     Fansteel expects that the NRC will request additional financial assurances
covering potential decommissioning costs. Fansteel does not expect to be in a
position to provide such financial assurance in the manner required by the NRC
regulations and will request an exemption based on Fansteel's financial
condition. While there is no assurance that such exemption will be granted,
Fansteel understands that such exemptions have been granted based upon the
financial condition of the recipient.

     Actual costs to be incurred in future periods to decommission the site may
vary, which could result in adjustment to future accruals, from the estimates
due to, among other things, assumptions related to which decommissioning
alternative will be approved by the NRC, the quantities of soils to be
remediated and inherent uncertainties in costs over time of actual disposal. The
reserve for estimated future costs will be adjusted as further information
develops or circumstances change.

Quarter Ended September 30, 2001 Compared with Quarter Ended September 30, 2000
-------------------------------------------------------------------------------

     Fansteel's third quarter 2001 net sales were $33,657,000, a decrease of
$5,315,000 or 13.6%, when compared with net sales of $38,972,000 for the third
quarter 2000. All three of the Company's business segments experienced sales
declines, with Industrial Tools business segment sales of tungsten carbide
cutting tools accounting for the majority of the decrease. Lower sales of
investment castings within the Industrial Metal Components business segment
sales also contributed to the decline in the third quarter 2001.

     Fansteel reported an operating loss of $2,631,000 for the third quarter of
2001 compared with operating income of $2,525,000 in the third quarter 2000.
Results in the third quarter of 2001 included charges of $900,000 for write-offs
of excess inventory as a result of push-outs and cancellations from the
aerospace market, $600,000 for legal costs and $200,000
for retirement of unused equipment. Additionally, an operating loss of $484,000
was incurred in the quarter as a result of the phase out of the Addison, IL.
facility. While the lower sales volume had a significant impact on income,
several other factors, including competitive pricing, higher operating costs,
and increased environmental expenses, caused further erosion to the Company's
profitability. In response to the reduced volume and lower profits, additional
cost reduction actions were implemented during the quarter.

     For the third quarter of 2001, other expenses for the Company were $405,000
compared with other expenses of $93,000 in the third quarter 2000. Bad debts
increased $258,000, which included $200,000 recorded in the third quarter of
2001 to provide additional reserves for potential increases in bad debts
resulting from the slow economy. Interest on debt increased $99,000 as the
Company's borrowings have risen to fund the reclamation plant in Muskogee, OK,
to meet working capital needs and to invest in machinery and equipment.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 14

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     The third quarter net loss from continuing operations was $1,880,000, or
$.22 per share, compared with net income from continuing operations of
$1,609,000, or $.19 per share in the third quarter of 2000. Third quarter 2001
charges for inventory write-offs, legal professional fees, retirement of unused
assets, and additional bad debt reserves were $.14 per share.

     The third quarter 2001 loss from discontinued operations was $78,500,000 or
$9.06 per share, which represents charges of $83,500,000, less tax benefit of
$5,000,000, related to the write-down of the Company's investment in the
Muskogee, Oklahoma processing facility and the establishment of a reserve to
reflect anticipated total costs to remediate the site. Non-cash charges of $31.5
million were recorded to write-off to estimated net realizable value of $2.8
million the net assets of discontinued operations, which include the processing
plant and the related engineering and pilot testing costs. The Company also
recorded $52.0 million representing total current estimated costs (in addition
to the existing reserve of $4.9 million) to decommission the site consisting of
$27.6 million for offsite disposal costs, $15.3 million for operating, safety,
security and site management, and consulting costs, and $14.0 for groundwater
monitoring. The Company determined these estimates based on current available
information with assistance from third party environmental consultants. Actual
costs to be incurred in future periods to decommission the site may vary from
the estimates due to, among other things, assumptions related to which
decommissioning alternative will be chosen and approved by the NRC, the
quantities of soils to be remediated and inherent uncertainties in costs over
time of actual disposal. The reserve for estimated future costs will be adjusted
as further information develops or circumstances change.

