SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934 - For the fiscal year ended December 31, 2004

                          Commission file number 1-640

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

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

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

Registrant's telephone number, including area code:          (972)233-1700

Securities registered pursuant to Section 12(b) of the Act:

                                                Name of each exchange on
             Title of each class                     which registered

                 Common stock                    New York Stock Exchange
              ($.125 par value)                  Pacific Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

                  None.

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

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

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

The  aggregate  market  value of the 7.7 million  shares of voting stock held by
nonaffiliates of NL Industries,  Inc. as of June 30, 2004 (the last business day
of the Registrant's most recently-completed  second fiscal quarter) approximated
$112 million.

As of February 28, 2005, 48,515,284 shares of the Registrant's common stock were
outstanding.

                       Documents incorporated by reference

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




                                     PART I


ITEM 1.  BUSINESS

     NL Industries,  Inc.  (NYSE:  NL) organized as a New Jersey  corporation in
1891,  has  operations  through   majority-owned   subsidiaries  and  less  than
majority-owned  affiliates in the component  products and chemicals  industries.
Information   regarding  the  Company's  business  segments  and  the  companies
conducting such businesses is set forth below.  Business and geographic  segment
financial  information  is  included  in  Note 3 to the  Consolidated  Financial
Statements,  which information is incorporated herein by reference.  The Company
is based in Dallas, Texas.

<TABLE>


<S>                                   <C>
Component Products                    CompX is a leading  manufacturer  of  precision  ball  bearing
  CompX International Inc.- 68%       slides,  security  products  and  ergonomic  computer  support
   owned at December 31, 2004         systems   used   in   office    furniture,    computer-related
                                      applications  and a  variety  of other  industries.  CompX has
                                      production facilities in North America and Asia.

Chemicals                             Kronos  is  a  leading   global   producer   and  marketer  of
  Kronos Worldwide, Inc. - 37%        value-added  titanium  dioxide  pigments  ("TiO2"),  which are
   owned at December 31, 2004         used for  imparting  whiteness,  brightness  and  opacity to a
                                      diverse range of customer  applications  and end-use  markets,
                                      including coatings,  plastics,  paper and other industrial and
                                      consumer  "quality-of-life"  products.  Kronos has  production
                                      facilities  in  Europe  and  North  America.   Sales  of  TiO2
                                      represent  about  90% of  Kronos'  total  sales in 2004,  with
                                      sales of other  products  that are  complementary  to  Kronos'
                                      TiO2 business comprising the remainder.
</TABLE>



     At  December  31,  2004,  (i) Valhi  (NYSE:  VHI)  directly  and  through a
wholly-owned subsidiary held approximately 83% of NL's outstanding common stock,
(ii) Contran  Corporation and its subsidiaries held approximately 91% of Valhi's
outstanding  common stock,  (iii) Valhi and its wholly-owned  subsidiary held an
additional  57% of Kronos'  outstanding  common stock and (iv)  Titanium  Metals
Corporation ("TIMET") (NYSE:TIE),  an affiliate of Valhi, held an additional 17%
of CompX'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, or
is held by Mr.  Simmons  or persons or other  entities  related to Mr.  Simmons.
Consequently,  Mr. Simmons may be deemed to control each of such companies.  See
Notes 1 and 17 to the Consolidated Financial Statements.

     On September 24, 2004, the Company  completed the acquisition of 10,374,000
shares of CompX common stock, representing  approximately 68% of the outstanding
shares of CompX common stock.  The CompX common stock was  purchased  from Valhi
and Valcor,  a wholly-owned  subsidiary of Valhi,  at a purchase price of $16.25
per share, or an aggregate of approximately  $168.6 million.  The purchase price
was paid by NL's  transfer  to Valhi and  Valcor of $168.6  million of NL's $200
million long-term note receivable from Kronos. The acquisition was approved by a
special committee of NL's board of directors comprised of directors who were not
affiliated with Valhi, and such special  committee  retained their own legal and
financial  advisors  who rendered an opinion to the special  committee  that the
purchase price was fair, from a financial point of view, to NL. NL's acquisition
was accounted for under accounting  principles  generally accepted in the United
States of America  ("GAAP") as a transfer  of net assets  among  entities  under
common control,  and accordingly  resulted in a change in reporting entity.  The
Company has  retroactively  restated its  consolidated  financial  statements to
reflect the consolidation of CompX for all periods presented.  See Note 2 to the
Consolidated Financial Statements.

     Prior to July 2004,  the Company  owned a majority  of Kronos'  outstanding
common stock, and the Company accounted for its ownership  interest in Kronos as
a  consolidated  subsidiary.  Following the Company's  July 2004 dividend in the
form of  shares of Kronos  common  stock  distributed  to NL  shareholders,  the
Company's  ownership  of Kronos  was  reduced  to less  than 50%.  Consequently,
effective  July 1, 2004 the  Company  ceased to  consolidate  Kronos'  financial
position,  results of  operations  and cash  flows,  and the  Company  commenced
accounting  for its  interest  in  Kronos  by the  equity  method.  The  Company
continues to report Kronos as a consolidated  subsidiary  through June 30, 2004,
including the  consolidation of Kronos' results of operations and cash flows for
the  first  two  quarters  of  2004.  See Note 2 to the  Consolidated  Financial
Statements.

     CompX and  Kronos  each  file  periodic  reports  with the  Securities  and
Exchange  Commission  ("SEC").  The  information set forth below with respect to
such companies has been derived from such reports.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Annual  Report on Form 10-K relating to matters that are not  historical  facts,
including,  but not limited to,  statements  found in this Item 1 -  "Business,"
Item 3 - "Legal Proceedings," Item 7 - "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" and Item 7A - "Quantitative  and
Qualitative Disclosures About Market Risk," are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes,"   "intends,"  "may,"  "should,"  "could,"   "anticipates,"
"expects" or comparable terminology,  or by discussions of strategies or trends.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  substantial risks and  uncertainties  that could  significantly  impact
expected  results,  and actual future results could differ materially from those
described  in such  forward-looking  statements.  While  it is not  possible  to
identify   all   factors,   the  Company   continues  to  face  many  risks  and
uncertainties.  Among the factors  that could  cause  actual  future  results to
differ  materially  are the risks and  uncertainties  discussed  in this  Annual
Report and those described from time to time in the Company's other filings with
the SEC including, but not limited to, the following:

o    Future supply and demand for the Company's products,
o    The extent of the  dependence  of certain of the  Company's  businesses  on
     certain market sectors,
o    The  cyclicality  of  the  Company's   businesses  (such  as  Kronos'  TiO2
     operations),
o    Customer  inventory  levels (such as the extent to which Kronos'  customers
     may,  from  time to  time,  accelerate  purchases  of TiO2  in  advance  of
     anticipated  price  increases  or defer  purchases  of TiO2 in  advance  of
     anticipated price decreases),
o    Changes in raw material and other operating costs (such as energy and steel
     costs),
o    The possibility of labor disruptions,
o    General global  economic and political  conditions  (such as changes in the
     level of gross  domestic  product in  various  regions of the world and the
     impact of such changes on demand for TiO2 and component products),
o    Demand for office furniture,
o    Competitive   products  and  substitute   products,   including   increased
     competition from low-cost manufacturing sources (such as China),
o    Customer and competitor strategies,
o    The impact of pricing and production decisions,
o    Competitive technology positions,
o    The introduction of trade barriers,
o    Service industry employment levels,
o    Fluctuations  in currency  exchange  rates (such as changes in the exchange
     rate between the U.S.  dollar and each of the euro,  the Norwegian  kroner,
     the New Taiwan dollar and the Canadian dollar),
o    Operating  interruptions  (including,  but not limited to, labor  disputes,
     leaks,   fires,   explosions,   unscheduled   or  unplanned   downtime  and
     transportation interruptions),
o    The ability of the Company to renew or refinance credit facilities,
o    The ultimate  outcome of income tax audits,  tax settlement  initiatives or
     other tax matters,
o    The introduction of trade barriers,
o    Potential difficulties in integrating completed or future acquisitions,
o    Decisions to sell  operating  assets  other than in the ordinary  course of
     business,
o    Uncertainties associated with new product development,
o    The ultimate ability to utilize income tax attributes, the benefit of which
     has been recognized under the "more-likely-than-not" recognition criteria,
o    Environmental  matters  (such as those  requiring  emission  and  discharge
     standards for existing and new facilities),
o    Government  laws and  regulations  and possible  changes  therein  (such as
     changes in government regulations which might impose various obligations on
     present and former  manufacturers  of lead  pigment and  lead-based  paint,
     including NL, with respect to asserted health concerns  associated with the
     use of such products),
o    The ultimate  resolution of pending  litigation  (such as NL's lead pigment
     litigation and litigation surrounding environmental matters), and
o    Possible future litigation.

     Should one or more of these risks  materialize (or the consequences of such
a development  worsen),  or should the underlying  assumptions  prove incorrect,
actual results could differ  materially from those  forecasted or expected.  The
Company   disclaims  any  intention  or  obligation  to  update  or  revise  any
forward-looking statement whether as a result of changes in information,  future
events or otherwise.


COMPONENT PRODUCTS - COMPX INTERNATIONAL INC.

     General.  CompX is a leading manufacturer of precision ball bearing slides,
security  products  (cabinet locks and other locking  mechanisms)  and ergonomic
computer support systems used in office furniture, computer-related applications
and a variety of other industries. CompX's products are principally designed for
use in medium- to  high-end  product  applications,  where  design,  quality and
durability  are critical to CompX's  customers.  CompX believes that it is among
the world's  largest  producers  of  precision  ball  bearing  slides,  security
products and ergonomic computer support systems. In 2004, precision ball bearing
slides,  security products and ergonomic  computer support systems accounted for
approximately 43%, 42% and 15%, respectively, of net sales related to continuing
operations, respectively.

     In January 2005,  CompX  completed the disposition of all of the net assets
of its Thomas Regout  operations  conducted in the Netherlands.  Thomas Regout's
results of operations are classified as discontinued operations in the Company's
Consolidated  Financial  Statements.  See Note 24 to the Consolidated  Financial
Statements.

     Products,  product  design and  development.  Precision ball bearing slides
manufactured to stringent  industry  standards are used in such  applications as
office  furniture,  computer-related  equipment,  file  cabinets,  desk drawers,
automated teller machines,  tool storage cabinets and imaging  equipment.  These
products include CompX's patented  Integrated Slide Lock in which a file cabinet
manufacturer  can reduce the possibility of multiple drawers being opened at the
same  time,  the  adjustable  patented  Ball  Lock  which  reduces  the  risk of
heavily-filled  drawers, such as auto mechanic tool boxes, from opening while in
movement,  and the  Butterfly  Take Apart  System,  which is  designed to easily
disengage drawers from cabinets.

     Security  products  are used in  various  applications  including  ignition
systems,  office  furniture,   vending  and  gaming  machines,  parking  meters,
electrical circuit panels, storage compartments, security devices for laptop and
desktop  computers as well as mechanical  and  electronic  locks for the toolbox
industry.  These products include CompX's KeSet high security system,  which has
the ability to change the keying on a single lock 64 times without  removing the
lock from its enclosure and its patented,  high-security  TuBar locking  system.
CompX believes it is a North American  market leader in the manufacture and sale
of cabinet locks and other locking mechanisms.

     Ergonomic computer support systems include  articulating  computer keyboard
support  arms  (designed  to attach to desks in the  workplace  and home  office
environments  to  alleviate  possible  strains  and stress and  maximize  usable
workspace),  CPU storage  devices  which  minimize  adverse  effects of dust and
moisture and a number of complimentary  accessories,  including  ergonomic wrist
rest aids,  mouse pad supports and computer monitor support arms. These products
include CompX's Leverlock keyboard arm, which is designed to make the adjustment
of an ergonomic  keyboard arm easier. In addition,  CompX offers its engineering
and  design  capabilities  for the  design  and  manufacture  of  products  on a
proprietary basis for key customers for those Canadian manufactured products.

     CompX's  precision  ball  bearing  slides and  ergonomic  computer  support
systems are sold under the CompX  Waterloo,  Waterloo  Furniture  Components and
Dynaslide  brand  names.  Security  products  are sold under the CompX  Security
Products, National Cabinet Lock, Fort Lock, Timberline Lock, Chicago Lock, Stock
Locks, KeSet and TuBar brand names.  Ergonomic products are sold under the CompX
ErgonomX and CompX Waterloo brand names. CompX believes that its brand names are
well recognized in the industry.

     Sales,  marketing  and  distribution.  CompX sells  components  to original
equipment  manufacturers  ("OEMs") and to distributors through a dedicated sales
force. The majority of CompX's sales are to OEMs,  while the balance  represents
standardized  products sold through  distribution  channels.  Sales to large OEM
customers  are made  through the efforts of  factory-based  sales and  marketing
professionals  and  engineers  working in concert  with  field  salespeople  and
independent manufacturers'  representatives.  Manufacturers' representatives are
selected  based on special  skills in  certain  markets  or  relationships  with
current or potential customers.

     A significant portion of CompX's sales are made through distributors. CompX
has  a  significant  market  share  of  cabinet  lock  sales  to  the  locksmith
distribution  channel.  CompX  supports  its  distributor  sales  with a line of
standardized  products used by the largest  segments of the  marketplace.  These
products are packaged and  merchandised  for easy  availability  and handling by
distributors  and the  end  users.  Based  on  CompX's  successful  STOCK  LOCKS
inventory program,  similar programs have been implemented for distributor sales
of ergonomic  computer support systems and to some extent precision ball bearing
slides.  CompX also operates a small  tractor/trailer  fleet associated with its
Canadian  facilities  to provide an  industry-unique  service  response to major
customers for those Canadian manufactured products.

     CompX does not believe it is  dependent  upon one or a few  customers,  the
loss of which would have a material  adverse effect on its operations.  In 2004,
the ten largest  customers  accounted for about 43% of component  products sales
(2003 - 44%;  2002 - 38%).  In 2004,  one customer  accounted for 11% of CompX's
sales. No single customer accounted for more than 10% of CompX's sales in either
2002 or 2003.

     Manufacturing  and  operations.  At December 31, 2004,  CompX operated five
manufacturing  facilities in North America related to its continuing  operations
(two in Illinois and one in each of Canada, South Carolina and Michigan) and two
in Taiwan.  Precision  ball bearing  slides are  manufactured  in the facilities
located in Canada,  Michigan and Taiwan.  Security  products are manufactured in
the facilities  located in South Carolina and Illinois.  Ergonomic  products are
manufactured  in the facility  located in Canada.  The Company owns all of these
facilities  except for one of the Taiwan  facilities  which is leased.  See also
Item 2 - "Properties." CompX also leases a distribution center in California and
a  warehouse  in Taiwan.  CompX  believes  that all of its  facilities  are well
maintained and satisfactory for their intended purposes.

     Raw  materials.  Coiled  steel  is  the  major  raw  material  used  in the
manufacture  of precision  ball bearing  slides and ergonomic  computer  support
systems.  Plastic  resins for  injection  molded  plastics  are also an integral
material for ergonomic computer support systems.  Purchased  components and zinc
are the principal raw materials used in the  manufacture  of security  products.
These raw  materials  are  purchased  from  several  suppliers  and are  readily
available from numerous sources.

     CompX  occasionally  enters  into raw  material  purchase  arrangements  to
mitigate the short-term impact of future increases in raw material costs.  While
these  arrangements  do not commit CompX to a minimum volume of purchases,  they
generally  provide for stated unit prices  based upon  achievement  of specified
volume  purchase  levels.  This allows CompX to stabilize raw material  purchase
prices,  provided the specified  minimum  monthly  purchase  quantities are met.
Materials  purchased  outside of these  arrangements  are  sometimes  subject to
unanticipated and sudden price increases,  such as rapidly increasing  worldwide
steel prices in 2002 through 2004. Due to the competitive  nature of the markets
served by CompX's  products,  it is often difficult to recover such increases in
raw material  costs through  increased  product  selling  prices.  Consequently,
overall operating margins can be affected by such raw material cost pressures.

     Competition.  The office furniture and security products markets are highly
competitive.  CompX competes primarily on the basis of product design, including
ergonomic and aesthetic factors, product quality and durability,  price, on-time
delivery,  service  and  technical  support.  CompX  focuses  its efforts on the
middle- and high-end  segments of the market,  where  product  design,  quality,
durability and service are placed at a premium.

     CompX competes in the precision ball bearing slide market  primarily on the
basis of product quality and price with two large  manufacturers and a number of
smaller  domestic  and foreign  manufacturers.  CompX  competes in the  security
products  market  with a  variety  of  relatively  small  domestic  and  foreign
competitors.  CompX  competes in the ergonomic  computer  support  system market
primarily  on the basis of product  quality,  features  and price with one major
producer and a number of smaller domestic unique manufacturers, and primarily on
the basis of price with a number of smaller domestic and foreign  manufacturers.
Although  CompX  believes that it has been able to compete  successfully  in its
markets to date, price competition from foreign-sourced products has intensified
in the current  economic  market.  There can be no assurance  that CompX will be
able to continue to successfully  compete in all of its existing  markets in the
future.

     Patents and  trademarks.  CompX  holds a number of patents  relating to its
component  products,  certain of which are believed to be important to CompX and
its continuing business activity and owns a number of trademarks and brand names
including  CompX,  CompX Security  Products,  CompX  Waterloo,  CompX  ErgonomX,
National Cabinet Lock, KeSet, Fort Lock,  Timberline Lock, Chicago Lock, ACE II,
TuBar,  STOCK  LOCKS,  ShipFast,   Waterloo  Furniture  Components  Limited  and
Dynaslide, are protected by registration in the United States and elsewhere with
respect to the  products  CompX  manufactures  and sells.  CompX  believes  such
trademarks are well recognized in the component products industry.

     Regulatory and  environmental  matters.  CompX's  operations are subject to
federal,  state,  local and foreign  laws and  regulations  relating to the use,
storage, handling, generation,  transportation,  treatment, emission, discharge,
disposal  and  remediation  of, and  exposure to,  hazardous  and  non-hazardous
substances,  materials  and  wastes.  CompX's  operations  are also  subject  to
federal, state, local and foreign laws and regulations relating to worker health
and safety.  CompX believes that it is in substantial  compliance  with all such
laws and  regulations.  The costs of maintaining  compliance  with such laws and
regulations  have not  significantly  impacted  CompX to date,  and CompX has no
significant planned costs or expenses relating to such matters.  There can be no
assurance,  however,  that compliance with future laws and regulations  will not
require  CompX  to  incur  significant  additional  expenditures,  or that  such
additional   costs  would  not  have  a  material   adverse  effect  on  CompX's
consolidated financial condition, results of operations or liquidity.

     Employees.  As of December 31, 2004,  CompX  employed  approximately  1,450
persons,  including 800 in the United States,  470 in Canada, and 180 in Taiwan.
Approximately  76% of CompX's  employees  in Canada are  represented  by a labor
union covered by a collective  bargaining  agreement  which  provides for annual
wage increases from 1% to 2.5% over the term of the contract expiring in January
2006. Wage increases for these Canadian employees historically have also been in
line with overall  inflation  indices.  CompX  believes its labor  relations are
satisfactory.

CHEMICALS - KRONOS WORLDWIDE, INC.

     General.  Kronos is a leading  global  producer and marketer of value-added
TiO2, an inorganic chemical used for imparting whiteness, brightness and opacity
to a diverse  range of  customer  applications  and end-use  markets,  including
paints, paper,  plastics,  paper, ink, textiles,  ceramics,  food and cosmetics.
TiO2 is considered to be a "quality-of-life" product with demand affected by the
gross  domestic  product in various  regions of the  world.  TiO2,  the  largest
commercially  used  whitening  pigment  by  volume,  derives  its value from its
whitening  properties and  opacifying  ability  (commonly  referred to as hiding
power).  As a result of TiO2's high refractive index rating, it can provide more
hiding power than any other  commercially  produced white pigment.  In addition,
TiO2  demonstrates   excellent  resistance  to  chemical  attack,  good  thermal
stability  and  resistance  to  ultraviolet  degradation.  TiO2 is  supplied  to
customers in either a powder or slurry form.

     By volume,  approximately  one-half  of Kronos'  2004  sales  volumes  were
attributable  to markets in Europe with  approximately  38% to North America and
the balance to export markets.  Kronos is the second-largest producer of TiO2 in
Europe,  with an  estimated  20% share of European  TiO2 sales  volumes in 2004.
Kronos has an estimated 14% share of North American TiO2 sales volumes.

     Per capita  consumption  TiO2 in the United  States and Western  Europe far
exceeds  consumption  in other areas of the world and these regions are expected
to continue to be the largest  consumers of TiO2.  Significant  markets for TiO2
consumption  could  emerge in  Eastern  Europe,  the Far East or  China,  as the
economies in these regions continue to develop to the point that quality-of-life
products, including TiO2, experience greater demand.

     Products and operations.  TiO2 is produced in two crystalline forms: rutile
and  anatase.  Both the  chloride and sulfate  production  processes  (discussed
below)  produce  rutile  TiO2.  Chloride  process  rutile is  preferred  for the
majority of customer applications. From a technical standpoint, chloride process
rutile has a bluer  undertone and higher  durability than sulfate process rutile
TiO2.  Although many end-use  applications can use either form of TiO2, chloride
process rutile TiO2 is the preferred form for use in coatings and plastics,  the
two largest end-use  markets.  Anatase TiO2,  which is produced only through the
sulfate  production  process,  represents  a much smaller  percentage  of annual
global TiO2  production  and is preferred for use in selected  paper,  ceramics,
rubber tires, man-made fibers, food and cosmetics.

     Kronos  believes  that  there  are  no  effective   substitutes  for  TiO2.
Extenders, such as kaolin clays, calcium carbonate and polymeric opacifiers, are
used in a number of end-use  markets;  however the opacity in these  products is
not able to  duplicate  the  performance  characteristics  of TiO2,  and  Kronos
believes these products are unlikely to replace TiO2.

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

     Kronos and its distributors and agents sell and provide technical  services
for its products to over 4,000 customers in over 100 countries with the majority
of sales in Europe and North America.  TiO2 is  distributed  by rail,  truck and
ocean  carrier in either dry or slurry form.  Kronos and its  predecessors  have
produced and marketed  TiO2 in North  America and Europe for over 80 years,  and
Kronos is the only leading TiO2 producer committed to producing TiO2 and related
products  as  its  sole  business.   Kronos   believes  that  it  has  developed
considerable  expertise and efficiency in the  manufacture,  sale,  shipment and
service of its products in domestic and international markets.

     Sales of TiO2  represented  about 90% of Kronos' total sales in 2004. Sales
of other products,  complementary to Kronos' TiO2 business, are comprised of the
following:

o    Kronos  operates an  ilmenite  mine in Norway  pursuant  to a  governmental
     concession with an unlimited term. Ilmenite is a raw material used directly
     as a  feedstock  by some  sulfate-process  TiO2  plants,  including  all of
     Kronos' European  sulfate-process  plants.  The mine has estimated reserves
     that  are  expected  to  last  at  least  20  years.   Ilmenite   sales  to
     third-parties  represented  approximately  4% of Kronos'  consolidated  net
     sales in 2004.

o    Kronos manufactures and sells iron-based  chemicals,  which are by-products
     and processed  by-products of the TiO2 pigment  production  process.  These
     co-product chemicals are marketed through Kronos' Ecochem division, and are
     used  primarily  as  treatment  and  conditioning   agents  for  industrial
     effluents and municipal  wastewater as well as in the  manufacture  of iron
     pigments,  cement and agricultural  products.  Sales of iron based chemical
     products were about 3% of chemical sales in 2004.

o    Kronos  manufactures and sells certain titanium chemical products (titanium
     oxychloride and titanyl sulfate),  which are side-stream  products from the
     production of TiO2. Titanium oxychloride is used in specialty  applications
     in the formulation of pearlescent  pigments,  production of  electroceramic
     capacitors for cell phones and other  electronic  devices.  Titanyl sulfate
     products  are  used  primarily  in  pearlescent  pigments.  Sales  of these
     products were about 1% of chemical sales in 2004.

     Manufacturing  process,  properties and raw materials.  Kronos manufactures
TiO2 using both the chloride process and the sulfate process.  Approximately 73%
of Kronos' current  production  capacity is based on the chloride  process.  The
chloride  process is a continuous  process in which  chlorine is used to extract
rutile TiO2. The chloride process typically has lower  manufacturing  costs than
the sulfate  process due to higher yield and  production of less waste and lower
energy  requirements  and labor costs.  Because much of the chlorine is recycled
and feedstock  bearing a higher titanium  content is used, the chloride  process
produces  less waste than the sulfate  process.  The sulfate  process is a batch
chemical process that uses sulfuric acid to extract TiO2. Sulfate technology can
produce either anatase or rutile pigment.  Once an intermediate TiO2 pigment has
been produced by either the chloride or sulfate  process,  it is 'finished' into
products  with  specific  performance  characteristics  for  particular  end-use
applications  through  proprietary  processes involving various chemical surface
treatments and intensive micronizing (milling). Due to environmental factors and
customer  considerations,  the proportion of TiO2 industry sales  represented by
chloride-process  pigments has increased  relative to  sulfate-process  pigments
and, in 2004,  chloride-process  production facilities represented approximately
64% of industry capacity.

     During 2004, Kronos operated four TiO2 facilities in Europe (one in each of
Leverkusen, Germany, Nordenham, Germany, Langerbrugge,  Belgium and Fredrikstad,
Norway). In North America,  Kronos has a TiO2 facility in Varennes,  Quebec and,
through a manufacturing  joint venture discussed below, a one-half interest in a
TiO2 plant in Lake  Charles,  Louisiana.  TiO2 is  produced  using the  chloride
process at the Leverkusen,  Langerbrugge,  Varennes and Lake Charles facilities,
while TiO2 is produced using the sulfate  process at the Nordenham,  Leverkusen,
Fredrikstad and Varennes facilities.  Kronos operates an ilmenite mine in Norway
pursuant to a governmental  concession  with an unlimited  term, and Kronos also
owns a TiO2 slurry  facility  in  Louisiana  and leases  various  corporate  and
administrative  offices in the U.S.  and various  sales  offices in the U.S. and
Europe.  Kronos'  co-products are produced at its Norwegian,  Belgian and German
facilities,  and its titanium chemicals are produced at its Belgian and Canadian
facilities.

     All of Kronos' principal  production  facilities are owned,  except for the
land under the Leverkusen and Fredrikstad  facilities.  The Fredrikstad plant is
located on public land and is leased  until  2013,  with an option to extend the
lease for an  additional 50 years.  Kronos leases the land under its  Leverkusen
TiO2  production  facility  pursuant to a lease expiring in 2050. The Leverkusen
facility,  representing  about  one-third  of Kronos'  current  TiO2  production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG. Rent for the Leverkusen  facility is  periodically  established by agreement
with  Bayer AG for  periods  of at least two years at a time.  Under a  separate
supplies  and  services  agreement  expiring in 2011,  Bayer  provides  some raw
materials  (including chlorine and certain amounts of sulfuric acid),  auxiliary
and  operating  materials  and  utilities  services  necessary  to  operate  the
Leverkusen  facility.  The lease and the supplies and  services  agreement  have
certain restrictions regarding ownership and use of the Leverkusen facility.

     Kronos  produced a new company  record 484,000 metric tons of TiO2 in 2004,
compared to the prior records of 476,000  metric tons in 2003 and 442,000 metric
tons in 2002. Such production amounts include the Company's one-half interest in
the  joint-venture  owned Louisiana plant discussed below. The Company's average
production capacity  utilization rates in 2003 and 2004 were near full capacity,
up from 96% in 2002. Kronos  production  capacity has increased by approximately
30% over the past ten years due to debottlenecking  programs, with only moderate
capital  expenditures.  The Company  believes its annual  attainable  production
capacity  for 2005 is  approximately  500,000  metric  tons,  with  some  slight
additional capacity available in 2006 through Kronos' continued  debottlenecking
efforts.

     The primary raw materials used in the TiO2 chloride  production process are
titanium-containing   feedstock,  chlorine  and  coke.  Chlorine  and  coke  are
available from a number of suppliers. Titanium-containing feedstock suitable for
use in the chloride process is available from a limited but increasing number of
suppliers  around the world,  principally  in Australia,  South Africa,  Canada,
India and the United States. Kronos purchased  approximately 410,000 metric tons
of chloride  feedstock in 2004, of which the vast majority was slag. The Company
purchased chloride process grade slag in 2004 from a subsidiary of Rio Tinto plc
UK - Richards  Bay Iron and  Titanium  Limited  South  Africa  under a long-term
supply contract that expires at the end of 2007. Natural rutile ore is purchased
primarily from Iluka Resources,  Limited  (Australia),  a company formed through
the merger of Westralian Sands Limited  (Australia) and RGC Mineral Sands, Ltd.,
under a long-term  supply  contract that expires at the end of 2007. The Company
does not expect to encounter  difficulties  obtaining  long-term  extensions  to
existing  supply  contracts  prior  to  the  expiration  of the  contracts.  Raw
materials purchased under these contracts and extensions thereof are expected to
meet the Company's chloride process feedstock requirements over the next several
years.

     The primary raw materials used in the TiO2 sulfate  production  process are
titanium-containing  feedstock,  derived  primarily  from  rock and  beach  sand
ilmenite,  and  sulfuric  acid.  Sulfuric  acid is  available  from a number  of
suppliers. Titanium-containing feedstock suitable for use in the sulfate process
is available from a limited number of suppliers around the world. Currently, the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South  Africa.   As  one  of  the  few   vertically   integrated   producers  of
sulfate-process  pigments, Kronos operates a rock ilmenite mine in Norway, which
provided  all of Kronos'  feedstock  for its  European  sulfate-process  pigment
plants in 2004. Kronos produced approximately 867,000 metric tons of ilmenite in
2004, of which  approximately  311,000 metric tons were used internally with the
remainder sold to third parties. For its Canadian  sulfate-process plant, Kronos
also  purchases  sulfate grade slag  (approximately  20,000 metric tons in 2004)
primarily from Q.I.T.  Fer et Titane Inc.  Canada, a subsidiary of Rio Tinto plc
UK,  under a long-term  supply  contract  that  expires at the end of 2009.  Raw
materials purchased under these contracts and extensions thereof are expected to
meet the Company's sulfate process feedstock  requirements over the next several
years.

     Kronos has sought to minimize the impact of potential  changes in the price
of its feedstock raw  materials by entering into the contracts  discussed  above
which fix, to a large  extent,  the price of its raw  materials.  The  contracts
contain fixed  quantities that Kronos is required to purchase,  although certain
of these  contracts  allow for an upward or downward  adjustment in the quantity
purchased,  generally no more than 10%, based on Kronos' feedstock requirements.
The quantities under these contracts do not require Kronos to purchase feedstock
in excess of amounts that Kronos would reasonably consume in any given year. The
pricing under these  agreements  is generally  based on a fixed price with price
escalation clauses primarily based on consumer price indices,  as defined in the
respective contracts.

     The number of sources of, and  availability  of,  certain raw  materials is
specific to the particular  geographic region in which a facility is located. As
noted  above,  Kronos  purchases   titanium-bearing  ore  from  three  different
suppliers in different  countries under multiple-year  contracts.  Political and
economic  instability in certain  countries from which Kronos  purchases its raw
material  supplies could  adversely  affect the  availability of such feedstock.
Should  Kronos'  vendors not be able to meet their  contractual  obligations  or
should Kronos be otherwise unable to obtain necessary raw materials,  Kronos may
incur  higher costs for raw  materials  or may be required to reduce  production
levels,  which  may have a  material  adverse  effect  on  Kronos'  consolidated
financial position, results of operations or liquidity.

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

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

     Kronos is required to purchase  one-half of the TiO2  produced by the joint
venture.  The  manufacturing  joint venture operates on a break-even  basis, and
accordingly  Kronos does not report any equity in earnings of the joint venture.
With the exception of raw material costs for the pigment grades produced, Kronos
and  Huntsman  share all costs and  capital  expenditures  of the joint  venture
equally.  Kronos'  share of the net costs of the joint  venture is reported as a
component  of its cost of sales as the  related  TiO2  acquired  from the  joint
venture is sold.

     Competition.  The TiO2  industry  is highly  competitive.  Kronos  competes
primarily on the basis of price,  product quality and technical service, and the
availability of high  performance  pigment grades.  Although certain TiO2 grades
are  considered   specialty  pigments,   the  majority  of  Kronos'  grades  and
substantially all of Kronos'  production are considered  commodity pigments with
price  generally  being the most  significant  competitive  factor.  During 2004
Kronos had an estimated  12% share of worldwide  TiO2 sales  volume,  and Kronos
believes that it is the leading seller of TiO2 in several  countries,  including
Germany and Canada.  Overall,  Kronos is the world's fifth  largest  producer of
TiO2.

     Kronos' principal competitors are E.I. du Pont de Nemours & Co. ("DuPont");
Millennium  Chemicals,  Inc.;  Huntsman;  Kerr-McGee  Corporation;  and Ishihara
Sangyo Kaisha, Ltd. Kronos' five largest  competitors have estimated  individual
shares of TiO2  production  capacity  ranging  from 24% to 4%, and an  estimated
aggregate  70% share of  worldwide  TiO2  production  volume.  DuPont  has about
one-half  of total  North  American  TiO2  production  capacity  and is  Kronos'
principal North American competitor.

     Worldwide capacity additions in the TiO2 market resulting from construction
of greenfield plants require  significant  capital  expenditures and substantial
lead time (typically three to five years in Kronos'  experience).  No greenfield
plants are currently under  construction in North America or Europe,  and Kronos
does not expect additional  greenfield  capacity will come on-stream in the next
three to five years.  Kronos does expect that industry capacity will increase as
Kronos and its competitors  continue to debottleneck their existing  facilities.
In addition to the potential capacity additions through debottlenecking, certain
competitors  have  recently  either idled or shut down  facilities.  In the past
year, Huntsman, Millennium and Kerr-McGee have announced the idling or shut down
of an  aggregate  of  approximately  135,000  metric tons of sulfate  production
capacity by early 2005.  Based on the factors  described  above,  Kronos expects
that  the  average   annual   increase  in  industry   capacity  from  announced
debottlenecking  projects will be less than the average annual demand growth for
TiO2 during the next three to five years.  However,  no  assurance  can be given
that  future  increases  in the TiO2  industry  production  capacity  and future
average   annual   demand   growth  rates  for  TiO2  will  conform  to  Kronos'
expectations.  If actual developments differ from Kronos'  expectations,  Kronos
and the TiO2 industry's performances could be unfavorably affected.

     Research and development. Kronos' expenditures for research and development
process  technology  and quality  assurance  activities  were  approximately  $6
million  in 2002,  $7  million  in 2003 and $8  million  in 2004.  Research  and
development  activities  are conducted  principally at the  Leverkusen,  Germany
facility.  Such  activities  are directed  primarily  toward  improving both the
chloride  and  sulfate  production  processes,  improving  product  quality  and
strengthening   Kronos'   competitive   position  by   developing   new  pigment
applications.

     Kronos continually seeks to improve the quality of its grades, and has been
successful at developing  new grades for existing and new  applications  to meet
the needs of  customers  and  increase  product  life cycle.  Over the last five
years,  ten new grades have been added for plastics,  coatings,  fiber and paper
laminate applications.

     Patents and trademarks.  Patents held for products and production processes
are important to Kronos and its  continuing  business  activities.  Kronos seeks
patent  protection  for its technical  developments,  principally  in the United
States,  Canada  and  Europe,  and  from  time to  time  enters  into  licensing
arrangements with third parties.  Kronos' existing patents generally have a term
of 20 years from the date of filing,  and have remaining  terms ranging from one
to 19 years. Kronos seeks to protect its intellectual property rights, including
its patent rights,  and from time to time Kronos is engaged in disputes relating
to the protection and use of intellectual property relating to its products.

     Kronos' major trademarks,  including Kronos,  are protected by registration
in  the  United  States  and  elsewhere   with  respect  to  those  products  it
manufactures and sells.  Kronos also relies on unpatented  proprietary  know-how
and continuing  technological  innovation and other trade secrets to develop and
maintain its  competitive  position.  Kronos'  proprietary  chloride  production
process is an important part of Kronos'  technology,  and Kronos' business could
be harmed if Kronos should fail to maintain confidentiality of its trade secrets
used in this technology.

     Customer  base and annual  seasonality.  Kronos  believes  that neither its
aggregate  sales  nor  those  of  any  of  its  principal   product  groups  are
concentrated in or materially  dependent upon any single customer or small group
of customers.  Kronos' largest ten customers  accounted for approximately 25% of
net sales in 2004.  Neither  Kronos'  business as a whole nor that of any of its
principal product groups is seasonal to any significant  extent.  Due in part to
the  increase  in paint  production  in the spring to meet the spring and summer
painting season demand, TiO2 sales are generally higher in the first half of the
year than in the second half of the year.

     Employees.  As of December 31, 2004,  Kronos employed  approximately  2,420
persons (excluding employees of the Louisiana joint venture),  with 50 employees
in the United States, 420 employees in Canada and 1,950 employees in Europe.

     Hourly  employees in production  facilities  worldwide,  including the TiO2
joint  venture,  are  represented  by a  variety  of labor  unions,  with  labor
agreements  having various  expiration  dates.  In Europe,  union  employees are
covered by master  collective  bargaining  agreements in the chemicals  industry
that are renewed annually.  In Canada,  Kronos' union employees are covered by a
collective  bargaining  agreement that expires in June 2007. Kronos believes its
labor relations are good.

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

     Kronos' U.S. manufacturing operations are governed by federal environmental
and worker  health and safety laws and  regulations,  principally  the  Resource
Conservation and Recovery Act ("RCRA"),  the Occupational Safety and Health Act,
the Clean Air Act, the Clean Water Act, the Safe  Drinking  Water Act, the Toxic
Substances   Control   Act  and  the   Comprehensive   Environmental   Response,
Compensation  and  Liability  Act, as amended by the  Superfund  Amendments  and
Reauthorization  Act  ("CERCLA"),  as well as the  state  counterparts  of these
statutes.  Kronos  believes the TiO2 plant owned by the LPC joint  venture and a
TiO2  slurry  facility  owned  by  Kronos  in  Lake  Charles,  Louisiana  are in
substantial compliance with applicable  requirements of these laws or compliance
orders issued thereunder. Kronos has no other U.S. plants.

     While the laws  regulating  operations of  industrial  facilities in Europe
vary from country to country,  a common regulatory  framework is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its initiatives. Norway, although not a member of the EU, generally patterns its
environmental  regulatory  actions  after the EU.  Kronos  believes  that it has
obtained all required  permits and is in substantial  compliance with applicable
EU requirements.

     At its sulfate plant  facilities in Germany,  Kronos recycles weak sulfuric
acid either through contracts with third parties or using its own facilities. At
Kronos' Fredrikstad,  Norway plant, Kronos ships its spent acid to a third party
location  where it is treated  and  disposed.  Kronos'  Canadian  sulfate  plant
neutralizes its spent acid and sells its gypsum  by-product to a local wallboard
manufacturer.  Kronos  has a  contract  with a  third  party  to  treat  certain
sulfate-process  effluents  at  its  German  sulfate  plant.  Either  party  may
terminate  the contract  after giving four years  advance  notice with regard to
Kronos' Nordenham, Germany plant.

     From time to time,  Kronos'  facilities  may be  subject  to  environmental
regulatory  enforcement  under U.S.  and foreign  statutes.  Resolution  of such
matters   typically   involves  the   establishment   of  compliance   programs.
Occasionally,  resolution  may result in the payment of  penalties,  but to date
such  penalties have not involved  amounts  having a material  adverse effect on
Kronos'  consolidated  financial  position,  results of operations or liquidity.
Kronos  believes  that  all  its  plants  are  in  substantial  compliance  with
applicable environmental laws.

     Kronos'  capital   expenditures   related  to  its  ongoing   environmental
protection and improvement  programs in 2004 were approximately $7 million,  and
are currently expected to be approximately $7 million in 2005.

OTHER

     NL  Industries,  Inc. In addition to its 68% ownership of CompX and its 37%
ownership  of Kronos at December  31,  2004,  NL also holds  certain  marketable
securities and other investments.  In addition, NL owns 100% of EWI Re. Inc., an
insurance brokerage and risk management services company.  See Notes 5 and 17 to
the Consolidated Financial Statements.

     Foreign  operations.  Through its subsidiaries and affiliates,  the Company
has  substantial  operations  and assets  located  outside  the  United  States,
principally chemicals operations in Germany,  Belgium and Norway,  chemicals and
component  products  operations in Canada and component  products  operations in
Taiwan. See Note 3 to the Consolidated  Financial Statements.  Approximately 72%
of Kronos' 2004 aggregate TiO2 sales were to non-U.S. customers, including 9% to
customers  in areas other than Europe and Canada.  Approximately  24% of CompX's
2004 sales were to non-U.S.  customers located principally in Canada and Europe.
Foreign  operations are subject to, among other things,  currency  exchange rate
fluctuations and the Company's  results of operations have in the past been both
favorably and unfavorably  affected by fluctuations in currency  exchange rates.
See Item 7 -  "Management's  Discussion and Analysis of Financial  Condition and
Results of Operations" and Item 7A - "Quantitative  and Qualitative  Disclosures
About Market Risk."

     CompX's  Canadian  component  products  subsidiary  has, from time to time,
entered into currency  forward  contracts to mitigate  exchange rate fluctuation
risk for a portion of its receivables  denominated in currencies  other than the
Canadian dollar  (principally  the U.S.  dollar) or for similar risks associated
with  future  sales.  See  Note  20 to the  Consolidated  Financial  Statements.
Otherwise,  the  Company  does  not  generally  engage  in  currency  derivative
transactions.

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

     Regulatory and environmental matters.  Regulatory and environmental matters
are discussed in the respective business sections contained elsewhere herein and
in Item 3 - "Legal  Proceedings." In addition,  the information included in Note
19  to  the  Consolidated   Financial   Statements  under  the  captions  "Legal
proceedings  --  lead  pigment  litigation"  and -  "Environmental  matters  and
litigation" is incorporated herein by reference.

     Acquisition and restructuring  activities.  The Company routinely  compares
its liquidity requirements and alternative uses of capital against the estimated
future  cash  flows to be  received  from its  subsidiaries  and  unconsolidated
affiliates,  and the estimated  sales value of those units.  As a result of this
process,  the  Company  has in the  past  and may in the  future  seek to  raise
additional   capital,   refinance  or   restructure   indebtedness,   repurchase
indebtedness in the market or otherwise,  modify its dividend  policy,  consider
the sale of interests in subsidiaries,  business units, marketable securities or
other assets,  or take a combination  of such steps or other steps,  to increase
liquidity,  reduce indebtedness and fund future activities. Such activities have
in the past and may in the future involve related companies.  From time to time,
the Company and related  entities also evaluate the  restructuring  of ownership
interests among its subsidiaries  and related  companies and expects to continue
this activity in the future.

     The Company and other  entities  that may be deemed to be  controlled by or
affiliated  with Mr.  Harold  C.  Simmons  routinely  evaluate  acquisitions  of
interests in, or combinations  with,  companies,  including  related  companies,
perceived by management to be undervalued in the  marketplace.  These  companies
may or may  not be  engaged  in  businesses  related  to the  Company's  current
businesses.  In a number of  instances,  the  Company has  actively  managed the
businesses acquired with a focus on maximizing return-on-investment through cost
reductions,  capital expenditures,  improved operating  efficiencies,  selective
marketing to address market niches,  disposition of marginal operations,  use of
leverage  and  redeployment  of  capital  to more  productive  assets.  In other
instances,  the Company has disposed of the acquired interest in a company prior
to gaining  control.  The Company  intends to consider  such  activities  in the
future and may, in connection with such activities,  consider issuing additional
equity  securities and increasing the  indebtedness of NL, its  subsidiaries and
related companies.