     Fansteel recorded a net loss of $80,380,000, or $9.28 per share, for the
third quarter 2001 compared with net income of $1,609,000, or $.19 per share, in
the third quarter 2000. Third quarter 2001 results included charges of $9.06 per
share related to the write-off of net assets of discontinued operations to net
realizable value and for estimated reserves for future costs to decommission the
Muskogee, OK site without processing. Third quarter 2001 results also included
charges of $.14 per share related to inventory write-offs, legal costs,
retirement of unused equipment and bad debt reserves.

     Net sales for the Industrial Tools business segment were $11,636,000 for
the third quarter 2001, a decrease of 24.1% when compared with sales of
$15,334,000 in the third quarter 2000. The majority of the decline occurred in
sales of tungsten carbide cutting tools, which have been negatively impacted by
the continuing slowdown in metalworking. This situation has resulted in reduced
demand from customers and intense competitive pricing. Tungsten carbide wear
part sales are also down as a result of the general economic decline in the
metal working industry. Construction tools sales were down from the third
quarter 2000, but nonetheless showed signs of improvement with a 25% increase
over second quarter 2001 sales. Current quarter coal mining tool sales were
solid, with improvements over the third quarter 2000 and second quarter 2001.

     For the third quarter 2001, Industrial Tools business segment incurred an
operating loss of $979,000 compared with operating income of $1,309,000 for the
same period of 2000. Third quarter 2001 results included $600,000 in charges for
legal costs. The largest impact on income in this segment
was the decline in revenues. Competitive pricing, higher manufacturing expenses
and increased administrative costs also contributed to the reduction in income.
Cost reduction actions taken during the third quarter included employee layoffs,
over-time cutbacks and tighter cost controls on expenses.

     Net sales for the Advanced Structures business segment for the third
quarter 2001 were $13,945,000 compared with third quarter 2000 sales of
$14,214,000. Sales of machined aircraft components nearly doubled from the third
quarter of 2000 as a result of increased orders from a defense aircraft
manufacturer. These gains were offset by decreased sand castings and forging
sales, which were negatively impacted by lower demand from the commercial
aircraft market.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 15

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)

     For the third quarter 2001 the Advanced Structures business segment
reported an operating loss of $1,069,000 compared with third quarter 2000
operating income of $1,136,000. The lower sales volume coupled with higher
operating expenses, including environmental, health insurance, maintenance and
natural gas prices, negatively impacted income. In response to market
predictions of a slow-down in commercial aircraft production resulting from the
September 11th terrorist attacks, the forging facility reduced its production
and employee levels at the end of the third quarter of 2001. Results in 2001 for
the segment also included third quarter charges of $900,000 for write-offs of
excess inventory and $200,000 for retirement of unused equipment as a result of
reduced aerospace demand.

     Third quarter 2001 net sales were $8,076,000 in the Industrial Metal
Components business segment compared with net sales of $9,424,000 for the same
period of 2000. This business segment declined due to less demand for investment
castings from truck and marine customers who have pushed out orders as a result
of their high inventory levels. Slight gains made in sales of wire forming
products in the third quarter 2001 were offset by lower sales of powdered metal
components.

      The Industrial Metal Components business segment reported an operating
loss of $573,000 for the third quarter 2001 compared with operating income of
$90,000 in the third quarter 2000. The phase out of operations at the Addison
facility resulted in an operating loss of $484,000 in the third quarter 2001,
which was $448,000 worse than the third quarter 2000. Operating income for this
segment was further impacted by higher operating costs at the powdered metal
components and wire formed products operations.