     Website  and other  available  information.  NL  maintains a website on the
Internet  with the address of  www.nl-ind.com.  Copies of this Annual  Report on
Form 10-K for the year ended  December  31,  2004 and  copies of NL's  Quarterly
Reports on Form 10-Q for 2003 and 2004 and any  Current  Reports on Form 8-K for
2003 and 2004,  and any  amendments  thereto,  are or will be available  free of
charge at such website as soon as reasonably practical after they are filed with
the SEC.  Additional  information  regarding NL,  including NL's Audit Committee
charter and NL's Code of Business Conduct and Ethics,  can also be found at this
website as required.  Information  contained on NL's website is not part of this
report.

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

ITEM 2.  PROPERTIES

     NL's principal  executive offices are located in an office building located
at 5430 LJB Freeway, Dallas, Texas, 75240-2697. The principal properties used in
the  operations of the  subsidiaries  and  affiliates of the Company,  including
certain risks and uncertainties related thereto, are described in the applicable
business  sections  of  Item 1 -  "Business."  The  Company  believes  that  its
facilities are generally adequate and suitable for their respective uses.

ITEM 3.  LEGAL PROCEEDINGS

     The  Company is  involved  in various  legal  proceedings.  In  addition to
information that is included below,  certain information called for by this Item
is  included  in  Note  19  to  the  Consolidated  Financial  Statements,  which
information is incorporated herein by reference.

     Lead pigment litigation. NL's former operations included the manufacture of
lead  pigments  for  use  in  paint  and  lead-based  paint.  NL,  other  former
manufacturers  of lead pigments for use in paint and lead-based paint (together,
the  "former  pigment  manufacturers"),  and  the  Lead  Industries  Association
("LIA"),  which  discontinued  business  operations in 2002,  have been named as
defendants in various legal  proceedings  seeking  damages for personal  injury,
property damage and  governmental  expenditures  allegedly  caused by the use of
lead-based  paints.  Certain of these actions have been filed by or on behalf of
states,  large  U.S.  cities or their  public  housing  authorities  and  school
districts,  and  certain  others  have been  asserted  as class  actions.  These
lawsuits seek recovery under a variety of theories, including public and private
nuisance, negligent product design, negligent failure to warn, strict liability,
breach  of  warranty,   conspiracy/concert   of  action,  aiding  and  abetting,
enterprise  liability,  market  share  liability,  intentional  tort,  fraud and
misrepresentation,  violations of state consumer protection  statutes,  supplier
negligence and similar claims.

     The plaintiffs in these actions  generally seek to impose on the defendants
responsibility for lead paint abatement and health concerns  associated with the
use of lead-based  paints,  including damages for personal injury,  contribution
and/or  indemnification  for medical expenses,  medical monitoring  expenses and
costs for  educational  programs.  A number of cases are  inactive  or have been
dismissed or  withdrawn.  Most of the remaining  cases are in various  pre-trial
stages.  Some are on appeal  following  dismissal or summary judgment rulings in
favor of the defendants. In addition,  various other cases are pending (in which
NL is not a  defendant)  seeking  recovery for injury  allegedly  caused by lead
pigment and lead-based paint. Although NL is not a defendant in these cases, the
outcome of these  cases may have an impact on cases that might be filed  against
NL in the future.

     NL believes  these actions are without  merit,  intends to continue to deny
all  allegations  of wrongdoing  and liability and to defend against all actions
vigorously.  NL has  neither  lost nor settled  any of these  cases.  NL has not
accrued any amounts for pending lead pigment and  lead-based  paint  litigation.
Liability that may result, if any, cannot reasonably be estimated.  There can be
no assurance  that NL will not incur  liability in the future in respect of this
pending litigation in view of the inherent  uncertainties  involved in court and
jury rulings in pending and possible future cases.

     In June 1989,  a complaint  was filed in the Supreme  Court of the State of
New York, County of New York,  against the former pigment  manufacturers and the
LIA.  Plaintiffs  sought  damages in excess of $50  million for  monitoring  and
abating alleged lead paint hazards in public and private residential  buildings,
diagnosing  and  treating  children  allegedly  exposed  to lead  paint  in city
buildings,  the costs of educating  city residents to the hazards of lead paint,
and liability in personal  injury actions against New York City and the New York
City Housing  Authority  based on alleged lead  poisoning of city residents (The
City of New York,  the New York  City  Housing  Authority  and the New York City
Health and Hospitals  Corp. v. Lead  Industries  Association,  Inc., et al., No.
89-4617).  As a result of pre-trial motions, the New York City Housing Authority
is the only remaining  plaintiff in the case and is pursuing  damage claims only
with respect to two housing  projects.  No activity has occurred since September
2001.

     In August 1992, NL was served with an amended complaint in Jackson,  et al.
v. The Glidden Co., et al., Court of Common Pleas,  Cuyahoga County,  Cleveland,
Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and punitive damages for
personal  injury  caused  by the  ingestion  of  lead,  and an  order  directing
defendants  to  abate  lead-based  paint in  buildings.  Plaintiffs  purport  to
represent a class of similarly  situated  persons  throughout the State of Ohio.
The trial court has denied plaintiffs' motion for class certification.  In 2003,
defendants filed a motion for summary judgment on all claims.  The court has not
yet ruled on the motion.

     In  September  1999,  an  amended  complaint  was  filed in  Thomas v. Lead
Industries Association,  et al. (Circuit Court, Milwaukee,  Wisconsin,  Case No.
99-CV-6411)  adding as defendants  the former  pigment  manufacturers  to a suit
originally filed against  plaintiff's  landlords.  Plaintiff,  a minor,  alleges
injuries  purportedly  caused by lead on the  surfaces  of  premises in homes in
which he resided.  Plaintiff seeks compensatory and punitive damages, and NL has
denied liability.  In January 2003, the trial court granted  defendants'  motion
for summary  judgment,  dismissing  all counts of the  complaint.  The plaintiff
appealed  the  dismissal,  and in June 2004 the  appellate  court  affirmed  the
dismissal. The matter is now before the Wisconsin Supreme Court.

     In October 1999, NL was served with a complaint in State of Rhode Island v.
Lead  Industries  Association,  et al.  (Superior  Court  of Rhode  Island,  No.
99-5226).  The State seeks  compensatory  and  punitive  damages for medical and
educational  expenses,  and public and private building  abatement expenses that
the  State  alleges  were  caused by lead  paint,  and for  funding  of a public
education campaign and health screening  programs.  Plaintiff seeks judgments of
joint and several  liability  against the former pigment  manufacturers  and the
LIA. Trial began before a Rhode Island state court jury in September 2002 on the
question of whether lead pigment in paint on Rhode Island  buildings is a public
nuisance.  On October 29, 2002,  the trial judge declared a mistrial in the case
when the jury was  unable  to reach a  verdict  on the  question,  with the jury
reportedly  deadlocked 4-2 in the  defendants'  favor.  Other claims made by the
Attorney General, including violation of the Rhode Island Unfair Trade Practices
and  Consumer  Protection  Act,  strict  liability,  negligence,  negligent  and
fraudulent misrepresentation, civil conspiracy, indemnity, and unjust enrichment
were not the subject of the 2002 trial and remain  pending.  In March 2003,  the
court denied motions by plaintiffs  and defendants for judgment  notwithstanding
the  verdict.  In January  2004,  plaintiff  requested  the court to dismiss its
claims for state-owned buildings,  claiming all remaining claims did not require
a jury and asking the court to reconsider the trial schedule.  In February 2004,
the   court   dismissed   the   strict    liability,    negligence,    negligent
misrepresentation and fraud claims with prejudice, and the time for the state to
appeal this  dismissal has not yet run. In March 2004,  the court ruled that the
defendants have a constitutional right to a trial by jury under the Rhode Island
Constitution.  Plaintiff appealed such ruling, and in July 2004 the Rhode Island
Supreme  Court  dismissed  plaintiff's  appeal of, and  plaintiff's  petition to
review,  the trial court's ruling.  The court has set September 2005 as the date
for the retrial of all claims in this case.

     In October  1999,  NL was served with a complaint in Smith,  et al. v. Lead
Industries Association, et al. (Circuit Court for Baltimore City, Maryland, Case
No.  24-C-99-004490).  Plaintiffs,  seven minors from four  families,  each seek
compensatory  damages of $5 million  and  punitive  damages of $10  million  for
alleged  injuries due to  lead-based  paint.  Plaintiffs  allege that the former
pigment  manufacturers and other companies  alleged to have  manufactured  paint
and/or  gasoline  additives,  the  LIA  and  the  National  Paint  and  Coatings
Association are jointly and severally liable. NL has denied liability. The trial
court,  on  defendants'  motion,  dismissed  all claims of the first of the four
families  except  those  relating  to product  liability  for lead paint and the
Maryland Consumer Protection Act. Plaintiffs appealed, and in May 2004 the court
of appeals  reinstated  certain claims.  In September 2004, the court of appeals
granted  plaintiffs'  petition  for review of such  court's  affirmation  of the
dismissal of certain of the plaintiffs' remaining claims.  Pre-trial proceedings
and discovery  against the other plaintiffs are continuing,  but trial dates for
these plaintiffs are stayed pending the appeal of the summary judgment ruling.

     In February  2000,  NL was served with a complaint  in City of St. Louis v.
Lead  Industries  Association,  et al.  (Missouri  Circuit  Court 22nd  Judicial
Circuit,  St.  Louis City,  Cause No.  002-245,  Division  1).  Plaintiff  seeks
compensatory  and  punitive  damages for its  expenses  discovering  and abating
lead-based  paint,  detecting  lead  poisoning  and  providing  medical care and
educational  programs for City  residents,  and the costs of educating  children
suffering injuries due to lead exposure.  Plaintiff seeks judgments of joint and
several  liability  against  the former  pigment  manufacturers  and the LIA. In
November 2002, defendants' motion to dismiss was denied. In May 2003, plaintiffs
filed an amended complaint  alleging only a nuisance claim.  Defendants  renewed
motion to dismiss and motion for summary judgment were denied by the trial court
in March 2004,  but the trial court  limited  plaintiff's  complaint to monetary
damages from 1990 to 2000,  specifically  excluding future damages. A trial date
has been set for January 2006.

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

     In June 2000, a complaint was filed in Illinois state court,  Lewis, et al.
v. Lead Industries Association,  et al. (Circuit Court of Cook County, Illinois,
County Department,  Chancery Division,  Case No. 00CH09800).  Plaintiffs seek to
represent two classes,  one of all minors between the ages of six months and six
years who  resided in housing in  Illinois  built  before  1978,  and one of all
individuals  between the ages of six and twenty years who lived between the ages
of six months and six years in Illinois  housing built before 1978 and had blood
lead levels of 10  micrograms/deciliter  or more.  The  complaint  seeks damages
jointly  and  severally  from the former  pigment  manufacturers  and the LIA to
establish a medical  screening fund for the first class to determine  blood lead
levels,  a medical  monitoring  fund for the second class to detect the onset of
latent diseases,  and a fund for a public education campaign. In March 2002, the
court dismissed all claims.  Plaintiffs appealed, and in June 2003 the appellate
court  affirmed  the  dismissal  of five of the six  counts of  plaintiffs,  but
reversed the dismissal of the conspiracy count. In May 2004,  defendants filed a
motion for summary judgment on plaintiffs'  conspiracy count,  which was granted
in February 2005. The time for plaintiffs' appeal has not yet run.

     In February  2001, NL was served with a complaint in Barker,  et al. v. The
Sherwin-Williams   Company,   et  al.   (Circuit  Court  of  Jefferson   County,
Mississippi, Civil Action No. 2000-587, and formerly known as Borden, et al. vs.
The  Sherwin-Williams  Company,  et al.). The complaint  seeks joint and several
liability for  compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint,  including NL, on behalf of 18 adult
residents  of  Mississippi  who were  allegedly  exposed  to lead  during  their
employment in  construction  and repair  activities.  In 2003, the court ordered
that the  claims of ten of the  plaintiffs  be  transferred  to  Holmes  County,
Mississippi  state court.  In April 2004,  the parties  jointly  petitioned  the
Mississippi  Supreme Court to transfer these ten plaintiffs to their appropriate
venue,  and in May 2004 the  Mississippi  Supreme Court remanded the case to the
trial court in Holmes  County and  instructed  the court to  transfer  these ten
plaintiffs  to their  appropriate  venues.  Two of these  plaintiffs  have  been
dismissed  without  prejudice  with  respect  to NL.  With  respect to the eight
plaintiffs  remaining in Jefferson County,  one plaintiff has dropped his claim,
and in July 2004 the Mississippi  Supreme Court denied plaintiffs' motion to add
additional defendants. Pre-trial proceedings are continuing.

     In May 2001,  NL was served with a  complaint  in City of  Milwaukee  v. NL
Industries,  Inc. and Mautz Paint  (Circuit  Court,  Civil  Division,  Milwaukee
County,  Wisconsin,  Case No.  01CV003066).  Plaintiff  seeks  compensatory  and
equitable relief for lead hazards in Milwaukee homes, restitution for amounts it
has spent to abate lead and punitive  damages.  NL has denied all liability.  In
July 2003,  defendants'  motion for  summary  judgment  was granted by the trial
court.  In November 2004, the appellate  court reversed this ruling and remanded
the case. Defendants filed a petition for review of the appellate court's ruling
in December 2004 with the Wisconsin Supreme Court.

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

     In January  2002,  NL was served  with a complaint  in Jackson,  et al., v.
Phillips  Building  Supply of Laurel,  et al.  (Circuit  Court of Jones  County,
Mississippi,  Dkt.  Co.  2002-10-CV1).  The  complaint  seeks  joint and several
liability from three local retailers and six non-Mississippi companies that sold
paint for  compensatory  and  punitive  damages  on behalf of three  adults  for
injuries alleged to have been caused by the use of lead paint.  After removal to
federal  court,  in February  2003 the case was remanded to state court.  NL has
denied all liability and pre-trial  proceedings are continuing.  In August 2004,
plaintiffs  voluntarily  agreed  to  dismiss  one  plaintiff  and to  sever  the
remaining two plaintiffs.

     In June 2000, NL was served with a complaint in Houston  Independent School
District  v.  Lead  Industries  Association,  et al.  (District  Court of Harris
County, Texas, No. 2000-33725).  The complaint seeks actual and punitive damages
resulting from the presence of lead-based paint in the district's buildings from
the former pigment manufacturers and the LIA. NL has denied all liability.  This
case has been abated since 2003, and no further proceedings are anticipated.

     In May 2001, NL was served with a complaint in Harris County, Texas v. Lead
Industries  Association,  et al.  (District Court of Harris County,  Texas,  No.
2001-21413).  The complaint  seeks actual and punitive  damages and asserts that
the former pigment  manufacturers  and the LIA are jointly and severally  liable
for past and future  damages due to the  presence of lead paint in  county-owned
buildings.  NL has denied all  liability.  This case has been abated since 2003,
and no further proceedings are anticipated.

     In February  2002,  NL was served with a complaint  in Liberty  Independent
School  District  v. Lead  Industries  Association,  et al.  (District  Court of
Liberty  County,  Texas,  No.  63,332).  The complaint  seeks  compensatory  and
punitive damages jointly and severally from the former pigment manufacturers and
the LIA for property  damage to its buildings.  The complaint was amended to add
Liberty County, the City of Liberty,  and the Dayton Independent School District
as plaintiffs and drop the LIA as a defendant. NL has denied all liability. This
case has been abated since 2003, and no further proceedings are anticipated.

     In May 2002,  NL was served with a  complaint  in  Brownsville  Independent
School  District  v. Lead  Industries  Association,  et al.  (District  Court of
Cameron County,  Texas,  No.  2002-052081 B), seeking  compensatory and punitive
damages  jointly and  severally  from NL,  other  former  manufacturers  of lead
pigment and the LIA for property damage. NL has denied all liability.  This case
has been abated since 2003, and no further proceedings are anticipated.

     In  September  2002,  NL was served with a complaint  in City of Chicago v.
American  Cyanamid,  et  al.  (Circuit  Court  of  Cook  County,  Illinois,  No.
02CH16212),  seeking  damages to abate lead  paint in a  single-count  complaint
alleging public nuisance against NL and seven other former manufacturers of lead
pigment. In October 2003, the trial court granted defendants' motion to dismiss.
In  January  2005,  the  appellate  court  affirmed  the trial  court's  ruling.
Plaintiff  has  notified  the  court of its  intention  to seek  review  of this
decision by the Illinois Supreme Court.

     In  October  2002,  NL was  served  with  a  complaint  in  Walters  v.  NL
Industries,  et al. (Kings County Supreme Court, New York, No.  28087/2002),  in
which an adult seeks  compensatory  and punitive  damages from NL and five other
former  manufacturers of lead pigment for childhood exposures to lead paint. The
complaint alleges negligence and strict product  liability,  and seeks joint and
several liability with claims of civil conspiracy, concert of action, enterprise
liability,  and market share or alternative liability.  In March 2003, the court
granted  defendants'  motion to dismiss the product  defect  allegations  in the
negligence and strict liability counts. In December 2004, the case was dismissed
for plaintiff's failure to file a notice of entry.

     In April 2003, NL was served with a complaint in Russell v. NL  Industries,
Inc., et al.  (Circuit Court of LeFlore  County,  Mississippi,  Civil Action No.
No.2002-0235-CICI). Initially, six painters sued NL, four paint companies, and a
local retailer, alleging strict liability,  negligence,  fraudulent concealment,
misrepresentation, and conspiracy, and seeking compensatory and punitive damages
for alleged  injuries  caused by lead paint.  NL denied all liability,  and this
case has been removed to federal court.  In May 2004, four of the six defendants
voluntarily  dismissed their claims. In November 2004, defendants filed a motion
for summary judgment, and in January 2005, defendants filed a motion to dismiss.

     In April 2003,  NL was served with a complaint  in Jones v. NL  Industries,
Inc., et al.  (Circuit Court of LeFlore  County,  Mississippi,  Civil Action No.
2002-0241-CICI).  The plaintiffs,  fourteen children from five families, sued NL
and one landlord alleging strict liability,  negligence,  fraudulent concealment
and  misrepresentation,  and seek  compensatory and punitive damages for alleged
injuries  caused by lead paint.  Defendants  removed this case to federal court,
and in June 2004 the federal court set a trial date for February 2006. Discovery
is proceeding.

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

     In December  2004,  NL was served with a complaint  in Terry,  et al. v. NL
Industries,  Inc., et al. (United States  District Court,  Southern  District of
Mississippi, Case No. 4:04 CV 269 PB). The plaintiffs, seven children from three
families,  sued NL and  one  landlord  alleging  strict  liability,  negligence,
fraudulent concealment and misrepresentation, and seek compensatory and punitive
damages for alleged  injuries caused by lead paint.  The plaintiffs in the Terry
case are alleged to have resided in the same housing  complex as the  plaintiffs
in the Jones case.  NL has denied all  allegations  of liability and has filed a
motion to dismiss plaintiffs' fraud claim.

     In  addition  to  the  foregoing   litigation,   various   legislation  and
administrative  regulations  have, from time to time, been 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 NL and other pigment manufacturers have been successful.  Examples of such
proposed  legislation  include  bills which would  permit  civil  liability  for
damages on the basis of market share, rather than requiring  plaintiffs to prove
that the defendant's  product caused the alleged  damage,  and bills which would
revive  actions  barred by the statute of  limitations.  While no legislation or
regulations  have been  enacted  to date that are  expected  to have a  material
adverse effect on NL's consolidated financial position, results of operations or
liquidity,  the imposition of market share liability or other  legislation could
have such an effect.

     Environmental matters and litigation.

     General.  The Company's  operations  are governed by various  environmental
laws and  regulations.  Certain of the  Company's  businesses  are and have been
engaged in the handling,  manufacture or use of substances or compounds that may
be considered toxic or hazardous within the meaning of applicable  environmental
laws. As with other companies  engaged in similar  businesses,  certain past and
current  operations  and  products of the Company  have the  potential  to cause
environmental  or other  damage.  The Company has  implemented  and continues to
implement  various  policies and programs in an effort to minimize  these risks.
The Company's  policy is to maintain  compliance with  applicable  environmental
laws  and  regulations  at all of  its  plants  and to  strive  to  improve  its
environmental  performance.  From time to time,  the  Company  may be subject to
environmental regulatory enforcement under U.S. and foreign statutes, resolution
of which typically  involves the  establishment  of compliance  programs.  It is
possible   that  future   developments,   such  as  stricter   requirements   of
environmental laws and enforcement policies  thereunder,  could adversely affect
the  Company's  production,  handling,  use,  storage,  transportation,  sale or
disposal  of such  substances.  The  Company  believes  all of its plants are in
substantial compliance with applicable environmental laws.

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

     Environmental obligations are difficult to assess and estimate for numerous
reasons including the complexity and differing  interpretations  of governmental
regulations,  the number of PRPs and the PRPs'  ability or  willingness  to fund
such  allocation of costs,  their financial  capabilities  and the allocation of
costs among PRPs,  the  solvency of other  PRPs,  the  multiplicity  of possible
solutions,  and the years of  investigatory,  remedial and  monitoring  activity
required.   In  addition,   the  imposition  of  more  stringent   standards  or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes  respecting  site cleanup  costs or allocation of such costs among PRPs,
solvency of other PRPs,  the results of future  testing and analysis  undertaken
with respect to certain sites or a determination that the Company is potentially
responsible for the release of hazardous substances at other sites, could result
in  expenditures in excess of amounts  currently  estimated by the Company to be
required for such matters. In addition,  with respect to other PRPs and the fact
that the Company may be jointly and severally  liable for the total  remediation
cost at certain  sites,  the Company  could  ultimately be liable for amounts in
excess of its accruals due to, among other things,  reallocation  of costs among
PRPs or the  insolvency  of one or more  PRPs.  No  assurance  can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs  will not be  incurred  with  respect  to  sites  as to which no  estimate
presently  can be made.  Further,  there  can be no  assurance  that  additional
environmental matters will not arise in the future.

     The  Company  records  liabilities  related  to  environmental  remediation
obligations  when  estimated  future  expenditures  are probable and  reasonably
estimable.  Such accruals are adjusted as further  information becomes available
or  circumstances  change.  Estimated  future  expenditures  are  generally  not
discounted to their present value.  Recoveries of  remediation  costs from other
parties, if any, are recognized as assets when their receipt is deemed probable.
At  December  31,  2003 and  2004,  no  receivables  for  recoveries  have  been
recognized.

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

     NL.  Certain  properties  and  facilities  used  in  the  Company's  former
operations,  including  divested  primary and secondary lead smelters and former
mining  locations,   are  the  subject  of  civil   litigation,   administrative
proceedings  or  investigations  arising under  federal and state  environmental
laws. Additionally,  in connection with past disposal practices, the Company has
been named as a defendant,  PRP, or both,  pursuant to CERCLA, and similar state
laws in approximately 60 governmental and private actions  associated with waste
disposal sites,  mining locations and facilities  currently or previously owned,
operated or used by the  Company,  or its  subsidiaries  or their  predecessors,
certain of which are on the U.S. EPA's  Superfund  National  Priorities  List or
similar state lists. These proceedings seek cleanup costs,  damages for personal
injury or  property  damage  and/or  damages  for injury to  natural  resources.
Certain of these proceedings  involve claims for substantial  amounts.  Although
the Company may be jointly and severally  liable for such costs,  in most cases,
it is only one of a number of PRPs who may also be jointly and severally liable.
In  addition,  the Company is a party to a number of  lawsuits  filed in various
jurisdictions alleging CERCLA or other environmental claims.

     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  the   Company's   majority-owned   environmental   management
subsidiary, NL Environmental Management Services, Inc. ("EMS") has contractually
assumed NL's obligation.  See Note 19 to the Consolidated  Financial Statements.
At  December  31,   2004,   the  Company  had  accrued  $68  million  for  those
environmental matters which the Company believes are reasonably  estimable.  The
Company  believes 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 the Company  believes  it is  possible to estimate  costs is
approximately $93 million.  The Company's estimates of such liabilities have not
been discounted to present value.

     At December 31, 2004 there are approximately 20 sites for which the Company
is  unable  to  estimate  a range of  costs.  For  these  sites,  generally  the
investigation is in the early stages,  and it is either unknown as to whether or
not the Company  actually had any  association  with the site, or if the Company
had association with the site, the nature of its responsibility, if any, for the
contamination  at the site and the extent of  contamination.  The timing on when
information  would  become  available  to the  Company  to allow the  Company to
estimate a range of loss is unknown and dependent on events  outside the control
of the Company,  such as when the party alleging liability provides  information
to the Company.

     In July 1991 the United States filed an action in the U.S.  District  Court
for the  Southern  District of Illinois  against the Company and others  (United
States of America v. NL  Industries,  Inc.,  et al.,  Civ. No. 91-CV 00578) with
respect  to the  Granite  City,  Illinois  lead  smelter  formerly  owned by the
Company.  The  Company  and the U.S.  EPA have  entered  into a  consent  decree
settling the Company's  liability at the site for $31.5 million,  which includes
penalties  of $1 million.  In May 2003,  the court  entered the consent  decree.
Pursuant to the consent decree,  in June 2003, the Company paid $30.8 million to
the United States and will pay up to an additional  $.7 million upon  completion
of an EPA audit of certain response costs.

     In 1996,  the U.S. EPA ordered NL to perform a removal action at a facility
in Chicago,  Illinois  formerly  owned by NL. NL has complied with the order and
has substantially completed the clean-up work associated with the facility.

     In January  2003, NL received a general  notice of liability  from the U.S.
EPA regarding the site of a formerly  owned lead  smelting  facility  located in
Collinsville,  Illinois.  The U.S. EPA alleges the site contains elevated levels
of lead. In July 2004, NL and the U.S. EPA entered into an administrative  order
on consent to perform a removal action at the site.

     In December  2003,  NL was served with a complaint  in The Quapaw  Tribe of
Oklahoma et al. v. ASARCO  Incorporated  et al. (United States  District  Court,
Northern District of Oklahoma,  Case No.  03-CII-846H(J).  The complaint alleges
public nuisance, private nuisance, trespass, unjust enrichment, strict liability
and deceit by false  representation  against NL and six other  mining  companies
with respect to former  operations in the Tar Creek mining district in Oklahoma.
The  complaint  seeks class  action  status for former and current  owners,  and
possessors of real property located within the Quapaw  Reservation.  Among other
things, the complaint seeks actual and punitive damages from the defendants.  NL
has  moved  to  dismiss  the  complaint  and  has  denied  all  of   plaintiffs'
allegations.  In April 2004, plaintiffs filed an amended complaint adding claims
under CERCLA and RCRA,  and NL moved to dismiss those claims.  In June 2004, the
court dismissed  plaintiffs'  claims for unjust  enrichment and fraud as well as
one of the RCRA claims. In September 2004, the court stayed the case, pending an
appeal by the tribe related to sovereign immunity issues.

     In February 2004, NL was served in Evans v. ASARCO (United States  District
Court, Northern District of Oklahoma, Case No. 04-CV-94EA(M)), a purported class
action  on behalf  of two  classes  of  persons  living  in the town of  Quapaw,
Oklahoma:  (1) a medical  monitoring class of persons who have lived in the area
since  1994,  and (2) a property  owner  class of  residential,  commercial  and
government property owners.  Four individuals are named as plaintiffs,  together
with the mayor of the town of Quapaw,  Oklahoma, and the School Board of Quapaw,
Oklahoma.  Plaintiffs  allege  causes of action in  nuisance  and seek a medical
monitoring  program,  a  relocation  program,  property  damages,  and  punitive
damages.  NL answered the complaint and denied all of  plaintiffs'  allegations.
The trial court  subsequently  stayed all  proceedings  in this case pending the
outcome of a class certification  decision in another case that had been pending
in the same U.S.  District  Court,  a case from which NL has been dismissed with
prejudice.

     See Item 1. "Business - Regulatory and Environmental Matters and Note 19 to
the Consolidated Financial Statements."

Insurance coverage claims.

     The Company has settled insurance coverage claims concerning  environmental
claims with certain of the defendants in the environmental  coverage litigation,
including NL's principal former  carriers.  A portion of the proceeds from these
settlements  were placed into special purpose trusts,  as discussed  below.  See
Note  19  to  the  Consolidated   Financial  Statements.   No  further  material
settlements relating to litigation concerning environmental remediation coverage
are expected.

     At December 31, 2004,  NL had $19 million in  restricted  cash,  restricted
cash  equivalents  and restricted  marketable  debt  securities  held by special
purpose trusts,  the assets of which can only be used to pay for certain of NL's
future  environmental  remediation and other environmental  expenditures (2003 -
$24  million).  Use of such  restricted  balances  does not affect the Company's
consolidated net cash flows. Such restricted  balances declined by approximately
$35 million  during 2003 due  primarily  to a $30.8  million  payment made by NL
related to the final settlement of the Granite City, Illinois site.

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

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2004.


                                     PART II


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

     NL's common  stock is listed and traded on the New York and  Pacific  Stock
Exchanges (symbol:  NL). As of February 28, 2005, there were approximately 4,300
holders of record of NL common stock.  The  following  table sets forth the high
and low  closing  per share  sales  prices for NL common  stock for the  periods
indicated,  according to Bloomberg, and cash dividends paid during such periods.
On February 28, 2005 the closing price of NL common stock  according to the NYSE
Composite Tape was $21.90.
<TABLE>

                                                                                Regular
                                                                               dividends
                                                       High         Low           paid *
                                                       ----         ---        ---------


 Year ended December 31, 2003

<S>                                                   <C>         <C>           <C>
   First Quarter                                      $18.23      $14.51        $ .20
   Second Quarter                                      17.85       15.80          .20
   Third Quarter                                       18.25       16.14          .20
   Fourth Quarter - prior to December 8, 2003          18.22       16.35           -
   Fourth Quarter - after December 8, 2003             12.10       10.28          .20

 Year ended December 31, 2004

   First Quarter                                      $15.25      $12.05        $ .20
   Second Quarter                                      15.15       11.00          .20
   Third Quarter                                       19.47       12.32          .20
   Fourth Quarter                                      23.10       18.78          .20
</TABLE>



*    Dividends paid in 2003 were cash dividends.  In 2004, the Company paid four
     quarterly  dividends of $.20 per share using shares of Kronos  common stock
     in the form of pro-rata  dividends,  valued as of the  respective  dividend
     declaration dates.

     On December 8, 2003, in conjunction with a  recapitalization  of Kronos, NL
completed the  distribution to its  stockholders of one share of common stock of
Kronos,  previously a wholly-owned  subsidiary of NL, for every two shares of NL
common stock  outstanding  as of the close of business on November 17, 2003.  NL
distributed   approximately   23.9  million  shares  of  Kronos'  common  stock,
representing approximately 48.8% of the outstanding stock of Kronos.

     The Company  paid four  quarterly  $.20 per share cash  dividends  in 2003.
During 2004, NL paid its four $.20 per share quarterly  dividends in the form of
shares of Kronos common stock in which an aggregate of approximately 1.2 million
shares,  or  approximately  2%  of  Kronos'   outstanding   common  stock,  were
distributed to NL  shareholders in the form of pro-rata  dividends.  On February
22, 2005, the Company's Board of Directors declared a regular quarterly dividend
of $.25 per share to  stockholders  of record as of March 14, 2005 to be paid in
the form of shares of common stock of Kronos on March 29, 2005.

     The declaration and payment of future dividends, and the amount thereof, is
discretionary  and is  dependent  upon  the  Company's  results  of  operations,
financial   condition,   cash  requirements  for  its  businesses,   contractual
restrictions  and  other  factors  deemed  relevant  by the  Company's  Board of
Directors. The amount and timing of past dividends is not necessarily indicative
of the amount or timing of any future  dividends which might be paid.  There are
currently no contractual restrictions on the amount of NL dividends which may be
paid.

ITEM 6. SELECTED FINANCIAL DATA

     The following  selected  financial data should be read in conjunction  with
the  Company's  Consolidated  Financial  Statements  and Item 7 -  "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>

                                                                      Years ended December 31,
                                                   ----------------------------------------------------------
                                                    2000         2001        2002         2003         2004
                                                    ----         ----        ----         ----         -----
                                                         (In millions, except per share data and TiO2
                                                                        operating statistics)

 STATEMENTS OF OPERATIONS DATA:
   Net sales:
<S>                                              <C>          <C>          <C>          <C>          <C>
     Chemicals (1)                               $  922.3     $  835.1     $  875.2     $1,008.2     $  559.1
     Component products                             217.6        179.7        166.7        173.9        182.6
                                                 --------     --------     --------     --------     --------

                                                 $1,139.9     $1,014.8     $1,041.9     $1,182.1     $  741.7
                                                 ========     ========     ========     ========     ========

   Segment profit:
     Chemicals (1)                               $  212.5     $  169.2     $   96.5     $  137.4     $   66.4
     Component products                              33.4         15.7          4.4          9.0         16.3
                                                 --------     --------     --------     --------     --------

                                                 $  245.9     $  184.9     $  100.9     $  146.4     $   82.7
                                                 ========     ========     ========     ========     ========

   Equity in earnings of Kronos (1)              $     -      $     -      $     -      $     -      $    9.6
                                                 ========     ========     ========     ========     ========

   Income from continuing operations             $  167.0     $  126.9     $   37.4     $   67.4     $  211.1
   Discontinued operations                             .7         (1.1)         (.2)        (2.9)         (.7)
                                                 --------     --------     --------     --------     --------

     Net income                                  $  167.7     $  125.8     $   37.2     $   64.5     $  210.4
                                                 ========     ========     ========     ========     ========


 DILUTED EARNINGS PER SHARE DATA:
   Income from continuing operations             $   3.29     $   2.54     $    .77     $   1.41     $   4.36
   Discontinued operations                            .01         (.02)         -           (.06)        (.01)
                                                 --------     --------     --------     --------     --------

     Net income                                  $   3.30     $   2.52     $    .77     $   1.35     $   4.35
                                                 ========     ========     ========     ========     ========

   Dividends per share (2)                       $   .65      $    .80     $   3.30     $    .80     $    .80

  Weighted average common shares
   outstanding                                     50,749       49,856       48,612       47,795       48,419

BALANCE SHEET DATA (at year end):
  Total assets                                    $1,349.4     $1,377.0    $1,314.6     $1,476.5     $  547.4
  Long-term debt                                     234.4        244.5       355.6        382.5           .1
  Stockholders' equity                               425.8        465.6       342.2        283.2        287.5
</TABLE>


(1)  The Company ceased to  consolidate  the chemicals  operations  conducted by
     Kronos  effective  July 1, 2004,  at which time the  Company  commenced  to
     account for its interest in Kronos by the equity method.
(2)  Excludes the  distribution  of shares of Kronos common stock at December 8,
     2003. Amounts paid in 2000, 2001, 2002 and 2003 were cash dividends,  while
     amounts paid in 2004 were in the form of shares of Kronos common stock. See
     Note 2 to the  Consolidated  Financial  Statements and Item 5 - "Market For
     Registrant's Common Equity and Related Stockholder Matters."



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

RESULTS OF OPERATIONS

Summary

     As  discussed  in  Note  1 to the  Consolidated  Financial  Statements,  on
September  24, 2004,  the Company  purchased  10,374,000  shares of CompX common
stock  from  Valhi  and  a  wholly-owned   subsidiary  of  Valhi,   representing
approximately  68% of the  outstanding  shares of CompX  common  stock.  Because
Valhi,  NL and CompX are all entities under the common  control of Contran,  the
Company's acquisition of the shares of CompX common stock results in a change in
reporting  entity and the Company has  retroactively  restated its  consolidated
financial  statements  to reflect  the  consolidation  of CompX for all  periods
presented.

     Also as  discussed  in  Note 1 to the  Consolidated  Financial  Statements,
following  the  Company's  July  2004  dividend  in the form of shares of Kronos
common stock distributed to NL shareholders,  the Company's  ownership of Kronos
was reduced to less than 50%.  Consequently,  effective July 1, 2004 the Company
ceased to consolidate Kronos' financial position, results of operations and cash
flows and the Company  commenced  accounting  for its  interest in Kronos by the
equity  method.  The  Company  continues  to  report  Kronos  as a  consolidated
subsidiary through June 30, 2004, including the consolidation of Kronos' results
of  operations  and  cash  flows  for  the  first  two  quarters  of  2004.  The
deconsolidation of Kronos effective July 1, 2004 has a significant affect on the
comparability of the Company's consolidated financial statements.

     The Company  reported income from continuing  operations of $211.1 million,
or $4.36 per diluted  share,  in 2004  compared to income of $67.3  million,  or
$1.41 per diluted share in 2003 and income of $37.4 million, or $.77 per diluted
share, in 2002.

     The increase in the Company's  diluted earnings per share from 2003 to 2004
is due  primarily to the net effects of (i) lower  chemicals  operating  income,
(ii) higher  component  products  operating  income,  (iii) lower  environmental
remediation  and legal  expenses  and (iv)  certain  income  tax  benefits.  The
increase in the  Company's  diluted  earnings per share from 2002 to 2003 is due
primarily  to the net effects of (i) higher  chemicals  operating  income,  (ii)
higher  component   products  operating  income,   (iii)  higher   environmental
remediation expenses and (iv) certain income tax benefits.

     Income from  continuing  operations in 2004  includes (i) a second  quarter
income tax benefit related to the reversal of Kronos'  deferred income tax asset
valuation  allowance in Germany of $2.80 per diluted  share,  (ii) an income tax
benefit  related to the  reversal  of the  deferred  income tax asset  valuation
allowance  related to EMS and the adjustment of estimated  income taxes due upon
the IRS  settlement  related  to EMS of $.89 per  diluted  share,  (iii)  income
related to Kronos'  contract  dispute  settlement  of $.04 per diluted share and
(iv)  income  related to NL's fourth  quarter  sales of Kronos  common  stock in
market transactions of $.03 per diluted share.

     Income  from  continuing  operations  in 2003  includes  (i) an income  tax
benefit relating to Kronos' refund of prior year German income taxes of $.51 per
diluted  share and (ii)  gains  from the  disposal  of  property  and  equipment
(principally  related to  certain  real  property  of NL)  aggregating  $.17 per
diluted share.

     Net  income in 2002  includes  (i) an income  tax  benefit  related  to the
reduction in the Belgian corporate income tax rate of $.05 per diluted share and
(ii)  income of $.08 per  diluted  share  related  to Kronos'  foreign  currency
transaction  gain  resulting  from the  extinguishment  of certain  intercompany
indebtedness of NL and Kronos.

     Each of these items is more fully  discussed  below  and/or in the notes to
the Consolidated Financial Statements.

     The  Company  currently  believes  its net  income  in 2005  will be  lower
compared to 2004 due  primarily to the effects of income tax benefits  discussed
above recognized in 2004.

Critical accounting policies and estimates

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

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

o    The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of its customers to make required payments and
     other factors.  The Company takes into  consideration the current financial
     condition  of its  customers,  the age of the  outstanding  balance and the
     current economic  environment when assessing the adequacy of the allowance.
     If the financial  condition of the Company's customers were to deteriorate,
     resulting in an impairment of their  ability to make  payments,  additional
     allowances  may be  required.  During 2002,  2003 and 2004,  the net amount
     written off against the allowance for doubtful  accounts as a percentage of
     the balance of the allowance  for doubtful  accounts as of the beginning of
     the year ranged from 8% to 34%.

o    The Company  provides  reserves for estimated  obsolescence or unmarketable
     inventories  equal to the difference  between the cost of inventory and the
     estimated net realizable  value using  assumptions  about future demand for
     its products and market  conditions.  If actual market  conditions are less
     favorable than those projected by management, additional inventory reserves
     may be required.

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

     At December 31, 2004, the carrying value of all of the Company's marketable
     securities  exceeded  the  cost  basis  of each of such  investments.  With
     respect to the Company's investment in Valhi, which represented over 99% of
     the carrying value of all of the Company's  marketable equity securities at
     December 31, 2004,  the $75.8  million  carrying  value of such  investment
     exceeded its $34.6  million cost basis by about 119%. At December 31, 2004,
     the $40.75 per share quoted  market price of the  Company's  investment  in
     Kronos (the only one of the  Company's  equity  method  investees for which
     quoted  market  prices are  available)  exceeded its per share net carrying
     value by about 324%.

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

     Under  applicable  GAAP (SFAS No. 144,  "Accounting  for the  Impairment or
     Disposal of Long-Lived Assets"), property and equipment is not assessed for
     impairment unless certain impairment  indicators,  as defined, are present.
     During 2004, no such impairment indicators, as defined, were present.

     Under  applicable  GAAP  (SFAS No.  142,  "Goodwill  and  other  Intangible
     Assets"), goodwill is required to be reviewed for impairment at least on an
     annual basis.  Goodwill will also be reviewed for impairment at other times
     during  each year when  impairment  indicators,  as defined,  are  present.
     Goodwill  attributable  to the  component  products  operating  segment was
     assigned to three  reporting  units  within  that  operating  segment,  one
     consisting  of CompX's  security  products  operations,  one  consisting of
     CompX's  European  operations  and one  consisting of CompX's  Canadian and
     Taiwanese operations. The Company's goodwill also relates to an acquisition
     completed in January 2002. No goodwill  impairments were deemed to exist as
     a result of the Company's  annual  impairment  review  completed during the
     third quarter of 2004, as the estimated  fair value of each such  reporting
     unit  exceeded  the net carrying  value of the  respective  reporting  unit
     (CompX security products  reporting unit - 124%, CompX European  operations
     reporting unit - 61% and CompX Canadian and Taiwanese  operations reporting
     unit - 395%).  The estimated fair values of the three CompX reporting units
     are  determined  based on  discounted  cash flow  projections.  Significant
     judgment is required in estimating the discounted  cash flows for the CompX
     reporting units.  Such estimated cash flows are inherently  uncertain,  and
     there can be no  assurance  that CompX will  achieve  the future cash flows
     reflected in its projections. In December 2004, CompX's European operations
     met the criteria  under GAAP to be  classified  as "held for sale" and thus
     was  required  to be  measured  at the  lower  of its  carrying  amount  or
     estimated  fair  value  less  cost to  sell.  At  such  time,  the  Company
     recognized  a $6.5  million  impairment  of the  goodwill  related  to such
     operations,  as the carrying  amount of the net assets exceed the estimated
     fair value less cost to sell of the  operations.  See Notes 8 and 24 to the
     Consolidated Financial Statements.

o    The  Company   maintains   various   defined   benefit  pension  plans  and
     postretirement   benefits  other  than  pensions   ("OPEB").   The  amounts
     recognized as defined benefit  pension and OPEB expenses,  and the reported
     amounts of prepaid and accrued  pension  costs and accrued OPEB costs,  are
     actuarially  determined based on several  assumptions,  including  discount
     rates,  expected  rates of returns on plan assets and expected  health care
     trend rates.  Variances from these actuarially assumed rates will result in
     increases or decreases,  as applicable,  in the recognized pension and OPEB
     obligations,  pension and OPEB  expenses  and funding  requirements.  These
     assumptions are more fully described below under  "Assumptions  on defined
     benefit pension plans and OPEB plans."

o    The Company records a valuation allowance to reduce its deferred income tax
     assets  to  the  amount  that  is   believed  to  be  realized   under  the
     "more-likely-than-not"   recognition   criteria.   While  the  Company  has
     considered  future  taxable  income and ongoing  prudent and  feasible  tax
     planning strategies in assessing the need for a valuation allowance,  it is
     possible  that in the future the  Company  may change its  estimate  of the
     amount of the deferred income tax assets that would  "more-likely-than-not"
     be realized in the  future,  resulting  in an  adjustment  to the  deferred
     income  tax  asset  valuation  allowance  that  would  either  increase  or
     decrease,  as applicable,  reported net income in the period such change in
     estimate was made. For example,  during 2004 the Company concluded that the
     more-likely-than-not  recognition criteria had been met with respect to the
     income  tax  benefit   associated   with  its  German  net  operating  loss
     carryforwards.  Kronos has substantial net operating loss  carryforwards in
     Germany (the equivalent of $671 million for German  corporate  purposes and
     $232 million for German trade tax purposes at December 31, 2004).  Prior to
     the complete utilization of such carryforwards,  it is possible that Kronos
     might conclude in the future that the benefit of such  carryforwards  would
     no longer  meet the  more-likely-than-not  recognition  criteria,  at which
     point the  Company  would be required  to  recognize a valuation  allowance
     against the then-remaining tax benefit associated with the carryforwards.

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

     Segment  profit  for  each of the  Company's  two  operating  segments  are
impacted by certain of these significant judgments and estimates,  as summarized
below:

o    Chemicals - allowance  for  doubtful  accounts,  reserves  for  obsolete or
     unmarketable inventories,  impairment of equity method investees,  goodwill
     and other  long-lived  assets,  defined  benefit pension and OPEB plans and
     loss accruals.

o    Component products - allowance for doubtful accounts, reserves for obsolete
     or  unmarketable  inventories,  impairment  of  long-lived  assets and loss
     accruals.

     In  addition,  general  corporate  and  other  items  are  impacted  by the
significant  judgments and estimates for impairment of marketable securities and
equity method investees, defined benefit pension and OPEB plans, deferred income
tax asset valuation allowances and loss accruals.

Component products

<TABLE>

                                     Years ended December 31,                     % Change
                             ----------------------------------------       ---------------------
                               2002          2003            2004           2002-03       2003-04
                               ----          ----            ----           -------       -------
                                        (In $ millions)
 (In $ millions)
<S>                          <C>        <C>                <C>               <C>            <C>
 Net sales                   $166.7     $   173.9          $ 182.6           + 4%           + 5%
 Segment profit                 4.4           9.0             16.3           +100%          +81%

 Segment profit margin         3%             5%             9%
</TABLE>

     Component  products  sales were  higher in 2004 as  compared to 2003 due in
part to the favorable effect of fluctuations in foreign currency exchange rates.
Fluctuations in the value of the U.S. dollar  relative to other  currencies,  as
discussed below,  increased  component products sales by $2.5 million in 2004 as
compared to 2003.  Component  products sales  comparisons  were also impacted by
increases in product  prices for precision  slides and ergonomic  products which
were primarily a pass through of raw material steel cost increases to customers.

     During 2004,  sales of slide  products  increased  13% as compared to 2003,
while sales of security  products  decreased less than 1% and sales of ergonomic
products  increased 1% during the same period.  The  percentage  changes in both
slide and  ergonomic  products  include  the impact  resulting  from  changes in
foreign  currency  exchange  rates.  Sales of security  products  are  generally
denominated in U.S. dollars.

     Component  products  segment  profit  comparisons  in 2004  were  favorably
impacted by the effect of certain cost reduction initiatives undertaken in 2003.
Component  products  segment  profit  comparisons  were also impacted by the net
effects of  increases in the cost of steel (the primary raw material for CompX's
products) and continued  reductions in  manufacturing,  fixed overhead and other
overhead costs.

     Component  products  sales  were  higher  in 2003 as  compared  to 2002 due
primarily to the favorable effect of fluctuations in foreign  currency  exchange
rates.  Fluctuations  in  the  value  of  the  U.S.  dollar  relative  to  other
currencies,  as discussed below,  increased net sales by $3.3 million in 2003 as
compared  to 2002.  In addition  to the  favorable  impact of changes in foreign
currency exchange rates,  component products sales increased in 2003 as compared
to 2002 due to the net effects of higher sales volumes of security products, and
precision  slide products in North American  markets  partially  offset by lower
sales volumes of ergonomic products.

     During 2003,  sales of slide and security  products  increased  10% and 4%,
respectively,  as compared to 2002, while sales of ergonomic  products decreased
6%. The  percentage  changes in both slide and  ergonomic  products  include the
impact resulting from changes in foreign currency exchange rates.

     Component  products  segment profit income increased in 2003 as compared to
2002 due in part to the favorable effect of cost improvement  initiatives,  such
as consolidating  CompX's two Canadian  facilities into one facility.  Component
products  segment profit  comparisons  were negatively  affected by the expenses
associated  with  such  facility  consolidation   (approximately  $900,000)  and
increases in the cost for steel.  Fluctuations  in the value of the U.S.  dollar
relative to other  currencies,  as discussed below,  decreased segment profit by
$3.1  million in 2003 as  compared  to 2002.  In  addition,  component  products
segment profit in 2002 includes charges  aggregating $3.5 million related to the
re-tooling of one of CompX's manufacturing facilities and provisions for changes
in estimate  with  respect to obsolete  and  slow-moving  inventories,  overhead
absorption rates and other items.

     CompX has  substantial  operations  and assets  located  outside the United
States in Canada  and  Taiwan.  A portion of CompX's  sales  generated  from its
non-U.S.  operations are denominated in currencies  other than the U.S.  dollar,
principally  the  Canadian  dollar and the New Taiwan  dollar.  In  addition,  a
portion of CompX's sales generated from its non-U.S.  operations (principally in
Canada) are denominated in the U.S. dollar. Most raw materials,  labor and other
production costs for such non-U.S. operations are denominated primarily in local
currencies.  Consequently,  the translated U.S. dollar values of CompX's foreign
sales and operating  results are subject to currency  exchange rate fluctuations
which may  favorably  or  unfavorably  impact  reported  earnings and may affect
comparability  of  period-to-period  operating  results.  During 2004,  currency
exchange  rate  fluctuations   positively   impacted  component  products  sales
comparisons  with  2003,  while  currency  exchange  rate  fluctuations  did not
significantly  impact component products segment profit comparisons for the same
periods. During 2003, currency exchange rate fluctuations of the Canadian dollar
positively  impacted component products sales comparisons with 2002 (principally
with respect to slide products),  but currency exchange rate fluctuations of the
Canadian  dollar   negatively   impacted   component   products  segment  profit
comparisons for the same periods.

     While demand has improved in 2004 across most of CompX's product  segments,
certain  customers  are  seeking  lower cost Asian  sources as  alternatives  to
CompX's  products.  CompX believes the impact of this will be mitigated  through
its  ongoing   initiatives   to  expand  both  new   products   and  new  market
opportunities.  Asian-sourced  competitive  pricing  pressures  are  expected to
continue to be a challenge as Asian manufacturers, particularly those located in
China,  gain  market  share.  CompX has  responded  to the  competitive  pricing
pressure in part by  reducing  production  cost  through  product  reengineering
improvement  in  manufacturing  processes,  or moving  production  to lower-cost
facilities including CompX's own Asian-based manufacturing facilities. CompX has
also emphasized and focused on  opportunities  where it can provide  value-added
customer support services that Asian-based manufacturers are generally unable to
provide.  CompX believes its  combination of cost control  initiatives  together
with its value-added  approach to development and marketing of products helps to
mitigate the impact of competitive pricing pressures.

     Additionally,  CompX's cost for steel continues to rise dramatically due to
the continued high demand and shortages worldwide. While CompX has thus far been
able to pass a majority  of its higher raw  material  costs on to its  customers
through price increases and  surcharges,  there is no assurance that it would be
able to continue to pass along any additional higher costs to its customers. The
price  increases and  surcharges  may  accelerate the efforts of some of CompX's
customers to find less expensive products from foreign manufacturers. CompX will
continue to focus on cost improvement initiatives,  utilizing lean manufacturing
techniques and prudent balance sheet  management in order to minimize the impact
of lower sales,  particularly to the office furniture  industry,  and to develop
value-added customer  relationships with an additional focus on sales of CompX's
higher-margin  ergonomic  computer support systems to improve operating results.
These actions,  along with other activities to eliminate  excess  capacity,  are
designed to position  CompX to expand more  effectively  on both new product and
new market opportunities to improve CompX's profitability.

Chemicals - Kronos

     Relative  changes in Kronos' TiO2 sales and income from  operations  during
the past three years are primarily due to (i) relative changes in TiO2 sales and
production  volumes,  (ii) relative  changes in TiO2 average  selling prices and
(iii) relative  changes in foreign currency  exchange rates.  Selling prices (in
billing currencies) were generally: decreasing during the first quarter of 2002,
flat during the second quarter of 2002,  increasing during the last half of 2002
and the  first  quarter  of  2003,  flat  during  the  second  quarter  of 2003,
decreasing during the third and fourth quarters of 2003 and the first quarter of
2004, flat during the second quarter of 2004 and increasing during the last half
of 2004.

     Effective July 1, 2004 the Company ceased to consolidate  Kronos' financial
position,  results  of  operations  and cash  flows  and the  Company  commenced
accounting  for its  interest  in  Kronos  by the  equity  method.  The  Company
continues to report Kronos as a consolidated  subsidiary  through June 30, 2004,
including the  consolidation of Kronos' results of operations and cash flows for
the first two quarters of 2004.  The  following  table shows  information  about
Kronos' sales and segment  profit for the 2003 and 2004  periods,  including the
second half of 2004 for which the Company did not consolidate Kronos' results of
operations.



<TABLE>

                                Years ended December 31,              % Change
                             ------------------------------     --------------------   Six months ended
                             2002         2003         2004     2002-03      2003-04     June 30,2004
                             ----         ----         ----     -------      -------   -----------------
                                    (In $ millions)

<S>                         <C>        <C>         <C>             <C>         <C>          <C>
Net sales                   $875.2     $1,008.2    $1,128.6       +15%        +12%          $559.1

Segment profit                96.5       137.4        119.6       +42%        -13%            66.4

Segment profit margin         11%         14%          11%                                    12%

TiO2 operating
   statistics:
   Average selling price
     index (1990=100)         81          84           82
     Sales volume*           455         462          500
     Production volume*      442         476          484
   Production capacity
     at beginning of
     year*                   455         470          480
   Production rate as a
     percentage of
     capacity                 96%       Full         Full

  Percent change in TiO2 average selling prices:
    Using actual foreign currency exchange rates                  +13%        + 4%
    Impact of changes in foreign exchange rates                   -10%        - 6%
                                                                  ----        ----

                                                                  + 3%        - 2%
                                                                  ====        ====
</TABLE>

* Metric tons, in thousands

     Kronos' sales increased $120.4 million (12%) in 2004 as compared to 2003 as
the favorable effect of fluctuations in foreign currency  exchange rates,  which
increased  chemicals  sales by  approximately  $60 million as further  discussed
below,  and higher sales  volumes  more than offset the impact of lower  average
TiO2 selling  prices.  Excluding the effect of  fluctuations in the value of the
U.S. dollar relative to other currencies, Kronos' average TiO2 selling prices in
billing  currencies  were 2% lower in 2004 as compared to 2003.  When translated
from billing currencies into U.S. dollars using actual foreign currency exchange
rates  prevailing  during the respective  periods,  Kronos' average TiO2 selling
prices in 2004 increased 4% in 2004 as compared to 2003.

     Kronos' sales  increased  $133.0 million (15%) in 2003 compared to 2002 due
primarily to higher average TiO2 selling  prices,  higher TiO2 sales volumes and
the favorable  effect of fluctuations in foreign  currency  exchange rates which
increased  sales by  approximately  $93  million  as  further  discussed  below.
Excluding the effect of fluctuations in the value of the U.S. dollar relative to
other currencies,  Kronos' average TiO2 selling prices in billing  currencies in
2003 were 3% higher than 2002,  with the  greatest  improvement  in European and
export markets.  When translated from billing  currencies to U.S.  dollars using
actual foreign currency exchange rates prevailing during the respective periods,
Kronos' average TiO2 selling prices in 2003 increased 13% compared to 2002.

     Kronos' sales are  denominated  in various  currencies,  including the U.S.
dollar,  the euro, other major European  currencies and the Canadian dollar. The
disclosure of the  percentage  change in Kronos'  average TiO2 selling prices in
billing  currencies  (which excludes the effects of fluctuations in the value of
the U.S.  dollar  relative  to other  currencies)  is  considered  a  "non-GAAP"
financial measure under regulations of the SEC. The disclosure of the percentage
change in Kronos'  average TiO2 selling  prices  using actual  foreign  currency
exchange rates prevailing  during the respective  periods is considered the most
directly  comparable  financial measure presented in accordance with GAAP ("GAAP
measure").  Kronos  discloses  percentage  changes in its average TiO2 prices in
billing  currencies  because Kronos  believes such  disclosure  provides  useful
information  to  investors  to allow them to analyze  such  changes  without the
impact of changes in  foreign  currency  exchange  rates,  thereby  facilitating
period-to-period  comparisons of the relative  changes in average selling prices
in the actual various billing currencies. Generally, when the U.S. dollar either
strengthens  or weakens  against  other  currencies,  the  percentage  change in
average  selling  prices  in  billing   currencies  will  be  higher  or  lower,
respectively,  than such percentage changes would be using actual exchange rates
prevailing during the respective periods.  The difference between the 13% and 4%
increases  in  Kronos'  average  TiO2  selling  prices  during  2003  and  2004,
respectively,  as compared to the  respective  prior year using  actual  foreign
currency  exchange  rates  prevailing  during the  respective  periods (the GAAP
measure),  and the 3% increase  and 2% decrease in Kronos'  average TiO2 selling
prices in billing  currencies (the non-GAAP  measure) during such periods is due
to the effect of changes in foreign  currency  exchange  rates.  The above table
presents in a tabular format (i) the percentage  change in Kronos'  average TiO2
selling prices using actual foreign currency  exchange rates  prevailing  during
the respective periods (the GAAP measure), (ii) the percentage change in Kronos'
average TiO2 selling  prices in billing  currencies  (the non-GAAP  measure) and
(iii) the percentage  change due to changes in foreign  currency  exchange rates
(or the reconciling item between the non-GAAP measure and the GAAP measure).

     Chemicals segment profit in 2004 includes $6.3 million of income related to
the settlement of a contract dispute with a customer. As part of the settlement,
the customer  agreed to make payments to Kronos  through 2007  aggregating  $7.3
million.  The $6.3 million gain  recognized  represents the present value of the
future  payments  to be paid by the  customer to Kronos.  The  dispute  with the
customer  concerned the customer's alleged past failure to purchase the required
amount  of TiO2  from  Kronos  under  the  terms of  Kronos'  contract  with the
customer. Under the settlement,  the customer agreed to pay an aggregate of $7.3
million to Kronos  through  2007 to  resolve  such  dispute.  See Note 18 to the
Consolidated Financial Statements.

     Kronos' segment profit decreased $17.8 million (13%) in 2004 as compared to
2003, as the effect of lower average TiO2 selling prices and higher raw material
and maintenance costs more than offset the impact of higher sales and production
volumes and income from the contract dispute settlement.  Kronos' segment profit
increased  $40.9  million (42%) in 2003 compared to 2002 due primarily to higher
average TiO2 selling prices and higher TiO2 sales and production volumes.

     Kronos' TiO2 sales volumes in 2004 increased 8% compared to 2003, as higher
volumes in European and export markets more than offset lower volumes in Canada.
Approximately  one-half of Kronos' 2004 TiO2 sales volumes were  attributable to
markets in Europe,  with 38%  attributable  to North  America and the balance to
export markets.  Demand for TiO2 has remained strong  throughout 2004, and while
Kronos  believes that the strong demand is largely  attributable  to the end-use
demand of its  customers,  it is possible that some portion of the strong demand
resulted from customers  increasing their inventory levels of TiO2 in advance of
implementation  of announced or anticipated  price increases.  Kronos' operating
income  comparisons were also favorably  impacted by higher  production  levels,
which  increased  2%.  Kronos'  operating  rates were near full capacity in both
periods,  and Kronos' sales and production volumes in 2004 were both new records
for  Kronos,  setting new volume  records  for Kronos for the third  consecutive
year.

     Kronos'  TiO2 sales  volumes in 2003  increased  2% from 2002,  with higher
volumes in  European  and North  American  markets  more than  offsetting  lower
volumes  in export  markets.  Kronos'  TiO2  production  volumes in 2003 were 8%
higher than 2002, with operating rates near full capacity in both years.

     Kronos has  substantial  operations and assets  located  outside the United
States (primarily in Germany,  Belgium, Norway and Canada). A significant amount
of Kronos' sales  generated  from its non-U.S.  operations  are  denominated  in
currencies  other  than the U.S.  dollar,  principally  the  euro,  other  major
European  currencies  and the  Canadian  dollar.  A  portion  of  Kronos'  sales
generated  from its non-U.S.  operations  are  denominated  in the U.S.  dollar.
Certain raw materials,  primarily titanium-containing  feedstocks, are purchased
in U.S.  dollars,  while  labor  and  other  production  costs  are  denominated
primarily in local currencies. Consequently, the translated U.S. dollar value of
Kronos'  foreign  sales and operating  results are subject to currency  exchange
rate fluctuations  which may favorably or adversely impact reported earnings and
may affect the comparability of  period-to-period  operating  results.  Overall,
fluctuations  in the  value of the U.S.  dollar  relative  to other  currencies,
primarily the euro, increased Kronos' TiO2 sales by a net $60 million in 2004 as
compared to 2003,  and increased  sales by a net $93 million in 2003 as compared
to  2002.  Fluctuations  in the  value  of the  U.S.  dollar  relative  to other
currencies  similarly  impacted Kronos' foreign  currency-denominated  operating
expenses.  Kronos'  operating costs that are not denominated in the U.S. dollar,
when translated into U.S. dollars,  were higher in 2004 and 2003 compared to the
same periods of the  respective  prior years.  Overall,  currency  exchange rate
fluctuations  resulted  in a net $6  million  increase  in Kronos'  income  from
operations  in 2004 as  compared  to 2003,  and  resulted  in a net  decrease in
Kronos' income from operations in 2003 of  approximately  $6 million as compared
to 2002.

     Reflecting  the impact of partial  implementation  of prior price  increase
announcements,  Kronos' average TiO2 selling prices in billing currencies in the
fourth  quarter of 2004 were 2% higher than the third  quarter of 2004. In 2005,
Kronos expects income from operations will be higher than 2004, primarily due to
higher expected selling prices in 2005. The anticipated higher selling prices in
2005  reflects  the  expected   continued   implementation   of  price  increase
announcements, including Kronos' latest price increases announced in March 2005.
The  extent to which any of such price  increases  which  have  previously  been
announced,   and  any  additional   price   increases  which  may  be  announced
subsequently  in 2005,  will be  realized  will depend on,  among other  things,
economic factors.

     Kronos' efforts to debottleneck its production facilities to meet long-term
demand continue to prove successful.  Kronos' production  capacity has increased
by approximately  30% over the past ten years due to  debottlenecking  programs,
with only moderate  capital  investment.  Kronos believes its annual  attainable
production  capacity for 2005 is  approximately  500,000 metric tons,  with some
slight  additional   capacity   available  in  2006  through  Kronos'  continued
debottlenecking efforts.

     Kronos expects its TiO2 production  volumes in 2005 will be slightly higher
than its 2004 volumes,  with sales volumes  comparable to slightly lower in 2005
as compared to 2004.  Kronos'  average TiO2  selling  prices,  which  started to
increase  during the second half of 2004,  are  expected to continue to increase
during 2005, and consequently  Kronos currently expects its average TiO2 selling
prices,  in  billing  currencies,  will be higher in 2005 as  compared  to 2004.
Overall,  Kronos expects it chemicals segment profit in 2005 will be higher than
2004, due primarily to higher expected selling prices.  Kronos'  expectations as
to the future  prospects of Kronos and the TiO2 industry are based upon a number
of factors beyond Kronos' control,  including worldwide growth of gross domestic
product,  competition in the  marketplace,  unexpected or  earlier-than-expected
capacity additions and technological  advances.  If actual  developments  differ
from Kronos'  expectations,  Kronos' results of operations  could be unfavorably
affected.

Equity in earnings of Kronos - second half of 2004
<TABLE>

                                                             Six months ended
                                                               December 31,
                                                                   2004
                                                                   ----
                                                              (In millions)
 Kronos historical:
<S>                                                              <C>
   Net sales                                                     $ 569.5
                                                                 =======

   Segment profit                                                $  53.3
   Other general corporate, net                                     (1.6)
   Interest expense                                                (25.9)
                                                                 -------

                                                                    25.8

   Income tax expense                                                5.5
                                                                 -------

     Net income                                                  $  20.3
                                                                 =======

   Equity in earnings of Kronos Worldwide, Inc.                  $   9.6
                                                                 =======
</TABLE>

     See above for a  discussion  relating to Kronos'  operations  during  2004.
Kronos'  interest  expense in the second  half of 2004  relates  principally  to
Kronos  International,  Inc.'s Senior  Secured Notes and Kronos' $200 million of
long-term  notes payable to affiliates  which were prepaid in the fourth quarter
of 2004.

General corporate and other items

     General  corporate  interest  and  dividend  income.  Interest and dividend
income  fluctuates  in part based upon the amount of funds  invested  and yields
thereon.  Aggregate  interest and dividend income increased $4.6 million in 2004
compared to 2003 primarily due to interest on NL's note  receivable  from Kronos
which was not  eliminated  upon  consolidation  in the last six  months of 2004.
Aggregate interest and dividend income declined $2.5 million in 2003 as compared
with 2002 primarily due to lower average yields on invested  funds. In addition,
average funds invested in 2002 were higher  compared with the  subsequent  years
primarily due to the decrease in the balance of restricted  cash and  marketable
debt  securities  over the past  three  years as such funds were used to pay for
certain  environmental  remediation  expenditures of the Company. See Note 19 to
the Consolidated Financial Statements.  The Company expects interest income will
be lower in 2005 than 2004 due to lower average  yields and lower average levels
of funds available for investment.

     Securities transactions. Net securities transactions gains in 2004 includes
a $2.2  million gain ($1.4  million,  or $.03 per diluted  share,  net of income
taxes)  related  to NL's  sale of  shares  of  Kronos  common  stock  in  market
transactions.   See  Note  2  to  the  Consolidated  Financial  Statements.  Net
securities transactions gains in 2003 included a $2.3 million noncash securities
gain related to the exchange of the  Company's  holdings of Tremont  Corporation
common stock for shares of Valhi,  Inc.  common stock as a result of a series of
merger  transactions  completed in February 2003. See Note 5 to the Consolidated
Financial Statements.

     Other general  corporate income items. The gain on disposal of fixed assets
in 2003  relates  primarily  to the  sale of  certain  real  property  of NL not
associated  with any operations.  NL has certain other real property,  including
some subject to environmental remediation, which could be sold in the future for
a profit.  The $6.3  million  currency  transaction  gain in 2002 relates to the
extinguishment  of  intercompany   indebtedness  of  NL.  See  Note  12  to  the
Consolidated Financial Statements. Noncompete income relates to NL's $20 million
of  proceeds  from the  disposal of its  specialty  chemicals  business  unit in
January 1998 related to its agreement not to compete in the rheological products
business,  which was  recognized  as a  component  of general  corporate  income
ratably over the five-year  non-compete period ended in January 2003 ($4 million
recognized  in  2002  and  $333,000  recognized  in  2003).  See  Note 18 to the
Consolidated Financial Statements.

     Legal settlement gains. Net legal settlement gains of $5.2 million in 2002,
$823,000 in 2003 and $552,000 in 2004 relate to NL's settlements with certain of
its former  insurance  carriers.  These  settlements,  as well as similar  prior
settlements NL reached in 2000 and 2001,  resolved court proceedings in which NL
had sought reimbursement from the carriers for legal defense costs and indemnity
coverage for certain of its environmental remediation  expenditures.  No further
material settlements relating to litigation concerning environmental remediation
coverages are expected. See Note 18 to the Consolidated Financial Statements.

     General corporate  expenses.  Net general  corporate  expenses in 2004 were
$40.3 million lower than 2003 due primarily to lower  environmental  remediation
and legal expenses.  Net general  corporate  expenses in 2003 were $19.5 million
higher than 2002 due  primarily  to higher  environmental  remediation  expenses
(principally  related to one formerly-owned site of NL for which the remediation
process is expected to occur over the next several years). Net general corporate
expenses in  calendar  2005 are  currently  expected to be higher as compared to
2004,  primarily due to higher  expected  legal expenses of NL resulting from an
increase  in  litigation  and  related   expenses.   However,   obligations  for
environmental  remediation obligations are difficult to assess and estimate, and
no assurance can be given that actual costs will not exceed  accrued  amounts or
that costs will not be incurred in the future with respect to sites for which no
estimate of liability  can  presently be made.  See Note 19 to the  Consolidated
Financial Statements.

     Interest expense. Interest expense in 2004 decreased $16.0 million compared
to 2003 primarily due to the  deconsolidation  of Kronos effective July 1, 2004.
See Note 1 to the Consolidated  Financial  Statements.  Interest expense in 2003
increased  $2.7 million  compared  with 2002  primarily  due to higher levels of
outstanding debt of Kronos and associated currency effects. The Company does not
currently expect to report a material amount of interest expense in 2005.

     Provision  for income  taxes.  The  principal  reasons  for the  difference
between the Company's  effective income tax rates and the U.S. federal statutory
income  tax  rates  are  explained  in  Note  15 to the  Consolidated  Financial
Statements.  Income tax rates vary by jurisdiction  (country and/or state),  and
relative  changes in the  geographic mix of the Company's  pre-tax  earnings can
result in fluctuations in the effective income tax rate.

     As  more  fully  described  in  Note  15  to  the  Consolidated   Financial
Statements, Kronos had previously provided a deferred income tax asset valuation
allowance  against  substantially  all of its tax loss  carryforwards  and other
deductible temporary  differences in Germany because Kronos did not believe they
met the "more-likely-than-not" recognition criteria. During the first six months
of 2004,  Kronos reduced its deferred  income tax asset  valuation  allowance by
approximately  $8.7 million,  primarily as a result of utilization of its German
net operating loss  carryforwards,  the benefit of which had not previously been
recognized.  At June 30, 2004, after considering all available evidence,  Kronos
concluded  that  these  German  tax  loss  carryforwards  and  other  deductible
temporary differences now met the  "more-likely-than-not"  recognition criteria.
Under applicable GAAP related to accounting for income taxes at interim periods,
a change in  estimate  at an  interim  period  resulting  in a  decrease  in the
valuation  allowance is segregated into two  components,  the portion related to
the remaining interim periods of the current year and the portion related to all
future years.  The portion of the valuation  allowance  reversal  related to the
former is recognized over the remaining interim periods of the current year, and
the portion of the  valuation  allowance  related to the latter is recognized at
the time the  change in  estimate  is made.  Accordingly,  as of June 30,  2004,
Kronos reversed  $268.6 million of the valuation  allowance (the portion related
to future years), and Kronos reversed the remaining $3.4 million during the last
six months of 2004. Because the benefit of such net operating loss carryforwards
and other deductible  temporary  differences in Germany has now been recognized,
Kronos'  effective income tax rate in 2005 is expected to be higher than what it
would have otherwise been,  although its future cash income tax rate will not be
affected  by the  reversal of the  valuation  allowance.  Prior to the  complete
utilization  of such  carryforwards,  it is  possible  that  the  Company  might
conclude in the future that the  benefit of such  carryforwards  would no longer
meet the "more-likely-than-not" recognition criteria, at which point the Company
would be required to recognize a valuation  allowance against the then-remaining
tax benefit associated with the carryforwards.

     Also during 2004, NL recognized a second  quarter $43.1 million  income tax
benefit  related to income  tax  attributes  of EMS.  This  income  tax  benefit
resulted from a settlement  agreement  reached with the U.S. IRS  concerning the
IRS'  previously-reported  examination  of a certain  restructuring  transaction
involving  EMS,  and  included  (i) a $12.6  million  tax  benefit  related to a
reduction  in the  amount  of  additional  income  taxes and  interest  which NL
estimates  it will be  required to pay related to this matter as a result of the
settlement  agreement  and  (ii) a $31.1  million  tax  benefit  related  to the
reversal of a deferred income tax asset valuation  allowance  related to certain
tax attributes of EMS (including a U.S. net operating loss  carryforward)  which
NL now believes meet the "more-likely-than-not" recognition criteria.

     In  January  2004,  the  German  federal  government  enacted  new  tax law
amendments  that limit the annual  utilization of income tax loss  carryforwards
effective  January  1, 2004 to 60% of  taxable  income  after  the first  euro 1
million of taxable income. The new law will have a significant effect on Kronos'
cash tax  payments  in  Germany  going  forward,  the  extent  of which  will be
dependent upon the level of taxable income earned in Germany.

     During  2003,  NL and  Kronos  reduced  their  deferred  income  tax  asset
valuation allowance by an aggregate of approximately $7.2 million,  primarily as
a result of  utilization  of certain income tax attributes for which the benefit
had not  previously  been  recognized.  In addition,  Kronos  recognized a $38.0
million  income tax  benefit  related  to the net  refund of certain  prior year
German income taxes.

     During  2002,  NL and  Kronos  reduced  their  deferred  income  tax  asset
valuation allowance by an aggregate of approximately $3.4 million,  primarily as
a result of  utilization  of certain income tax attributes for which the benefit
had not previously been recognized.  The provision for income taxes in 2002 also
includes a $2.3 million  deferred  income tax benefit related to certain changes
in the Belgian tax law.

     In October  2004,  the American  Jobs Creation Act of 2004 was enacted into
law.  The new law  contains  several  provisions  that could impact the Company.
These provisions  provide for, among other things, a special deduction from U.S.
taxable  income  equal to a  stipulated  percentage  of  qualified  income  from
domestic production activities (as defined) beginning in 2005, and a special 85%
dividends  received  deduction for certain  dividends  received from  controlled
foreign  corporations.  Both of these  provisions  are  complex  and  subject to
numerous limitations. See Note 15 to the Consolidated Financial Statements.

     Minority interest.  The Company commenced  recognizing minority interest in
Kronos  following the Company's  December 2003  distribution of a portion of the
shares of Kronos common stock to its stockholders, and ceased reporting minority
interest in Kronos  effective July 1, 2004 upon the  deconsolidation  of Kronos.
See Note 13 to the Consolidated Financial Statements.

     Minority  interest  in  NL's  subsidiary  also  relates  to  EMS.  EMS  was
established  in 1998, at which time EMS  contractually  assumed  certain of NL's
environmental liabilities. EMS' earnings are based, in part, upon its ability to
favorably  resolve these  liabilities on an aggregate basis. The stockholders of
EMS, other than NL, actively manage the  environmental  liabilities and share in
39% of EMS'  cumulative  earnings.  NL continues to consolidate EMS and provides
accruals  for  the  reasonably  estimable  costs  for  the  settlement  of  EMS'
environmental liabilities, as discussed below.

     Discontinued  operations.   See  Note  24  to  the  Consolidated  Financial
Statements.

     Related party transactions.  The Company is a party to certain transactions
with  related  parties.  See  Notes  2 and  17  to  the  Consolidated  Financial
Statements.

     Accounting  principles newly adopted in 2002, 2003 and 2004. See Note 21 to
the Consolidated Financial Statements.

     Accounting  principles  not yet  adopted.  See Note 23 to the  Consolidated
Financial Statements.

Assumptions on defined benefit pension plans and OPEB plans

     Defined benefit pension plans. NL maintains various defined benefit pension
plans in the U.S., and Kronos maintains various defined benefit pension plans in
Europe,  Canada  and  the  U.S.  See  Note  16  to  the  Consolidated  Financial
Statements.

     The Company  accounts for its defined  benefit pension plans using SFAS No.
87,  "Employer's  Accounting for Pensions."  Under SFAS No. 87, defined  benefit
pension plan expense and prepaid and accrued  pension costs are each  recognized
based on certain actuarial  assumptions,  principally the assumed discount rate,
the assumed  long-term rate of return on plan assets and the assumed increase in
future compensation levels. The Company recognized  consolidated defined benefit
pension  plan  expense of $7.0  million in 2002,  $8.9  million in 2003 and $6.8
million in 2004.  Such expense in 2004 includes  one-half of the defined benefit
pension  expense  attributable  to Kronos' plans for the period during which the
Company  consolidated  Kronos'  results  of  operations.  The  amount of funding
requirements  for these defined  benefit  pension plans is generally  based upon
applicable  regulations  (such as ERISA in the U.S.),  and will generally differ
from  pension  expense  recognized  under  SFAS No. 87 for  financial  reporting
purposes.  Contributions made by the Company to all of its plans aggregated $9.3
million  in  2002,  $14.1  million  in 2003  and  $9.1  million  in  2004.  Such
contributions  in 2004 includes  one-half of the  contributions  attributable to
Kronos'  plans for the period  during  which the  Company  consolidated  Kronos'
results of operations.

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

     At December 31, 2004, approximately 83% of the projected benefit obligation
related to NL plans in the U.S, with the remainder related to an immaterial plan
in the United Kingdom  associated  with a former  disposed  business unit of the
Company.  The Company  uses  several  different  discount  rate  assumptions  in
determining  its  consolidated  defined  benefit  pension plan  obligations  and
expense  because the Company  maintains  defined  benefit  pension  plans in the
United States and the United Kingdom and the interest rate  environment  differs
from country to country.

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

<TABLE>

                                            Discount rates used for:
                  -------------------------------------------------------------------------
                  -------------------------------------------------------------------------
                          Obligations at          Obligations at         Obligations at
                        December 31, 2002       December 31, 2003       December 31, 2004
                       and expense in 2003     and expense in 2004     and expense in 2005
                  -------------------------------------------------------------------------


<S>                             <C>                   <C>                     <C>
  U.S.                          6.5%                  5.9%                    5.8%
  Germany                       5.5%                  5.3%                     *
  Canada                        7.0%                  6.3%                     *
  Norway                        6.0%                  5.5%                     *
</TABLE>



*    Not  applicable,   as  effective  July  1,  2004,  the  Company  no  longer
     consolidates Kronos.

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

     At December 31, 2004,  approximately 87% of the plan assets related to plan
assets  for NL's  plans in the U.S.,  with the  remainder  related to the United
Kingdom plan. The Company uses several  different  long-term  rates of return on
plan asset  assumptions in determining its consolidated  defined benefit pension
plan expense  because the Company  maintains  defined  benefit pension plans the
United States and the United Kingdom, the plan assets in different countries are
invested in a different mix of investments and the long-term rates of return for
different investments differ from country to country.

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

o    During  2003 and 2004,  the plan  assets in the U.S.  were  invested in the
     Combined Master  Retirement Trust ("CMRT"),  a collective  investment trust
     established by Valhi to permit the collective  investment by certain master
     trusts which fund certain employee  benefits plans sponsored by Contran and
     certain of its affiliates.  Harold Simmons is the sole trustee of the CMRT.
     The CMRT's  long-term  investment  objective is to provide a rate of return
     exceeding a  composite  of broad  market  equity and fixed  income  indices
     (including  the  S&P  500  and  certain  Russell  indices)  utilizing  both
     third-party  investment  managers  as well as  investments  directed by Mr.
     Simmons.  During the 17-year history of the CMRT, through December 31, 2004
     the average  annual  rate of return has been  approximately  13%.  Prior to
     2003,  the Company's  U.S. plan assets were invested with a combination  of
     equity and fixed income managers.

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

     The Company's  assumed  long-term  rates of return on plan assets for 2002,
2003 and 2004 were as follows:

<TABLE>

                                            2002                 2003               2004
                                            ----                 ----               ----

<S>                                         <C>                 <C>                <C>
  U.S.                                      8.5%                10.0%              10.0%
  Germany                                   6.8%                 6.5%                *
  Canada                                    7.0%                 7.0%                *
  Norway                                    7.0%                 6.0%                *
</TABLE>



*    Not  applicable,   as  effective  July  1,  2004,  the  Company  no  longer
     consolidates Kronos.

     The Company  currently expects to utilize the same long-term rate of return
on plan asset assumptions in 2005 as it used in 2004 for purposes of determining
the 2005 defined benefit pension plan expense.

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

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

     Based  on the  actuarial  assumptions  described  above  and  NL's  current
expectation  for what actual  average  foreign  currency  exchange rates will be
during 2005,  NL expects its defined  benefit  pension  income will  approximate
$900,000 in 2005. In comparison, NL expects to be required to make approximately
$400,000 of contributions to such plans during 2005.

     As noted above,  defined benefit pension expense and the amounts recognized
as accrued  pension  costs are based upon the  actuarial  assumptions  discussed
above. The Company believes all of the actuarial assumptions used are reasonable
and appropriate.  If NL had lowered the assumed discount rate by 25 basis points
for all of its plans as of December 31, 2004, NL's aggregate  projected  benefit
obligations  would have  increased by  approximately  $1.1 million at that date.
Such a change would not materially  impact NL's defined  benefit pension expense
for 2005. Similarly,  if NL lowered the assumed long-term rate of return on plan
assets by 25 basis  points for all of its plans,  NL's defined  benefit  pension
expense would be expected to increase by approximately $100,000 during 2005.

     OPEB plans.  Certain  subsidiaries  of the  Company in the U.S.  and Canada
currently  provide certain health care and life insurance  benefits for eligible
retired employees.  See Note 16 to the Consolidated  Financial  Statements.  The
Company  accounts for such OPEB costs under SFAS No. 106,  Employers  Accounting
for  Postretirement  Benefits  other than  Pensions.  Under SFAS No.  106,  OPEB
expense  and  accrued  OPEB  costs are based on certain  actuarial  assumptions,
principally  the assumed  discount  rate and the assumed  rate of  increases  in
future health care costs. The Company  recognized  consolidated  OPEB expense of
$80,000 in 2002, $329,000 in 2003 and $1.1 million in 2004. Such expense in 2004
includes  one-half of the OPEB  expense  attributable  to Kronos'  plans for the
period  during which the Company  consolidated  Kronos'  results of  operations.
Similar to defined benefit pension  benefits,  the amount of funding will differ
from the expense recognized for financial reporting purposes,  and contributions
to the plans to cover benefit  payments  aggregated  $3.5 million in 2002,  $3.8
million in 2003 and $3.5  million in 2004.  Such  contributions  in 2004 include
one-half  of the  contributions  attributable  to  Kronos'  plans for the period
during  which  the  Company   consolidated   Kronos'   results  of   operations.
Substantially  all of the Company's  accrued OPEB cost relates to benefits being
paid to current  retirees and their  dependents,  and no material amount of OPEB
benefits  are being  earned  by  current  employees.  As a  result,  the  amount
recognized  for OPEB expense for financial  reporting  purposes has been, and is
expected to continue to be,  significantly  less than the amount of OPEB benefit
payments  made each year.  Accordingly,  the amount of accrued  OPEB expense has
been, and is expected to continue to, decline gradually.

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

     In estimating  the health care cost trend rate,  the Company  considers its
actual health care cost experience,  future benefit structures,  industry trends
and advice from its third-party actuaries. In certain cases, NL has the right to
pass on to retirees all or a portion of  increases in health care costs.  During
each of the past three years, the Company has assumed that the relative increase
in health care costs will generally  trend downward over the next several years,
reflecting,  among other things,  assumed  increases in efficiency in the health
care system and  industry-wide  cost containment  initiatives.  For example,  at
December 31, 2004,  the  expected  rate of increase in future  health care costs
ranges from 9% in 2005, declining to 5.5% in 2009 and thereafter.

     Based  on the  actuarial  assumptions  described  above  and  NL's  current
expectation  for what actual  average  foreign  currency  exchange rates will be
during 2004, the Company expects its consolidated  OPEB expense will approximate
$600,000 in 2005. In comparison,  the Company expects the employer  contribution
portion of costs to approximate $2.0 million during 2005.

     As noted  above,  OPEB  expense and the amount  recognized  as accrued OPEB
costs are based upon the  actuarial  assumptions  discussed  above.  The Company
believes all of the actuarial  assumptions  used are reasonable and appropriate.
If the Company had lowered the assumed  discount rate by 25 basis points for all
of its OPEB plans as of December 31, 2004,  the  Company's  aggregate  projected
benefit obligations would have increased by approximately $300,000 at that date,
and the  Company's  OPEB  expense  would be  expected  to  increase by less than
$50,000  during 2005.  Similarly,  if the assumed  future health care cost trend
rate had been  increased by 100 basis  points,  the Company's  accumulated  OPEB
obligations would have increased by approximately $900,000 at December 31, 2004,
and OPEB expense would have increased by $100,000 in 2004.

Foreign operations

     Kronos. Kronos has substantial operations located outside the United States
(principally  Europe and  Canada) for which the  functional  currency is not the
U.S. dollar. As a result, the reported amount of the Company's net investment in
Kronos will fluctuate based upon changes in currency exchange rates. At December
31, 2004,  Kronos had substantial net assets  denominated in the euro,  Canadian
dollar, Norwegian kroner and British pound sterling.

     CompX.  CompX has  substantial  operations and assets  located  outside the
United States,  principally slide and/or ergonomic product  operations in Canada
and Taiwan.

LIQUIDITY AND CAPITAL RESOURCES

Summary

     The Company's  primary  source of liquidity on an ongoing basis is its cash
flows from  operating  activities,  which is generally  used to (i) fund capital
expenditures,  (ii) repay any  short-term  indebtedness  incurred  primarily for
working  capital  purposes  and  (iii)  provide  for the  payment  of  dividends
(including  dividends  paid  to NL  by  its  subsidiaries).  In  addition,  from
time-to-time  the  Company  will  incur  indebtedness,  generally  to  (i)  fund
short-term working capital needs, (ii) refinance existing  indebtedness or (iii)
fund major capital  expenditures  or the acquisition of other assets outside the
ordinary  course of  business.  Also,  the Company will from  time-to-time  sell
assets  outside  the  ordinary  course of  business,  the  proceeds of which are
generally used to (i) repay existing indebtedness  (including indebtedness which
may have been  collateralized  by the assets  sold),  (ii) make  investments  in
marketable and other  securities,  (iii) fund major capital  expenditures or the
acquisition of other assets outside the ordinary  course of business or (iv) pay
dividends.

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

     The  deconsolidation  of Kronos  effective  July 1, 2004 has a  significant
effect on the comparability of the Company's consolidated cash flows.

Consolidated cash flows

     Operating  activities.  Trends  in cash  flows  from  operating  activities
(excluding the impact of significant asset  dispositions and relative changes in
assets  and  liabilities)  are  generally  similar  to trends  in the  Company's
earnings. However, certain items included in the determination of net income are
non-cash,  and therefore  such items have no impact on cash flows from operating
activities.  Non-cash items included in the  determination of net income include
depreciation  and  amortization  expense,  deferred  income  taxes and  non-cash
interest expense.  Non-cash  interest expense relates  principally to Kronos and
consists of amortization of deferred financing costs.

     Certain other items included in the determination of net income may have an
impact on cash flows from operating activities,  but the impact of such items on
cash  flows from  operating  activities  will  differ  from their  impact on net
income. For example, equity in earnings of affiliates will generally differ from
the amount of distributions received from such affiliates,  and equity in losses
of affiliates does not  necessarily  result in current cash outlays paid to such
affiliates.  The amount of periodic  defined  benefit  pension  plan expense and
periodic  OPEB  expense  depends  upon a number of  factors,  including  certain
actuarial assumptions,  and changes in such actuarial assumptions will result in
a change in the  reported  expense.  In  addition,  the amount of such  periodic
expense  generally  differs from the  outflows of cash  required to be currently
paid for such benefits.

     Certain  other items  included in the  determination  of net income have no
impact on cash flows from  operating  activities,  but such items do impact cash
flows  from  investing  activities  (although  their  impact on such cash  flows
differs from their impact on net income). For example, realized gains and losses
from the disposal of long-lived  assets are included in the determination of net
income,  although the proceeds  from any such disposal are shown as part of cash
flows from investing activities.

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

     Cash flows from operating activities decreased from $114.9 million provided
by operating  activities  in 2003 to $92.7 million of cash provided by operating
activities  in 2004.  This  $22.2  million  decrease  was due  primarily  to the
deconsolidation of Kronos,  effective July 1, 2004. As such, cash from operating
activities  in 2003 is not  comparable  to 2004.  Relative  changes in  accounts
receivable  are  affected by,  among other  things,  the timing of sales and the
collection of the resulting  receivables.  Relative  changes in inventories  and
accounts  payable and accrued  liabilities  are affected by, among other things,
the timing of raw material  purchases and the payment for such purchases and the
relative  difference  between  production  volumes and sales  volumes.  Relative
changes in accrued  environmental costs are affected by, among other things, the
period in which recognition of the  environmental  accrual is recognized and the
period in which the remediation expenditure is actually made.