Nine Months Ended September 30, 2001 Compared with the Nine Months Ended
September 30, 2000
------------------------------------------------------------------------

     Net sales for Fansteel in the first nine months of 2001 were $110,070,000,
a decrease of 5.9% compared with net sales of $117,025,000 for the same period
of 2000. Lower sales of tungsten carbide cutting tools within the Industrial
Tools business segment and reduced investment castings and powdered metal
components sales in the Industrial Metal Components segment contributed the
majority of the decline. Partially offsetting these declines were increased
Advanced Structure sales of machined parts and sand castings for the aircraft
market.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 16

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     The Company reported an operating loss of $2,335,000 for the first nine
months of 2001 compared with operating income of $7,446,000 for the same period
of 2000. Results in 2001 included unusual charges of $1,121,000 recorded in the
second quarter. Charges of $339,000 were for one-time management changes.
Charges of $782,000 were recorded for the closure of the Addison, IL investment
casting facility and relocation of its manufacturing to the Company's
world-class foundry in Reynosa, Mexico. Closing the Addison operation by
year-end and transferring production to Reynosa will allow the Company to reduce
costs, improve operating efficiencies, improve customer service and maximize
production. Additionally, an operating loss of $798,000 for the first nine
months was incurred at the Addison facility as a result of the phase out of
operations, which was $498,000 worse than the same period of 2000. Results in
2001 also included third quarter charges of $900,000 for write-offs of excess
inventory and $200,000 for retirement of unused equipment as a result of
push-outs and cancellations from the aerospace market and $600,000 for potential
legal professional fees. Further reductions to income resulted from lower sales,
higher manufacturing costs and increased administrative costs. Cost reductions
plans, including employee layoffs, reduced workweeks, and temporary
plant-shutdowns, have been implemented throughout the year in an effort to
restore profitability.

     Other expenses for the Company were $536,000 compared with other income of
$34,000 for the first nine months of 2000. Interest expense on debt was $249,000
higher in 2001 due to the Company's additional borrowings related to working
capital increases, investment in machinery and equipment, and funding of the
reclamation plant in Muskogee, OK. Bad debt expenses were $323,000 higher, which
included third quarter 2001 charges of $200,000 to provide additional reserves
for potential increases in bad debts resulting from the slow economy. Other
income in 2000 included $220,000 for a non-recurring gain from the sale of
unused land and equipment.

     Net loss from continuing operations for the nine months ended September 30,
2001 was $1,779,000, or $.21 per share, compared with net income from continuing
operations of $4,935,000, or $.57 per share for the same period of 2000. Results
in 2001 included unusual charges in the second quarter of $.08 per share for the
closure and relocation of the Addison IL. Facility and for one-time management
changes and third quarter charges of $.14 per share related to inventory
write-offs, legal professional fees, retirement of unused equipment, and
additional bad debt reserves.

     Loss from discontinued operations for the first nine months of 2001 was
$78,500,000 or $9.06 per share, which represents charges of $83,500,000, less
tax benefit of $5,000,000, related to the write-down of the Company's investment
in the Muskogee, Oklahoma processing facility and the establishment of a reserve
to reflect anticipated total costs to fully remediate the site. Non-cash charges
of $31.5 million were recorded to write-down to estimated net realizable value
of $2.8 million the net assets of discontinued operations, which include the
construction and the related engineering and pilot testing costs. The Company
also recorded $52.0 million representing total current estimated costs (in
addition to the existing reserve of $4.9 million) to decommission the site
consisting of $22.7 million for offsite disposal costs, $15.3 million for
operating, safety, security and site management, and consulting costs, and $14.0
for groundwater monitoring. The Company determined these estimates based on
current available information with assistance from third party environmental
consultants.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 17

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     Actual costs to be incurred in future periods for the decommissioning of
the site may vary from the estimates due, among other things, to the assumptions
of which decommissioning alternative will ultimately be chosen and approved by
the NRC, to the inability to determine definitive quantities of soils to be
decommissioned and inherent uncertainties in costs over time of actual disposal.
The reserve for estimated future costs will be adjusted as further information
develops or circumstances change.

     For the first nine months of 2001, the Company reported a net loss of
$80,279,000, or $9.27 per share, compared with net income of $4,935,000, or $.57
per share, for the first nine months of 2000. Results in 2001 included charges
of $9.06 per share related to the write-off of net assets of discontinued
operations to net realizable value and for estimated future costs to
decommission the Muskogee, OK site without processing. Results in 2001 also
included unusual charges of $.08 per share for closure and relocation costs for
the Addison, IL facility and for one-time management changes. Results in 2001
also included charges of $.14 per share related to inventory write-offs, legal
professional fees, retirement of unused equipment, and bad debt reserves.
Results for the nine months ended September 30, 2000 included a non-recurring
gain of $.02 per share from the second quarter sale of unused land and
equipment.

     Industrial Tools business segment net sales for the first nine months of
2001 were $39,923,000, a decrease of $5,030,000 or 11.2%, compared with net
sales of $44,953,000 for the first nine months of 2000. Tungsten carbide cutting
tools, wear parts and construction tool product lines all suffered declines for
the nine-month period as the slow economy resulted in inventory reductions and
stiff competition in the metalworking, automotive, die blanks and road planing
markets. The coal mining tools product line was the only product line to post a
gain in this segment based on strong third quarter sales of coal accessories, as
coal mining has risen in 2001 in response to higher energy prices.

     Industrial Tools business segment operating loss for the first nine months
of 2001 was $1,000 compared with operating income of $3,689,000 in the same
period of the prior year. The 2001 results included $600,000 of charges for
legal costs. The reduced volume was the primary factor in the lower income, with
aggressive pricing, high manufacturing costs, operating inefficiencies and
increased administrative expenses further eroding profits. Efforts are focused
on improving productivity and reducing operating expenses in order to improve
profitability. Cost reduction actions that occurred during the second and third
quarters of 2001 will continue to be assessed and new ones implemented as
needed.

     Advanced Structures business segment net sales were $41,984,000 for the
first nine months of 2001, an increase of 5.9%, compared with net sales of
$39,649,000 for the same period of 2000. New orders for machined parts from a
military aircraft manufacturer have provided the majority of growth in this
segment. Sand casting product sales also posted solid gains as demand was strong
for private and regional aircraft engines. Sales of forgings were down for the
first nine months of the year due to the reduction of production releases during
2001 from commercial aircraft manufacturers.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 18

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     The Advanced Structures business segment operating loss for the first nine
months of 2001 was $658,000 compared with operating income of $2,166,000 in the
first nine months of 2000. Segment results in 2001 included third quarter
charges of $900,000 for write-offs of excess inventory and $200,000 for
retirement of unused equipment. The increase in natural gas prices in 2001
resulted in an additional $1.5 million in expenses. Steps undertaken by
management to stabilize these energy costs coupled with recent decreases in
natural gas prices have started to reduce the effects of the higher prices.
Results at the sand casting facility were further impacted by higher labor,
fringe benefits, environmental, maintenance and scrap costs.

     Industrial Metal Components net sales for the first nine months of 2001
were $28,163,000, compared with sales of $32,423,000 in the first nine months of
2000. Sales of investment castings, powdered metal components, and wire formed
products all decreased. Orders for these products have declined as the slower
economy has resulted in less demand from electrical equipment, vending machine,
lawn and garden, agricultural, plumbing, truck, marine, and general industrial
markets. Further sales reductions resulted from the shift of production from the
now closed Addison facility to the investment casting facility in Reynosa,
Mexico as certain lower margin customers were eliminated.

     The Industrial Metal Components business segment reported an operating loss
of $1,309,000 for the first nine months of 2001 compared with operating income
of $1,627,000 in 2000. Results in 2001 included second quarter charges of
$782,000 for closure and relocation costs for the Addison, IL facility to
Reynosa, Mexico. Additionally, an operating loss for the nine months ended
September 30, 2001 of $798,000 was incurred at the Addison facility during the
phase out of operations, which was $498,000 worse than the same period of 2000.
With the relocation of all production to Reynosa, the investment casting
operation is expected to return to profitability in the last quarter of 2001.
Further declines in income for this segment resulted from lower sales volume at
both the wire formed products and powdered metal components facilities and the
resulting production inefficiencies. Cost reduction plans, including employee
layoffs and temporary plant shutdowns, were implemented in the second quarter of
2001 and are expected to continue in the fourth quarter of this year.