     Cash flows from operating  activities increased from $114.7 million in 2002
to $114.9  million in 2003.  This $.2 million  increase was due primarily to the
net effect of (i) higher net income of $27.3 million,  (ii) higher  depreciation
expense of $8.7 million,  (iii) $10.5 million of higher losses on disposition of
property and equipment in 2003 as compared to 2002, (iv) lower net distributions
from the TiO2  manufacturing  joint venture of $875,000 in 2003 compared to $8.0
million in 2002, (v) a lower amount of net cash generated from relative  changes
in the Company's  inventories,  receivables,  payables and accruals and accounts
with affiliates of $28.5 million in 2003 as compared to 2002 and (vi) lower cash
paid for income taxes of $14.4 million.  Relative changes in accounts receivable
are affected by, among other things,  the timing of sales and the  collection of
the resulting  receivable.  Relative changes in inventories and accounts payable
and accrued  liabilities are affected by, among other things,  the timing of raw
material  purchases  and  the  payment  for  such  purchases  and  the  relative
difference  between  production  volume and sales  volume.  Relative  changes in
accrued  environmental  costs are affected by, among other things, the period in
which recognition of the  environmental  accrual is recognized and the period in
which the remediation expenditure is actually made.

     NL does not have complete access to the cash flows of its  subsidiaries and
affiliates, in part due to limitations contained in certain credit agreements as
well as the fact that certain of such  subsidiaries  and affiliates are not 100%
owned by NL. A detail of NL's consolidated cash flows from operating  activities
is presented in the table below.  Eliminations consist of intercompany dividends
(most of which are paid by Kronos to NL).

<TABLE>

                                               Years ended December 31,
                                       ----------------------------------------
                                       2002               2003             2004
                                       ----               ----             ----
                                                     (in millions)

Cash provided by operating
 activities:
<S>                                  <C>               <C>              <C>
  Kronos                             $ 111.1           $ 107.7          $  67.5
  CompX                                 16.9              24.4             30.2
  NL Parent                             88.2             (19.9)             7.1
  Other                                  9.5               9.7              1.6
  Eliminations                        (111.0)             (7.0)           (13.7)
                                     -------           -------          -------

                                     $ 114.7           $ 114.9          $  92.7
                                     =======           =======          =======
</TABLE>

     Investing  activities.   The  Company's  capital  expenditures  were  $45.3
million,  $44.3 million and $16.2 million in 2002,  2003 and 2004,  respectively
and are disclosed by business  segment in Note 3 to the  Consolidated  Financial
Statements.  Such capital  expenditures  in 2004 include the first six months of
Kronos'   capital   expenditures   for  the  period  during  which  the  Company
consolidated  Kronos'  cash  flows.  Capital  expenditures  in 2002  included an
aggregate  of $3.1  million  for the  rebuilding  of the  Company's  Leverkusen,
Germany sulfate plant.

     At December 31, 2004,  the estimated cost to complete  capital  projects in
process  approximated  $3  million,  all of which  relates to CompX's  component
products  facilities.  Aggregate  capital  expenditures for 2005 are expected to
approximate $13 million for CompX.  Capital expenditures in 2005 are expected to
be financed  primarily  from  operations or existing  cash  resources and credit
facilities.

     In January  2005,  CompX  received a net $18.4 million from the sale of its
Thomas Regout operations. See Note 24 to the Consolidated Financial Statements.

     During  2004,  (i)  NL  sold  shares  of  Kronos  common  stock  in  market
transactions for net proceeds of $2.7 million,  (ii) Kronos repaid $31.4 million
of its note payable to NL in the fourth  quarter of 2004 and (iii) EMS collected
$4 million of its loan to one of the Contran  family trusts  described in Note 1
to the Consolidated Financial Statements.

     During 2003, (i) EMS collected $4 million on its loan to one of the Contran
family trusts and (ii) the Company  generated  approximately  $12.8 million from
the sale of  property  and  equipment,  primarily  certain  real  property of NL
discussed above.

     During 2002, (i) the Company purchased the EWI insurance brokerage services
operations for $9.2 million, (ii) EMS collected $2 million on its loan to one of
the Contran  family  trusts and (iii) NL  collected  $12.6  million on a loan to
another affiliate. See Notes 2 and 17 to the Consolidated Financial Statements.

     Financing  activities.  During 2004,  (i) CompX repaid a net $26.0  million
under its revolving bank credit  facility and (ii) Kronos  borrowed and repaid a
net of euro 26 million ($32 million when borrowed) under its European  revolving
bank  credit  facility  during  the first six months of 2004.  Distributions  to
minority  interest in 2004 are primarily  comprised of Kronos' cash dividends in
the first half of 2004 and CompX's fourth  quarter cash dividend,  in both cases
paid to shareholders  other than NL. Other cash flows from financing  activities
relate  primarily  to  proceeds  from the sale of NL common  stock  issued  upon
exercise of stock options.

     During 2003,  (i) CompX repaid a net $5 million  under its  revolving  bank
credit  facility  and (ii) Kronos  borrowed an aggregate of euro 15 million ($16
million when borrowed)  under its European  revolving  bank credit  facility and
repaid kroner 80 million ($11  million) and euro 30 million ($34 million)  under
such  facility.  NL paid cash  dividends  aggregating  $38.2  million  for 2003.
Distributions  to minority  interest in 2002 are  primarily  comprised  of CompX
dividends  paid to its  shareholders  other than Valhi and  Valcor,  and capital
transactions with affiliates during 2003 relates  principally to CompX dividends
paid to Valhi and Valcor.

     During  2002,  (i) CompX  repaid a net $18  million of its  revolving  bank
credit facility, (ii) Kronos repaid all of its existing short-term notes payable
denominated  in euros and  Norwegian  kroner ($53  million  when  repaid)  using
primarily  proceeds from borrowings ($39 million) under KII's new revolving bank
credit facility,  (iii) NL redeemed $194 million  principal amount of its Senior
Secured Notes,  primarily using the proceeds from the new euro 285 million ($280
million  when issued)  borrowing  of KII and (iv) Kronos  repaid an aggregate of
euro 13 million ($13 million when repaid) of  borrowings  under KII's  revolving
bank credit facility. NL paid cash dividends aggregating $158.0 million in 2002.
Distributions  to minority  interest in 2002 are  primarily  comprised  of CompX
dividends  paid to its  shareholders  other than Valhi and  Valcor,  and capital
transactions with affiliates during 2002 relates  principally to CompX dividends
paid to Valhi and Valcor.

     Provisions contained in CompX's revolving bank credit facility could result
in the  acceleration  of such  indebtedness  prior to its  stated  maturity  for
reasons  other than  defaults  from  failing to comply  with  typical  financial
covenants. For example, the credit agreement allows the lender to accelerate the
maturity  of the  indebtedness  upon a change of  control  (as  defined)  of the
borrower.  The terms of the credit agreement could result in the acceleration of
all or a portion of the  indebtedness  following a sale of assets outside of the
ordinary  course of business,  which  provision was waived in  conjunction  with
CompX's sale of its Thomas Regout  operations.  See Note 12 to the  Consolidated
Financial  Statements.  Other than operating lease commitments disclosed in Note
19 to the  Consolidated  Financial  Statements,  the Company is not party to any
material off-balance sheet financing arrangements.

     On February 22, 2005, the Company's  Board of Directors  declared a regular
quarterly  dividend of $.25 per share to be paid in the form of shares of common
stock of Kronos  to  stockholders  of record as of March 14,  2005 to be paid on
March 29, 2005.

Component products - CompX International

     CompX's capital  expenditures  during the past three years aggregated $27.0
million.  Such  capital  expenditures  included  manufacturing   equipment  that
emphasizes improved production efficiency and increased production capacity.

     CompX  received  approximately  $18.4 million cash in January 2005 upon the
sale of its Thomas  Regout  operations  in the  Netherlands.  See Note 24 to the
Consolidated  Financial  Statements.  CompX  believes  that  its  cash on  hand,
together with cash generated from  operations and borrowing  availability  under
its bank credit facility, will be sufficient to meet CompX's liquidity needs for
working capital, capital expenditures, debt service and dividends. To the extent
that  CompX's  actual  operating  results or  developments  differ from  CompX's
expectations,  CompX's liquidity could be adversely  affected.  CompX, which had
suspended  its  regular  quarterly  dividend  of $.125 per  share in the  second
quarter of 2003,  reinstated  its  regular  quarterly  dividend at the $.125 per
share rate in the fourth quarter of 2004.

     CompX periodically evaluates its liquidity  requirements,  alternative uses
of  capital,  capital  needs and  available  resources  in view of,  among other
things,  its capital  expenditure  requirements,  dividend  policy and estimated
future operating cash flows. As a result of this process,  CompX has in the past
and may in the future seek to raise additional capital, refinance or restructure
indebtedness,   issue  additional   securities,   modify  its  dividend  policy,
repurchase  shares of its common  stock or take a  combination  of such steps or
other steps to manage its liquidity and capital resources.  In the normal course
of business,  CompX may review  opportunities  for  acquisitions,  divestitures,
joint  ventures  or  other  business  combinations  in  the  component  products
industry.  In the event of any such transaction,  CompX may consider using cash,
issuing  additional equity securities or increasing the indebtedness of CompX or
its subsidiaries.

Chemicals - Kronos

     At December 31, 2004, Kronos had cash, cash equivalents and marketable debt
securities of $65.2 million,  including restricted balances of $4.4 million, and
Kronos had  approximately  $139 million  available for borrowing under its U.S.,
Canadian and European credit facilities. Based upon Kronos' expectations for the
TiO2  industry and  anticipated  demands on Kronos' cash  resources as discussed
herein,  Kronos  expects  to  have  sufficient  liquidity  to  meet  its  future
obligations including operations, capital expenditures, debt service and current
dividend  policy.  To the extent that actual  developments  differ from  Kronos'
expectations, Kronos' liquidity could be adversely affected.

     At December 31, 2004, Kronos'  outstanding debt was comprised of (i) $519.2
million  related to KII's Senior  Secured Notes,  (ii) $13.6 million  related to
KII's European revolving bank credit facility and (iii)  approximately  $348,000
of other  indebtedness.  Prior to December 31, 2004,  Kronos had $200 million of
long-term notes payable to NL, $168.6 million of which was subsequently assigned
to affiliates upon the acquisition of 10,374,000  shares of CompX. See Note 1 to
the  Consolidated  Financial  Statements.  The entire $200  million of long-term
notes,  including the remaining balance owed to NL, was prepaid by Kronos in the
fourth quarter of 2004.

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

     Kronos' capital  expenditures during the past three years aggregated $107.1
million,  including  $18  million  ($7  million  in 2004)  for  Kronos'  ongoing
environmental  protection  and  compliance  programs  and $3.1  million  in 2002
related to reconstruction of the Leverkusen  facility destroyed by fire in March
2001. Kronos' estimated 2005 capital expenditures are $41 million,  including $7
million in the area of environmental protection and compliance.

     See Note 15 to the Consolidated Financial Statements for certain income tax
examinations  currently  underway with respect to certain of Kronos'  income tax
returns in  various  U.S.  and  non-U.S.  jurisdictions,  and see Note 19 to the
Consolidated  Financial Statements with respect to certain legal proceedings and
environmental matters with respect to Kronos.

     Kronos periodically evaluates its liquidity requirements,  alternative uses
of capital,  capital needs and availability of resources in view of, among other
things,  its  dividend  policy,   its  debt  service  and  capital   expenditure
requirements  and estimated  future  operating  cash flows.  As a result of this
process, Kronos has in the past and may in the future seek to reduce, refinance,
repurchase or restructure  indebtedness,  raise additional  capital,  repurchase
shares of its common stock,  modify its dividend policy,  restructure  ownership
interests, sell interests in subsidiaries or other assets, or take a combination
of such steps or other steps to manage its liquidity and capital  resources.  In
the normal  course of its  business,  Kronos 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  entities.  In the event of any such  transaction,  Kronos may
consider  using  available  cash,   issuing  equity   securities  or  increasing
indebtedness  to the  extent  permitted  by  the  agreements  governing  Kronos'
existing debt.

     Kronos has  substantial  operations  located  outside the United States for
which the functional  currency is not the U.S. dollar. As a result, the reported
amounts of Kronos' assets and  liabilities  related to its non-U.S.  operations,
and therefore Kronos' and the Company's  consolidated net assets, will fluctuate
based upon changes in currency exchange rates.

NL Industries Parent

     At December 31, 2004,  NL  (exclusive  of CompX and Kronos) had cash,  cash
equivalents  and  marketable   debt  securities  of  $99.3  million,   including
restricted balances of $21.1 million. Of such restricted  balances,  $19 million
was held by special purpose trusts,  the assets of which can only be used to pay
for certain of NL's future  environmental  remediation  and other  environmental
expenditures. See Note 19 to the Consolidated Financial Statements.

     See Note 15 to the Consolidated Financial Statements for certain income tax
examinations  currently  underway  with  respect to  certain of NL's  income tax
returns,  and see Note 19 to the Consolidated  Financial Statements with respect
to certain legal proceedings and environmental matters with respect to NL.

     In  addition  to  those  legal  proceedings  described  in  Note  19 to the
Consolidated  Financial  Statements,   various  legislation  and  administrative
regulations  have,  from time to time,  been  proposed  that seek to (i)  impose
various  obligations  on present and former  manufacturers  of lead  pigment and
lead-based  paint with respect to asserted health  concerns  associated with the
use of such products and (ii)  effectively  overturn court decisions in which NL
and other pigment manufacturers have been successful.  Examples of such proposed
legislation  include bills which would permit civil liability for damages on the
basis of market  share,  rather  than  requiring  plaintiffs  to prove  that the
defendant's  product  caused the alleged  damage,  and bills which would  revive
actions  barred  by  the  statute  of  limitations.   While  no  legislation  or
regulations  have been  enacted  to date that are  expected  to have a  material
adverse effect on NL's consolidated financial position, results of operations or
liquidity,  imposition of market share liability or other legislation could have
such an effect.

     In December 2003, NL completed the distribution of  approximately  48.8% of
Kronos' outstanding common stock to its shareholders under which NL shareholders
received  one share of  Kronos'  common  stock for every two shares of NL common
stock  held.  Approximately  23.9  million  shares of Kronos  common  stock were
distributed.  Immediately  prior to the  distribution of shares of Kronos common
stock, Kronos distributed a $200 million promissory note payable by Kronos to NL
(of which NL  transferred  an aggregate of $168.6 million to Valhi and Valcor in
connection with NL's  acquisition of the shares of CompX common stock previously
held by Valhi and Valcor,  as discussed in Note 3 to the Consolidated  Financial
Statements).

     During 2004, NL paid each of its $.20 per share regular quarterly dividends
in the  form of  shares  of  Kronos  common  stock  in  which  an  aggregate  of
approximately  2.5% of Kronos'  outstanding  common stock was  distributed to NL
shareholders  in the form of pro-rata  dividends.  Following  the second of such
quarterly  dividends  in  2004,  NL  no  longer  owned  a  majority  of  Kronos'
outstanding  common stock, and accordingly NL ceased to consolidate Kronos as of
July 1, 2004.  During the fourth quarter of 2004, NL  transferred  approximately
5.5 million  shares of Kronos  common  stock to Valhi in  satisfaction  of a tax
liability and the tax liability  generated from the use of such Kronos shares to
settle such tax  liability.  The  transfer of such 5.5 million  shares of Kronos
common  stock,  accounted  for under  GAAP as a  transfer  of net  assets  among
entities  under common control at carryover  basis,  resulting in a reduction of
the Company's paid-in capital of approximately $52.5 million.  See Note 3 to the
Consolidated  Financial Statements.  In the fourth quarter of 2004, NL also sold
64,500 shares of Kronos common stock in market  transactions for an aggregate of
approximately $2.7 million.

     On September  24, 2004, NL completed  the  acquisition  of the CompX shares
previously  held by Valhi and Valcor at a purchase price of $16.25 per share, or
an aggregate of  approximately  $168.6  million.  The purchase price was paid by
NL's  transfer  to Valhi  and  Valcor  of $168.6  million  of NL's $200  million
long-term note  receivable  from Kronos (which  long-term note was eliminated in
the preparation of the Company's Consolidated Financial Statements).  See Note 1
to the  Consolidated  Financial  Statements.  NL's acquisition was accounted for
under GAAP as a transfer of net assets among entities under common control,  and
accordingly  resulted  in a change  in  reporting  entity  and the  Company  has
retroactively  restated its  consolidated  financial  statements  to reflect the
consolidation of CompX for all periods  presented.  After such  acquisition,  NL
retained a $31.4  million note  receivable  from Kronos,  which note  receivable
Kronos prepaid in November 2004 using funds from KII's November 2004 issuance of
euro 90 million principal amount of KII Senior Secured Notes.

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

     Because NL's operations are conducted  primarily  through its  subsidiaries
and  affiliates,  NL's  long-term  ability  to meet  its  parent  company  level
corporate  obligations is dependent in large measure on the receipt of dividends
or other  distributions from its subsidiaries and affiliates.  In February 2004,
Kronos announced it would pay its first regular  quarterly cash dividend of $.25
per share.  At that rate, and based on the 18.3 million shares of Kronos held by
NL at December 31, 2004, NL would directly  receive  aggregate  annual dividends
from Kronos of $18.3  million.  In  addition,  CompX  resumed  paying  quarterly
dividends in the fourth  quarter of 2004 at $.125 per share.  At that rate,  and
based on the 10.4  million  shares of CompX held  indirectly  by NL (through its
ownership  interest in CompX Group) at December 31, 2004,  NL would  directly or
indirectly  receive  aggregate annual dividends from CompX of $5.2 million.  See
Note 2 to the Consolidated Financial Statements.

Non-GAAP financial measures

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

o    The Company  discloses  percentage  changes in Kronos' average TiO2 selling
     prices in  billing  currencies,  which  excludes  the  effects  of  foreign
     currency  translation.  The Company believes  disclosure of such percentage
     changes  allows  investors to analyze  such  changes  without the impact of
     changes  in  foreign   currency   exchange  rates,   thereby   facilitating
     period-to-period  comparisons  of the relative  changes in average  selling
     prices in the actual various billing currencies.  Generally,  when the U.S.
     dollar  either  strengthens  or  weakens  against  other  currencies,   the
     percentage  change in average selling prices in billing  currencies will be
     higher or lower, respectively,  than such percentage changes would be using
     actual exchange rates prevailing during the respective periods.

Summary of debt and other contractual commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in the  future.  See  Notes  12 and  19 to the  Consolidated  Financial
Statements.  The following table summarizes such contractual  commitments of the
Company and its  consolidated  subsidiaries  as of December 31, 2004 by the type
and date of payment.
<TABLE>

                                                        Payment due date
                                   -----------------------------------------------------------
                                                                          2010 and
   Contractual commitment           2005     2006/2007     2008/2009       after       Total
   ----------------------           ----     ---------     ---------      --------     -----
                                                        (In millions)

<S>                              <C>         <C>            <C>            <C>        <C>
Third-party indebtedness         $    .1     $    -         $    -         $    -     $    .1
Estimated tax obligations            2.1          -              -              -         2.1
Operating leases                      .9         1.1             .3             .5        2.8
Raw material and other
purchase obligations                12.6          -              -              -        12.6
Fixed asset acquisitions             3.3          -              -              -         3.3
                                 -------     -------        -------        -------    -------

                                 $  19.0     $   1.1        $    .3        $    .5    $  20.9
                                 =======     =======        =======        =======    =======
</TABLE>

     The  timing  and  amount  shown for the  Company's  commitments  related to
indebtedness (principal and interest),  operating leases, raw material and other
purchase obligations and fixed asset acquisitions are based upon the contractual
payment amount and the contractual payment date for such commitments. The amount
shown for income taxes is the  consolidated  amount of income  taxes  payable at
December 31, 2004, which is assumed to be paid during 2005.

     The above table does not reflect any amounts that the Company  might pay to
fund its defined  benefit pension plans and OPEB plans, as the timing and amount
of any such future  fundings are unknown and  dependent  on, among other things,
the future  performance of defined  benefit  pension plan assets,  interest rate
assumptions  and actual  future  retiree  medical  costs.  Such defined  benefit
pension plans and OPEB plans are discussed above in greater detail.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     General.  The  Company is exposed  to market  risk from  changes in foreign
currency exchange rates, interest rates and equity security prices. In the past,
the Company has periodically  entered into interest rate swaps or other types of
contracts  in order to manage a portion of its interest  rate market  risk.  The
Company has also periodically  entered into currency forward contracts to either
manage a nominal  portion of foreign  exchange rate market risk  associated with
receivables  denominated  in a  currency  other  than  the  holder's  functional
currency or similar risk  associated  with future  sales,  or to hedge  specific
foreign currency  commitments.  Otherwise,  the Company does not generally enter
into  forward or option  contracts  to manage  such market  risks,  nor does the
Company enter into any such contract or other type of derivative  instrument for
trading or speculative purposes.  Other than as described below, the Company was
not a party to any material  forward or derivative  option  contract  related to
foreign exchange rates, interest rates or equity security prices at December 31,
2003 and 2004. See Notes 1 and 20 to the Consolidated Financial Statements.  The
following  discussion  relates to NL and its  consolidated  subsidiaries at each
date indicated.

     Interest  rates.  The  Company is exposed  to market  risk from  changes in
interest rates,  primarily  related to  indebtedness.  NL had no indebtedness at
December 31, 2003 or 2004. Outstanding indebtedness at December 31, 2003 relates
to Kronos and CompX,  and outstanding  indebtedness at December 31, 2004 relates
solely to CompX.

     At  December  31,  2004,   no  amounts  were   outstanding   under  CompX's
variable-rate revolving bank credit agreement. CompX's outstanding borrowings at
December 31, 2003 related  principally  to $26 million in borrowings  under such
CompX  credit  facility.  The  outstanding  balances at December 31, 2003 (which
approximate  fair  value)  had a  weighted-average  interest  rate of 3.2%.  The
remaining  variable rate indebtedness  outstanding at December 31, 2003 and 2004
is not material.

     At December 31, 2003,  outstanding  fixed rate  indebtedness,  all of which
relates to Kronos,  aggregated $356.7 million (fair value - $356.7 million) with
a  weighted-average  interest rate of 8.9%. All of such fixed rate  indebtedness
was denominated in euros.

     Foreign  currency  exchange  rates.  The  Company is exposed to market risk
arising  from  changes  in  foreign  currency  exchange  rates  as a  result  of
manufacturing  and  selling  its  products  worldwide.  Earnings  are  primarily
affected by  fluctuations  in the value of the U.S. dollar relative to the euro,
the Canadian dollar and the New Taiwan dollar.

     Certain  of  CompX's  sales  generated  by  its  Canadian   operations  are
denominated in U.S.  dollars.  To manage a portion of the foreign  exchange rate
market  risk  associated  with  receivables,   or  similar  exchange  rate  risk
associated  with  future  sales,  at  December  31,  2004 CompX held a series of
short-term forward exchange contracts maturing through March 2005 to exchange an
aggregate  of $7.2  million  for an  equivalent  amount of  Canadian  dollars at
exchange  rates of Cdn.  $1.19 to Cdn.  $1.23 per U.S.  dollar.  At each balance
sheet date, outstanding currency forward contracts are marked-to-market with any
resulting gain or loss recognized in income  currently.  The difference  between
the  estimated  fair  value and the face value of all such  outstanding  forward
contracts at December 31, 2004 is not material. At December 31, 2004, the actual
exchange  rate was Cdn.  $1.21 per U.S.  dollar.  At December 31, 2003 CompX had
entered into a series of short-term  forward exchange contracts maturing through
February 2004 to exchange an aggregate of $4.2 million for an equivalent  amount
of  Canadian  dollars at  exchange  rates of Cdn.  $1.30 to Cdn.  $1.33 per U.S.
dollar.  The estimated  fair value of such contracts is not material at December
31, 2003 and 2004.

     At December  31, 2003,  Kronos had also entered into a short-term  currency
forward contract maturing on January 2, 2004 to exchange an aggregate of euro 40
million  into U.S.  dollars at an  exchange  rate of U.S.  $1.25 per euro.  Such
contract  was entered  into in  conjunction  with the January 2004 payment of an
intercompany dividend from one of Kronos' European subsidiaries. At December 31,
2004, the actual exchange rate was U.S. $1.25 per euro. The estimated fair value
of such foreign currency forward contract was not material at December 31, 2003.

     As  described  above,  at December  31, 2003 Kronos had the  equivalent  of
$356.1  million of  outstanding  euro-denominated  indebtedness.  The  potential
increase in the U.S.  dollar  equivalent  of the  principal  amount  outstanding
resulting from a hypothetical  10% adverse change in exchange rates at such date
would be approximately $35.6 million.

     Marketable  equity  and debt  security  prices.  The  Company is exposed to
market  risk due to changes in prices of the  marketable  securities,  which are
owned.  The fair value of such debt and equity  securities  at December 31, 2003
and 2004 was $70.5 million and $75.8 million, respectively. The potential change
in the  aggregate  fair  value of these  investments,  assuming  a 10% change in
prices,  would be $7.1 million at December 31, 2003 and $7.6 million at December
31, 2004. The fair value of restricted  marketable  debt  securities at December
31,  2003 and 2004 was  $13.0  million  and  $13.3  million,  respectively.  The
potential change in the aggregate fair value of these investments assuming a 10%
change in prices would be $1.3 million at each of December 31, 2003 and 2004.

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         None.

ITEM 9A. CONTROLS AND PROCEDURES

     Evaluation of Disclosure  Controls and Procedures.  The Company maintains a
system of disclosure controls and procedures.  The term "disclosure controls and
procedures,"  as defined by  regulations  of the SEC,  means  controls and other
procedures that are designed to ensure that information required to be disclosed
in the reports that the Company files or submits to the SEC under the Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by the
Company  in the  reports  that it files or  submits  to the SEC under the Act is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive  officer and its principal  financial  officer,  or persons
performing  similar  functions,  as appropriate to allow timely  decisions to be
made regarding  required  disclosure.  Each of Harold C. Simmons,  the Company's
President and Chief Executive  Officer,  and Gregory M. Swalwell,  the Company's
Vice  President,  Finance  and  Chief  Financial  Officer,  have  evaluated  the
Company's disclosure controls and procedures as of December 31, 2004. Based upon
their  evaluation,  these  executive  officers have concluded that the Company's
disclosure  controls  and  procedures  are  effective  as of the  date  of  such
evaluation.

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

o    Pertain to the maintenance of records that in reasonable  detail accurately
     and fairly reflect the  transactions  and dispositions of the assets of the
     Company,

o    Provide reasonable assurance that transactions are recorded as necessary to
     permit  preparation  of financial  statements in accordance  with GAAP, and
     that  receipts  and  expenditures  of the  Company  are being  made only in
     accordance with  authorizations of management and directors of the Company,
     and

o    Provide reasonable  assurance  regarding  prevention or timely detection of
     unauthorized  acquisition,  use or disposition of the Company's assets that
     could  have a  material  effect  on the  Company's  Consolidated  Financial
     Statements.

     Section  404 of the  Sarbanes-Oxley  Act of 2002  requires  the  Company to
annually  include  a  management  report  on  internal  control  over  financial
reporting  starting  in the  Company's  Annual  Report on Form 10-K for the year
ended December 31, 2004. The Company's independent  registered public accounting
firm is also  required to annually  audit the  Company's  internal  control over
financial reporting.

     As discussed in Notes 1 and 2 to the Consolidated Financial Statements,  in
September 2004 the Company acquired 68% of CompX's common stock from Valhi and a
wholly-owned  subsidiary of Valhi. We have excluded CompX from our assessment of
the Company's internal control over financial  reporting because it was acquired
in a transaction  accounted for as a transfer of net assets among entities under
common control during 2004.  CompX is a majority owned subsidiary of the Company
whose total  assets,  total  sales and net assets  represent  31%,  25% and 31%,
respectively,  of the related consolidated financial statement amounts as of and
for the year ended December 31, 2004.

     As permitted by the SEC, the Company's  assessment of internal control over
financial  reporting also excludes (i) internal control over financial reporting
of its equity method  investees and (ii) internal  controls over the preparation
of the  Company's  financial  statement  schedules  required  by  Article  12 of
Regulation  S-X. See Note 7 to the  Consolidated  Financial  Statements  and the
index of financial  statements  and schedules on page F-1 of this Annual Report.
However,  our  assessment  of internal  control over  financial  reporting  with
respect to the Company's  equity method  investees did include our controls over
the  recording  of amounts  related to our  investment  that are recorded in our
consolidated  financial  statements,  including  controls  over the selection of
accounting  methods  for our  investments,  the  recognition  of  equity  method
earnings  and losses  and the  determination,  valuation  and  recording  of our
investment account balances.

     Changes in Internal  Control Over  Financial  Reporting.  There has been no
change to the Company's  internal  control over financial  reporting  during the
quarter ended December 31, 2004 that has materially  affected,  or is reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

     Management's  Report on Internal  Control  Over  Financial  Reporting.  The
Company's  management is responsible for establishing  and maintaining  adequate
internal control over financial  reporting,  as such term is defined in Exchange
Act  Rule  13a-15(f).  The  Company's  evaluation  of the  effectiveness  of its
internal   control  over  financial   reporting  is  based  upon  the  framework
established in Internal  Control - Integrated  Framework issued by the Committee
of Sponsoring  Organizations of the Treadway Commission (commonly referred to as
the "COSO" framework).  Based on the Company's  evaluation under that framework,
management of the Company has concluded that the Company's internal control over
financial  reporting  was  effective  as of  December  31,  2004.  See  Scope of
Management's Report on Internal Control Over Financial Reporting above.

     PricewaterhouseCoopers  LLP, the independent  registered  public accounting
firm that has audited the Company's  consolidated  financial statements included
in this Annual Report, has audited management's  assessment of the effectiveness
of the Company's  internal  control over financial  reporting as of December 31,
2004,  as stated in their report which is included in this Annual Report on Form
10-K.

     Certifications.  The  Company's  chief  executive  officer is  required  to
annually  file a  certification  with  the New  York  Stock  Exchange  ("NYSE"),
certifying  the  Company's  compliance  with the  corporate  governance  listing
standards of the NYSE.  During 2004, the Company's chief executive officer filed
such annual certification with the NYSE, indicating that he was not aware of any
violations by the Company of the NYSE corporate  governance  listing  standards.
The  Company's  chief  executive  officer and chief  financial  officer are also
required to, among other  things,  quarterly  file  certifications  with the SEC
regarding  the  quality of the  Company's  public  disclosures,  as  required by
Section  302 of the  Sarbanes-Oxley  Act of  2002.  The  certifications  for the
quarter  ended  December  31, 2004 have been filed as exhibits  31.1 and 31.2 to
this Annual Report on Form 10-K.

ITEM 9B. OTHER INFORMATION

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item is incorporated by reference to the
NL Proxy Statement. See also Note 17 to the Consolidated Financial Statements.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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




                                     PART IV

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

 (a) and (d)   Financial Statements and Schedules

               The Registrant

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

               50%-or-less persons

               The  consolidated  financial  statements of Kronos  (37%-owned at
               December  31,  2004) are  filed as  Exhibit  99.1 of this  Annual
               Report  pursuant  to Rule 3-09 of  Regulation  S-X.  Management's
               Report on Internal Control Over Financial  Reporting of Kronos is
               not  included  as part of Exhibit  99.1.  The  Registrant  is not
               required to provide any other consolidated  financial  statements
               pursuant to Rule 3-09 of Regulation S-X

       (b)     Reports on Form 8-K

               Reports  on Form 8-K filed for the  quarter  ended  December  31,
               2004.

               October 8, 2004 - Reported Item 8.01 and Item 9.
               October 22, 2004 - Reported Item 7.01 and Item 9.
               October 27, 2004 - Reported Item 9.01.
               November 9, 2004 - Reported Item 2.02, Item 7 and Item 9.
               December 3, 2004 - Reported Item 1.01 and Item 9.
               December 22, 2004 - Reported Item 2.05 and Item 2.06.

       (c)     Exhibits

               Included as exhibits are the items  listed in the Exhibit  Index.
               NL will furnish a copy of any of the  exhibits  listed below upon
               payment  of  $4.00  per  exhibit  to  cover  the  costs  to NL of
               furnishing  the  exhibits.  Pursuant  to Item  601(b)(4)(iii)  of
               Regulation S-K, any instrument  defining the rights of holders of
               long-term   debt   issues   and  other   agreements   related  to
               indebtedness which do not exceed 10% of consolidated total assets
               as of December 31, 2004 will be furnished to the Commission  upon
               request.

               The Company will also furnish, without charge, a copy of its Code
               of  Business  Conduct  and  Ethics,  as  adopted  by the board of
               directors on February  19,  2004,  upon  request.  Such  requests
               should be directed to the  attention of the  Company's  Corporate
               Secretary at the Company's  corporate offices located at 5430 LBJ
               Freeway, Suite 1700, Dallas, Texas 75240.


Item No.                                     Exhibit Index

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

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

3.2       Amendment  to the Amended and Restated  By-Laws,  as of June 28, 1990,
          executed  December 8, 2003 - incorporated  by reference to Exhibit 3.2
          to the  Registrant's  Annual  Report on Form  10-K for the year  ended
          December 31, 2003.

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

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

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

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

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

4.5       Purchase   Agreement   dated   November   18,  2004   between   Kronos
          International,  Inc. and  Deutsche  Bank AG London -  incorporated  by
          reference  to Exhibit 4.4 to the Current  Report on Form 8-K of Kronos
          International, Inc. (File No. 333-100047) dated November 24, 2004.

4.6       Form of Registration  Rights Agreement,  dated as of November 26, 2004
          between  Kronos  International,  Inc.  and  Deutsche  Bank AG London -
          incorporated by reference to Exhibit 4.5 to the Current Report on Form
          8-K of Kronos International, Inc. (File No. 333-100047) dated November
          24, 2004.

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

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

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

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

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

4.12      Stock Purchase  Agreement dated September 24, 2004 between Valhi, Inc.
          and Valcor, Inc., as sellers,  and NL Industries,  Inc. as purchaser -
          incorporated by reference to Exhibit 10.1 to the Registrant's  Current
          Report on Form 8-K as of September 24, 2004. (The disclosure  schedule
          attachment to this Exhibit 4.12 has not been filed; upon request,  the
          Registrant will furnish  supplementally to the Securities and Exchange
          Commission a copy of this attachment.)

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

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

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

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

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

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

10.7**    Amendment to Richards Bay Slag Sales  Agreement  dated  December 20,
          2002 between Richards Bay Iron and Titanium  (Proprietary) Limited and
          Kronos,  Inc. -  incorporated  by  reference  to  Exhibit  10.7 to the
          Registrant's  Annual  Report on Form 10-K for the year ended  December
          31, 2002.

10.8*     Amendment to Richards Bay Slag Sales  Agreement dated October 31, 2003
          between  Richards  Bay Iron and  Titanium  (Proprietary)  Limited  and
          Kronos,  Inc. -  incorporated  by reference to Exhibit 10.17 to Kronos
          Worldwide,  Inc.'s  Annual  Report  on Form  10-K for the  year  ended
          December 31, 2004.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.24*    1989 Long Term Performance  Incentive Plan of NL Industries,  Inc. -
          incorporated  by  reference  to  Exhibit B to the  Registrant's  Proxy
          Statement on Schedule 14A for the annual meeting of shareholders  held
          on May 8, 1996.

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

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

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

10.28*    Form of Kronos  Worldwide,  Inc.  2003  Long-Term  Incentive  Plan -
          incorporated  by reference  to Exhibit  10.4 to the Kronos  Worldwide,
          Inc. Registration Statement on Form 10 (File No. 001-31763).

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

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

10.31     Amended Tax  Agreement  among NL  Industries,  Inc.,  Valhi,  Inc. and
          Contran  Corporation  effective  November 30, 2004 -  incorporated  by
          reference to Exhibit 10.1 to the  Registrant's  Current Report on Form
          8-K as of November 30, 2004.

10.32     Intercorporate  Services Agreement by and between Contran  Corporation
          and the Registrant  effective as of January 1, 2004 - incorporated  by
          reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form
          10-Q for the quarter ended March 31, 2004.

10.33     Intercorporate  Services Agreement by and between Contran  Corporation
          and Kronos Worldwide, Inc. - incorporated by reference to Exhibit 10.1
          to the Kronos  Worldwide,  Inc.  Quarterly Report on Form 10-Q for the
          quarter ended March 31, 2004.

10.34     Intercorporate  Services  Agreement between CompX  International  Inc.
          and Contran Corporation effective as of January 1, 2004 - incorporated
          by reference to Exhibit 10.2 to the CompX  International  Inc.  Annual
          Report on Form 10-K for the year ended December 31, 2004.

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

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

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

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

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

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

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

10.42     Insurance  sharing agreement dated October 30, 2003 by and among CompX
          International  Inc.,  Contran   Corporation,   Keystone   Consolidated
          Industries,  Inc.,  Kronos  Worldwide,  Inc.,  Titanium  Metals Corp.,
          Valhi,  Inc. and the Registrant - incorporated by reference to Exhibit
          10.48 to the  Registrant's  Annual  Report  on Form  10-K for the year
          ended December 31, 2003.

10.43*    Consulting  Agreement  dated July 23, 2003 between J. Landis  Martin
          and NL Industries,  Inc. - incorporated  by reference to Exhibit 10.49
          to the  Registrant's  Annual  Report on Form  10-K for the year  ended
          December 31, 2003.

10.44*    Summary of  Consulting  Arrangement  beginning  August 1,  2003,  as
          amended  between  Lawrence  A.  Wigdor  and Kronos  Worldwide,  Inc. -
          incorporated  by reference  to Exhibit  10.2 to the Kronos  Worldwide,
          Inc.  Quarterly  Report on Form 10-Q for the  period  ended  March 31,
          2004.

10.45*    Separation  Agreement dated  September 3, 2003, as amended,  between
          David B. Garten and NL Industries, Inc. - incorporated by reference to
          Exhibit 10.51 to the  Registrant's  Annual Report on Form 10-K for the
          year ended December 30, 2003.

10.46*    Separation Agreement dated July 16, 2003 between NL Industries, Inc.
          and Robert D. Hardy -  incorporated  by reference to Exhibit  10.52 to
          the  Registrant's  Annual  Report  on Form  10-K  for the  year  ended
          December 31, 2003.

10.47     First  Amendment  Agreement,  dated  September 3, 2004,  Relating to a
          Facility Agreement dated June 25, 2002 among Kronos Titan GmbH, Kronos
          Europe  S.A./N.V.,  Kronos  Titan AS and Titania  A/S,  as  borrowers,
          Kronos Titan GmbH,  Kronos  Europe  S.A./N.V.  and Kronos Norge AS, as
          guarantors,  Kronos Denmark ApS, as security  provider,  with Deutsche
          Bank Luxembourg  S.A.,  acting as agent - incorporated by reference to
          Exhibit  10.8 to the  Registration  Statement  on Form  S-1 of  Kronos
          Worldwide, Inc. (File No. 333-119639).

10.48     Stock Purchase  Agreement dated September 24, 2004 between Valhi, Inc.
          and Valcor, Inc., as sellers,  and NL Industries,  Inc. as purchaser -
          incorporated  by reference  to Exhibit  10.1 to the Current  Report on
          Form 8-K of the Registrant dated September 24, 2004.

10.49     Promissory  Note dated  September  24, 2004 in the original  principal
          amount of $31,422,500.00  payable to the order of NL Industries,  Inc.
          and executed by Kronos Worldwide,  Inc. - incorporated by reference to
          Exhibit 10.2 to the Current Report on Form 8-K of the Registrant dated
          September 24, 2004.

10.50     Promissory  Note dated  September  24, 2004 in the original  principal
          amount of  $162,500,000.00  payable to the order of Valcor,  Inc.  and
          executed by Kronos  Worldwide,  Inc. -  incorporated  by  reference to
          Exhibit 99.1 to the Current Report on Form 8-K of the Registrant dated
          September 24, 2004.

10.51     Promissory  Note dated  September  24, 2004 in the original  principal
          amount  of  $6,077,500.00  payable  to the order of  Valhi,  Inc.  and
          executed by Kronos  Worldwide,  Inc. -  incorporated  by  reference to
          Exhibit 99.2 to the Current Report on Form 8-K of the Registrant dated
          September 24, 2004.

10.52     Subscription  agreement  executed on October 5, 2004 but  effective as
          of October 1, 2004 among NL Industries, Inc., TIMET Finance Management
          Company and CompX Group,  Inc. - incorporated  by reference to Exhibit
          99.1 to the Current Report on Form 8-K of the Registrant dated October
          5, 2004.

10.53     Voting  agreement  executed  on  October 5, 2004 but  effective  as of
          October 1, 2004 among NL Industries,  Inc.,  TIMET Finance  Management
          Company and CompX Group,  Inc. - incorporated  by reference to Exhibit
          99.2 to the Current Report on Form 8-K of the Registrant dated October
          5, 2004.

10.54     Subscription  Agreement  executed on October 5, 2004 but  effective as
          of October 1, 2004 among NL Industries, Inc., TIMET Finance Management
          Company and CompX Group,  Inc. - incorporated  by reference to Exhibit
          99.1 to the  Registrant's  Current Report on Form 8-K as of October 5,
          2004.  (Not all of the exhibits to this Exhibit 10.60 have been filed;
          upon  request,  the  Registrant  will  furnish  supplementally  to the
          Securities and Exchange Commission a copy of the omitted exhibits.)

10.55     Voting  Agreement  executed  on  October 5, 2004 but  effective  as of
          October 1, 2004 among NL Industries,  Inc.,  TIMET Finance  Management
          Company and CompX Group,  Inc. - incorporated  by reference to Exhibit
          99.2 to the  Registrant's  Current Report on Form 8-K as of October 5,
          2004.

10.56     Certificate of  Incorporation  of CompX Group,  Inc. - incorporated by
          reference to Exhibit 99.3 to the  Registrant's  Current Report on Form
          8-K as of October 5, 2004.

10.57     Tax Agreement  executed on October 5, 2004 but effective as of October
          1, 2004  among NL  Industries,  Inc.,  Contran  Corporation  and CompX
          International  Inc. - incorporated by reference to Exhibit 99.4 to the
          Registrant's Current Report on Form 8-K as of October 5, 2004.

10.58     Intercorporate  Services  Agreement between CompX  International  Inc.
          and Contran Corporation effective as of January 1, 2003 - incorporated
          by reference to Exhibit 10.1 to the CompX International Inc. Quarterly
          Report on Form 10-Q for the  quarter  ended  June 30,  2003  (File No.
          1-13905).

10.59*    CompX   International   Inc.  1997   Long-Term   Incentive  Plan  -
          incorporated  by reference to Exhibit 10.2 to the CompX  International
          Inc. Registration Statement on Form S-1 (File No. 1-13905).

10.60     Tax Sharing Agreement among CompX  International  Inc.,  Valcor,  Inc.
          and  Valhi,  Inc.  dated  as of  January  2,  1998 -  incorporated  by
          reference  to  Exhibit  10.4 to the  Registration  Statement  of CompX
          International Inc. on Form S-1 (File No. 1-13905).

21.1      Subsidiaries of the Registrant.

23.1      Consent   of   PricewaterhouseCoopers   LLP  with   respect   to  NL's
          consolidated financial statements.

23.2      Consent  of   PricewaterhouseCoopers   LLP  with  respect  to  Kronos'
          consolidated financial statements.

31.1      Certification

31.2      Certification

32.1      Certification

99.1      Consolidated   financial  statements  of  Kronos  Worldwide,   Inc.  -
          incorporated  by reference to Kronos' Annual Report on Form 10-K (File
          No. 1-31763) for the year ended December 31, 2004.




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

*    Management contract, compensatory plan or arrangement.