Outlook
-------

     Order backlog at September 30, 2001 of $47,867,000 was flat when compared
with $47,827,000 at September 30, 2000. High order rates from aircraft
manufacturers in the first quarter of 2001 resulted in an increase to the
Advanced Structures backlog. As a result of the slowdown in the economy, the
Industrial Tools and Industrial Metal Components backlogs have decreased with
less demand from electrical equipment, vending machines, lawn and garden,
agricultural, plumbing, truck, marine, and general industrial markets.

     A number of the Company's key markets, such as automotive, truck, machine
tool, marine, electronics, appliance and road construction experienced a
softening in 2001. The slowdown is anticipated to persist at least through the
remainder of the year, especially in light of the September 11th terrorist
attacks, as many of the markets served are ultimately tied to consumer
confidence. The aircraft market, which had been steady in 2001, is expected to
experience push outs and possible cancellations from the commercial
manufacturers as a result of the recent layoffs and drop in air travel.


<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 19

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     In response to the ongoing reduced volume levels and profitability, cost
reduction actions were undertaken in 2001 by a number of Fansteel businesses.
Management will continue to monitor these operations and will implement
additional cost reduction plans in the future if necessary. These cost
reductions plans include employee layoffs, reduced workweeks, and temporary
plant-shutdowns. Another cost reduction action taken during 2001 involved the
closing of Fansteel's investment casting facility in Addison, IL and
transferring manufacturing to its investment casting operation in Reynosa,
Mexico. The move allows the Company to maximize production at its world-class
foundry in Reynosa and offer improved service to its customers.

Liquidity and Capital Resources
-------------------------------

     Cash and cash equivalents were $12,000 at September 30, 2001 compared with
$20,000 at December 31, 2000. Operating activities used cash of $3,399,000 in
the first nine months of 2001 with increases in accounts receivable of
$1,647,000 and in inventories of $1,653,000. As part of management's program to
improve the operations of the Company, investments of $2,316,000 were made in
capital equipment. Costs of $3,829,000 were incurred for the first nine months
of 2001 at the Muskogee, Oklahoma site for engineering, equipment, and pilot
testing prior to the decision to suspend processing. Proceeds of $9,792,000 from
long-term debt borrowings were received, $8,845,000 of which was proceeds from
the revolving line of credit.

     In the fourth quarter of 1995, the Company announced the suspension of the
quarterly shareholder dividend for the purpose of conserving cash for capital
reinvestment, possible future acquisitions, and due to potential changes in
funding requirements for decommissioning at the Company's discontinued operation
in Muskogee, Oklahoma.


<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 20

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)

     The Company has a $30 million unsecured revolving credit agreement
renewable on May 20, 2002 and a credit agreement for $3 million renewable on
June 30, 2002. As of September 30, 2001, $10.4 million was borrowed from the
lines of credit and $8.5 million was being used for letters of credit needed for
funding assurance related to environmental issues, self-insurance policies and
development loans. The third quarter loss, charges and reserves have resulted in
defaults of various provisions of its principal credit facility. The lenders
under that facility gave Fansteel notice today that they have cancelled their
commitments to advance funds and issue letters of credit under that facility and
declared interest, principal and other amounts payable under that facility
immediately due and payable. Although the Company has preferred to obtain
financing outside of a bankruptcy proceeding, such financing is not available to
the Company. As a result, the Company and its domestic subsidiaries will likely
file on or before December 15, 2001 voluntary petitions for protection under
Chapter 11 of the United States Bankruptcy Code in order to protect their
stakeholders, maximize their ability to obtain financing and enable Fansteel to
continue its day-to-day operations. The Company is engaged in discussions with a
number of lenders to provide additional financing of up to $25,000,000 as a part
of the contemplated Chapter 11 proceedings, and although there is no assurance
that the Company will be able to secure such financing, it is confident that it
will soon obtain such financing.

     The absence of available financing combined with the difficult business
situation (including a slowdown in the payment of the Company's accounts
receivables) has led the Company to delay payments of account payables beyond
their standard terms. Although suppliers have not refused to ship or required
cash on delivery there is no assurance that the Company's vendors will not take
that action.

     Funding assistance by states and municipalities is investigated when any
significant expenditures are proposed. The Company's debt, other than the $10.4
million borrowed from the revolving line of credit, is related to development
loans obtained from various states. In the first nine months of 2001, the
Company received $772,000 from GE Capital for a Pennsylvania development loan
for equipment for the powdered metals facility. This development loan, which has
an interest rate of 5.60%, is for $1.2 million. An additional $175,000 was
received in the first nine months of 2001 from the State of Iowa for development
loans with interest rates of 3% and 6% for the modernization of the sand casting
facility.

Environmental Remediation and Discontinued Operations
-----------------------------------------------------

     The Company discontinued its Metal Products business segment in 1989. The
Company was required to obtain the approval of the NRC of a nuclear
decommissioning plan in connection with the cessation of licensed operations at
the segment's primary plant located in Muskogee, Oklahoma that processed certain
ores subject to regulations of several government agencies. The NRC approved
Fansteel's amended license and decommissioning plan in 1995. That amended
license provided for the Company to construct a commercial plant to process
residues contained in storage ponds at the site. Remaining assets were written
down to estimated realizable value, and provisions were made for the estimated
costs for decommissioning. It is being accounted for as a discontinued operation
with environmental reclamation and decommissioning activity.

     Pursuant to the amended license, the Company constructed and expected to
operate for at least ten years a commercial plant to complete the processing of
residues currently contained in storage ponds at the site, which would
materially reduce the amount of radioactive materials to be disposed of during
decommissioning. The processing plant was designed to extract commercially
valuable materials such as tantalum, scandium, and other rare earth and rare
metal elements from the feedstock residues. The Muskogee processing operation
was planned and was expected to be operated as the most economical and feasible
way of reclaiming and decommissioning the site.

<PAGE>


ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 21

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     Pilot production from the plant began in late 1999; however, production
problems were encountered, and, to date, processing at commercially viable
production levels has not been achieved. Exacerbating the processing problems
and the additional costs related thereto was the recent severe decline in the
market price of tantalum. As a consequence, Fansteel has concluded that
aggregate currently projected revenues in the processing operation at the site
would be insufficient to recover operating costs (including depreciation) of the
facility and has, therefore, suspended its effort to commence commercial
processing. The Company, therefore, no longer anticipates commencing commercial
operations at the processing plant. Instead, the Company currently intends to
decommission the Muskogee site by off-site disposal of all contaminated
materials and soils. The disposal would occur over a period of 7-10 years
followed by a period of up to 20 years for monitoring the Muskogee site.

     The determination not to operate the Muskogee processing plant requires
that the Company record a third quarter pre-tax loss from discontinued
operations of $83,500,000 ($78,500,000 after tax), which represents a charge off
of $31.5 million in the third quarter representing the construction, engineering
and pilot testing production costs of the processing facility and a reserve of
$52 million (in addition to the existing reserve of $.9 million) representing
total current estimated costs for off-site decommissioning of all contaminated
residues and soils consisting of $27.6 million for offsite disposal costs, $15.3
million for operating,safety, security and site management, and consulting
costs, and $14.0 million for groundwater monitoring. The Company determined
these estimates based on current available information with assistance from
third party environmental consultants. Fansteel will continue to expend such
funds currently estimated to be $1 million per year) at Muskogee as may be
necessary to maintain the safety and security of the Muskogee facility.