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


                                   SIGNATURES


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

                                                   NL Industries, Inc.
                                                    (Registrant)


                                                   By:/s/ Harold C. Simmons
                                                   ----------------------------
                                                      Harold C. Simmons
                                                      March 30, 2005
                                                     (Chairman  of the Board and
                                                      Chief Executive Officer)


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
Registrant and in the capacities and on the dates indicated:



 /s/ Harold C. Simmons                      /s/ Steven L. Watson
---------------------------------           -----------------------------------
Harold C. Simmons, March 30, 2005           Steven L. Watson, March 30, 2005
(Chairman of the Board and Chief            (Director)
  Executive Officer)


/s/ Thomas P. Stafford                      /s/ Glenn R. Simmons
---------------------------------           -----------------------------------
Thomas P. Stafford, March 30, 2005          Glenn R. Simmons, March 30, 2005
(Director)                                                    (Director)


/s/ C. H. Moore, Jr.                        /s/ Gregory M. Swalwell
---------------------------------           -----------------------------------
C. H. Moore, Jr., March 30, 2005            Gregory M. Swalwell, March 30, 2005
(Director)                                  (Vice President, Chief Financial
                                             Officer, Principal Financial
                                             Officer)


/s/ Terry N. Worrell                        /s/ James W. Brown
---------------------------------           -----------------------------------
Terry N. Worrell, March 30, 2005            James W. Brown, March 30, 2005
(Director)                                  (Vice President and Controller
                                             Principal Accounting Officer)



                               NL Industries, Inc.

                           Annual Report on Form 10-K

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

                   Index of Financial Statements and Schedules


Financial Statements                                                      Page

  Report of Independent Registered Public Accounting Firm                 F-2

  Consolidated Balance Sheets - December 31, 2003 and 2004                F-4

  Consolidated Statements of Income -
   Years ended December 31, 2002, 2003 and 2004                           F-6

  Consolidated Statements of Comprehensive Income -
   Years ended December 31, 2002, 2003 and 2004                           F-8

  Consolidated Statements of Stockholders' Equity -
   Years ended December 31, 2002, 2003 and 2004                           F-9

  Consolidated Statements of Cash Flows -
   Years ended December 31, 2002, 2003 and 2004                           F-10

  Notes to Consolidated Financial Statements                              F-13


Financial Statement Schedules

  Report of Independent Registered Public Accounting Firm                 S-1

  Schedule I - Condensed Financial Information of Registrant              S-2

  Schedule II - Valuation and Qualifying Accounts                         S-7

  Schedules III and IV are omitted because they are not applicable.


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

     We have  completed  an  integrated  audit  of NL  Industries,  Inc.'s  2004
consolidated  financial  statements  and of its internal  control over financial
reporting as of December  31, 2004 and audits of its 2002 and 2003  consolidated
financial  statements  in accordance  with the  standards of the Public  Company
Accounting Oversight Board (United States).  Our opinions,  based on our audits,
are presented below.

Consolidated financial statements

     In  our  opinion,  the  consolidated  financial  statements  listed  in the
accompanying  index  present  fairly,  in all material  respects,  the financial
position of NL Industries,  Inc. and its  subsidiaries  at December 31, 2003 and
2004,  and the results of their  operations and their cash flows for each of the
three years in the period ended December 31, 2004 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted our audits of these  statements in accordance with the
standards of the Public  Company  Accounting  Oversight  Board (United  States).
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit of financial  statements includes  examining,  on a test
basis,  evidence  supporting  the  amounts  and  disclosures  in  the  financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

Internal control over financial reporting

     Also, in our opinion,  management's  assessment,  included in  Management's
Report on Internal  Control Over Financial  Reporting  appearing  under Item 9A,
that the Company maintained  effective internal control over financial reporting
as of  December  31, 2004 based on criteria  established  in Internal  Control -
Integrated Framework issued by the Committee of Sponsoring  Organizations of the
Treadway Commission ("COSO"), is fairly stated, in all material respects,  based
on those criteria.  Furthermore,  in our opinion, the Company maintained, in all
material  respects,  effective  internal control over financial  reporting as of
December  31,  2004,  based  on  criteria  established  in  Internal  Control  -
Integrated Framework issued by the COSO. The Company's management is responsible
for maintaining  effective internal control over financial reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our responsibility is to express opinions on management's  assessment and on the
effectiveness of the Company's  internal control over financial  reporting based
on our  audit.  We  conducted  our  audit of  internal  control  over  financial
reporting in  accordance  with the  standards of the Public  Company  Accounting
Oversight  Board  (United  States).  Those  standards  require  that we plan and
perform  the  audit to  obtain  reasonable  assurance  about  whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects.  An  audit of  internal  control  over  financial  reporting  includes
obtaining  an  understanding  of  internal  control  over  financial  reporting,
evaluating  management's  assessment,  testing  and  evaluating  the  design and
operating   effectiveness  of  internal  control,   and  performing  such  other
procedures as we consider  necessary in the  circumstances.  We believe that our
audit provides a reasonable basis for our opinions.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial  statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial  reporting  includes those policies and procedures that (i) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions of the assets of the company,  (ii)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company and (iii)  provide  reasonable  assurance  regarding  prevention  or
timely  detection  of  unauthorized  acquisition,  use,  or  disposition  of the
company's assets that could have a material effect on the financial statements.

     Because  of its  inherent  limitations,  internal  control  over  financial
reporting  may not prevent or detect  misstatements.  Also,  projections  of any
evaluation  of  effectiveness  to future  periods  are  subject to the risk that
controls may become  inadequate  because of changes in  conditions,  or that the
degree of compliance with the policies or procedures may deteriorate.

     As  described in  Management's  Report on Internal  Control Over  Financial
Reporting,  management has excluded CompX International Inc. from its assessment
of the  Company's  internal  control  over  financial  reporting  because it was
acquired  in a  transaction  accounted  for as a transfer  of net  assets  among
entities  under common control during 2004. We have also excluded CompX from our
audit of internal  control over financial  reporting.  CompX is a majority owned
subsidiary  of the  Company  whose  total  assets,  total  sales and net  assets
represent 31%, 25% and 31%, respectively,  of the related consolidated financial
statement amounts as of and for the year ended December 31, 2004.





                                                      PricewaterhouseCoopers LLP
Dallas, Texas
March 30, 2005






                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2003 and 2004

                      (In thousands, except per share data)

<TABLE>

               ASSETS
                                                              2003                 2004
                                                              ----                 ----

 Current assets:
<S>                                                      <C>                  <C>
   Cash and cash equivalents                             $   89,525           $   99,185
   Restricted cash and cash equivalents                      19,029                7,810
   Restricted marketable debt securities                      6,147                9,446
   Accounts and other receivables                           182,557               24,302
   Refundable income taxes                                   37,712                   32
   Receivable from affiliates                                   361                1,634
   Inventories                                              292,337               28,781
   Prepaid expenses                                           7,097                1,332
   Deferred income taxes                                     12,718                9,368
                                                         ----------           ----------

       Total current assets                                 647,483              181,890
                                                         ----------           ----------

 Other assets:
     Marketable equity securities                            70,487               75,793
     Restricted marketable debt securities                    6,870                3,848
     Investment in Kronos Worldwide, Inc.                      -                 175,578
     Investment in TiO2 manufacturing joint venture         129,011                 -
     Receivable from affiliate                               14,000               10,000
     Deferred income taxes                                    7,033                  545
     Goodwill                                                52,715               20,772
     Other assets                                            30,018                3,715
                                                         ----------           ----------

       Total other assets                                   310,134              290,251
                                                         ----------           ----------

 Property and equipment:
   Land                                                      37,727                5,356
   Buildings                                                208,077               26,877
   Equipment                                                886,846              127,044
   Mining properties                                         63,701                 -
   Construction in progress                                  10,302                2,431
                                                         ----------           ----------
                                                          1,206,653              161,708
   Less accumulated depreciation                            687,725               86,490
                                                         ----------           ----------

       Net property and equipment                           518,928               75,218
                                                         ----------           ----------

                                                         $1,476,545           $  547,359
                                                         ==========           ==========
</TABLE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2003 and 2004

                      (In thousands, except per share data)

<TABLE>

    LIABILITIES AND STOCKHOLDERS' EQUITY
                                                              2003                 2004
                                                              ----                 ----

 Current liabilities:
<S>                                                      <C>                  <C>
   Current maturities of long-term debt                  $      288           $       42
   Accounts payable                                         111,777               14,649
   Accrued liabilities                                       96,539               23,134
   Accrued environmental costs                               19,627               16,570
   Payable to affiliates                                     19,537                  391
   Income taxes                                              12,726                3,661
   Deferred income taxes                                      3,941               23,842
                                                         ----------           ----------

       Total current liabilities                            264,435               82,289
                                                         ----------           ----------

 Noncurrent liabilities:
   Long-term debt                                           382,451                   85
   Accrued pension costs                                     81,180                7,968
   Accrued postretirement benefits cost                      23,411               10,572
   Accrued environmental costs                               57,854               51,247
   Deferred income taxes                                    229,336               45,274
   Other                                                     19,474                4,028
                                                         ----------           ----------

       Total noncurrent liabilities                         793,706              119,174
                                                         ----------           ----------

 Minority interest                                          135,215               58,404
                                                         ----------           ----------

 Stockholders' equity:
   Preferred stock, no par value; 5,000 shares
    authorized; none issued                                       -                  -
   Common stock, $.125 par value; 150,000 shares
    authorized; 66,845 and 48,440 shares issued               8,355                6,054
   Additional paid-in capital                               784,306              417,760
   Retained earnings                                         90,479                6,734
   Accumulated other comprehensive income:
     Marketable securities                                   23,323               26,783
     Currency translation                                  (152,623)            (136,648)
     Pension liabilities                                    (36,209)             (33,191)
     Treasury stock, at cost - 19,054 and nil shares       (434,442)               -
                                                         ----------           ----------

       Total stockholders' equity                           283,189              287,492
                                                         ----------           ----------

                                                         $1,476,545           $  547,359
                                                         ==========           ==========
</TABLE>


Commitments and contingencies (Notes 12, 15 and 19)

          See accompanying notes to consolidated financial statements.





                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2002, 2003 and 2004

                      (In thousands, except per share data)
<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----


<S>                                                     <C>              <C>             <C>
Net sales                                               $1,041,860       $1,182,143      $  741,687
Cost of sales                                              809,422          882,114         572,541
                                                        ----------       ----------      ----------

    Gross margin                                           232,438          300,029         169,146

Selling, general and administrative expense                130,629          146,043          94,346
Other operating income (expense):
  Currency transaction gains (losses), net                  (1,274)          (8,289)            741
  Disposition of property and equipment                     (1,818)           9,845              (2)
  Noncompete agreement income                                4,000              333            -
  Legal settlement gains, net                                5,225              823             552
  Other income                                                 377              436           6,953
  Corporate expense                                        (37,860)         (57,430)        (17,094)
                                                        ----------       ----------      ----------

    Income from operations                                  70,459           99,704          65,950

Equity in earnings of Kronos Worldwide, Inc.                  -                -              9,613
Other income (expense):
  Currency transaction gain                                  6,271             -               -
  Trade interest income                                      1,912              932             493
  Interest and dividend income from affiliates               3,775            3,319           7,986
  Other interest income                                      3,374            1,351           1,303
  Securities transactions, net                                (105)           2,402           2,113
  Interest expense                                         (31,638)         (34,303)        (18,305)
                                                        ----------       ----------      ----------

    Income from continuing operations before
      income taxes and minority interest                    54,048           73,405          69,153

Provision for income taxes (benefit)                        15,062            2,201        (291,510)
Minority interest                                            1,563            3,858         149,596
                                                        ----------       ----------      ----------


    Income from continuing operations                       37,423           67,346         211,067

Discontinued operations                                       (206)          (2,874)           (684)
                                                        ----------       ----------      ----------

        Net income                                      $   37,217       $   64,472      $  210,383
                                                        ==========       ==========      ==========
</TABLE>




                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  Years ended December 31, 2002, 2003 and 2004

                      (In thousands, except per share data)
<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----

Basic earnings per share:
<S>                                                      <C>             <C>              <C>
  Income from continuing operations                      $     .77       $    1.41        $    4.36
  Discontinued operations                                      -              (.06)            (.01)
                                                         ---------       ---------        ---------

        Net income                                       $     .77       $    1.35        $    4.35
                                                         =========       =========        =========

Diluted earnings per share:
  Income from continuing operations                      $     .77       $    1.41        $    4.36
  Discontinued operations                                      -              (.06)            (.01)
                                                         ---------       ---------        ---------

    Net income                                           $     .77       $    1.35        $    4.35
                                                         =========       =========        =========

Weighted-average shares used in the
 calculation of net income per share:
  Basic                                                     48,530          47,721           48,333
  Dilutive impact of stock options                              82              74               86
                                                         ---------       ---------        ---------

  Diluted                                                   48,612          47,795           48,419
                                                         =========       =========        =========
</TABLE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----

<S>                                                       <C>            <C>              <C>
Net income                                                $  37,217      $  64,472        $ 210,383
                                                          ---------      ---------        ---------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment:
    Unrealized holding gains (losses) arising
       during the period                                     (2,454)        18,901            3,460
    Reclassification for realized net gain
       (loss) included in net income                           -            (1,474)            -
                                                          ---------      ---------        ---------

                                                             (2,454)        17,427            3,460

Minimum pension liabilities adjustment                      (15,095)       (14,762)           3,018

Currency translation adjustment                              40,229         22,491           15,975
                                                          ---------      ---------        ---------

      Total other comprehensive income                       22,680         25,156           22,453
                                                          ---------      ---------        ---------

          Comprehensive income                            $  59,897      $  89,628        $ 232,836
                                                          =========      =========        =========
</TABLE>










                      NL INDUSTRIES , INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 2002, 2003 and 2004
                      (In thousands, except per share data)

<TABLE>


                                                                                Accumulated other
                                                                           comprehensive income (loss)
                                              Additional              -----------------------------------
                                    Common     paid-in     Retained   Marketable   Currency      Pension     Treasury
                                     stock     capital     earnings   securities  translation  liabilities    stock        Total
                                    ------   -----------   --------   ----------  -----------  -----------  ---------    ---------
Balance at December 31, 2001,
<S>                                 <C>      <C>           <C>          <C>          <C>            <C>           <C>           <C>
  as originally reported            $8,355   $ 777,597     $ 222,722    $ 8,350    $(208,349)    $ (6,352)   $(415,380)  $ 386,943
Adjustment to reflect
  consolidation of CompX
  International Inc.                  -          6,487        79,191       -          (6,994)        -            -         78,684
                                    ------   ---------     ---------    -------    ---------     --------    ---------   ---------

Balance at December 31, 2001,
  as adjusted                        8,355     784,084       301,913      8,350     (215,343)     (6,352)    (415,380)     465,627

Net income                            -           -           37,217       -            -            -            -         37,217
Other comprehensive loss,
  net of tax                          -           -             -        (2,454)      40,229      (15,095)        -         22,680
Common dividends declared -
  $3.30 per share                     -           -         (157,978)      -            -            -            -       (157,978)
Tax benefit of stock options
  exercised                           -            222          -          -            -            -            -            222
Treasury stock:
  Acquired                            -           -             -          -            -            -         (21,254)    (21,254)
  Reissued                            -           -             -          -            -            -             454         454
Other capital transactions
  with affiliates                     -           -           (4,745)      -            -            -            -         (4,745)
                                    ------   ---------     ---------    -------    ---------     --------    ---------   ---------

Balance at December 31, 2002         8,355     784,306       176,407      5,896     (175,114)     (21,447)    (436,180)    342,223

Net income                            -           -           64,472       -            -            -            -         64,472
Other comprehensive income
  (loss), net of tax                  -           -             -        17,427       22,491      (14,762)        -         25,156
Distribution of 48.8% of
  Kronos Worldwide, Inc.              -           -          (88,532)      -            -            -            -        (88,532)
Income tax on distribution            -           -          (22,478)      -            -            -            -        (22,478)
Common dividends declared -
  $.80 per share                      -           -          (38,183)      -            -            -            -        (38,183)
Treasury stock - reissued             -                        -           -            -            -           1,738       1,738
Other capital transactions
  with affiliates                     -           -           (1,207)      -            -            -            -         (1,207)
                                    ------   ---------     ---------    -------    ---------     --------    ---------   ---------

Balance at December 31, 2003         8,355     784,306        90,479     23,323     (152,623)     (36,209)    (434,442)    283,189

Net income                            -           -          210,383       -            -            -            -        210,383
Other comprehensive income,
  net of tax                          -           -            -          3,460       15,975        3,018         -         22,453
Distribution of shares of
  Kronos Worldwide, Inc.              -           -           (8,741)      -            -            -            -         (8,741)
Income tax on distribution            -        (52,464)       (8,169)      -            -            -            -        (60,633)
Issuance of common stock                 6         909          -          -            -            -            -            915

Acquisition of 10,374 shares
  of CompX International Inc.         -       (102,963)      (65,615)      -            -            -            -       (168,578)
Treasury stock:
  Reissued                            -             -           -          -            -            -           8,354       8,354
  Retired                           (2,307)   (212,178)     (211,603)      -            -            -         426,088        -
Other                                 -            150          -          -            -            -            -            150
                                    ------   ---------     ---------    -------    ---------     --------    ---------   ---------

Balance at December 31, 2004        $6,054   $ 417,760     $   6,734    $26,783    $(136,648)    $(33,191)   $    -      $ 287,492
                                    ======   =========     =========    =======    =========     ========    =========   =========
</TABLE>


          See accompanying notes to consolidated financial statements.



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----


Cash flows from operating activities:
<S>                                                        <C>            <C>             <C>
    Net income                                             $ 37,217       $ 64,472        $210,383
    Depreciation and amortization                            46,225         54,875          36,402
    Goodwill impairment                                           -              -           6,500
    Noncash interest expense                                  1,768          2,197           1,222
    Deferred income taxes:
       Continuing operations                                    569         35,861        (288,359)
       Discontinued operations                                 (222)        (2,590)            545
    Minority interest:
       Continuing operations                                  1,563          3,858         149,596
       Discontinued operations                                 (101)        (1,414)         (3,944)
    Net losses (gains) from:
       Securities transactions                                  105         (2,402)         (2,113)
       Disposition of property and equipment                    625         (9,845)              2
    Pension cost, net                                        (2,316)        (5,478)            244
    Other postretirement benefits, net                       (3,385)        (3,468)         (2,090)
    Equity in Kronos Worldwide, Inc.                              -              -          (9,613)
    Distributions from Kronos Worldwide, Inc.                     -              -          10,731
    Distributions from TiO2 manufacturing
     joint venture, net                                       7,950            875           8,300
    Other, net                                               (1,158)         1,053           2,254
    Change in assets and liabilities:
    Accounts and other receivable                             6,089          2,541         (44,994)
    Inventories                                              45,301        (20,938)         50,062
    Prepaid expenses                                           (545)         3,186           1,769
    Accounts payable and accrued liabilities                (35,108)        (9,732)        (31,110)
    Income taxes                                               (475)       (25,726)         34,076
    Accounts with affiliates                                  3,784          4,512         (20,551)
    Accrued environmental costs                               8,913         24,137          (9,665)
    Other noncurrent assets and liabilities, net             (2,052)        (1,091)         (6,916)
                                                           --------       --------        --------

        Net cash provided by operating activities           114,747        114,883          92,731
                                                           --------       --------        --------
</TABLE>






                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----

Cash flows from investing activities:
<S>                                                       <C>             <C>             <C>
  Capital expenditures                                    $(45,303)       $(44,262)       $(16,209)
  Collection of loans to affiliates                         14,650           4,000          35,423
  Acquisition of business                                   (9,149)           -               -
   Change in restricted cash equivalents
      and restricted marketable debt
      securities, net                                         (960)           (654)         10,367
  Proceeds from disposition of property
    and equipment                                              873          12,801           2,222
  Proceeds from sales of securities                           -               -              2,745
  Other, net                                                    32             671            -
                                                          --------       ---------       ---------

      Net cash provided (used) by
        investing activities                               (39,857)        (27,444)         34,548
                                                          --------       ---------       ---------

Cash flows from financing activities:
  Indebtedness:
    Borrowings                                             336,768          17,106         102,225
    Principal payments                                    (297,864)        (52,012)       (128,091)
    Deferred financing costs paid                          (10,706)           -                (28)
  Cash dividends paid                                     (157,978)        (38,183)              -
  Treasury stock:
    Purchased                                              (21,254)           -               -
    Reissued                                                   454           1,738            -
  Proceeds from issuance of stock:
    NL common stock                                           -               -              9,201
    CompX common stock                                         120            -                617
  Capital transactions with affiliates                      (4,745)         (1,207)           -
  Distributions to minority interests                       (2,379)           (606)        (12,635)
  Other, net                                                  -               (426)           -
                                                          --------       ---------       ---------

      Net cash used by financing activities               (157,584)        (73,590)        (28,711)
                                                          --------       ---------       ---------

Net increase (decrease)                                   $(82,694)      $  13,849       $  98,568
                                                          ========       =========       =========
</TABLE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                             2002           2003            2004
                                                             ----           ----            ----


Cash and cash equivalents-net change from:
<S>                                                       <C>            <C>             <C>
  Operating, investing and financing activities           $(82,694)      $  13,849       $  98,568
  Currency translation                                       3,650           5,178            (474)
  Kronos cash balance at June 30, 2004                        -               -            (88,434)
  Acquisition of business                                      196            -               -
                                                          --------       ---------       ---------
                                                           (78,848)         19,027           9,660

   Balance at beginning of year                            149,346          70,498          89,525
                                                          --------       ---------       ---------

   Balance at end of year                                 $ 70,498       $  89,525       $  99,185
                                                          ========       =========       =========
Supplemental disclosures:
  Cash paid (received) for:
    Interest                                              $ 34,773       $  30,000       $  17,119
    Income taxes                                            12,503          (1,848)        (17,000)

  Acquisition of business -
    net assets consolidated
        Cash and cash equivalents                         $    196       $    -          $    -
        Restricted cash                                      2,685            -               -
        Goodwill                                             6,406            -               -
        Other intangible assets                              2,601            -               -
        Other noncash assets                                 1,259            -               -
        Liabilities                                         (3,998)           -               -
                                                          --------       ---------       ---------

            Cash paid                                     $  9,149       $    -          $    -
                                                          ========       =========       =========

  Net assets of Kronos Worldwide, Inc.
    deconsolidated as of July 1, 2004:
        Cash and cash equivalents                                                        $  88,434
        Accounts and other receivables                                                     200,845
        Inventories                                                                        209,816
        Other current assets                                                                 9,344
        Investment in TiO2 manufacturing
          joint venture                                                                    120,711
        Net property and equipment                                                         413,171
        Other assets                                                                       209,105
        Current liabilities                                                               (156,701)
        Long-term debt                                                                    (346,682)
        Note payable to affiliates                                                        (200,000)
        Accrued pension costs                                                              (66,227)
        Accrued postretirement benefits costs                                              (10,677)
        Deferred income taxes                                                              (50,730)
        Other liabilities                                                                  (13,408)
        Minority interest                                                                 (201,842)
                                                                                         ---------

      Net assets                                                                         $ 205,159
                                                                                         =========


          See accompanying notes to consolidated financial statements.
</TABLE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Summary of significant accounting policies:

     Organization and basis of presentation. NL Industries, Inc. (NYSE: NL) is a
subsidiary of Valhi,  Inc.  (NYSE:  VHI). At December 31, 2004,  (i) Valhi and a
wholly-owned  subsidiary  of Valhi held  approximately  83% of NL's  outstanding
common  stock  and  (ii)  Contran   Corporation   and  its   subsidiaries   held
approximately  91% of Valhi's  outstanding  common stock.  Substantially  all of
Contran's outstanding voting stock is held by trusts established for the benefit
of certain children and grandchildren of Harold C. Simmons, of which Mr. Simmons
is sole trustee,  or is held by Mr. Simmons or persons or other entities related
to Mr. Simmons.  Consequently, Mr. Simmons may be deemed to control each of such
companies.

     On September 24, 2004, the Company  completed the acquisition of 10,374,000
shares of CompX  International  Inc.  (NYSE:  CIX)  common  stock,  representing
approximately  68% of the  outstanding  shares of CompX common stock.  The CompX
common stock was purchased from Valhi and Valcor,  a wholly-owned  subsidiary of
Valhi, at a purchase price of $16.25 per share, or an aggregate of approximately
$168.6 million. The purchase price was paid by NL's transfer to Valhi and Valcor
of $168.6 million of NL's $200 million  long-term note  receivable  from Kronos.
The acquisition  was approved by a special  committee of NL's board of directors
comprised  of directors  who were not  affiliated  with Valhi,  and such special
committee  retained  their own legal and  financial  advisors  who  rendered  an
opinion  to the  special  committee  that the  purchase  price was fair,  from a
financial  point of view,  to NL.  NL's  acquisition  was  accounted  for  under
accounting  principles  generally  accepted  in the  United  States  of  America
("GAAP") as a transfer of net assets among  entities under common  control,  and
accordingly   resulted  in  a  change  in  reporting  entity.  The  Company  has
retroactively  restated its  consolidated  financial  statements  to reflect the
consolidation  of CompX for all periods  presented.  The excess of the aggregate
$168.6 million  principal amount of NL's note receivable  Kronos  transferred to
Valhi and Valcor over the net carrying value of Valhi's and Valcor's  investment
in CompX was  accounted  for as a reduction of NL's  consolidated  stockholders'
equity.

     Prior to July 2004, Kronos Worldwide, Inc. (NYSE: KRO) was a majority-owned
subsidiary of the Company.  Following  the  Company's  July 2004 dividend in the
form of  shares of Kronos  common  stock  distributed  to NL  shareholders,  the
Company's  ownership  of Kronos  was  reduced  to less  than 50%.  Consequently,
effective  July 1, 2004 the  Company  ceased to  consolidate  Kronos'  financial
position,  results  of  operations  and cash  flows  and the  Company  commenced
accounting  for its  interest  in  Kronos  by the  equity  method.  The  Company
continues to report Kronos as a consolidated  subsidiary  through June 30, 2004,
including the  consolidation of Kronos' results of operations and cash flows for
the  first  two  quarters  of  2004.  Certain  disclosures  contained  in  these
consolidated  financial  statements  for 2004  related  to  Kronos'  results  of
operations  and cash flows  include  amounts  related to the first six months of
2004.

     Management's   estimates.   The  preparation  of  financial  statements  in
conformity with GAAP requires  management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent assets and liabilities at the date of the financial  statements,  and
the reported amount of revenues and expenses during the reporting period. Actual
results may differ from previously-estimated amounts under different assumptions
or conditions.



     Principles of consolidation.  The consolidated financial statements include
the accounts of NL and its wholly-owned  and  majority-owned  subsidiaries.  All
material intercompany accounts and balances have been eliminated.  The effect of
decreases in the Company's  ownership interest of its consolidated  subsidiaries
through the Company's sale of the subsidiary's common stock to third parties are
reflected in net income,  with a gain or loss recognized equal to the difference
between the proceeds  from such sale and the carrying  value of the shares sold.
The  effect  of other  decreases  in the  Company's  ownership  interest  of its
consolidated  subsidiaries,  which  usually  result from the exercise of options
granted  by such  subsidiaries  to  purchase  their  shares of  common  stock to
employees, is generally not material.

     Translation of foreign  currencies.  Assets and liabilities of subsidiaries
and  affiliates  whose  functional  currency  is other than the U.S.  dollar are
translated  at  year-end  rates  of  exchange  and  revenues  and  expenses  are
translated  at average  exchange  rates  prevailing  during the year.  Resulting
translation  adjustments  are  accumulated  in  stockholders'  equity as part of
accumulated other comprehensive income, net of related deferred income taxes and
minority  interest.  Currency  transaction  gains and losses are  recognized  in
income  currently.  In  2002,  a  $6.3  million  currency  transaction  gain  is
classified  as a  component  of  other  income  (expense)  in  the  accompanying
Consolidated  Statement of Income.  Such gain related to the  extinguishment  of
certain  intercompany  indebtedness  of NL.  Prior  to  June  28,  2002,  Kronos
International,  Inc. ("KII"), a wholly-owned subsidiary of Kronos which conducts
Kronos' operations in Europe, had certain  intercompany  indebtedness payable to
Kronos,  a portion of which was  denominated in U.S.  dollars,  and a portion of
which  was  denominated  in euro.  Through  June  19,  2002,  such  intercompany
indebtedness was deemed to be of a long-term nature for which settlement was not
planned or anticipated in the foreseeable  future,  and in accordance with GAAP,
the foreign currency  transaction  gains and losses related to such intercompany
indebtedness  were not  recognized  in net income,  but instead were reported as
part of  accumulated  other  comprehensive  income.  On June 19, 2002,  when the
purchase  agreement was entered into in  connection  with KII's 2002 issuance of
the KII Senior  Secured Notes  discussed in Note 12, the  expectation  that such
intercompany indebtedness was of a long-term nature was no longer applicable, as
KII had stated  that it  intended  to use a portion of the net  proceeds of such
offering to repay such intercompany  indebtedness  owed to Kronos.  Accordingly,
from the time period of June 19, 2002 (the date the purchase  agreement  related
to KII Senior Secured Notes was executed)  until June 28, 2002 (the closing date
for the 2002 issuance of the KII Senior Secured Note offering, and the date such
intercompany  indebtedness was repaid),  the foreign currency  transaction gains
and losses related to such  intercompany  indebtedness  during such time period,
which  aggregated a net gain of $6.3  million,  was  recognized in net income in
accordance with GAAP.

     Derivatives  and hedging  activities.  Derivatives are recognized as either
assets or liabilities and measured at fair value in accordance with Statement of
Financial  Accounting  Standards  ("SFAS") No. 133,  "Accounting  for Derivative
Instruments and Hedging  Activities," as amended.  The accounting for changes in
fair value of derivatives  depends upon the intended use of the derivative,  and
such changes are recognized either in net income or other comprehensive  income.
As permitted  by the  transition  requirements  of SFAS No. 133, the Company has
exempted from the scope of SFAS No. 133 all host contracts  containing  embedded
derivatives that were issued or acquired prior to January 1, 1999.

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

     Restricted  cash  equivalents and restricted  marketable  debt  securities.
Restricted cash equivalents and restricted marketable debt securities, primarily
invested  in U.S.  government  securities  and money  market  funds that  invest
primarily in U.S. government securities,  include amounts restricted pursuant to
outstanding  letters of credit  ($5  million at each of  December  31,  2003 and
2004),  and at December  31,  2004 also  includes  $19  million  held by special
purpose  trusts (2003 - $24 million)  formed by NL, the assets of which can only
be used to pay for certain of NL's future  environmental  remediation  and other
environmental expenditures.  Such restricted amounts are generally classified as
either a current or  noncurrent  asset  depending on the  classification  of the
liability to which the restricted amount relates.  Additionally,  the restricted
marketable  debt  securities  are  generally  classified  as either a current or
noncurrent  asset  depending  upon the maturity date of each such debt security.
Use of such  restricted  balances  does not  affect the  Company's  Consolidated
Statements of Cash Flows. See Note 19.

     Marketable  securities and  securities  transactions.  Marketable  debt and
equity  securities  are carried at fair value based upon quoted  market  prices.
Unrealized gains and losses on available-for-sale  securities are accumulated in
stockholders'  equity as part of accumulated other comprehensive  income, net of
related deferred income taxes and minority  interest.  Realized gains and losses
are based upon the specific identification of the securities sold.

     Accounts  receivable.  The  Company  provides  an  allowance  for  doubtful
accounts  for  known  and  estimated  potential  losses  arising  from  sales to
customers based on a periodic review of these accounts.

     Investment in Kronos  Worldwide,  Inc.  Following  the Company's  July 2004
dividend  in the  form of  shares  of  Kronos  common  stock  distributed  to NL
shareholders,  the  Company's  ownership of Kronos was reduced to less than 50%.
Consequently,  effective July 1, 2004 the Company ceased to consolidate  Kronos'
financial  position,  results  of  operations  and cash  flows  and the  Company
commenced  accounting  for its  interest  in Kronos by the  equity  method.  The
Company continues to report Kronos as a consolidated subsidiary through June 30,
2004,  including the  consolidation  of Kronos'  results of operations  and cash
flows for the first two quarters of 2004.

     Investment  in TiO2  manufacturing  joint  venture.  Through June 30, 2004,
Kronos'  investment in its 50%-owned  manufacturing  joint venture was accounted
for by the equity method.

     Goodwill and other  intangible  assets.  Goodwill  represents the excess of
cost over fair value of individual net assets acquired in business  combinations
accounted  for by the  purchase  method.  Goodwill  is not  subject to  periodic
amortization.  Other intangible assets are amortized by the straight-line method
over  their  estimated  lives.   Other  intangible  assets  are  stated  net  of
accumulated amortization,  and goodwill and other intangible assets are assessed
for impairment in accordance with SFAS No. 142,  "Goodwill and Other  Intangible
Assets." See Notes 8, 9 and 21.

     Property and equipment and depreciation.  Property and equipment are stated
at cost.  At December  31,  2003,  the Company  consolidated  the  property  and
equipment of Kronos,  including  Kronos  mining  properties.  Mining  properties
consist of buildings and equipment used in the Kronos' Norwegian ilmenite mining
operations.  Kronos does not own the ilmenite reserves associated with the mine.
Depreciation  of  property  and  equipment  for  financial   reporting  purposes
(including  mining  properties)  is computed  principally  by the  straight-line
method over the  estimated  useful  lives of ten to 40 years for  buildings  and
three to 20 years for equipment.  Accelerated  depreciation methods are used for
income tax  purposes,  as permitted.  Upon sale or  retirement of an asset,  the
related cost and accumulated  depreciation are removed from the accounts and any
gain or loss is recognized in income currently.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures  for major  improvements  are  capitalized.  The  Company  performs
certain planned major  maintenance  activities  during the year,  primarily with
respect to the chemicals  segment.  Repair and maintenance costs estimated to be
incurred in connection with planned major maintenance  activities are accrued in
advance and are included in cost of sales. Accrued repair and maintenance costs,
included in other current liabilities and consisting  primarily of materials and
supplies,  see Note 10, was $6.3  million and nil at December 31, 2003 and 2004,
respectively.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of  construction  costs.  Interest costs  capitalized
related to the Company's  consolidated business segments were not significant in
2002, 2003 or 2004.

     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Effective January 1, 2002, the Company commenced assessing impairment
of  other  long-lived   assets  (such  as  property  and  equipment  and  mining
properties) in accordance  with SFAS No. 144,  "Accounting for the Impairment or
Disposal  of  Long-Lived  Assets,"  which among other  things  provided  certain
implementation guidance in relation to prior GAAP. See Note 21.

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

     Employee benefit plans.  Accounting and funding policies for retirement and
post  retirement  benefits  other than pensions  ("OPEB") plans are described in
Note 16.

     Income taxes.  The Company and its qualifying  subsidiaries are included in
the  consolidated  U.S. federal tax return of Contran (the "Contran Tax Group").
As a member of the  Contran  Tax Group,  the Company is a party to a tax sharing
agreement (the "Contran Tax Agreement"). The Contran Tax Agreement provides that
the Company  computes its provision for U.S. income taxes on a  separate-company
basis using the tax  elections  made by Contran.  Kronos is also a member of the
Contran Tax Group.  CompX,  previously a separate U.S.  federal income taxpayer,
became a member of the  Contran  Tax Group for  federal  income tax  purposes in
October 2004 with the formation of CompX Group, Inc. See Note 2. Pursuant to the
Contran Tax Agreement and using the tax elections  made by Contran,  the Company
generally makes payments to or receives  payments from Valhi in amounts it would
have paid to or received from the U.S.  Internal Revenue Service had it not been
a member of the  Contran Tax Group.  Refunds  are limited to amounts  previously
paid under the Contran Tax Agreement unless the Company was entitled to a refund
from the U.S. Internal Revenue Service on a separate company basis. Most members
of the Contran Tax Group also file consolidated unitary state income tax returns
in  qualifying  U.S.  jurisdictions.  See Note  15.  The  Company  made net cash
payments to (or  collected  net cash  receipts  from) Valhi for income  taxes of
($2.2) million in 2002, $3.9 million in 2003 and $1.8 million in 2004.

     Deferred  income tax assets and liabilities are recognized for the expected
future tax  consequences  of  temporary  differences  between the income tax and
financial  reporting  carrying  amounts  of assets  and  liabilities,  including
investments in the Company's  subsidiaries and affiliates who are not members of
the Contran Tax Group and undistributed  earnings of foreign  subsidiaries which
are not deemed to be permanently  reinvested.  Earnings of foreign  subsidiaries
deemed to be permanently  reinvested  aggregated  $653.5 million at December 31,
2003  (related to NL and Kronos) and $24.4 million at December 31, 2004 (related
to CompX).  The Company  periodically  evaluates  its deferred tax assets in the
various  taxing  jurisdictions  in which it  operates  and  adjusts  any related
valuation  allowance  based on the  estimate of the amount of such  deferred tax
assets  that the  Company  believes  does  not  meet the  "more-likely-than-not"
recognition criteria.

     Environmental remediation costs. The Company records liabilities related to
environmental  remediation  obligations when estimated  future  expenditures are
probable  and  reasonably  estimable.  Such  accruals  are  adjusted  as further
information  becomes  available  or  circumstances   change.   Estimated  future
expenditures are generally not discounted to their present value.  Recoveries of
remediation  costs from other  parties,  if any, are  recognized  as assets when
their receipt is deemed probable.  At December 31, 2003 and 2004, no receivables
for recoveries have been recognized. See Note 19.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership have passed to the customer, or when services are
performed.  Shipping terms of products shipped are generally FOB shipping point,
although in some instances  shipping terms are FOB destination  point (for which
sales are not recognized until the product is received by the customer). Amounts
charged to customers for shipping and handling are included in net sales.  Sales
are stated net of price,  early  payment and  distributor  discounts  and volume
rebates.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
or market, net of allowance for slow-moving  inventories.  Inventories are based
on average cost or the first-in,  first-out method. Cost of sales includes costs
for materials, packing and finishing,  shipping and handling,  utilities, salary
and benefits, maintenance and depreciation.

     Selling, general and administrative expenses;  shipping and handling costs.
Selling, general and administrative expenses include costs related to marketing,
sales,  distribution,  shipping and handling,  research and development,  legal,
environmental  remediation  and  administrative  functions  such as  accounting,
treasury and finance,  and includes costs for salaries and benefits,  travel and
entertainment,   promotional  materials  and  professional  fees.  Shipping  and
handling  costs of the  Company's  chemicals  segment  are  included in selling,
general and administrative  expense and were $51 million in 2002, $63 million in
2003 and $34  million in 2004.  Shipping  and  handling  costs of the  Company's
component  products segment are not material.  Advertising costs are expensed as
incurred  and were $2  million  in 2002 and $1 million in each of 2003 and 2004.
Research,  development and certain sales technical support costs are expensed as
incurred and  approximated $6 million in 2002, $7 million in 2003 and $4 million
in 2004.

     Corporate  expenses.  Corporate expenses include  environmental,  legal and
other costs attributable to formerly owned business units.

     Earnings per share.  Basic earnings per share of common stock is based upon
the weighted  average number of common shares actually  outstanding  during each
period.  Diluted  earnings  per share of common  stock  includes  the  impact of
outstanding  dilutive stock options.  The weighted average number of outstanding
stock  options  excluded  from the  calculation  of diluted  earnings  per share
because  their  impact  would have been  antidilutive  aggregated  approximately
788,000  in 2002 and nil in 2003 and  2004.  There  were no  adjustments  to net
income in the computation of the diluted earnings per share amounts.

     Stock  options.   The  Company  has  elected  the  disclosure   alternative
prescribed  by SFAS No.  123,  "Accounting  for  Stock-Based  Compensation,"  as
amended by SFAS No. 148,  "Accounting for Stock-Based  Compensation - Transition
and  Disclosure,"  and to  account  for its  stock-based  employee  compensation
related to stock options in accordance with Accounting  Principles Board Opinion
("APBO") No. 25,  "Accounting  for Stock Issued to  Employees,"  and its various
interpretations. Under APBO No. 25, no compensation cost is generally recognized
for fixed stock options in which the exercise  price is not less than the market
price on the grant date. During 2002 and following the Company's cash settlement
of options to purchase NL common stock held by certain individuals,  the Company
commenced  accounting for its stock options using the variable accounting method
because  the  Company  could  not  overcome  the  presumption  that it would not
similarly cash settle its remaining stock options. Under the variable accounting
method,  the intrinsic value of all unexercised  stock options  (including those
with an exercise  price at least equal to the market price on the date of grant)
are accrued as an expense over their vesting period,  with subsequent  increases
(decreases) in NL's market price  resulting in additional  compensation  expense
(income).  Aggregate compensation cost related to NL stock options recognized by
the Company was $3.2  million in 2002,  $1.9 million in 2003 and $1.7 million in
2004.

     The following  table presents what the Company's  consolidated  net income,
and related  per share  amounts,  would have been in 2002,  2003 and 2004 if the
Company and its  subsidiaries  and  affiliates  had each  elected to account for
their respective  stock-based employee compensation related to all stock options
in accordance with the fair value-based  recognition provisions of SFAS No. 123,
for all awards granted subsequent to January 1, 1995.
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                          (In millions, except
                                                          per share amounts)

<S>                                              <C>             <C>            <C>
Net income as reported                           $  37.2         $  64.5        $ 210.4

Adjustments, net of applicable income
 tax effects and minority interest:
  Stock-based employee compensation
   expense determined under APBO No. 25              2.1             1.1            1.1
  Stock-based employee compensation
   expense determined under SFAS No. 123            (2.5)           (1.3)           (.2)
                                                 -------         -------        -------

Pro forma net income                             $  36.8         $  64.3        $ 211.3
                                                 =======         =======        =======

Basic earnings per share:
  As reported                                    $   .77         $  1.35        $  4.35
  Pro forma                                      $   .76         $  1.35        $  4.37

Diluted earnings per share:
  As reported                                    $   .77         $  1.35        $  4.35
  Pro forma                                      $   .76         $  1.35        $  4.36
</TABLE>

     The  pro  forma  information  required  by  SFAS  No.  123 is  based  on an
estimation of the fair value of options issued subsequent to January 1, 1995. No
options  were  granted  in 2003 or 2004.  The  weighted-average  fair  values of
options  granted  during  2002 was $5.71 per share.  The fair value of  employee
stock options were calculated  using the  Black-Scholes  stock option  valuation
model with the following weighted average  assumptions for grants in 2002: stock
price volatility of 47%; risk-free rate of return of 4%; dividend yield of 5.8%;
and an expected  term of 7 years.  For  purposes of pro forma  disclosures,  the
estimated  fair value of the options is  amortized  to expense over the options'
vesting period.

Note 2 - Business combinations and related transactions:

     CompX  International,  Inc. As discussed in Note 1, on September  24, 2004,
the Company  purchased  10,374,000  shares of CompX common  stock,  representing
approximately  68% of the outstanding  shares of CompX common stock,  from Valhi
and a  wholly-owned  subsidiary of Valhi.  Because  Valhi,  NL and CompX are all
entities under the common control of Contran,  the Company's  acquisition of the
shares of CompX  common stock  results in a change in  reporting  entity and the
Company has  retroactively  restated its  consolidated  financial  statements to
reflect the consolidation of CompX for all periods presented.

     Effective  October 1, 2004, the Company  contributed such 10,374,000 shares
of CompX  common  stock  to  newly-formed  CompX  Group  in  return  for a 82.4%
ownership  interest in CompX Group.  Concurrently,  Titanium Metals  Corporation
("TIMET"), a less-than-majority  owned affiliate of Valhi, contributed shares of
CompX common stock representing  approximately 15% of CompX's outstanding common
shares in return for the remaining 17.6%  ownership  interest in CompX Group. At
that time,  CompX  Group  became the owner of the 83% of CompX that NL and TIMET
had previously owned in the aggregate.  These CompX shares are the sole asset of
CompX Group.  CompX Group  recorded the shares of CompX received from NL at NL's
carryover basis.

     Kronos  Worldwide,  Inc. Prior to December 2003,  Kronos was a wholly-owned
subsidiary of the Company.  In December 2003, NL completed the  distribution  of
approximately  48.8%  of  Kronos'  common  stock  on  a  pro-rata  basis  to  NL
shareholders  (including  Valhi  and  Tremont  LLC) in the  form  of a  pro-rata
dividend. Shareholders of NL received one share of Kronos common stock for every
two  shares  of NL held.  During  2004,  NL paid each of its four $.20 per share
regular quarterly dividend in the form of shares of Kronos common stock in which
an  aggregate of  approximately  2.5% of Kronos'  outstanding  common stock were
distributed to NL shareholders in the form of pro-rata dividends.  In accordance
with GAAP, the carrying amount of such shares of Kronos common stock distributed
were  accounted  for as a  reduction  of the  Company's  retained  earnings  and
aggregated $88.5 million in 2003 and $8.7 million in 2004.

     NL's December  2003 and 2004  quarterly  distributions  of shares of common
stock of Kronos are  taxable to NL, and NL is  required  to  recognize a taxable
gain equal to the  difference  between  the fair  market  value of the shares of
Kronos common stock  distributed on the various dates of  distribution  and NL's
adjusted tax basis in such stock at such dates of distribution.  With respect to
such shares of Kronos  distributed to Valhi and Tremont,  effective  December 1,
2003,  Valhi and NL  amended  the terms of their tax  sharing  agreement  to not
require NL to pay up to Valhi the tax liability  generated from the distribution
of such  Kronos  shares  to Valhi and  Tremont.  During  2003 and  2004,  NL was
required  to  recognize  a tax  liability  with  respect  to the  Kronos  shares
distributed  to NL  shareholders  other  than  Valhi and  Tremont,  and such tax
liability was  approximately  $22.5 million and $8.2 million,  respectively.  In
accordance  with GAAP,  such tax liability has been recognized as a reduction of
the Company's retained earnings in such periods.

     During the fourth quarter of 2004,  Valhi and NL further  amended the terms
of their tax sharing  agreement  to provide that NL would now be required to pay
up to Valhi  the tax  liability  generated  from the  distribution  of shares of
Kronos  common  stock to Valhi and  Tremont,  including  the tax related to such
shares  distributed  to Valhi and Tremont in  December  2003 and the first three
quarters  of 2004.  In  determining  to so amend  the  terms of the tax  sharing
agreement, NL and Valhi considered,  among other things, the changed expectation
for the  generation  of  taxable  income  at the NL  level  resulting  from  the
inclusion of CompX in NL's  consolidated  taxable income effective in the fourth
quarter of 2004,  as discussed in Note 1. Valhi and NL further  agreed that such
tax  liability  could be paid by NL to Valhi in the  form of  shares  of  Kronos
common  stock  held by NL.  Such tax  liability  related to the shares of Kronos
distributed  to Valhi and Tremont in December  2003 and 2004,  including the tax
liability  resulting  from  the  use of  Kronos  common  stock  to  settle  such
liability,  aggregated  approximately $227 million.  Accordingly,  in the fourth
quarter of 2004 NL transferred approximately 5.5 million shares of Kronos common
stock to Valhi in  satisfaction  of such  tax  liability  and the tax  liability
generated  from the use of such Kronos shares to settle such tax  liability.  In
agreeing to settle  such tax  liability  with such 5.5 million  shares of Kronos
common stock,  the Kronos  shares were valued at $41 per share.  The transfer of
such 5.5 million  shares of Kronos common  stock,  accounted for under GAAP as a
transfer of net assets among entities  under common control at carryover  basis,
and the  aggregate  $52.5  million  carrying  amount  of such  shares  of Kronos
transferred were recorded as a reduction of the Company's paid-in capital.

     During the fourth quarter of 2004, NL sold shares of Kronos common stock in
market transactions for an aggregate of $2.7 million, and the Company recognized
a $2.2 million  pre-tax gain related to the reduction of its ownership  interest
in Kronos related to such sales.

     As a result of all of the foregoing  transactions,  the Company's ownership
of Kronos was reduced to approximately  37% as of December 31, 2004. See Note 7.
At December  31, 2004,  Valhi and a  wholly-owned  subsidiary  of Valhi owned an
additional 57% of Kronos' outstanding common stock.

     Other.  In January 2002, the Company  acquired all of the stock and limited
liability company units of EWI RE, Inc. and EWI RE, Ltd.  (collectively  "EWI"),
respectively,  for an aggregate of $9.2 million in cash,  including  acquisition
costs  of $.2  million.  An  entity  controlled  by one of  Harold  C.  Simmons'
daughters  owned a majority of EWI,  and a  wholly-owned  subsidiary  of Contran
owned the  remainder  of EWI. EWI provides  reinsurance  brokerage  services for
insurance  policies of the Company,  its joint  venture and other  affiliates of
Contran as well as external third-party customers.  The purchase was approved by
a special committee of the Company's Board of Directors consisting of two of its
directors  unrelated to Contran,  and the purchase  price was  negotiated by the
special committee based upon its  consideration of relevant  factors,  including
but not limited to due diligence  performed by  independent  consultants  and an
appraisal of EWI conducted by an independent third party selected by the special
committee.

     EWI's  results of  operations  and cash flows are included in the Company's
consolidated  results of operations and cash flows  beginning  January 2002. The
aggregate  cash  purchase  price has been  allocated to the assets  acquired and
liabilities assumed.

Note 3 - Business segment information
<TABLE>

                                                        % owned at
  Business segment             Entity               December 31, 2004
  ------------------    ------------------------   -------------------

<S>                                                         <C>
  Component products    CompX International Inc.            68%
  Chemicals             Kronos Worldwide, Inc.              37%
</TABLE>

     The Company's  ownership of CompX is held directly by CompX Group, Inc. The
Company owns 82.4% of CompX Group,  and TIMET owns the remaining  17.6% of CompX
Group.  CompX  Group's  sole  asset  consists  of shares of CompX  common  stock
representing  approximately 83% of the total number of CompX shares outstanding,
and the  percentage  ownership of CompX shown above  represents  NL's  ownership
interest in CompX Group multiplied by CompX Group's ownership interest in CompX.
See Note 2.

     As a result of the  restatement  of the  Company's  consolidated  financial
statements to reflect the  consolidation  of CompX's results of operations,  the
Company has, for certain periods presented,  more than one operating segment (as
that  term  is  defined  in SFAS  No.  131,  Disclosures  about  Segments  of an
Enterprise and Related Information.  Accordingly,  the following  information is
presented to comply with the disclosure  requirements of SFAS No. 131, including
disclosures  with respect to each year in the  three-year  period ended December
31, 2004.

     The Company is organized based on its operating subsidiaries. The Company's
operating  segments are defined as  components  of our  consolidated  operations
about which  separate  financial  information  is  available  that is  regularly
evaluated by the chief  operating  decision maker in determining how to allocate
resources and in assessing  performance.  The Company's chief operating decision
maker is Mr. Harold C. Simmons.  Each operating  segment is separately  managed,
and each  operating  segment  represents  a  strategic  business  unit  offering
different products.

     The Company's  reportable operating segments are comprised of the component
products business conducted by CompX and, for all periods through June 30, 2004,
the chemicals  business  conducted by Kronos.  As discussed in Note 1, effective
July 1, 2004, the Company ceased to consolidate Kronos and commenced  accounting
for its interest in Kronos by the equity method.

     CompX produces and sells component products (precision ball-bearing slides,
security products and ergonomic  computer support systems) for office furniture,
computer  related  applications and a variety of other  applications.  CompX has
production facilities in North America and Asia.

     Kronos  manufactures and sells titanium dioxide pigments ("TiO2").  TiO2 is
used to impart whiteness,  brightness and opacity to a wide variety of products,
including paints,  plastics,  paper, fibers and ceramics.  Kronos has production
facilities  located in North  America  and  Europe.  Kronos also owns a one-half
interest in a TiO2 production facility located in Louisiana. See Note 7.

     The  Company  evaluates  segment  performance  based on  segment  operating
income.  Segment profit is defined as income from continuing  operations  before
income taxes, minority interest,  extraordinary items, interest expense, certain
nonrecurring items and certain general corporate items. Corporate items excluded
from segment profit include corporate expense,  interest and dividend income not
attributable  to the component  products  business and the  chemicals  business,
litigation settlement gains,  securities transaction gains and losses and losses
from the disposal of long-lived  assets outside the ordinary course of business.
The  accounting  policies of the  respective  business  segments are the same as
those described in Note 1.

     Interest  income  included  in the  calculation  of  segment  profit is not
material.  Amortization  of  deferred  financing  costs is  included in interest
expense.  There  are  no  intersegment  sales  or any  significant  intersegment
transactions.

     Segment assets are comprised of all assets  attributable  to each reporting
operating  segment.  The Company's  investment in the TiO2  manufacturing  joint
venture is included in the chemicals  business segment assets.  Corporate assets
are not  attributable to any operating  segment and consist  principally of cash
and cash equivalents,  restricted cash  equivalents,  marketable debt and equity
securities  and loans to  affiliates.  Substantially  all  corporate  assets are
attributable to NL.

     For  geographic  information,  net  sales  are  attributed  to the place of
manufacture  (point  of  origin)  and the  location  of the  customer  (point of
destination);  property and equipment are attributed to their physical location.
At  December  31,  2004,  the net assets of  non-U.S.  subsidiaries  included in
consolidated net assets approximated $80 million (2003 - $240 million).


<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Net sales:
<S>                                             <C>              <C>             <C>
   Chemicals                                    $  875.2         $1,008.2        $  559.1
   Component products                              166.7            173.9           182.6
                                                --------         --------        --------

     Total net sales                            $1,041.9         $1,182.1        $  741.7
                                                ========         ========        ========

 Segment profit:
   Chemicals                                    $   96.5         $  137.4        $   66.4
   Component products                                4.4              9.0            16.3
                                                --------         --------        --------

     Total segment profit                          100.9            146.4            82.7

 General corporate items:
   Interest and dividend income from
     affiliates                                      3.8              3.3             8.0
   Other interest income                             3.3              1.4             1.3
   Securities transactions, net                      (.1)             2.4             2.1
   Legal settlement gains, net                       5.2               .8              .6
   Gain on disposal of fixed assets                  -               10.4              -
   Noncompete agreement income                       4.0               .3              -
   Currency transaction gain                         6.3               -               -
   Other income                                       .1               .1              .3
   General corporate expenses, net                 (37.9)           (57.4)          (17.1)
   Interest expense                                (31.6)           (34.3)          (18.3)
                                                --------         --------        --------
                                                    54.0             73.4            59.6
     Equity in earnings of
       Kronos Worldwide, Inc.                         -                -              9.6
                                                --------         --------        --------
     Income from continuing operations
       before income taxes and
       minority interest                        $   54.0         $   73.4        $   69.2
                                                ========         ========        ========
</TABLE>



<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)

 Net sales - point of origin:
<S>                                             <C>              <C>             <C>
   United States                                $  378.5         $  404.9        $  317.5
   Germany                                         404.3            510.1           294.7
   Belgium                                         123.8            150.7            98.8
   Norway                                          111.8            131.5            70.3
   Other Europe                                     89.6            110.4            56.5
   Canada                                          229.2            249.6           157.6
   Taiwan                                           14.7             13.4             9.6
   Eliminations                                   (310.0)          (388.5)         (263.3)
                                                --------         --------        --------

                                                $1,041.9         $1,182.1        $  741.7
                                                ========         ========        ========

 Net sales - point of destination:
   United States                                $  398.0         $  423.7        $  294.6
   Europe                                          463.4            574.5           335.3
   Canada                                           82.8             85.5            56.8
   Asia and other                                   97.7             98.4            55.0
                                                --------         --------        --------

                                                $1,041.9         $1,182.1        $  741.7
                                                ========         ========        ========
</TABLE>




<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Depreciation and amortization:
<S>                                             <C>              <C>             <C>
   Chemicals                                    $   32.2         $   39.4        $   21.8
   Component products                               13.0             14.8            14.2
   Corporate                                         1.0               .7              .4
                                                --------         --------        --------

                                                 $  46.2         $   54.9        $   36.4
                                                ========         ========        ========

 Capital expenditures:
   Chemicals                                     $  32.6         $   35.3        $   10.8
   Component products                               12.7              8.9             5.3
   Corporate                                          -                .1              .1
                                                --------         --------        --------

                                                 $  45.3         $   44.3        $   16.2
                                                ========         ========        ========
</TABLE>

<TABLE>

                                                               December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Total assets:
   Operating segments:
<S>                                              <C>              <C>              <C>
     Chemicals                                  $  988.5         $1,121.9        $     -
     Component products                            203.1            212.4           169.6
   Investment in Kronos Worldwide, Inc.             -                -              175.6
   Corporate and eliminations                      123.0            142.2           202.2
                                                --------         --------        --------

                                                $1,314.6         $1,476.5        $  547.4
                                                ========         ========        ========

 Net property and equipment:
   United States                                $   52.6         $   48.2        $   42.5
   Germany                                         213.2            252.4              -
   Canada                                           77.8             87.0            19.1
   Norway                                           49.7             50.8              -
   Belgium                                          54.6             64.9              -
   Netherlands                                      10.0              9.6             7.9
   Taiwan                                            5.9              5.7             5.7
   Other                                              .2               .3              -
                                                --------         --------        --------

                                                $  464.0         $  518.9        $   75.2
                                                ========         ========        ========
</TABLE>

     Component  products  segment profit,  as presented  above,  may differ from
amounts separately  reported by CompX because the Company defines segment profit
differently than CompX.

Note 4 - Accounts and other receivables:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                <C>
 Trade receivables                                $ 173,783          $  24,759
 Recoverable VAT and other receivables               12,768                551
 Allowance for doubtful accounts                     (3,994)            (1,008)
                                                  ---------          ---------

                                                  $ 182,557          $  24,302
                                                  =========          =========
</TABLE>


Note 5 - Marketable securities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                               <C>                <C>
   Valhi common stock                             $  70,450          $  75,770
   Other                                                 37                 23
                                                  ---------          ---------

                                                  $  70,487          $  75,793
                                                  =========          =========
</TABLE>


     In February 2003 Valhi completed a series of merger  transactions  pursuant
to which, among other things, Tremont Group and Tremont both became wholly-owned
subsidiaries  of Valhi.  Under these merger  transactions,  (i) Valhi issued 3.5
million  shares of its common  stock to the Company in return for the  Company's
20% ownership  interest in Tremont Group and (ii) Valhi issued 3.4 shares of its
common  stock  (plus  cash  in  lieu  of  fractional   shares)  to  all  Tremont
stockholders  (other than Valhi and Tremont Group) in exchange for each share of
Tremont  common  stock  held  by  such   stockholders.   The  Company   received
approximately 27,770 shares of Valhi common stock in the second transaction. The
number of shares of Valhi common stock issued to the Company in exchange for the
Company's 20% ownership interest in Tremont Group was equal to the Company's 20%
pro-rata  interest in the shares of Tremont  common stock held by Tremont Group,
adjusted  for the same 3.4  exchange  ratio.  The  Company  reported  a  pre-tax
securities  transaction gain of approximately  $2.3 million in the first quarter
of 2003 which represented the difference  between the market value of the shares
of Valhi  received  and the cost basis of the Tremont  Group and Tremont  shares
exchanged.  Following these  transactions,  the Company owned  approximately 4.7
million shares of Valhi's outstanding common stock  (approximately 4% of Valhi's
outstanding  shares).  The  Company  will  continue to account for its shares of
Valhi common stock as available-for-sale marketable equity securities carried at
fair value (based on quoted market prices).

     The aggregate cost basis for the Company's  investment in Valhi at December
31, 2003 and 2004 was $34.6 million. The Valhi common stock owned by the Company
is subject to the  restrictions on resale pursuant to certain  provisions of the
Securities and Exchange  Commission ("SEC") Rule 144. The shares of Valhi common
stock cannot be voted by the Company  under  Delaware  Corporation  Law, but the
Company does receive  dividends  from Valhi on these  shares,  when declared and
paid. For financial reporting purposes,  Valhi reports its proportional interest
in these shares as treasury stock.



Note 6 - Inventories:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Raw materials:
<S>                                               <C>                <C>
   Chemicals                                      $  61,959          $    -
   Component products                                 6,170              8,193
                                                  ---------          ---------
                                                     68,129              8,193
                                                  ---------          ---------
 In process products:
   Chemicals                                         19,855               -
   Component products                                10,852             10,827
                                                  ---------          ---------
                                                     30,707             10,827
                                                  ---------          ---------
 Finished products:
   Chemicals                                        147,270               -
   Component products                                 9,166              9,696
                                                  ---------          ---------
                                                    156,436              9,696
                                                  ---------          ---------

 Supplies                                            37,065                 65
                                                  ---------          ---------

                                                  $ 292,337          $  28,781
                                                  =========          =========
</TABLE>

Note 7 - Investment in affiliates:

     Kronos Worldwide,  Inc. At December 31, 2004, the Company held 18.3 million
shares of Kronos with a quoted market price of $40.75 per share, or an aggregate
market value of $744 million.

     At December  31,  2004,  Kronos  reported  total assets of $1.4 billion and
stockholders'  equity of $470.8  million.  Kronos'  total assets at December 31,
2004 include  current  assets of $495.5  million,  net property and equipment of
$466.9 million and an investment in a TiO2 manufacturing joint venture of $120.3
million.  Kronos'  total  liabilities  at  December  31,  2004  include  current
liabilities of $212.9 million,  long-term debt of $519.4  million,  accrued OPEB
and pension costs  aggregating  $72.6 million and deferred income taxes of $60.1
million.

     During the last six  months of 2004,  Kronos  reported  net sales of $569.5
million,  income  from  operations  of $50.3  million  and net  income  of $20.3
million. Kronos' results of operations for the first six months of 2004, and for
the years ended  December  31,  2002 and 2003,  are  included  in the  Company's
consolidated results of operations.

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

     KLA is  required  to purchase  one-half  of the TiO2  produced by LPC.  LPC
operates on a break-even basis and,  accordingly,  the Company reports no equity
in earnings of LPC.  Kronos' cost for its share of the TiO2 produced is equal to
its share of LPC's  costs.  Kronos'  share of net costs is  reported  as cost of
sales as the related TiO2  acquired  from LPC is sold.  Distributions  from LPC,
which  generally  relate  to  excess  cash  generated  by LPC from its  non-cash
production  costs,  and  contributions  to LPC, which  generally  relate to cash
required by LPC when it builds  working  capital,  are  reported as part of cash
generated by operating  activities in the Company's  Consolidated  Statements of
Cash Flows. Such distributions are reported net of any contributions made to LPC
during the periods.  Net  distributions  of $8.0 million in 2002, $.9 million in
2003,  and $8.3  million  in the first  six  months  of 2004 are  stated  net of
contributions  of $14.2 million in 2002,  $13.1 million in 2003 and $8.1 million
in the first half of 2004.

     LPC made net cash  distributions  of $15.9 million in 2002, $1.8 million in
2003 and $16.6  million in the first six months of 2004,  equally  split between
the partners.  Effective  July 1, 2004, the Company no longer  consolidates  the
financial position and results of operations of Kronos and consequently accounts
for Kronos'  investment in the TiO2  manufacturing  joint venture as part of the
Company's investment in Kronos subsequent to that date.

     At December 31,  2003,  LPC  reported  total  assets of $284.0  million and
partners'  equity of $260.8  million.  LPC's total  assets at December  31, 2003
include  current  assets of $57.0  million and property and  equipment of $227.0
million.  LPC's  liabilities  at December 31, 2003 include other  liabilities of
$23.2 million, comprised primarily of current liabilities.  During the first six
months of 2004,  LPC  reported  revenues of $102.0  million (for the years ended
December 31, 2002 and 2003,  $186.3  million and $203.0  million,  respectively)
with  approximately  one-half  attributable to each partner for each period. LPC
operates on a break-even basis, consequently net income is nil for all periods.

Note 8 - Goodwill:

     Substantially  all of the  goodwill  is related to the  component  products
operating  segment and was generated  principally  from CompX's  acquisitions of
certain business units completed prior to 2001. The remaining  goodwill resulted
from the  acquisition  of EWI in January  2002 and  totaled  approximately  $6.4
million in 2002,  2003 and 2004.  Changes  in the  carrying  amount of  goodwill
related to the components products operating segment during the past three years
is presented in the table below.
<TABLE>

                                                         Component products
                                                         operating segment
                                                         ------------------
                                                           (In millions)


           <S>                                               <C>
           Balance at December 31, 2001                      $41.9
           Changes in foreign exchange rates                   1.8
                                                             -----

           Balance at December 31, 2002                       43.7
           Changes in foreign exchange rates                   2.6
                                                             -----

           Balance at December 31, 2003                       46.3
           Impairment related to
             discontinued operations                          (6.5)
           Deferred tax adjustment                           (26.9)
           Changes in foreign exchange rates                   1.5
                                                             -----

           Balance at December 31, 2004                      $14.4
                                                             =====
</TABLE>


     Upon adoption of SFAS No. 142 effective  January 1, 2002 (see Note 21), the
goodwill  related to the components  product  operating  segment was assigned to
three  reporting  units (as that term is defined in SFAS No.  142)  within  that
operating segment, one consisting of CompX's security products  operations,  one
consisting of CompX's European operations and one consisting of CompX's Canadian
and Taiwanese operations.

     As discussed in Note 1, prior to October 2004 CompX was not a member of the
Contran Tax Group, and the Company  provided  deferred income taxes with respect
to its investment in CompX. Effective October 2004, CompX became a member of the
Contran  Tax Group,  and the Company no longer  provides  such  deferred  income
taxes.  In accordance  with GAAP,  and as a result of CompX becoming a member of
the Contran Tax Group, a net $26.9 million  deferred tax  liability,  previously
provided with respect to the  Company's  investment  in CompX,  were  eliminated
through a reduction in goodwill at December 31, 2004.

     In December 2004, CompX's board of directors  committed to a formal plan to
dispose of CompX's European  operations.  As a result,  the Company recognized a
non-cash  charge of  approximately  $6.5 million in the fourth  quarter of 2004,
representing  an  impairment of goodwill  associated  with such  operations,  to
write-down  the  Company's  investment  in  such  operations  to  its  estimated
realizable value based upon the expected net proceeds resulting from the sale of
such operations. See Note 24.

Note 9 -       Other noncurrent assets:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                <C>                 <C>
     Deferred financing costs                      $  10,417           $    -
     Unrecognized net pension obligations             13,747                -
     Definite-lived customer list
       intangible asset                                1,859               1,487
     Patents intangible assets                         1,945               1,703
     Other                                             2,050                 525
                                                   ---------           ---------

                                                   $  30,018           $   3,715
                                                   =========           =========
</TABLE>

     Definite-lived customer list intangible asset resulted from the acquisition
of EWI in January  2002.  See Note 2. The  intangible  asset is  amortized  on a
straight-line  basis  over a period of seven  years  (approximately  four  years
remaining at December 31, 2004) with no assumed  residual value and is presented
net of accumulated  amortization of $743,000 and $1.1 million as of December 31,
2003 and 2004, respectively.

     Patents  intangible  assets,  consisting  of the  estimated  fair  value of
certain patents  acquired in connection with the acquisition of certain business
units by CompX.  The patents  intangible  asset was,  and  continues to be after
adoption of SFAS No. 142,  amortized by the straight-line  method over the lives
of such patents  (approximately 9 years remaining at December 31, 2004), with no
assumed residual value at the end of the life of the patents. Patents intangible
assets are stated net of  accumulated  amortization  of $1.5 million at December
31, 2003 and $1.7 million at December 31, 2004.

     Amortization expense of definite-lived customer list and patents intangible
assets was  $612,000  in 2002,  $606,000 in 2003 and  $603,000  in 2004,  and is
expected to be approximately  $625,000 in each of 2005 through 2008 and $250,000
in 2009.

Note 10 -      Accrued liabilities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                <C>                <C>
     Employee benefits                             $  46,028          $  14,775
     Interest                                            206                  1
     Restructuring                                     3,223               -
     Planned major maintenance activities              6,327               -
     Other                                            40,755              8,358
                                                   ---------          ---------

                                                   $  96,539          $  23,134
                                                   =========          =========
</TABLE>




Note 11 -      Other noncurrent liabilities:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                <C>                <C>
   Employee benefits                               $   4,849          $    -
   Insurance                                           4,331              2,507
   Other                                              10,294              1,521
                                                   ---------          ---------

                                                   $  19,474          $   4,028
                                                   =========          =========
</TABLE>

Note 12 -      Long-term debt:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Kronos International, Inc. and subsidiaries:
<S>                                                <C>                <C>
   8.875% Senior Secured Notes                     $ 356,136          $   -
   Other                                                 603              -
                                                   ---------          ---------

                                                     356,739              -
                                                   ---------          ---------
 CompX International Inc. and subsidiaries:
   Revolving bank credit facility                     26,000               -
   Other                                                -                   127
                                                   ---------          ---------

                                                      26,000                127
                                                   ---------          ---------

                                                     382,739                127
   Less current maturities                               288                 42
                                                   ---------          ---------

                                                   $ 382,451          $      85
                                                   =========          =========
</TABLE>

     CompX. At December 31, 2004,  CompX has a $47.5 million  secured  revolving
bank  credit  facility  maturing in January  2006 which bears  interest at rates
based on either the prime  rate or LIBOR.  The  facility  is  collateralized  by
substantially  all of  CompX's  U.S.  tangible  assets as well as a pledge of at
least 65% of the ownership interests in CompX's first-tier foreign subsidiaries.
The facility  contains certain  covenants and restrictions  customary in lending
transactions  of this type which,  among other things,  restricts the ability of
CompX and its subsidiaries to incur debt, incur liens, pay dividends or merge or
consolidate  with,  or transfer all or  substantially  all of their  assets,  to
another entity.  In the event of a change of control of CompX,  as defined,  the
lenders would have the right to accelerate  the maturity of the facility.  CompX
would also be required under certain conditions to use the net proceeds from the
sale of assets  outside the  ordinary  course of business to reduce  outstanding
borrowings  under the facility,  and such a  transaction  would also result in a
permanent  reduction of the size of the  facility.  At December 31, 2004,  there
were no  outstanding  draws  against  the  facility  and the full  amount of the
facility was available for borrowing.

     Kronos  and  its  subsidiaries.   In  July  2004,  the  Company  ceased  to
consolidate the financial position of Kronos. See Note 1.

     In June 2002,  KII issued at par value euro 285  million  principal  amount
($280 million when issued) of its 8.875% Senior  Secured Notes due 2009. The KII
Senior Secured Notes are  collateralized  by a pledge of 65% of the common stock
or  other  ownership   interests  of  certain  of  KII's  first-tier   operating
subsidiaries.  The KII Senior Secured Notes are issued  pursuant to an indenture
which contains a number of covenants and restrictions which, among other things,
restricts the ability of KII and its  subsidiaries  to incur debt,  incur liens,
pay  dividends  or  merge  or  consolidate  with,  or  sell or  transfer  all or
substantially  all of their assets to,  another  entity.  The KII Senior Secured
Notes  are  redeemable,  at KII's  option,  on or  after  December  30,  2005 at
redemption  prices ranging from 104.437% of the principal  amount,  declining to
100% on or after December 30, 2008. In addition, on or before June 30, 2005, KII
may redeem up to 35% of its Senior  Secured  Notes  with the net  proceeds  of a
qualified  public equity  offering at 108.875% of the principal  amount.  In the
event of a change of control of KII, as  defined,  KII would be required to make
an offer to purchase its Senior  Secured Notes at 101% of the principal  amount.
KII would also be required  to make an offer to purchase a specified  portion of
its  Senior  Secured  Notes at par value in the event  KII  generates  a certain
amount of net proceeds  from the sale of assets  outside the ordinary  course of
business,  and such net proceeds are not otherwise  used for specified  purposes
within a specified time period.  At December 31, 2003 the quoted market price of
the KII Senior Notes was euro 1,000 per euro 1,000 principal amount.

     Also in June 2002,  KII's operating  subsidiaries  in Germany,  Belgium and
Norway entered into a euro 80 million  secured  revolving  bank credit  facility
("European  Credit  Facility")  that  matures  in June 2005.  Borrowings  may be
denominated in euros, Norwegian kroner or U.S. dollars, and bear interest at the
applicable  interbank market rate plus 1.75%. The facility also provides for the
issuance of letters of credit up to euro 5 million. The KII bank credit facility
is collateralized  by the accounts  receivable and inventories of the borrowers,
plus a limited  pledge of all of the other assets of the Belgian  borrower.  The
KII bank credit facility  contains  certain  restrictive  covenants that,  among
other things, restricts the ability of the borrowers to incur debt, incur liens,
pay  dividends  or  merge  or  consolidate  with,  or  sell or  transfer  all or
substantially all of their assets to, another entity.

     In September 2002, certain of Kronos' U.S.  subsidiaries entered into a $50
million  revolving  credit facility (nil  outstanding at December 31, 2004) that
matures in  September  2005.  The  facility is  collateralized  by the  accounts
receivable,  inventories  and certain fixed assets of the borrowers.  Borrowings
under  this   facility   are   limited  to  the  lesser  of  $45  million  or  a
formula-determined  amount based upon the accounts receivable and inventories of
the borrowers.  Borrowings bear interest at either the prime rate or rates based
upon the eurodollar rate. The facility  contains certain  restrictive  covenants
which,  among other  things,  restricts  the abilities of the borrowers to incur
debt, incur liens, pay dividends in certain circumstances,  sell assets or enter
into mergers.

     In January  2004,  Kronos'  Canadian  subsidiary  entered  into a Cdn.  $30
million  revolving credit facility that matures in January 2009. The facility is
collateralized  by the accounts  receivable  and  inventories  of the  borrower.
Borrowings  under this facility are limited to the lesser of Cdn. $26 million or
a  formula-determined  amount based upon the accounts receivable and inventories
of the  borrower.  Borrowings  bear  interest  at rates  based  upon  either the
Canadian prime rate, the U.S. prime rate or LIBOR. The facility contains certain
restrictive  covenants which,  among other things,  restricts the ability of the
borrower to incur debt,  incur liens,  pay  dividends in certain  circumstances,
sell assets or enter into mergers.

     Under the  cross-default  provisions of the KII Senior Secured  Notes,  the
Notes may be accelerated  prior to their stated  maturity if KII or any of KII's
subsidiaries  default under any other  indebtedness in excess of $20 million due
to a failure to pay such other  indebtedness  at its due date (including any due
date that arises  prior to the stated  maturity  as a result of a default  under
such other indebtedness).  Under the cross-default  provisions of KII's European
revolving credit facility, any outstanding borrowings under such facility may be
accelerated prior to their stated maturity if the borrowers or KII default under
any other  indebtedness in excess of euro 5 million due to a failure to pay such
other  indebtedness at its due date (including any due date that arises prior to
the stated  maturity  as a result of a default  under such other  indebtedness).
Under the cross-default  provisions of the U.S.  revolving credit facility,  any
outstanding  borrowing  under such  facility may be  accelerated  prior to their
stated maturity in the event of the bankruptcy of Kronos. The Canadian revolving
credit facility  contains no cross-default  provisions.  The European,  U.S. and
Canadian  revolving  credit  facilities  each contain  provisions that allow the
lender to accelerate the maturity of the  applicable  facility in the event of a
change of control, as defined, of the applicable  borrower.  In the event any of
these cross-default or change-of-control  provisions become applicable, and such
indebtedness is accelerated, Kronos would be required to repay such indebtedness
prior to their stated maturity.

     NL. In 2002,  NL redeemed  $194 million  principal  amount of the NL Senior
Secured  Notes at par value,  using  available  cash on hand ($25 million) and a
portion of the net proceeds from the issuance of the KII Senior  Secured  Notes.
In accordance  with the terms of the indenture  governing the NL Senior  Secured
Notes,  on June 28, 2002,  NL  irrevocably  placed on deposit with the NL Senior
Secured Note trustee funds in an amount sufficient to pay in full the redemption
price plus all accrued and unpaid  interest due on the July 28, 2002  redemption
date for the $169 million of NL Senior Notes redeemed using a portion of the net
proceeds from the issuance of the KII Senior Notes.  Immediately thereafter,  NL
was released  from its  obligations  under such  indenture,  the  indenture  was
discharged  and all  collateral was released to NL. Because NL had been released
as the primary  obligor under the  indenture as of June 30, 2002,  the NL Senior
Secured Notes were  eliminated from the balance sheet as of that date along with
the funds  placed on  deposit  with the  trustee  to  effect  the July 28,  2002
redemption.  NL  recognized  a loss  on the  early  extinguishment  of  debt  of
approximately $2 million in the second quarter of 2002,  consisting primarily of
the interest on the NL Senior  Secured  Notes for the period from July 1 to July
28, 2002. Such loss is recognized as a component of interest expense.

Note 13 - Minority interest:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)
 Minority interest in net assets:
<S>                                                <C>                <C>
   Kronos Worldwide, Inc.                          $  77,763          $   -
   CompX International, Inc.                          48,424             49,154
     NL Environmental Management Services, Inc.        8,503              9,250
     Subsidiary of Kronos Worldwide, Inc.                525               -
                                                   ---------          ---------

                                                   $ 135,215          $  58,404
                                                   =========          =========
</TABLE>


<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands
 Minority interest in net earnings:
<S>                                             <C>              <C>            <C>
   Kronos Worldwide, Inc.                       $  -             $ 1,602        $145,837
   CompX International, Inc.                        299            1,814           2,993
   NL Environmental Management Services, Inc.     1,209              370             747
   Subsidiary of Kronos Worldwide, Inc.              55               72              19
                                                -------          -------        --------

                                                $ 1,563          $ 3,858        $149,596
                                                =======          =======        ========
</TABLE>

     Kronos Worldwide,  Inc. The Company commenced recognizing minority interest
in Kronos' net assets and net earnings  following  the  Company's  December 2003
distribution  of a  portion  of  the  shares  of  Kronos  common  stock  to  its
stockholders  and ceased to report  minority  interest in Kronos' net assets and
net earnings commencing July 1, 2004. See Notes 1 and 2.

     Other. Other minority interest relates  principally to NL's  majority-owned
environmental management subsidiary,  NL Environmental Management Services, Inc.
("EMS").  EMS was established in 1998, at which time EMS  contractually  assumed
certain of NL's  environmental  liabilities.  EMS's earnings are based, in part,
upon its ability to favorably  resolve these  liabilities on an aggregate basis.
The  stockholders  of EMS,  other than NL,  actively  manage  the  environmental
liabilities  and share in 39% of EMS's  cumulative  earnings.  NL  continues  to
consolidate EMS and provides accruals for the reasonably estimable costs for the
settlement of EMS's environmental liabilities, as discussed in Note 19.

     Discontinued  operations.  Minority  interest  in  losses  of  discontinued
operations was $101,000 in 2002,  $1.4 million in 2003 and $3.9 million in 2004.
See Note 24.

Note 14 - Stockholders' equity:
<TABLE>

                                                         Shares of common stock
                                              ----------------------------------------
                                               Issued        Treasury      Outstanding
                                               ------        --------      -----------
                                                           (In thousands)


<S>                  <C> <C>                   <C>           <C>              <C>
 Balance at December 31, 2001                  66,845        (17,808)         49,037

 Treasury shares acquired                        -            (1,384)         (1,384)
 Treasury shares reissued                        -                37              37
                                             --------       --------         -------

 Balance at December 31, 2002                  66,845        (19,155)         47,690

 Treasury shares reissued                        -               101             101
                                             --------       --------         -------

 Balance at December 31, 2003                  66,845        (19,054)         47,791

 Treasury shares reissued                                        598             598
 Treasury shares retired                      (18,456)        18,456            -
 Common stock issued                               51           -                 51
                                             --------       --------         -------

 Balance at December 31, 2004                  48,440           -             48,440
                                             ========       ========         =======
</TABLE>

     NL common stock options.  The NL Industries,  Inc. 1998 Long-Term Incentive
Plan (the "NL Option Plan") provides for the  discretionary  grant of restricted
common  stock,  stock  options,  stock  appreciation  rights  ("SARs") and other
incentive  compensation  to officers and other key  employees of the Company and
nonemployee  directors.  Although  certain stock options  granted  pursuant to a
similar  plan which  preceded  the NL Option Plan  ("Predecessor  Option  Plan")
remain  outstanding  at December 31, 2004, no additional  options may be granted
under the Predecessor Option Plan.

     Up to five million shares of NL common stock may be issued  pursuant to the
NL Option Plan and, at December 31, 2004,  4,089,600  shares were  available for
future grants. The NL Option Plan provides for the grant of options that qualify
as  incentive  options and for options  which are not so  qualified.  Generally,
stock options and SARs (collectively, "options") are granted at a price equal to
or  greater  than 100% of the  market  price at the date of  grant,  vest over a
five-year period and expire ten years from the date of grant.  Restricted stock,
forfeitable  unless  certain  periods of employment  are  completed,  is held in
escrow in the name of the grantee until the restriction period expires.  No SARs
have been granted under the NL Option Plan.

     Following  the  December  2003  distribution  of a portion of the shares of
Kronos common stock held by the Company, the exercise price for each outstanding
option to  purchase  NL common  stock was  reduced by $8.63 (or  one-half of the
closing  price of Kronos'  common  stock on December 8, 2003,  the  distribution
date).

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

                                                                           Amount      Weighted-    Weighted-
                                                           Exercise       payable      average       average
                                                          price per         upon       exercise    fair value
                                                Shares      share         exercise      price       at grant
                                                ------    ----------      --------    ----------   ----------
                                                          (In thousands, except per share amounts)

<S>                                            <C>      <C>    <C>         <C>       <C>
 Outstanding at December 31, 2001               2,014   $ 5.00-21.97       $32,960   $  16.36

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

 Outstanding at December 31, 2002               1,261     8.69-21.97        22,059      17.50

 Exercised                                        (95)   11.28-15.19        (1,271)     13.43
 Canceled                                         (26)    9.34-20.11          (391)     15.00
 Adjusted for Kronos common stock                             -
    distribution                                 -                          (9,885)      8.63
                                               ------   ------------       -------

 Outstanding at December 31, 2003               1,140     0.06-13.34        10,512       9.22

 Exercised                                       (643)    0.06-13.34        (6,073)      9.44
 Canceled                                        (252)    3.56-13.34        (2,038)      8.10
                                               ------   ------------       -------

 Outstanding at December 31, 2004                 245   $ 2.66-13.34       $ 2,401   $   9.80
                                               ======   ============       =======
</TABLE>


     At December 31, 2002,  2003 and 2004 options to purchase  428,400,  695,700
and 129,500  shares,  respectively,  were  exercisable,  and options to purchase
75,200 shares become exercisable in 2005. Of the exercisable options, options to
purchase  129,500 shares at December 31, 2004 had exercise  prices less than the
Company's December 31, 2004 quoted market price of $22.10 per share. Outstanding
options at December 31, 2004 expire at various dates through 2011.

     The following table summarizes the Company's stock options  outstanding and
exercisable as of December 31, 2004 by price range.
<TABLE>

                       Options outstanding                          Options exercisable
-------------------------------------------------------------  ----------------------------
                                      Weighted-
                                      average       Weighted-                   Weighted-
                      Outstanding    remaining       average    Exercisable     average
      Range of             at        contractual     exercise        at         exercise
   exercise prices      12/31/04        life          price      12/31/04       price
  -----------------   -----------   ------------   ----------   -----------   -----------

<S>          <C>          <C>           <C>         <C>             <C>          <C>
  $ 2.66  -  $ 3.25       8,550         4.1         $   2.74        8,550        $   2.74
  $ 5.19  -  $ 5.81      66,350         4.7         $   5.60       31,550        $   5.58
  $ 9.34  -  $13.34     170,200         5.3         $  11.79       89,400        $  12.06
                       --------                                  --------

                        245,100         5.1         $   9.80      129,500        $   9.86
                       ========                                  ========
</TABLE>

     Stock option plan of  subsidiaries  and  affiliates.  Through  December 31,
2004,  Kronos has not granted any options to purchase  its common  stock.  CompX
maintains a stock option plan that provides for the grant of options to purchase
its common stock. At December 31, 2004, options to purchase 562,000 CompX shares
were  outstanding  with exercise prices ranging from $10.00 to $20.00 per share,
or an aggregate amount payable upon exercise of $10.0 million.

     Treasury  stock.  During the third quarter of 2004,  the Company  cancelled
approximately  18.5 million shares of its common stock that  previously had been
held in treasury.  The aggregate $426.1 million cost of such treasury shares was
allocated to common stock at par value,  additional paid in capital and retained
earnings in accordance with GAAP. Such  cancellation had no impact on the net NL
shares outstanding for financial reporting purposes.

Note 15 - Income taxes:
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Pre-tax income (loss):
<S>                                             <C>              <C>            <C>
   U.S.                                         $ (19.3)         $ (15.5)       $   23.8
   Non-U.S.                                        73.3             88.9            45.4
                                                -------          -------        --------

                                                $  54.0          $  73.4        $   69.2
                                                =======          =======        ========

 Expected tax expense (benefit), at U.S.
  federal statutory income tax rate of 35%      $  18.9          $  25.7        $   24.2
 Non-U.S. tax rates                                (7.1)            (1.2)            (.5)
 Incremental U.S. tax and rate differences
  on equity in earnings of non-tax group
  companies                                         1.6              2.8              .2

 Change in deferred income tax valuation
   allowance, net                                  (3.4)            (7.2)         (308.4)

 Nondeductible expenses                             3.4              3.4             2.3
 Change in Belgian income tax law                  (2.3)              -               -
 U.S. state income taxes, net                        -                .1              .1
 Refund of prior year German income taxes            -             (38.0)           (3.1)
 Prior year tax adjustments                          -                -               .1
 Tax contingency reserve adjustment, net            2.9             14.7           (15.0)
 Other, net                                         1.1              1.9             8.6
                                                -------          -------        --------

                                                $  15.1          $   2.2        $ (291.5)
                                                =======          =======        ========
</TABLE>


<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Components of income tax expense (benefit):
   Currently payable (refundable):
<S>                                             <C>              <C>            <C>
     U.S. federal and state                     $   1.7          $    .3        $  (14.9)
     Non-U.S.                                      12.8            (34.0)           11.8
                                                -------          -------        --------
                                                   14.5            (33.7)           (3.1)
                                                -------          -------        --------
   Deferred income taxes (benefit):
     U.S. federal and state                        (4.5)            (1.7)          (15.1)
     Non-U.S.                                       5.1             37.6          (273.3)
                                                -------          -------        --------
                                                     .6             35.9          (288.4)
                                                -------          -------        --------

                                                $  15.1          $   2.2        $ (291.5)
                                                =======          =======        ========
</TABLE>



<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)
 Comprehensive provision for
  income taxes (benefit) allocable to:
<S>                                             <C>              <C>            <C>
   Income from continuing operations            $  15.1          $   2.2        $ (291.5)
   Discontinued operations                         (0.3)            (2.6)           (0.4)
   Retained earnings                                -               22.5             8.2
   Additional paid-in capital                      (0.2)              -             52.4
   Other comprehensive income:
     Marketable securities                         (1.3)             9.4             1.9
     Pension liabilities                           (7.2)           (12.2)            1.6
     Currency translation                          (0.1)             0.1              -
                                                -------          -------        --------

                                                $   6.0          $  19.4        $ (227.8)
                                                =======          =======        ========
</TABLE>

     The  components  of the net deferred tax liability at December 31, 2003 and
2004, and changes in the deferred income tax valuation allowance during the past
three years, are summarized in the following  tables.  At December 31, 2003, the
deferred income tax valuation allowance related to the operations of Kronos, and
at December 31, 2004 related to the operations of CompX.
<TABLE>

                                                                     December 31,
                                                  --------------------------------------------------
                                                            2003                      2004
                                                  ------------------------   -----------------------
                                                   Assets      Liabilities   Assets      Liabilities
                                                  -------     ------------   ------      -----------
                                                                      (In millions)
 Tax effect of temporary differences
  related to:
<S>                                               <C>           <C>            <C>         <C>
   Inventories                                    $   1.9       $  (4.1)       $  -        $    -
   Marketable securities                             -               -            -          (12.4)
   Property and equipment                            46.0         (73.3)          -           (9.5)
   Accrued OPEB costs                                 9.8            -            4.8          -
   Accrued (prepaid) pension cost                    25.1         (33.5)          5.2          -
   Accrued environmental liabilities and
    other deductible differences                     28.8            -           24.8          -
   Other accrued liabilities and deductible
    differences                                       7.2                         4.3          -
   Other taxable differences                         -           (187.1)          -          (77.2)
   Investments in subsidiaries and
    affiliates not members of the Contran
    Tax Group                                        -               -            4.5         (8.1)
 Tax on unremitted earnings of non-U.S.
  subsidiaries                                       -             (4.3)            -          -
 Tax loss and tax credit carryforwards              163.9            -            8.6          -
 Valuation allowance                               (193.8)           -           (4.2)         -
                                                  -------       -------        ------      -------
   Adjusted gross deferred tax assets
    (liabilities)                                    88.9        (302.3)         48.0       (107.2)
 Netting of items by tax jurisdiction               (69.1)         69.1         (38.1)        38.1
                                                  -------       -------        ------      -------
                                                     19.8        (233.2)          9.9        (69.1)
 Less net current deferred tax asset
  (liability)                                        12.7          (3.9)          9.4        (23.8)
                                                  -------       -------        ------      -------

   Net noncurrent deferred tax asset
    (liability)                                   $   7.1       $(229.3)       $   .5      $ (45.3)
                                                  =======       =======        ======      =======
</TABLE>


<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)

Decrease (increase) in valuation allowance:
  Recognition of certain deductible tax
   attributes for which the benefit had not
   previously been recognized under the
<S>                                              <C>             <C>            <C>
   "more-likely-than-not" recognition criteria   $(3.4)          $ (7.2)        $ 308.4
  Foreign currency translation                    21.6             28.2             3.2
  Deconsolidation of Kronos                         -                -              3.2
  Offset to the change in gross deferred
   income tax assets due principally to
   redeterminations of certain tax attributes
   and implementation of certain tax
   planning strategies                            12.6            (12.5)         (125.2)
                                                 -----           ------         -------

                                                 $30.8           $  8.5         $ 189.6
                                                 =====           ======         =======
</TABLE>

     A reduction  in the Belgian  income tax rate from 40% to 34% was enacted in
December  2002 and became  effective  in January  2003.  This  reduction  in the
Belgian  income tax rate  resulted in a $2.3 million  decrease in the  Company's
income tax expense in 2002 because the Company had  previously  recognized a net
deferred income tax liability with respect to Belgian temporary differences.