     Although the Company currently anticipates that the site will be
decommissioned using off-site disposal, Fansteel is exploring a range of
alternative approaches to decommissioning the Muskogee site including
recommencing Muskogee processing operations. There can be no assurance that the
commercial processing operations will commence at any time.

     Fansteel expects that the NRC will request additional financial assurances
covering potential decommissioning costs. Fansteel does not expect to be in a
position to provide such financial assurance in the manner required by the NRC
regulations and will request an exemption based on Fansteel's financial
condition. While there is no assurance that such exemption will be granted,
Fansteel understands that such exemptions have been granted based upon the
financial condition of the recipient.

     Actual costs to be incurred in future periods to decommission the site may
vary, which could result in adjustment to future accruals, from the estimates
due to, among other things, assumptions related to which decommissioning
alternative will be approved by the NRC, the quantities of soils to be
remediated and inherent uncertainties in costs over time of actual disposal.

     A revised decommissioning plan will have to be submitted to the NRC within
approximately twelve months of cessation of the principal activity of processing
rare metals at the site. The Company is investigating alternative
decommissioning approaches including various options of onsite disposal, offsite
disposal and processing of some of the existing residue material. The actual
decommissioning plan ultimately to be presented for approval by the NRC cannot
be determined at this time. At September 30, 2001, the Company had recorded
liabilities of $58.4 million for discontinued operations with $3.7 million in
current liabilities, including the estimated net costs of decommissioning the
site and the Company's estimated share of costs at a second site that had been
part of the Metal Products business segment. The second site is regulated under
the Resource Conservation and Recovery Act. As a result of alleged migration of
contaminants from this second site, the Company also has been identified as a
potentially responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA) at a neighboring third-party site.


<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS                          Form 10-Q
         OF FINANCIAL CONDITION AND RESULTS OF OPERATION                 Page 22

                                  FANSTEEL INC.
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)
               ------------------------------------------
                                   (UNAUDITED)


     In addition to the two sites included in the discontinued operations, the
Company has a total of seven sites at other Company facilities where
environmental remediation is ongoing or will be undertaken. Certain of these
sites were identified as a result of environmental studies conducted by the
Company during 1997 at all of its owned sites, including testing of soil and
groundwater at selected sites as indicated by the environmental studies.

     The Company has also been notified that it is a potentially responsible
party at seven sites owned by third parties. The Company's participation at four
sites is de minimis, and at the other three sites the Company is either being
defended by its insurance carriers or has meritorious defenses to liability.

     At September 30, 2001, the Company had recorded environmental liabilities
of $7.1 million with .7 million included in current liabilities for estimated
environmental investigatory and remediation costs based upon an evaluation of
currently available facts with respect to each individual site, including the
results of environmental studies and testing conducted in 1997, and considering
existing technology, presently enacted laws and regulations, and prior
experience in remediation of contaminated sites. Actual costs to be incurred in
future periods at identified sites may vary from the estimates, given the
inherent uncertainties in evaluating environmental exposures. Future information
and developments will require the Company to continually reassess the expected
impact of these environmental matters. The Company does not expect that any sums
it may have to pay in connection with these environmental liabilities would have
a materially adverse effect on its consolidated financial position.


<PAGE>



                                                                      Form 10-Q
                                                                        Page 23

                           PART II - OTHER INFORMATION
                           ---------------------------

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

            b)  No  reports  on  Form  8-K  were  filed during the quarter ended
September 30, 2001.


<PAGE>



                                                                      Form 10-Q
                                                                        Page 24

                                   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.

                                  Fansteel Inc.
--------------------------------------------------------------------------------
                                  (Registrant)

Date
     ---------- ----------------------------------------------------------------
                   /s/ Gary L. Tessitore
                       Chairman, President and Chief Executive Officer

Date
     ----------  ---------------------------------------------------------------
                   /s/ R. Michael McEntee
                       Vice President and Chief Financial Officer