     In the first quarter of 2003, KII was notified by the German Federal Fiscal
Court (the "Court") that the Court had ruled in Kronos' favor concerning a claim
for refund suit in which  Kronos  sought  refunds of prior taxes paid during the
periods 1990 through 1997.  KII and Kronos'  German  operating  subsidiary  were
required to file amended tax returns with the German tax  authorities to receive
refunds for such years,  and all of such amended returns were filed during 2003.
Such amended returns reflected an aggregate refund of taxes and related interest
to KII and its German operating subsidiary of euro 26.9 million ($32.1 million),
and the Company  recognized  the benefit for these net funds in its 2003 results
of  operations.  For the year ended December 31, 2004,  Kronos  recognized a net
refund of euro 2.5 million ($3.1  million)  related to  additional  net interest
which has accrued on the outstanding refund amount. Assessments and refunds will
be  processed  by  year  as the  respective  returns  are  reviewed  by the  tax
authorities.  Certain interest components may also be refunded  separately.  The
German tax  authorities  have  reviewed and  accepted  the amended  returns with
respect to the 1990 through 1994 tax years.  Through December 2004, KII's German
operating  subsidiary  had  received  net  refunds of euro 35.6  million  ($44.7
million when  received).  All refunds  relating to the periods 1990 to 1997 were
received by December 31,  2004.  In addition to the refunds for the 1990 to 1997
periods,  the court  ruling also  resulted in a refund of 1999 income  taxes and
interest, and Kronos received euro 21.5 million ($24.6 million) in 2003.

     Certain of the Company's  U.S. and non-U.S.  tax returns are being examined
and tax authorities have or may propose tax  deficiencies,  including  penalties
and interest. For example:

o    NL's and EMS's 1998 U.S.  federal  income tax returns are being examined by
     the U.S. tax  authorities,  and NL and EMS have granted  extensions  of the
     statute of limitations  for  assessments of tax with respect to their 1998,
     1999 and 2000 income tax  returns  until  September  30,  2005.  During the
     course of the  examination,  the IRS proposed a substantial tax deficiency,
     including interest, related to a restructuring transaction. In an effort to
     avoid protracted litigation and minimize the hazards of such litigation, NL
     applied  to  take  part  in an  IRS  settlement  initiative  applicable  to
     transactions similar to the restructuring transaction, and in April 2003 NL
     received  notification  from the IRS that NL had been  accepted  into  such
     settlement  initiative.  Under the initiative,  a final settlement with the
     IRS is to be reached  through  expedited  negotiations  and, if  necessary,
     through a specified arbitration procedure. NL has reached an agreement with
     the IRS concerning the settlement of this matter  pursuant to which,  among
     other  things,  the  Company  agreed  to  pay  approximately  $26  million,
     including interest,  up front as a partial payment of the settlement amount
     (which  amount  is  expected  to be  paid  in the  next  12  months  and is
     classified  as a current  liability at December 31,  2004),  and NL will be
     required to recognize the remaining settlement amount in its taxable income
     over  the 15  year  time  period  beginning  in  2004.  NL has  signed  the
     settlement  agreement  that was  prepared  by the IRS.  The IRS  signed the
     settlement  agreement  in January  2005,  and the case will be closed after
     certain procedural matters are concluded,  which procedural matters both NL
     and its outside legal counsel  believe are  perfunctory.  NL had previously
     provided  accruals to cover its estimated  additional  tax  liability  (and
     related interest) concerning this matter. As a result of the settlement, NL
     has  decreased  its previous  estimate of the amount of  additional  income
     taxes and  interest it will be required to pay,  and NL  recognized a $12.6
     million  tax benefit in the second  quarter of 2004  related to the revised
     estimate.  In  addition,  during the second  quarter of 2004,  the  Company
     recognized  a $31.1  million  tax  benefit  related  to the  reversal  of a
     deferred  income tax asset  valuation  allowance  related  to  certain  tax
     attributes  of EMS which NL  believes  now meet the  "more-likely-than-not"
     recognition criteria. A majority of the deferred income tax asset valuation
     allowance  relates to net operating loss  carryforwards of EMS. As a result
     of the  settlement  agreement,  NL (which  previously  was not  allowed  to
     utilize  such  net  operating  loss  carryforwards  of EMS)  utilized  such
     carryforwards  in  its  2003  taxable  year,  eliminating  the  need  for a
     valuation  allowance  related to such  carryforwards.  The remainder of the
     deferred  income  tax  asset  valuation  allowance  relates  to  deductible
     temporary differences associated with accrued environmental  obligations of
     EMS  which  NL now  believes  meet the  "more-likely-than-not"  recognition
     criteria since, as a result of the settlement  agreement,  such obligations
     and the  related tax  deductions  have been,  or will be,  included in NL's
     taxable income.

o    Kronos has received a preliminary  tax assessment  related to 1993 from the
     Belgian tax authorities proposing tax deficiencies,  including interest, of
     approximately euro 6 million ($8 million at December 31, 2004).  Kronos has
     filed a protest to this assessment and believes that a significant  portion
     of the assessment is without merit.  The Belgian tax authorities have filed
     a lien on the fixed assets of Kronos' Belgian TiO2 operations in connection
     with this assessment.  In April 2003,  Kronos received a notification  from
     the  Belgian tax  authorities  of their  intent to assess a tax  deficiency
     related to 1999 that,  including interest,  is expected to be approximately
     euro 9 million ($13 million).  Kronos  believes the proposed  assessment is
     substantially without merit, and Kronos has filed a written response.

o    The  Norwegian  tax  authorities  have  notified  Kronos of their intent to
     assess tax deficiencies of  approximately  kroner 12 million ($2 million at
     December 31, 2004) relating to the years 1998 to 2000.  Kronos has objected
     to this proposed assessment.

o    Kronos has  received a  preliminary  tax  assessment  from the Canadian tax
     authorities  related to the years 1998 and 1999 proposing tax  deficiencies
     of Cdn. $11.4 million ($7.7 million).  Kronos is in the process of filing a
     protest and believes a  significant  portion of the  assessment  is without
     merit.

     No  assurance  can be given that these tax matters  will be resolved in the
Company's  favor in view of the inherent  uncertainties  involved in  settlement
initiatives,  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  its  consolidated  financial  position,  results  of  operations  or
liquidity.

     At December 31,  2004,  (i) Kronos had the  equivalent  of $671 million and
$232 million of the net operating loss  carryforwards  for German  corporate and
trade tax purposes,  respectively, all of which have no expiration date and (ii)
CompX had $8.4 million of U.S. net operating loss carryforwards expiring in 2007
through 2018. At December 31, 2004, the U.S. net operating loss carryforwards of
CompX may only be used to offset future  taxable income of a subsidiary of CompX
acquired  prior to 2001,  are not available to offset future  taxable  income of
other  members  of the  Contran  Tax Group and are  limited  in  utilization  to
approximately $400,000 per year.

     At December 31, 2003, Kronos had a significant amount of net operating loss
carryforwards for German corporate and trade tax purposes,  all of which have no
expiration date. These net operating loss  carryforwards  were generated by KII,
principally  during  the 1990's  when KII had a  significantly  higher  level of
outstanding indebtedness than is currently outstanding.  For financial reporting
purposes,  however, the benefit of such net operating loss carryforwards had not
previously  been  recognized  because  Kronos  did  not  believe  they  met  the
"more-likely-than-not"  recognition  criteria,  and  accordingly  Kronos  had  a
deferred income tax asset valuation allowance offsetting the benefit of such net
operating loss  carryforwards  and Kronos' other tax attributes in Germany.  KII
had generated  positive  taxable income in Germany for both German corporate and
trade tax purposes  since 2000, and starting with the quarter ended December 31,
2002 and for each  quarter  thereafter,  KII had  cumulative  taxable  income in
Germany for the most recent twelve quarters.  However,  offsetting this positive
evidence was the fact that prior to the end of 2003,  Kronos  believed there was
significant uncertainty regarding its ability to utilize such net operating loss
carryforwards  under German tax law and,  principally because of the uncertainty
caused by this  negative  evidence,  Kronos had concluded the benefit of the net
operating loss carryforwards did not meet the  "more-likely-than-not"  criteria.
By the end of 2003, and primarily as a result of a favorable German court ruling
in 2003 and the procedures  Kronos had completed during 2003 with respect to the
filing of certain  amended German tax returns (as discussed  below),  Kronos had
concluded that the significant uncertainty regarding its ability to utilize such
net  operating  loss  carryforwards  under  German tax law had been  eliminated.
However, at the end of 2003, Kronos believed at that time that it would generate
a taxable loss in Germany during 2004. Such expectation was based primarily upon
then-current   levels  of  prices  for  TiO2,  and  the  fact  that  Kronos  was
experiencing a downward trend in its TiO2 selling prices and Kronos did not have
any positive evidence to indicate that the downward trend would improve.  If the
price trend continued  downward  throughout all of 2004 (which was a possibility
given  Kronos'  prior  experience),  Kronos  would likely have a taxable loss in
Germany  for 2004.  If the  downward  trend in prices  had  abated,  ceased,  or
reversed at some point during 2004, then Kronos would likely have taxable income
in Germany during 2004. Accordingly,  Kronos continued to conclude at the end of
2003 that the benefit of the German net  operating  loss  carryforwards  did not
meet the "more-likely-than-not" criteria and that it would not be appropriate to
reverse the deferred income tax asset valuation allowance,  given the likelihood
that  Kronos  would  generate  a  taxable  loss  in  Germany  during  2004.  The
expectation for a taxable loss in Germany continued through the end of the first
quarter of 2004. By the end of the second quarter of 2004, however, Kronos' TiO2
selling prices had started to increase,  and Kronos  believed its selling prices
would  continue to increase  during the second half of 2004 after Kronos and its
major  competitors  announced an additional round of price  increases.  The fact
that Kronos'  selling  prices  started to increase  during the second quarter of
2004,  combined  with the fact that  Kronos and its  competitors  had  announced
additional price increases  (which based on past experience  indicated to Kronos
that some portion of the  additional  price  increases  would be realized in the
marketplace),  provided  additional  positive  evidence  that was not present at
December 31, 2003.  Consequently,  Kronos'  revised  projections  now  reflected
taxable  income for Germany in 2004 as well as 2005.  Accordingly,  based on all
available  evidence,  including  the fact  that (i) KII had  generated  positive
taxable  income in Germany  since 2000,  and  starting  with the  quarter  ended
December 31, 2002 and for each quarter  thereafter,  KII had cumulative  taxable
income in Germany  for the most  recent  twelve  quarters,  (ii)  Kronos was now
projecting  positive  taxable  income in Germany for 2004 and 2005 and (iii) the
German  net  operating  loss  carryforwards  have  no  expiration  date,  Kronos
concluded  that the benefit of the net operating  loss  carryforwards  and other
German tax attributes now met the  "more-likely-than-not"  recognition criteria,
and that reversal of the deferred income tax asset valuation  allowance  related
to Germany was appropriate. Given the magnitude of the German net operating loss
carryforwards  and the fact that  current  provisions  of  German  law limit the
annual  utilization of net operating loss carryforwards to 60% of taxable income
after the first euro 1 million of taxable  income,  Kronos believes it will take
several years to fully utilize the benefit of such loss carryforwards.  However,
given the  number of years for  which  KII has now  generated  positive  taxable
income  in  Germany,  combined  with  the  fact  that  the  net  operating  loss
carryforwards  were generated during a time when KII had a significantly  higher
level of outstanding  indebtednesss  than it currently has outstanding,  and the
fact that the net operating loss  carryforwards  have no expiration date, Kronos
concluded  it was now  appropriate  to reverse  all of the  valuation  allowance
related to the net  operating  loss  carryforwards  because  the benefit of such
operating  loss  carryforwards  now met the  "more-likely-than-not"  recognition
criteria.  Under  applicable  GAAP  related to  accounting  from income taxes at
interim  periods,  a change in  estimate  at an interim  period  resulting  in a
decrease in the  valuation  allowance is  segregated  into two  components,  the
portion  related to the  remaining  interim  periods of the current year and the
portion  related to all future  years.  The portion of the  valuation  allowance
reversal related to the former is recognized over the remaining  interim periods
of the current year, and the portion of the valuation  allowance  related to the
latter is  recognized  at the time the change in estimate is made.  Accordingly,
Kronos has recognized a $280.7 million income tax benefit in 2004 related to the
complete  reversal  of  such  deferred  income  tax  asset  valuation  allowance
attributable  to Kronos' income tax attributes in Germany  (principally  the net
operating loss carryforwards).  Of such $280.7 million, (i) $8.7 million relates
primarily to the  utilization  of the German net  operating  loss  carryforwards
during the first six months of 2004, the benefit of which had previously not met
the "more-likely-than-not"  recognition criteria, (ii) $268.6 million relates to
the valuation  allowance reversal  recognized as of June 30, 2004 and (iii) $3.4
million relates to the valuation  allowance reversal  recognized during the last
six months of 2004.

     In October  2004,  the American  Jobs Creation Act of 2004 was enacted into
law.  The new law  contains  several  provisions  that could impact the Company.
These provisions  provide for, among other things, a special deduction from U.S.
taxable  income  equal to a  stipulated  percentage  of  qualified  income  from
domestic production activities (as defined) beginning in 2005, and a special 85%
dividends  received  deduction for certain  dividends  received from  controlled
foreign  corporations.  Both of these  provisions  are  complex  and  subject to
numerous  limitations.  The Company is still studying the new law, including the
technical  provisions  related to the two complex  provisions  noted above.  The
effect on the Company of the new law, if any,  has not yet been  determined,  in
part because the Company has not definitively  determined whether its operations
qualify for the special  deduction or whether it would  benefit from the special
dividends  received  deduction.  If the Company  determines it qualifies for the
special deduction, the tax benefit of such special deduction would be recognized
in the period earned.  With respect to the special dividends  received deduction
for certain dividends received from controlled foreign corporations, the Company
will likely not be able to complete its  evaluation  of whether it would benefit
from the special  dividends  received  deduction  until  sometime after the U.S.
government  has issued  clarifying  regulations  regarding this provision of the
Act,  the timing for the  issuance of which is not known.  At December 31, 2004,
the aggregate amount of unremitted  earnings that is potentially  subject to the
special dividends  received  deduction is approximately  $638 million for Kronos
and $24 million for CompX. The Company is unable to reasonably  estimate a range
of income tax  effects if such  unremitted  earnings  would be  repatriated  and
become eligible for the special dividends received deduction, as the calculation
would be extremely complex.

     In January  2005,  CompX  completed  its  disposition  of the Thomas Regout
operations  in Europe  (see Note 24 to the  financial  statements).  The Company
currently expects to generate a $4.2 million income tax benefit  associated with
the U.S.  capital loss expected to be realized in the first quarter of 2005 upon
completion  of the sale of the  Thomas  Regout  operations.  Recognition  of the
benefit of such  capital  loss by the Company is  appropriate  under GAAP in the
fourth quarter of 2004 at the time such  operations  were classified as held for
sale. However, the Company has also determined, based on the weight of available
evidence,  that  realization  of  such  benefit  does  not  currently  meet  the
more-likely-than-not  recognition criteria, and therefore the deferred tax asset
related to the capital  loss  carryforward  has been fully  offset by a deferred
income tax asset  valuation  allowance at December  31,  2004.  The $4.2 million
deferred income tax benefit related to the U.S.  capital loss and the offsetting
valuation   allowance  are  both  reflected  as  a  component  of   discontinued
operations.

Note 16 - Employee benefit plans:

     Defined  benefit  plans.  The Company  maintains  various  defined  benefit
pension  plans.  Non-U.S.  employees  are  covered by plans in their  respective
countries  and a majority of U.S.  employees  are eligible to  participate  in a
contributory  savings plan. Variances from actuarially assumed rates will result
in increases or decreases in accumulated  pension  obligations,  pension expense
and funding  requirements in future  periods.  At December 31, 2004, the Company
currently expects to contribute the equivalent of approximately  $400,000 to all
of its defined benefit pension plans during 2005.

     As  discussed  in Note 1,  effective  July 1,  2004 the  Company  ceased to
consolidate  Kronos and commenced  accounting  for its interest in Kronos by the
equity  method.  Accordingly,  commencing  July 1, 2004,  the Company  ceased to
consolidate the employee benefit obligations and expenses of Kronos.

     The funded status of the  Company's  defined  benefit  pension  plans,  the
components of net periodic defined benefit pension cost related to the Company's
consolidated  business  segments and charged to  continuing  operations  and the
rates used in determining the actuarial present value of benefit obligations are
presented in the tables  below.  The Company uses a September  30th  measurement
date for their defined benefit pension plans.



<TABLE>

                                                          Years ended December 31,
                                                          ------------------------
                                                          2003                2004
                                                          ----                ----
                                                               (In thousands)
 Change in projected benefit obligations ("PBO"):
<S>                                                     <C>               <C>
   Benefit obligations at beginning of the year         $ 302,377         $377,634
   Service cost                                             5,347            3,379
   Interest cost                                           18,225           11,655
   Participant contributions                                1,357              716
   Plan amendments                                          3,200                -
   Actuarial losses                                        25,437            2,832
   Change in foreign currency exchange rates               43,514           15,739
   Benefits paid                                          (21,823)         (12,118)
   Adjustment to cease consolidation of Kronos               -            (347,413)
                                                        ---------        ---------

       Benefit obligations at end of the year           $ 377,634        $  52,424
                                                        =========        =========

 Change in plan assets:
   Fair value of plan assets at beginning
     of the year                                        $ 226,761         $241,235
   Actual return on plan assets                            (6,391)          17,644
   Employer contributions                                  14,082            9,106
   Participant contributions                                1,357              716
   Change in foreign currency exchange rates               27,249           10,198
   Benefits paid                                          (21,823)         (12,118)
   Adjustment to cease consolidation of Kronos               -            (222,880)
                                                        ---------        ---------

       Fair value of plan assets at end of year         $ 241,235        $  43,901
                                                        =========        =========

 Funded status at end of the year:
   Plan assets less than PBO                            $(136,399)       $  (8,523)
   Unrecognized actuarial losses                          131,172           10,668
   Unrecognized prior service cost                          8,566                -
   Unrecognized net transition obligations                  5,079             (141)
                                                        ---------        ---------

                                                        $   8,418        $   2,004
                                                        =========        =========

 Amounts recognized in the balance sheet:
   Unrecognized net pension obligations                 $  13,747           $    -
   Accrued pension costs:
     Current                                               (8,366)               -
     Noncurrent                                           (81,180)          (8,352)
   Accumulated other comprehensive loss                    84,217           10,356
                                                        ---------        ---------

                                                        $   8,418        $   2,004
                                                        =========        =========
</TABLE>



<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands

 Net periodic pension cost:
<S>                                            <C>              <C>            <C>
   Service cost benefits                       $  4,538         $  5,347       $   3,379
   Interest cost on PBO                          16,510           18,225          11,655
   Expected return on plan assets               (16,099)         (17,580)        (11,181)
   Amortization of prior service cost               307              354             285
   Amortization of net transition
     obligations                                    515              733             262
   Recognized actuarial losses                    1,223            1,800           2,389
                                               --------         --------       ---------

                                               $  6,994         $  8,879       $   6,789
                                               ========         ========       =========
</TABLE>

     The  weighted-average  rate  assumptions  used in determining the actuarial
present  value of  benefit  obligations  as of  December  31,  2003 and 2004 are
presented in the table below. Such weighted-average  rates were determined using
the projected benefit obligations at each date.



<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----

<S>                                                  <C>                 <C>
Discount rate                                        5.5%                5.8%
Increase in future compensation levels               2.8%           not applicable
</TABLE>

     The weighted-average  rate assumptions used in determining the net periodic
pension  cost for 2002,  2003 and 2004 are  presented  in the table  below.  The
weighted-average  discount  rate and the  weighted-average  increase  in  future
compensation  levels were determined using the projected benefit  obligations at
the beginning of each year, and the  weighted-average  long-term  return on plan
assets was  determined  using the fair value of plan assets at the  beginning of
each year.
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In millions)

<S>                                               <C>              <C>             <C>
Discount rate                                     6.2%             5.9%            5.9%
Increase in future compensation levels            2.8%             2.6%       not applicable
Long-term return on plan assets                   7.5%             7.2%           10.0%
</TABLE>

     As of December  31,  2004,  the  accumulated  benefit  obligations  for all
defined  benefit  pension  plans  was  approximately  $51  million  (2003 - $332
million).  At December 31,  2004,  the  projected  benefit  obligations  for all
defined benefit pension plans was comprised of $42 million related to U.S. plans
and $9 million  related to non-U.S.  plans (2003 - $57 million and $320 million,
respectively).  The Company  uses a September  30th  measurement  date for their
defined benefit pension plans.

     At December 31, 2004, the fair value of plan assets for all defined benefit
pension plans was comprised of $38 million  related to U.S. plans and $6 million
related to non-U.S. plans (2003 - $44 million and $197 million, respectively).

     Selected information related to the Company's defined benefit pension plans
that have accumulated benefit obligations in excess of fair value of plan assets
is presented below. At December 31, 2003 and 2004, 86% and 17%, respectively, of
the projected benefit obligations of such plans relate to non-U.S. plans.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

<S>                                                <C>                <C>
   Projected benefit obligation                    $377,634           $ 52,424
   Accumulated benefit obligation                   332,399             50,694

   Fair value of plan assets:
     U.S. plans                                      44,356             38,201
     Non - U.S. plans                               196,879              5,700
</TABLE>

     At December 31, 2003 and 2004, all of the assets attributable to U.S. plans
were invested in The Combined Master  Retirement  Trust  ("CMRT"),  a collective
investment  trust  established by Valhi to permit the  collective  investment by
certain master trusts which fund certain  employee  benefits plans  sponsored by
Contran and certain of its affiliates.

     At  December  31,  2004,  the asset mix of the CMRT was 77% in U.S.  equity
securities,  14% in U.S. fixed income  securities,  7% in  international  equity
securities and 2% in cash and other investments. At December 31, 2003, the asset
mix of the CMRT was 63% in U.S.  equity  securities,  24% in U.S.  fixed  income
securities,  7% in  international  equity  securities  and 6% in cash and  other
investments.

     The CMRT's  long-term  investment  objective is to provide a rate of return
exceeding a composite of broad market equity and fixed income indices (including
the S&P 500 and certain Russell indicies) utilizing both third-party  investment
managers as well as  investments  directed by Mr.  Harold  Simmons.  Mr.  Harold
Simmons is the sole trustee of the CMRT. The trustee of the CMRT, along with the
CMRT's investment committee,  of which Mr. Simmons is a member,  actively manage
the  investments  of the CMRT.  Such  parties  have in the past,  and may in the
future,  periodically  change the asset mix of the CMRT based upon,  among other
things,  advice they receive from third-party advisors and their expectations as
to what asset mix will generate the greatest overall return.  For the year ended
December 31, 2004, the assumed long-term rate of return for plan assets invested
in the CMRT was 10%. In determining the  appropriateness  of such long-term rate
of return assumption, the Company considered, among other things, the historical
rates of return for the CMRT,  the current and  projected  asset mix of the CMRT
and the investment objectives of the CMRT's managers. During the 17-year history
of the CMRT from its  inception in 1987 through  December 31, 2004,  the average
annual rate of return has been approximately 13%.

     The Company  expects future  benefits paid from all defined benefit pension
plans are as follows:
<TABLE>

                                                    Amount
 Years ending December 31,                      (In thousands)
 -------------------------                      --------------

<S>  <C>                                           <C>
     2005                                          $  2,923
     2006                                             2,878
     2007                                             2,873
     2008                                             2,905
     2009                                             2,929
     2010 to 2014                                    15,967
</TABLE>


     Effective  January 1, 2001,  CompX ceased  providing future defined pension
benefits under its plan in the Netherlands.  Certain  obligations related to the
terminated  plan were not been fully  settled  until  2002.  Upon  settling  the
remaining obligations, CompX recognized a $677,000 settlement gain in 2002.

     Defined   contribution   plans.  The  Company   maintains  various  defined
contribution pension plans with Company contributions based on matching or other
formulas.  Defined  contribution plan expense approximated $2.3 million in 2002,
$2.5 million in 2003 and $2.0 million in 2004, primarily related to CompX.

     Postretirement  benefits  other than  pensions.  In addition  to  providing
pension benefits,  the Company  currently  provides certain health care and life
insurance benefits for eligible retired employees.  Based on communications with
a  certain   insurance   provider  of  certain  retiree   benefits  of  NL,  and
consultations  with NL's  actuaries,  NL has been  released  from  certain  life
insurance retiree benefit obligations as of December 31, 2002 through the use of
an equal  amount of plan  assets.  In 1989 the  Company  began  phasing out such
benefits for active U.S.  employees  over a ten-year  period and U.S.  employees
retiring after 1998 are not entitled to any such  benefits.  The majority of all
retirees are required to contribute a portion of the cost of their  benefits and
certain  current  and future  retirees  are  eligible  for  reduced  health care
benefits at age 65. The Company's  policy is to fund medical  claims as they are
incurred, net of any contributions by the retiree.

     The components of the periodic OPEB cost and accumulated  OPEB  obligations
and the  rates  used in  determining  the  actuarial  present  value of  benefit
obligations    are   presented   in   the   tables   below.    Variances    from
actuarially-assumed  rates will result in  additional  increases or decreases in
accumulated OPEB obligations, net periodic OPEB cost and funding requirements in
future  periods.  At December 31, 2004,  the expected rate of increase in future
health care costs is 9% in 2005,  declining to 5.5% in 2009 and thereafter.  (In
2003 the expected rate of increase in future  healthcare costs ranged from 8% to
10% in 2004,  declining to 5.5% in 2009 and thereafter.) If the health care cost
trend rate was increased (decreased) by one percentage point for each year, OPEB
expense would have increased by approximately  $100,000  (decreased by $100,000)
in 2004,  and the actuarial  present value of  accumulated  OPEB  obligations at
December 31, 2004 would have increased by $900,000  (decreased by $800,000).  At
December 31, 2004, the Company currently expects to contribute the equivalent of
approximately  $2.0 million to all of its OPEB plans during 2005,  and aggregate
benefit payments to OPEB plan  participants are expected to be the equivalent of
approximately  $2.0 million in 2005, $1.6 million in 2006, $1.6 million in 2007,
$1.5 million in 2008,  $1.5 million in 2009 and $6.5 million during 2010 through
2014.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Change in projected OPEB obligations:
<S>                                                <C>                <C>
   Obligations at beginning of the year            $ 32,899           $ 33,429
   Service cost                                         152                116
   Interest cost                                      2,063              1,386
   Plan amendments                                     -                (1,385)
   Actuarial losses (gain)                            1,355             (2,759)
   Change in foreign currency exchange rates            772                206
   Benefits paid                                     (3,812)            (3,500)
   Adjustment to cease consolidation of Kronos         -               (11,590)
                                                   --------           --------

   Obligations at end of the year                  $ 33,429           $ 15,903
                                                   ========           ========

 Change in plan assets:
   Employer contributions                          $  3,812           $  3,500
   Benefits paid                                     (3,812)            (3,500)
                                                   --------           --------

   Fair value of plan assets at end of the year    $   -              $   -
                                                   ========           ========

 Funded status at end of the year:
   Plan assets less than benefit obligations       $(33,429)          $(15,903)
   Unrecognized net actuarial losses                  6,854              3,284
   Unrecognized prior service credit                 (1,633)              (968)
                                                   --------           --------

                                                   $(28,208)          $(13,587)
                                                   ========           ========

 Accrued OPEB costs recognized in
   the balance sheet:
   Current                                         $  4,797           $  3,015
   Noncurrent                                        23,411             10,572
                                                   --------           --------

                                                   $ 28,208           $ 13,587
                                                   ========           ========
</TABLE>


<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)

 Net periodic OPEB cost:
<S>                                             <C>             <C>               <C>
   Service cost                                 $   103          $   152          $  116
   Interest cost                                  2,028            2,063           1,386
   Expected return on plan assets                    (3)            -               -
   Amortization of prior service credit          (2,075)          (2,075)           (540)
   Recognized actuarial losses                       27              189             132
                                                -------          -------          ------

                                                $    80          $   329          $1,094
                                                =======          =======          ======
</TABLE>

     The  weighted  average  discount  rate used in  determining  the  actuarial
present  value of benefit  obligations  as of December 31, 2004 was 5.7% (2003 -
5.9%).  Such weighted  average rate was determined  using the projected  benefit
obligation  as of  such  dates.  The  impact  of  assumed  increases  in  future
compensation  levels does not have a material  affect on the  actuarial  present
value of the benefit  obligation as  substantially  all of such benefits  relate
solely to eligible retirees, for which compensation is not applicable.

     The weighted  average  discount rate used in  determining  the net periodic
OPEB cost for 2004 was 5.9% (2003 - 6.5%;  2002 - 7.0%).  Such weighted  average
rate was determined using the projected  benefit  obligation as of the beginning
of each year. The impact of assumed increases in future compensation levels does
not have a material affect on the net periodic OPEB cost as substantially all of
such benefits relate solely to eligible retirees,  for which compensation is not
applicable.  The impact of assumed  rate of return on plan  assets also does not
have a  material  affect on the net  periodic  OPEB  cost as there  were no plan
assets as of December 31, 2003 or 2004.

     As of December 31, 2004, the accumulated  benefit  obligations for all OPEB
plans was approximately $15.9 million (2003 - $33.4 million). The Company uses a
September 30th  measurement date for their OPEB plans. At December 31, 2004, all
of the Company's  consolidated  accrued OPEB costs related to the Company's U.S.
plan.

     The Medicare  Prescription Drug,  Improvement and Modernization Act of 2003
(the "Medicare 2003 Act") introduced a prescription  drug benefit under Medicare
(Medicare  Part D) as well as a federal  subsidy to sponsors  of retiree  health
care  benefit  plans  that  provide  a  benefit  that  is at  least  actuarially
equivalent  to Medicare  Part D. During the third  quarter of 2004,  the Company
determined that benefits provided by its plan are actuarially  equivalent to the
Medicare  Part D benefit and  therefore  the Company is eligible for the federal
subsidy provided for by the Medicare 2003 Act. The effect of such subsidy, which
is  accounted  for  prospectively  from  the  date  actuarial   equivalence  was
determined,  as  permitted  by and in  accordance  with FASB Staff  Position No.
106-2, did not have a material impact on the accumulated  postretirement benefit
obligation,  and will not have a material  impact on the net periodic  OPEB cost
going forward.

Note 17 - Related party transactions:

     The Company may be deemed to be controlled  by Harold C. Simmons.  See Note
1.  Corporations  that may be deemed to be controlled by or affiliated  with Mr.
Simmons sometimes engage in (a) intercorporate  transactions such as guarantees,
management and expense  sharing  arrangements,  shared fee  arrangements,  joint
ventures,  partnerships,  loans, options, advances of funds on open account, and
sales,  leases and  exchanges  of assets,  including  securities  issued by both
related  and  unrelated  parties  and  (b)  common  investment  and  acquisition
strategies,   business   combinations,    reorganizations,    recapitalizations,
securities  repurchases,  and  purchases and sales (and other  acquisitions  and
dispositions)  of  subsidiaries,   divisions  or  other  business  units,  which
transactions  have involved both related and unrelated parties and have included
transactions  which  resulted  in the  acquisition  by one  related  party  of a
publicly-held  minority equity  interest in another  related party.  The Company
continuously considers,  reviews and evaluates, and understands that Contran and
related entities consider, review and evaluate such transactions. Depending upon
the business,  tax and other  objectives then relevant,  it is possible that the
Company might be a party to one or more such transactions in the future.

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

     Receivables  from and payables to  affiliates  are  summarized in the table
below.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

 Current receivables from affiliates:
<S>                                                <C>                 <C>
   Income taxes refundable from Valhi              $   306             $ 1,634
   TIMET                                                50                -
   Other                                                 5                -
                                                   -------             -------

                                                   $   361             $ 1,634
                                                   =======             =======

 Noncurrent receivable from affiliate -
   loan to Contran family trust                    $14,000             $10,000
                                                   =======             =======

 Current payables to affiliates:
   Louisiana Pigment Company                       $ 8,560             $  -
   Income taxes payable to Valhi                    10,512                  86
   Kronos                                                -                  16
   Tremont                                             445                 289
   Other                                                20                -
                                                   -------             -------

                                                   $19,537             $   391
                                                   =======             =======
</TABLE>

     Amounts  payable  to LPC were  generally  for  Kronos'  purchases  of TiO2.
Purchases of TiO2 from LPC were $92.4  million in 2002,  $101.3  million in 2003
and $51.0 million in the first half of 2004. See Note 7.

     From time to time,  loans and  advances  are made  between  the Company and
various  related  parties,  pursuant to term and demand  notes.  These loans and
advances are entered into  principally  for cash management  purposes.  When the
Company loans funds to related  parties,  the lender is generally able to earn a
higher  rate of return on the loan than the lender  would earn if the funds were
invested in other  instruments.  While  certain of such loans may be of a lesser
credit  quality  than cash  equivalent  instruments  otherwise  available to the
Company,  the Company  believes that it has evaluated the credit risks involved,
and that those risks are reasonable and reflected in the terms of the applicable
loans. When the Company borrows from related parties,  the borrower is generally
able to pay a lower rate of interest than the borrower  would pay if it borrowed
from other parties.

     In 2001,  EMS, NL's  majority-owned  environmental  management  subsidiary,
extended a $25 million  revolving  credit  facility to one of the family  trusts
discussed  in Note 1 ($14  million and $10 million  outstanding  at December 31,
2003 and 2004, respectively). The loan bears interest at prime, is due on demand
with 60 days notice and is collateralized by certain shares of Contran's Class A
common stock and Class E cumulative preferred stock held by the trust. The value
of the  collateral  is  dependent,  in part,  on the value of Valhi as Contran's
beneficial  ownership  interest in Valhi is one of  Contran's  more  substantial
assets.  The terms of this loan were approved by special committees of both NL's
and EMS' respective  board of directors  composed of independent  directors.  At
December 31, 2004,  $15 million is available  for borrowing by the family trust,
and the loan has been  classified  as a  noncurrent  asset  because EMS does not
presently intend to demand repayment within the next 12 months.

     At December  31,  2003,  the Company  had entered  into a revolving  credit
facility  with Tremont  pursuant to which Tremont could borrow up to $15 million
from the Company  through  December 31, 2004.  Borrowings  (none at December 31,
2003) bore interest at prime plus 2%, with interest payable quarterly,  and were
collateralized  by the 10.2  million  shares of NL common  stock and 5.1 million
shares of Kronos owned by Tremont.  This facility was terminated at December 31,
2004.

     Interest  income on all loans to affiliates was $3.2 million in 2002,  $2.2
million in 2003 and $6.9 million in 2004,  including $1.3 million in 2002,  $1.4
million  in 2003  and $1.5  million  in 2004 in  interest  income  from  CompX's
discontinued operation. Also included in 2004 is $4.7 million in interest income
related to a $200 million note receivable from Kronos that was distributed to NL
in December  2003. A portion of such note was used to acquire CompX in September
2004. See Note 1. The remainder of the note was repaid in 2004.  Interest income
earned prior to July 1, 2004 was eliminated upon consolidation.

     Under the terms of  various  intercorporate  services  agreements  ("ISAs")
entered into between the Company and various related parties, including Contran,
employees  of  one  company  will  provide  certain  management,  tax  planning,
financial and administrative  services to the other company on a fee basis. Such
charges are based upon  estimates  of the time  devoted by the  employees of the
provider of the services to the affairs of the recipient,  and the  compensation
of such  persons.  Because  of the large  number of  companies  affiliated  with
Contran,  the Company  believes it benefits  from cost savings and  economies of
scale gained by not having  certain  management,  financial  and  administrative
staffs duplicated at each entity,  thus allowing certain  individuals to provide
services to multiple  companies but only be compensated  by one entity.  The net
ISA  fees  charged  to  the  Company  including  Kronos  and  CompX,  aggregated
approximately  $3.6  million in 2002,  $4.1  million in 2003 and $8.1 million in
2004.  The increase in the  aggregate  ISA fee charged to the Company in 2004 is
due primarily to  approximately  30 staff  positions,  who had  previously  been
compensated  by NL and  Kronos,  who in  2004  commenced  being  compensated  by
Contran.  NL had an ISA with TIMET whereby NL provided certain services to TIMET
for approximately $300,000 in 2002 and $14,000 in 2003.

     Tall Pines Insurance Company,  Valmont Insurance Company (which merged into
Tall Pines in December 2004,  with Tall Pines  surviving the merger) and EWI RE,
Inc. provide for or broker certain insurance policies for Contran and certain of
its  subsidiaries  and  affiliates,   including  the  Company.   Tall  Pines  is
wholly-owned  by a  subsidiary  of Valhi,  and EWI is  currently a  wholly-owned
subsidiary of NL. Prior to January  2002, an entity  controlled by one of Harold
C. Simmons'  daughters  owned a majority of EWI, and Contran owned the remainder
of EWI.  In January  2002,  NL  purchased  EWI from its  previous  owners for an
aggregate  cash  purchase  price of  approximately  $9 million.  See Note 2. The
purchase  was  approved  by a  special  committee  of NL's  board  of  directors
consisting  of two of its  independent  directors,  and the  purchase  price was
negotiated by the special  committee  based upon its  consideration  of relevant
factors,  including  but not limited to due diligence  performed by  independent
consultants  and an appraisal of EWI  conducted  by an  independent  third party
selected by the special committee. Consistent with insurance industry practices,
Tall  Pines,  Valmont  and  EWI  receive  commissions  from  the  insurance  and
reinsurance  underwriters  for the  policies  that they  provide or broker.  The
aggregate  premiums  paid by the  Company to Tall Pines and  Valmont  were $10.6
million  in  2002,  $8.2  million  in 2003  and $4.3  million  in 2004,  and the
aggregate  premiums  paid by  affiliates  (other  than the Company and its joint
venture) for policies  provided or brokered by EWI prior to its  acquisition  by
the  Company  were $6.5  million in 2002.  These  amounts  principally  included
payments for insurance and reinsurance  premiums paid to third parties, but also
included commissions paid to Tall Pines, Valmont and EWI. The aggregate premiums
paid  by  affiliates  of  the  Company  for  insurance   brokered  by  EWI  were
approximately  $15 million in both 2003 and 2004. The Company expects that these
relationships with Tall Pines and EWI will continue in 2005.

     Contran and  certain of its  subsidiaries  and  affiliates,  including  the
Company, purchase certain of their insurance policies as a group, with the costs
of  the  jointly-owned   policies  being  apportioned  among  the  participating
companies.  With  respect to  certain  of such  policies,  it is  possible  that
unusually  large losses  incurred by one or more insureds  during a given policy
period could leave the other  participating  companies without adequate coverage
under that policy for the balance of the policy period. As a result, Contran and
certain of its subsidiaries and affiliates,  including the Company, have entered
into a loss sharing  agreement under which any uninsured loss is shared by those
entities  who have  submitted  claims  under the  relevant  policy.  The Company
believes  the  benefits in the form of reduced  premiums  and  broader  coverage
associated  with  the  group  coverage  for  such  policies  justifies  the risk
associated with the potential for any uninsured loss.

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

     Capital  transactions with affiliates during 2002 and 2003, as reflected on
the accompanying  Consolidated  Statements of Cash Flows, relates principally to
CompX dividends paid to Valhi and Valcor.

Note 18 - Other income;  noncompete  agreement income and litigation  settlement
gains:

     Other  income  for the years  ended  December  31,  2002,  2003 and 2004 is
summarized below:
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)

<S>                                             <C>              <C>             <C>
   Contract dispute settlement                  $  -             $  -            $ 6,289
   Other                                            377              436             664
                                                -------          -------         -------

                                                $   377          $   436         $ 6,953
                                                =======          =======         =======
</TABLE>

     The  contract  dispute  settlement  relates  to Kronos'  settlement  with a
customer.  As part of the  settlement,  the customer  agreed to make payments to
Kronos through 2007 aggregating  $7.3 million.  The $6.3 million gain recognized
in 2004  represents  the present value of the future  payments to be paid by the
customer to Kronos. Of such $7.3 million, $1.5 million was paid to Kronos in the
second  quarter of 2004,  $1.75 million is due in each of the second  quarter of
2005 and 2006 and $2.25 million is due in the second quarter of 2007.

     NL's $20 million of proceeds from the disposal of its  specialty  chemicals
business  unit in January  1998 related to its  agreement  not to compete in the
rheological products business was recognized as a component of general corporate
income (expense) ratably over the five-year  non-compete period ended in January
2003 ($4 million recognized in 2002 and $333,000 recognized in 2003).

     In 2002, 2003 and 2004, the Company  recognized $5.2 million,  $823,000 and
$552,000 respectively, of net gains from legal settlements, all of which relates
to settlements with certain of its former insurance carriers.  These and similar
settlements  from 2000 and 2001 resolved court  proceedings in which the Company
sought  reimbursement  from the  carriers  for legal  defense  expenditures  and
indemnity  coverage for certain of its environmental  remediation  expenditures.
Proceeds from substantially all of the settlements reached in 2000 and 2001 were
transferred  by the carriers to special  purpose trusts formed by the Company to
pay for certain of its future remediation and other environmental  expenditures.
At December 31, 2003 and 2004,  restricted cash  equivalents and debt securities
include an aggregate of $24 million and $19 million, respectively,  held by such
special purpose trusts.

Note 19 - Commitments and contingencies:

     Lead pigment  litigation.  The  Company's  former  operations  included the
manufacture of lead pigments for use in paint and lead-based paint.  Since 1987,
NL, other former manufacturers of lead pigments for use in paint, and lead-based
paint,  and  the  Lead  Industries  Association,   which  discontinued  business
operations in 2002,  have been named as defendants in various legal  proceedings
seeking  damages  for  personal   injury,   property  damage  and   governmental
expenditures  allegedly caused by the use of lead-based paints. Certain of these
actions  have been filed by or on behalf of states,  large U.S.  cities or their
public housing  authorities and school  districts,  and certain others have been
asserted as class  actions.  These  lawsuits  seek  recovery  under a variety of
theories,  including  public and private  nuisance,  negligent  product  design,
negligent   failure   to   warn,   strict   liability,   breach   of   warranty,
conspiracy/concert of action, aiding and abetting,  enterprise liability, market
share liability,  intentional tort, fraud and  misrepresentation,  violations of
state consumer protection statutes, supplier negligence and similar claims.

     The plaintiffs in these actions  generally seek to impose on the defendants
responsibility for lead paint abatement and asserted health concerns  associated
with the use of  lead-based  paints,  including  damages  for  personal  injury,
contribution  and/or  indemnification  for medical expenses,  medical monitoring
expenses and costs for educational  programs.  A number of cases are inactive or
have been  dismissed or withdrawn.  Most of the  remaining  cases are in various
pre-trial  stages.  Some are on appeal  following  dismissal or summary judgment
rulings in favor of the defendants. In addition, various other cases are pending
(in which the Company is not a defendant)  seeking recovery for injury allegedly
caused by lead  pigment  and  lead-based  paint.  Although  the Company is not a
defendant  in these  cases,  the  outcome  of these  cases may have an impact on
additional cases being filed against the Company in the future.

     NL believes  these actions are without  merit,  intends to continue to deny
all  allegations  of wrongdoing  and liability and to defend against all actions
vigorously.  NL has  neither  lost nor settled  any of these  cases.  NL has not
accrued any amounts for pending lead pigment and  lead-based  paint  litigation.
Liability that may result, if any, cannot reasonably be estimated.  There can be
no assurance  that NL will not incur  liability in the future in respect of this
pending litigation in view of the inherent  uncertainties  involved in court and
jury rulings in pending and possible future cases.

     Environmental matters and litigation. The Company's operations are governed
by various federal, state, local and foreign environmental laws and regulations.
Certain of the Company's  businesses  are and have been engaged in the handling,
manufacture  or use of substances or compounds  that may be considered  toxic or
hazardous  within the meaning of  applicable  environmental  laws. As with other
companies engaged in similar businesses,  certain past andcurrent operations and
products of the  Company  have the  potential  to cause  environmental  or other
damage.  The Company has implemented and continues to implement various policies
and programs in an effort to minimize  these risks.  The Company's  policy is to
comply  with  environmental  laws and  regulations  at all of its  plants and to
strive to improve environmental performance.  From time to time, the Company may
be subject to  environmental  regulatory  enforcement  under  U.S.  and  foreign
statutes, resolution of which typically involves the establishment of compliance
programs. It is possible that future developments, such as stricter requirements
of  environmental  laws and  enforcement  policies  thereunder,  could adversely
affect the Company's production, handling, use, storage, transportation, sale or
disposal  of such  substances.  The  Company  believes  all of its plants are in
substantial compliance with applicable environmental laws.

     Certain  properties and facilities used in the Company's former businesses,
including  divested  primary  and  secondary  lead  smelters  and former  mining
locations of NL, are the subject of civil litigation, administrative proceedings
or  investigations   arising  under  federal  and  state   environmental   laws.
Additionally,  in connection with past disposal practices,  the Company has been
named as a defendant,  potential  responsible party ("PRP") or both, pursuant to
the  Comprehensive  Environmental  Response,  Compensation and Liability Act, as
amended by the Superfund  Amendments  and  Reauthorization  Act  ("CERCLA")  and
similar  state  laws  in  approximately  60  governmental  and  private  actions
associated with waste disposal sites, mining locations, and facilities currently
or previously  owned,  operated or used by the Company or its  subsidiaries,  or
their  predecessors,  certain of which are on the U.S. EPA's Superfund  National
Priorities List or similar state lists.  These  proceedings  seek cleanup costs,
damages for  personal  injury or property  damage  and/or  damages for injury to
natural resources.  Certain of these proceedings  involve claims for substantial
amounts.  Although  the  Company may be jointly  and  severally  liable for such
costs,  in most cases it is only one of a number of PRPs who may also be jointly
and severally liable.

     Environmental obligations are difficult to assess and estimate for numerous
reasons including the complexity and differing  interpretations  of governmental
regulations,  the number of PRPs and the PRPs'  ability or  willingness  to fund
such  allocation of costs,  their financial  capabilities  and the allocation of
costs among PRPs,  the  solvency of other  PRPs,  the  multiplicity  of possible
solutions,  and the years of  investigatory,  remedial and  monitoring  activity
required.   In  addition,   the  imposition  of  more  stringent   standards  or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes  respecting  site cleanup  costs or allocation of such costs among PRPs,
solvency of other PRPs,  the results of future  testing and analysis  undertaken
with respect to certain sites or a determination that the Company is potentially
responsible for the release of hazardous substances at other sites, could result
in  expenditures in excess of amounts  currently  estimated by the Company to be
required for such matters. In addition,  with respect to other PRPs and the fact
that the Company may be jointly and severally  liable for the total  remediation
cost at certain  sites,  the Company  could  ultimately be liable for amounts in
excess of its accruals due to, among other things,  reallocation  of costs among
PRPs or the  insolvency  of one of more  PRPs.  No  assurance  can be given that
actual costs will not exceed  accrued  amounts or the upper end of the range for
sites for which  estimates  have been made,  and no assurance  can be given that
costs  will not be  incurred  with  respect  to  sites  as to which no  estimate
presently  can be made.  Further,  there  can be no  assurance  that  additional
environmental matters will not arise in the future.

     A summary of the  activity in the  Company's  accrued  environmental  costs
during the past three years is presented in the table below. The amount shown in
the table below for payments against the Company's accrued  environmental  costs
is net of a $1.5 million recovery of remediation costs previously expended by NL
that was paid to NL by other PRPs in the third  quarter of 2004  pursuant  to an
agreement entered into by NL and the other PRPs.
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)

<S>                                             <C>              <C>             <C>
 Balance at the beginning of the year           $100,748         $ 91,506        $ 77,481
 Additions charged to expense                      9,388           26,211           1,602
 Payments                                        (18,630)         (40,236)        (11,266)
                                                --------         --------        --------

 Balance at the end of the year                 $ 91,506         $ 77,481        $ 67,817
                                                ========         ========        ========

 Amounts recognized in the balance sheet:
   Current liability                                             $ 19,627        $ 16,570
   Noncurrent liability                                            57,854          51,247
                                                                 --------        --------

                                                                 $ 77,481        $ 67,817
                                                                 ========        ========
</TABLE>

     The  Company  records  liabilities  related  to  environmental  remediation
obligations  when  estimated  future  expenditures  are probable and  reasonably
estimable.  Such accruals are adjusted as further  information becomes available
or  circumstances  change.  Estimated  future  expenditures  are  generally  not
discounted to their present value.  Recoveries of  remediation  costs from other
parties, if any, are recognized as assets when their receipt is deemed probable.
At  December  31,  2003 and  2004,  no  receivables  from  recoveries  have been
recognized.

     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 NL's obligation.  At December 31,
2004, the Company had accrued $68 million for those environmental  matters which
are reasonably estimable.  It is not possible to estimate the range of costs for
certain  sites.  The upper end of the range of reasonably  possible costs to the
Company for sites which it is possible to estimate  costs is  approximately  $93
million. The Company's estimates of such liabilities have not been discounted to
present value.

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

     At  December  31,  2004,  there  are  approximately  20 sites for which the
Company is unable to estimate a range of costs.  For these sites,  generally the
investigation is in the early stages,  and it is either unknown as to whether or
not the Company  actually had any  association  with the site, or if the Company
did have  association with the site, the nature of its  responsibility,  if any,
for the contamination at the site and the extent of contamination. The timing on
when  information  would become available to the Company to allow the Company to
estimate a range of loss is unknown and dependent on events  outside the control
of the Company,  such as when the party alleging liability provides  information
to the Company.

     At December 31, 2004,  NL had $19 million in  restricted  cash,  restricted
cash  equivalents  and restricted  marketable  debt  securities  held by special
purpose trusts,  the assets of which can only be used to pay for certain of NL's
future  environmental  remediation and other environmental  expenditures (2003 -
$24  million).  Use of such  restricted  balances  does not affect the Company's
consolidated net cash flows. Such restricted  balances declined by approximately
$35 million  during 2003 due  primarily  to a $30.8  million  payment made by NL
related to the final settlement of one of NL's sites.

     Other  litigation.  The Company  has been named as a  defendant  in various
lawsuits in a variety of  jurisdictions,  alleging personal injuries as a result
of occupational  exposure  primarily to products  manufactured by formerly owned
operations containing asbestos,  silica and/or mixed dust.  Approximately 500 of
these  cases  involving a total of  approximately  22,000  plaintiffs  and their
spouses  remain  pending,   down  from  cases  involving   approximately  32,000
plaintiffs  from one year  ago.  Of these  plaintiffs,  approximately  4,700 are
represented by five cases pending in Mississippi state courts, and approximately
5,000 are  represented by three cases that have been removed to federal court in
Mississippi  where they have been, or are in the process of being transferred to
the multi-district  litigation (MDL) pending in the United States District Court
for the  Eastern  District  of  Pennsylvania.  The  Company  has not accrued any
amounts for this litigation  because liability that might result to the Company,
if any,  cannot be reasonably  estimated.  In addition,  from time to time,  the
Company has received notices  regarding  asbestos or silica claims purporting to
be  brought  against  former  subsidiaries  of the  Company,  including  notices
provided  to  insurers  with which the  Company  has  entered  into  settlements
extinguishing   certain   insurance   policies.    These   insurers   may   seek
indemnification from the Company.

     In  addition  to the  litigation  described  above,  the  Company  and  its
subsidiaries  may be involved from time to time in various other  environmental,
contractual,   product  liability,  patent  (or  other  intellectual  property),
employment and other claims and disputes  incidental to their present and former
businesses. In certain cases, the Company has insurance coverage for such claims
and disputes.  The Company  currently  believes the  disposition of all of these
claims and disputes individually or in the aggregate, should not have a material
adverse effect on the Company's  consolidated  financial  condition,  results of
operations or liquidity.

     Concentrations  of credit risk.  Sales of TiO2 accounted for  substantially
all of Kronos' net sales from  continuing  operations  during each of 2002, 2003
and 2004.  TiO2 is generally sold to the paint,  plastics and paper  industries.
Such markets are generally considered "quality-of-life" markets whose demand for
TiO2 is influenced by the relative economic well-being of the various geographic
regions.  TiO2 is  sold to over  4,000  customers,  with  the top ten  customers
accounting for approximately one-fourth of Kronos' net sales in each of the last
three  years.  By volume,  approximately  one-half of Kronos' TiO2 sales were to
Europe in each of the past  three  years with  about 40%  attributable  to North
America.

     Component  products  are  sold  primarily  in  North  America  to  original
equipment  manufacturers  in North America and Europe.  In 2004, the ten largest
customers  accounted for approximately  43% of component  products sales (2003 -
44%; 2002 - 38%).

     At December 31, 2004,  consolidated  cash, cash  equivalents and restricted
cash includes $82.8 million invested in U.S. Treasury securities purchased under
short-term  agreements to resell (2003 - $38  million),  all of which is held in
trust for the Company by a single U.S. bank (2003 - $17 million).

     Capital  expenditures.  Firm purchase  commitments for capital  projects in
process and for raw material and other purchase commitments at December 31, 2004
approximated  $3.3  million  and  $12.6  million,   respectively.  The  purchase
obligations  consist of all open purchase  orders and  contractual  obligations,
primarily commitments to purchase raw materials.

     Other.  Royalty expense was $708,000 in 2002, $450,000 in 2003 and $222,000
in 2004. Royalties relate principally to certain products  manufactured by CompX
in Canada and sold in the United  States under the terms of  third-party  patent
license  agreements,  one of which expired in 2003 and the  remaining  agreement
expires in 2021.

     Rent expense,  principally for Kronos'  operating  facilities and equipment
was $11 million in 2002, $13 million in 2003 and $6 million in 2004. At December
31, 2004,  future  minimum  rentals under  noncancellable  operating  leases are
approximately  $942,000 in 2005, $717,000 in 2006, $338,000 in 2007, $164,000 in
2008, $160,000 in 2009 and $480,000 thereafter.

Note 20 - Financial instruments:

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

                                                                     December 31,                December 31,
                                                                         2003                        2004
                                                              ---------------------------  -------------------------
                                                                Carrying        Fair         Carrying      Fair
                                                                 Amount        Value          Amount       Value
                                                              ------------- -------------  -------------------------
                                                                                  (In millions)
Cash, cash equivalents, current
   and noncurrent restricted
   cash equivalents and current
   and noncurrent restricted
<S>                                                              <C>           <C>           <C>         <C>
   marketable debt securities                                    $ 121.6       $ 121.6       $ 120.3     $  120.3
Marketable equity securities -
   classified as available-for-sale                              $  70.5       $  70.5       $  75.8     $   75.8

Notes payable and long-term debt:
  Fixed rate with market quotes-
    8.875% Senior Secured Notes                                  $ 356.1       $ 356.1       $    -      $    -
  Other fixed rate debt                                               .6            .6            -           -
  Variable rate debt                                                26.0          26.0            -           -

Minority interest in Kronos common stock                         $  77.8       $ 530.2       $    -      $    -
Minority interest in CompX common stock                             48.4          30.4          49.2         79.4

Common stockholders' equity                                      $ 283.2       $ 559.2       $ 287.5     $1,070.5
</TABLE>

     Fair  value  of the  Company's  marketable  equity  securities,  restricted
marketable debt securities and Notes, and the fair value of the Company's common
stockholder's  equity and minority  interest in Kronos and CompX, are based upon
quoted market prices at each balance sheet date.

     Certain of the Company's  sales  generated by its non-U.S.  operations  are
denominated in U.S.  dollars.  The Company  periodically  uses currency  forward
contracts  to  manage a very  nominal  portion  of  foreign  exchange  rate risk
associated  with  receivables  denominated in a currency other than the holder's
functional  currency or similar exchange rate risk associated with future sales.
The Company  has not entered  into these  contracts  for trading or  speculative
purposes in the past, nor does the Company  currently  anticipate  entering into
such  contracts for trading or speculative  purposes in the future.  Derivatives
used to hedge  forecasted  transactions  and specific cash flows associated with
foreign currency  denominated  financial  assets and liabilities  which meet the
criteria for hedge accounting are designated as cash flow hedges.  Consequently,
the  effective  portion  of gains  and  losses is  deferred  as a  component  of
accumulated other comprehensive income and is recognized in earnings at the time
the hedged item affects  earnings.  Contracts  that do not meet the criteria for
hedge  accounting  are  marked-to-market  at each  balance  sheet  date with any
resulting  gain or loss  recognized in income  currently as part of net currency
transactions.  To manage such exchange  rate risk,  at December 31, 2004,  CompX
held a series of contracts to exchange an aggregate of U.S.  $7.2 million for an
equivalent  amount of Canadian  dollars at exchange  rates of Cdn. $1.19 to Cdn.
$1.23 per U.S.  dollar.  Such contracts  mature through March 2005. The exchange
rate was $1.21 per U.S.  dollar at December 31, 2004. At December 31, 2003 CompX
held contracts  maturing  through February 2004 to exchange an aggregate of U.S.
$4.2 million for an equivalent  amount of Canadian  dollars at an exchange rates
of Cdn.  $1.30 to Cdn. $1.33 per U.S.  dollar.  At December 31, 2003, the actual
exchange rate was Cdn. $1.31 per U.S.  dollar.  The estimated fair value of such
contracts is not material at December 31, 2003 and 2004.

     At December  31, 2003,  Kronos had also entered into a short-term  currency
forward contract maturing on January 2, 2004 to exchange an aggregate of euro 40
million  into U.S.  dollars at an  exchange  rate of U.S.  $1.25 per euro.  Such
contract  was entered  into in  conjunction  with the January 2004 payment of an
intercompany dividend from one of Kronos' European subsidiaries. At December 31,
2004, the actual exchange rate was U.S. $1.25 per euro. The estimated fair value
of such foreign currency forward contract was not material at December 31, 2003.

     The  Company  periodically  uses  interest  rate  swaps and other  types of
contracts  to manage  interest  rate risk with  respect to  financial  assets or
liabilities.  The Company has not entered  into these  contracts  for trading or
speculative  purposes  in the past,  nor does the Company  currently  anticipate
entering into such contracts for trading or speculative  purposes in the future.
The Company was not a party to any such contract during 2002, 2003 or 2004.

Note 21 - Accounting principles newly adopted in 2002, 2003 and 2004:

     Impairment  of  long-lived  assets.  The  Company  adopted  SFAS  No.  144,
"Accounting  for the  Impairment  or Disposal of Long-Lived  Assets,"  effective
January 1, 2002. SFAS No. 144 retains the  fundamental  provisions of prior GAAP
with respect to the recognition and measurement of long-lived  asset  impairment
contained in SFAS No. 121,  "Accounting for the Impairment of Long-Lived  Assets
and for  Lived-Lived  Assets to be Disposed Of." However,  SFAS No. 144 provides
new guidance intended to address certain  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 net  assets  to be  disposed  of by sale are to be
reported  at the lower of  carrying  value or fair value less cost to sell,  and
expands the reporting of discontinued  operations to include any component of an
entity with operations and cash flows that can be clearly distinguished from the
rest of the entity.  Adoption of SFAS No. 144 did not have a significant  effect
on the Company.

     Goodwill.  The Company adopted SFAS No. 142, "Goodwill and Other Intangible
Assets,"  effective  January 1, 2002.  Under SFAS No. 142,  goodwill,  including
goodwill arising from the difference between the cost of an investment accounted
for by the equity method and the amount of the  underlying  equity in net assets
of  such  equity  method  investee  ("equity  method  goodwill"),  is no  longer
amortized on a periodic basis.  Goodwill (other than equity method  goodwill) is
subject to an impairment  test to be performed at least on an annual basis,  and
impairment  reviews  may  result  in  future  periodic  write-downs  charged  to
earnings. Equity method goodwill is not tested for impairment in accordance with
SFAS No. 142;  rather,  the overall carrying amount of an equity method investee
will continue to be reviewed for  impairment in accordance  with existing  GAAP.
There  is  currently  no  equity  method  goodwill  associated  with  any of the
Company's equity method investees.  Under the transition  provisions of SFAS No.
142,  all  goodwill  existing  as of June 30,  2001  ceased  to be  periodically
amortized as of January 1, 2002, and all goodwill arising in a purchase business
combination (including step acquisitions) completed on or after July 1, 2001 was
not periodically amortized from the date of such combination.

     Goodwill  attributable  to the  component  products  operating  segment was
assigned to three reporting units within that operating segment,  one consisting
of CompX's  security  products  operations,  one consisting of CompX's  European
operations and one consisting of CompX's Candaian and Taiwanese  operations.  No
goodwill is attributable to the chemicals  operating segment.  See Note 8. Under
SFAS No. 142,  such  goodwill will be deemed to not be impaired if the estimated
fair value of the applicable  reporting unit exceeds the respective net carrying
value of such  reporting  unit,  including the allocated  goodwill.  If the fair
value  of the  reporting  unit is less  than  carrying  value,  then a  goodwill
impairment  loss would be  recognized  equal to the  excess,  if any, of the net
carrying value of the reporting unit goodwill over its implied fair value (up to
a maximum  impairment equal to the carrying value of the goodwill).  The implied
fair value of reporting unit goodwill would be the amount equal to the excess of
the  estimated  fair value of the  reporting  unit over the amount that would be
allocated  to the  tangible  and  intangible  net assets of the  reporting  unit
(including  unrecognized  intangible  assets) as if such reporting unit had been
acquired in a purchase  business  combination  accounted for in accordance  with
GAAP as of the date of the impairment testing.

     The  Company  completed  its  initial,   transitional  goodwill  impairment
analysis under SFAS No. 142 as of January 1, 2002,  and no goodwill  impairments
were deemed to exist as of such date. In  accordance  with the  requirements  of
SFAS No. 142,  the Company will review the  goodwill of its  reporting  unit for
impairment during the third quarter of each year starting in 2002. Goodwill will
also be reviewed for  impairment  at other times during each year when events or
changes in  circumstances  indicate  that an  impairment  might be  present.  No
goodwill  impairments  were deemed to exist as a result of the Company's  annual
impairment reviews completed during 2002, 2003 and 2004. However, as a result of
CompX's  decision to dispose of its  European  operations,  CompX  recognized  a
goodwill impairment charge in the fourth quarter of 2004. See Note 8.

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

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

                                                                 Amount
                                                              ------------
                                                              (in millions)

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

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

     The  increase  in the  asset  retirement  obligations  in  2003  and  2004,
approximately $200,000 in each year, is due to accretion expense and the effects
of currency translation.  Accretion expense, which is reported as a component of
cost of sales in the  accompanying  statement of income,  was less than $100,000
for each of the years ended  December  31, 2003 and 2004.  At December 31, 2004,
the  Company  no longer  consolidates  the  financial  position  of  Kronos  and
therefore no longer reports any asset retirement obligations.

     Costs associated with exit or disposal activities. The Company adopted SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal  Activities," on
January 1, 2003 for exit or disposal activities initiated on or after that date.
Under SFAS No. 146, costs associated with exit activities,  as defined, that are
covered by the scope of SFAS No. 146 will be recognized  and measured  initially
at fair value, generally in the period in which the liability is incurred. Costs
covered by the scope of SFAS No. 146 include  termination  benefits  provided to
employees,  costs to consolidate facilities or relocate employees,  and costs to
terminate contracts (other than a capital lease).  Under prior GAAP, a liability
for such an exit cost is recognized  at the date an exit plan is adopted,  which
may or may not be the date at which the liability has been incurred.  The effect
of adopting  SFAS No. 146 as of January 1, 2003 was not  material as the Company
was not involved in any exit or disposal  activities covered by the scope of the
new standard as of such date.

     Variable  interest  entities.  The Company complied with the  consolidation
requirements of FASB Interpretation ("FIN") No. 46R,  "Consolidation of Variable
Interest Entities," an interpretation of ARB No. 51, as amended, as of March 31,
2004.  The Company  does not have any  involvement  with any  variable  interest
entity (as that term is defined in FIN No. 46R)  covered by the scope of FIN No.
46R that would require the Company to consolidate  such entity under FIN No. 46R
which had not  already  been  consolidated  under  prior  applicable  GAAP,  and
therefore the impact to the Company of adopting the  consolidation  requirements
of FIN No. 46R was not material.


Note 22 - Quarterly results of operations (unaudited):
<TABLE>

                                                                       Quarter ended
                                                ------------------------------------------------------
                                                 March 31       June 30        Sept. 30       Dec. 31
                                                ---------      --------       ---------      --------
                                                           (In millions, except per share data)

 Year ended December 31, 2003
<S>                                               <C>          <C>             <C>            <C>
   Net sales                                      $295.3       $ 308.5         $287.0         $291.3
   Cost of sales                                   222.8         232.2          213.3          213.8

   Income from continuing operations              $ 10.2       $  29.5         $ 17.9         $  9.7
   Discontinued operations                           (.4)          (.5)          (1.6)           (.3)
                                                  ------       -------         ------         ------
          Net income                              $  9.8       $  29.0         $ 16.3         $  9.4
                                                  ======       =======         ======         ======


     Basic and diluted earnings per
       common share                               $  .20       $   .61         $  .34         $  .19

 Year ended December 31, 2004
   Net sales                                      $306.8       $ 342.0         $ 46.3         $ 46.6
   Cost of sales                                   237.4         262.8           35.9           36.4

   Income from continuing operations              $  5.1       $ 189.6         $  8.6         $  7.8
   Discontinued operations                            -             .2             .2           (1.1)
                                                  ------       -------         ------         ------

   Net income                                     $  5.1       $ 189.8         $  8.8         $  6.7
                                                  ======       =======         ======         ======

     Basic and diluted earnings per
       common share                               $  .11       $  3.92         $  .18         $  .14
</TABLE>


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

     During the fourth quarter of 2004,  Kronos  determined  that it should have
recognized an additional  $17.3 million net deferred  income tax benefit  during
the second  quarter of 2004,  primarily  related to the amount of the  valuation
allowance  related to Kronos' German operations which should have been reversed.
While the additional tax benefit is not material to the Company's second quarter
2004 results,  the quarterly results of operations for 2004, as presented above,
reflects  this  additional  tax  benefit.  Accordingly,  income from  continuing
operations  for the second  quarter of 2004 of $189.6  million  ($3.92 per basic
share),  as reflected  above,  differs from the $180.9  million ($3.74 per basic
share) that would have been  reported  by the  Company in the second  quarter of
2004,  giving effect to the  acquisition of CompX discussed in Note 2. Such $8.7
million  increase in income from  continuing  operations is comprised of (i) the
additional  deferred  income tax benefit of $17.3 million and (ii) an additional
minority interest in earnings of $8.6 million.

Note 23 - Accounting principles not yet adopted:

     Inventory costs. The Company will adopt SFAS No. 151,  "Inventory Costs, an
amendment of ARB No. 43,  Chapter 4," for inventory  costs  incurred on or after
January 1, 2006.  SFAS No. 151 requires that the allocation of fixed  production
overhead costs to inventory shall be based on normal  capacity.  Normal capacity
is not defined as a fixed amount;  rather,  normal capacity refers to a range of
production  levels expected to be achieved over a number of periods under normal
circumstances,  taking into account the loss of capacity  resulting from planned
maintenance  shutdowns.  The amount of fixed overhead  allocated to each unit of
production is not increased as a consequence of idle plant or production  levels
below the low end of normal  capacity,  but instead a portion of fixed  overhead
costs  are  charged  to  expense  as  incurred.  Alternatively,  in  periods  of
production above the high end of normal  capacity,  the amount of fixed overhead
costs allocated to each unit of production is decreased so that  inventories are
not measured above cost.  SFAS No. 151 also  clarifies  existing GAAP to require
that  abnormal  freight and wasted  materials  (spoilage)  are to be expensed as
incurred.  The Company believes its production cost accounting  already complies
with the  requirements of SFAS No. 151, and the Company does not expect adoption
of SFAS No.  151 will  have a  material  effect  on its  consolidated  financial
statements.

     Stock options. The Company will adopt SFAS No. 123R,  "Share-Based Payment"
as of  July  1,  2005.  SFAS  No.  123R,  among  other  things,  eliminates  the
alternative in existing GAAP to use the intrinsic value method of accounting for
stock-based  employee  compensation under APBO No. 25. Upon adoption of SFAS No.
123R,  the Company will  generally be required to recognize the cost of employee
services  received in exchange for an award of equity  instruments  based on the
grant-date  fair value of the award,  with the cost  recognized  over the period
during  which an employee is  required to provide  services in exchange  for the
award (generally, the vesting period of the award). No compensation cost will be
recognized in the aggregate for equity  instruments  for which the employee does
not render the requisite service (generally,  the instrument is forfeited before
it has vested). The grant-date fair value will be estimated using option-pricing
models  (e.g.   Black-Scholes   or  a  lattice  model).   Under  the  transition
alternatives  permitted  under SFAS No.  123R,  the  Company  will apply the new
standard to all new awards  granted on or after July 1, 2005,  and to all awards
existing as of June 30, 2005 which are  subsequently  modified,  repurchased  or
cancelled.  Additionally,  as of July 1, 2005,  the Company  will be required to
recognize  compensation cost for the portion of any non-vested award existing as
of June 30, 2005 over the remaining vesting period.  Because the Company has not
granted any options to purchase  its common  stock and is not  expected to grant
any options prior to July 1, 2005 and because the number of non-vested awards as
of June 30,  2005 with  respect to options  granted  by NL to  employees  of the
Company and its subsidiaries and affiliates is not expected to be material,  the
effect of adopting SFAS No. 123R is not expected to be  significant in so far as
it relates to existing stock options. Should the Company or its subsidiaries and
affiliates,  however,  grant a significant  number of options in the future, the
effect on the Company's consolidated financial statements could be material.

     Impairment of  investments.  In June 2004,  the Emerging  Issues Task Force
("EITF") issued EITF No. 03-01, The Meaning of  Other-Than-Temporary  Impairment
and Its Application to Certain  Investments.  EITF No. 03-01, the effective date
of which  is still  pending  based  upon a  deferral  granted  by the  Financial
Accounting Standards Board, provides guidance for determining when an investment
covered by its scope is  considered  impaired,  whether any  impairment is other
than  temporary and the date when an impairment  loss is to be  recognized.  The
Company does not  currently  expect  compliance  with EITF No. 03-01 will have a
material affect on its consolidated  financial  statements,  whenever it becomes
effective.

Note 24 - Discontinued operations:

     In December 2004, CompX's board of directors  committed to a formal plan to
dispose of its Thomas Regout  operations in the  Netherlands.  Such  operations,
which  previously were included in the Company's  component  products  operating
segment (see Note 3), met all of the criteria  under GAAP to be classified as an
asset  held for sale at  December  31,  2004,  and  accordingly  the  results of
operations of Thomas Regout have been classified as discontinued  operations for
all periods presented. The Company has not reclassified its consolidated balance
sheets or statements of cash flows.  In classifying the net assets of the Thomas
Regout  operations  as an asset held for sale,  the Company  concluded  that the
estimated fair value less costs to sell of such operations exceeded the carrying
amount of the related net assets,  and accordingly in the fourth quarter of 2004
the Company  recognized  a $6.5  million  impairment  charge to  write-down  its
investment in the Thomas Regout  operations to estimated  realizable value. Such
impairment charge represented an impairment of goodwill. See Note 8.

     In January 2005,  CompX  completed the sale of such operations for proceeds
(net of  expenses)  of  approximately  $18.4  million in cash and a $4.2 million
principal amount note receivable from the purchaser  bearing interest at a fixed
rate of 7% and payable over four years. The note receivable is collateralized by
a secondary lien on the assets sold and is subordinated  to certain  third-party
indebtedness of the purchaser.  Accordingly,  the Company will no longer include
the results of operations  of Thomas  Regout  subsequent to December 31, 2004 in
its consolidated  financial  statements.  The net proceeds from the January 2005
sale of Thomas Regout approximated the net realizable value previously estimated
at the time the goodwill impairment charge was recognized.

     Condensed  income  statement data for Thomas Regout is presented below. The
$6.5 million impairment charge is included in Thomas Regout's operating loss for
2004. Interest expense included in discontinued  operations  represents interest
on certain intercompany indebtedness with CompX, which indebtedness arose at the
time of CompX's acquisition of such operations prior to 2002 and corresponded to
certain third-party indebtedness CompX incurred at the time such operations were
acquired.
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----


<S>                                              <C>             <C>              <C>
Net sales                                        $ 31.3          $ 35.3           $ 41.7
                                                 ======          ======           ======

Operating income (loss)                          $   .1          $ (5.5)          $ (3.5)
Settlement gain                                      .7              -                -
Interest expense                                   (1.3)           (1.4)            (1.5)
Income tax benefit (expense)                         .2             2.6               .4
Minority interest in losses (earnings)               .1             1.4              3.9
                                                 ------          ------           ------

                                                 $  (.2)         $ (2.9)          $  (.7)
                                                 ======          ======           ======
</TABLE>

     Condensed  balance sheet data for Thomas Regout,  included in the Company's
consolidated balance sheets, is presented below.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----

<S>                                                 <C>                <C>
Current assets                                      $ 12.7             $  18.0
Noncurrent assets                                     25.9                11.0
                                                    ------             -------

                                                    $ 38.6             $  29.0
                                                    ======             =======

Current liabilities                                 $  7.1             $   5.0
Net assets                                            31.5                24.0
                                                    ------             -------

                                                    $ 38.6             $  29.0
                                                    ======             =======
</TABLE>

     Included in the net assets of Thomas Regout are certain  intercompany loans
payable  by  Thomas  Regout  to CompX  which  are  eliminated  in the  Company's
consolidated balance sheet.



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
                        ON FINANCIAL STATEMENT SCHEDULES



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

     Our  audits  of the  consolidated  financial  statements,  of  management's
assessment of the effectiveness of internal control over financial reporting and
of the effectiveness of internal control over financial reporting referred to in
our report  dated March 30, 2005  appearing  in this Annual  Report on Form 10-K
also  included  an audit of the  financial  statement  schedules  listed in Item
15(a)(2) of this Form 10-K. In our opinion,  these financial statement schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.







                                                      PricewaterhouseCoopers LLP


Dallas, Texas
March 30, 2005




                      NL INDUSTRIES, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                              2003              2004
                                                              ----              ----

 Current assets:
<S>                                                        <C>              <C>
   Cash and cash equivalents                               $   2,428        $  45,029
   Restricted cash equivalents                                14,725            3,131
   Restricted marketable debt securities                       6,147            6,713
   Accounts and notes receivable                                 536              478
   Receivable from subsidiaries                                  932            1,954
   Prepaid expenses                                              709              151
   Deferred income taxes                                       7,745            8,199
                                                           ---------        ---------

       Total current assets                                   33,222           65,655
                                                           ---------        ---------

 Other assets:
   Marketable securities                                      52,741           56,707
   Restricted marketable debt securities                       4,284            3,848
   Investment in subsidiaries                                187,102          119,278
   Investment in Kronos Worldwide, Inc.                            -          175,578
   Note receivable from Kronos Worldwide, Inc.               200,000                -
   Other                                                         331              301
   Property and equipment, net                                   647              646
                                                           ---------        ---------

       Total other assets                                    445,105          356,358
                                                           ---------        ---------

                                                           $ 478,327        $ 422,013
                                                           =========        =========

 Current liabilities:
   Payable to affiliates                                   $  12,429        $   1,644
   Accounts payable and accrued liabilities                   14,375           11,140
   Income taxes                                                  372            1,050
   Accrued environmental costs                                13,745           11,216
   Deferred taxes                                               -              23,842
                                                           ---------        ---------

       Total current liabilities                              40,921           48,892
                                                           ---------        ---------

 Noncurrent liabilities:
   Notes payable to affiliates                                22,320                -
   Deferred income tax                                        75,406           40,011
   Accrued environmental costs                                26,510           23,050
   Accrued pension cost                                       13,019            7,968
   Accrued postretirement benefits cost                       12,235           10,572
   Other                                                       4,727            4,028
                                                           ---------        ---------

       Total noncurrent liabilities                          154,217           85,629
                                                           ---------        ---------

 Stockholders' equity                                        283,189          287,492
                                                           ---------        ---------

                                                           $ 478,327        $ 422,013
                                                           =========        =========
</TABLE>

 Contingencies (Note 3)




                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)

<TABLE>

                                                          2002            2003            2004
                                                          ----            ----            ----

 Revenues and other income (expense):
     Equity in income from continuing
<S>                                                    <C>             <C>             <C>
        operations of subsidiaries                     $ 69,557        $ 92,192        $169,966
   Interest and dividends                                 2,494           1,858           1,420
   Interest income from subsidiaries                     12,165           1,184          13,649
   Securities transactions, net                            (105)          2,737           2,113
   Litigation settlements gains, net                      5,225             823             552
   Disposition of property & equipment                        1          10,325              99
   Other income, net                                      4,080             414             223
                                                       --------        --------        --------

                                                         93,417         109,533         188,022
                                                       --------        --------        --------

 Costs and expenses:
   General and administrative                            35,431          54,154          17,984
   Interest                                              34,217             909             409
                                                       --------        --------        --------

                                                         69,648          55,063          18,393
                                                       --------        --------        --------

   Income before income taxes                            23,769          54,470         169,629

 Income tax benefit                                     (13,654)        (12,876)        (41,438)
                                                       --------        --------        --------

   Income from continuing operations                     37,423          67,346         211,067

 Discontinued operations                                   (206)         (2,874)           (684)
                                                       --------        --------        --------

 Net income                                            $ 37,217        $ 64,472        $210,383
                                                       ========        ========        ========

</TABLE>




                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 2002, 2003 and 2004

                                 (In thousands)
<TABLE>

                                                          2002            2003            2004
                                                          ----            ----            ----

 Cash flows from operating activities:
<S>                                                    <C>             <C>              <C>
     Net income                                        $  37,217       $  64,472        $210,383
     Distributions from Kronos                           111,000           7,000          23,168
     Distributions from CompX                               -               -              1,297
     Noncash interest expense (income), net               15,704            (869)           -
     Deferred income taxes                                (9,119)         (2,807)        (22,681)
     Equity in earnings of subsidiaries
       and investments:
         Continuing operations                           (69,557)        (92,192)       (169,966)
         Discontinued operations                             206           2,874             684
     Securities transactions                                 105          (2,737)         (2,113)
     Other, net                                           (1,899)        (11,304)         (1,203)
                                                        --------        --------        --------

                                                          83,657         (35,563)         39,569

   Net change in assets and liabilities                    4,513          15,618         (32,477)
                                                        --------        --------        --------

        Net cash provided (used) by
          operating activities                            88,170         (19,945)          7,092
                                                        --------        --------        --------


 Cash flows from investing activities:
     Capital expenditures                                     (2)           -                -
     Repayment of loans by affiliates                    194,000            -             31,423
     Change in restricted cash equivalents
        and restricted marketable debt
        securities, net                                   16,622          42,744          14,460
     Proceeds from disposition of property
        and equipment                                          9          12,420            -
     Proceeds from sales of securities                      -               -              2,745
                                                        --------        --------        --------

        Net cash provided by investing
          activities                                     210,629          55,164          48,628
                                                        --------        --------        --------

 Cash flows from financing activities:
   Indebtedness - principal payments                    (194,000)           -               -
   Loans from affiliates, net                             64,600           2,620         (22,320)
   Dividends paid                                       (157,978)        (38,183)           -
   Common stock issued                                         -            -                915
   Treasury stock:
     Purchased                                           (21,254)           -                -
     Reissued                                                454           1,738           8,286
                                                        --------        --------        --------

        Net cash used by financing activities           (308,178)        (33,825)        (13,119)
                                                        --------        --------        --------

 Net change during the year from
     operating investing and
     financing activities                                 (9,379)          1,394          42,601
 Balance at beginning of year                             10,413           1,034           2,428
                                                        --------        --------        --------

 Balance at end of year                                $  1,034        $   2,428        $ 45,029
                                                       ========         ========        ========
</TABLE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                    Notes to Condensed Financial Information


Note 1 - Basis of presentation:

     The  Consolidated  Financial  Statements  of NL  Industries,  Inc.  and the
related Notes to Consolidated  Financial  Statements are incorporated  herein by
reference.  The accompanying financial statements reflect NL Industries,  Inc.'s
investment in Kronos Worldwide,  Inc., CompX International,  Inc. and NL's other
subsidiaries on the equity method of accounting.

Note 2 - Investment in and advances to subsidiaries:
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)
 Current:
     Receivable from:
<S>                                               <C>                  <C>
        Kronos                                    $    384             $  -
        EWI - income taxes                              89                 130
        Valhi - income taxes                          -                  1,334
        153506 Canada                                  405                 410
        TIMET                                           50                -
        CompX - income taxes                          -                     52
        Other                                            4                  28
                                                  --------             -------

                                                  $    932             $ 1,954
                                                  ========             =======
     Payable to:
        Kronos - income taxes                     $  1,209             $  -
        CompX - income taxes                          -                  1,253
        Valhi - income taxes                        10,512                  86
        Tremont                                        445                 288
        EMS                                            217                -
        Other                                           46                  17
                                                  --------             -------

                                                  $ 12,429             $ 1,644
                                                  ========             =======

 Noncurrent:
     Notes receivable from Kronos                 $200,000             $  -
                                                  ========             =======

     Notes payable to EMS Financial               $ 22,320             $  -
                                                  ========             =======
</TABLE>

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

     On September 24, 2004, the Company  completed the acquisition of 10,374,000
shares of CompX common stock, representing  approximately 68% of the outstanding
shares of CompX common stock.  The CompX common stock was  purchased  from Valhi
and Valcor,  a wholly-owned  subsidiary of Valhi,  at a purchase price of $16.25
per share, or an aggregate of approximately  $168.6 million.  The purchase price
was paid by NL's  transfer  to Valhi and  Valcor of $168.6  million of NL's $200
million  long-term note receivable from Kronos.  NL's  acquisition was accounted
for under  accounting  principles  generally  accepted  in the United  States of
America  ("GAAP")  as a  transfer  of net assets  among  entities  under  common
control,  and accordingly  resulted in a change in reporting entity. The Company
has retroactively  restated its consolidated financial statements to reflect the
consolidation  of CompX for all periods  presented.  Any excess of the aggregate
$168.6 million  principal amount of NL's note receivable  Kronos  transferred to
Valhi and Valcor over the net carrying value of Valhi's and Valcor's  investment
in CompX is  accounted  for as a reduction  of NL's  consolidated  stockholders'
equity.

     In December 2003, NL completed the distribution of  approximately  48.8% of
the outstanding shares of Kronos' common stock to NL stockholders in the form of
a pro-rata  dividend.  As part of the plan immediately prior to the distribution
of shares of Kronos common stock,  Kronos paid a $200 million  dividend to NL in
the form of a long-term note payable. The $200 million long-term note payable to
NL was  unsecured  and bore  interest  at 9% per annum,  with  interest  payable
quarterly.  A portion of such note was used to acquire CompX in September  2004.
The remainder of the note was repaid in 2004.
<TABLE>

                                                           December 31,
                                                     ------------------------
                                                     2003                2004
                                                     ----                ----
                                                          (In thousands)

Investment in:
<S>                                                <C>                <C>
    Kronos                                         $ 81,588           $   -
    CompX                                            82,275             90,045
    Other subsidiaries                               23,239             29,233
                                                   --------           --------

                                                   $187,102           $119,278
                                                   ========           ========
</TABLE>
<TABLE>

                                                         Years ended December 31,
                                                -----------------------------------------
                                                  2002             2003            2004
                                                  ----             ----            ----
                                                              (In thousands)

Equity in income from continuing
  operations of subsidiaries and
  affiliates:
<S>                                             <C>             <C>             <C>
    Kronos                                      $ 66,264        $ 86,642        $158,373
    CompX                                            646           3,747           6,039
    Other subsidiaries                             2,647           1,803           5,554
                                                --------        --------        --------

                                                $ 69,557        $ 92,192        $169,966
                                                ========        ========        ========
</TABLE>

Note 3 - Long-term debt:

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




                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In thousands)

<TABLE>

                                                              Additions
                                              Balance at     charged to                                                    Balance
                                               beginning      costs and         Net         Currency                        at end
            Description                        of year        expenses      deductions     translation      Other(1)       of year

 Year ended December 31, 2002:
<S>                                            <C>             <C>           <C>             <C>            <C>            <C>
   Allowance for doubtful accounts             $ 3,199         $   939       $(1,074)        $   353        $   -          $ 3,417
                                               =======         =======       =======         =======        ========       =======

     Accrual for planned major
       maintenance activities                  $ 3,389         $ 3,848       $(3,746)        $   495        $   -          $ 3,986
                                               =======         =======       =======         =======        ========       =======

   Amortization of intangibles                 $ 1,010         $   612       $  -            $    (1)       $   -          $ 1,621
                                               =======         =======       =======         =======        ========       =======

 Year ended December 31, 2003:
   Allowance for doubtful accounts             $ 3,417         $   624       $  (537)        $   491        $   -          $ 3,995
                                               =======         =======       =======         =======        ========       =======

     Accrual for planned major
       maintenance activities                  $ 3,986         $ 5,337       $(3,896)        $   900        $   -          $ 6,327
                                               =======         =======       =======         =======        ========       =======

   Amortization of intangibles                 $ 1,621         $   605       $  -            $    19        $   -          $ 2,245
                                               =======         =======       =======         =======        ========       =======

 Year ended December 31, 2004:
   Allowance for doubtful accounts             $ 3,995         $   188       $  (324)        $    (2)       $ (2,849)      $ 1,008
                                               =======         =======       =======         =======        ========       =======

     Accrual for planned major
       maintenance activities                  $ 6,327         $ 5,311       $(4,993)        $  (156)       $ (6,489)      $  -
                                               =======         =======       =======         =======        ========       =======

   Amortization of intangibles                 $ 2,245         $   603       $  -            $    14        $   -          $ 2,862
                                               =======         =======       =======         =======        ========       =======
</TABLE>



Note - Certain  information  has been omitted from this  Schedule  because it is
       disclosed in the notes to the Consolidated Financial Statements.

(1)  Effective July 1, 2004 NL commenced accounting for its investment in Kronos
     Worldwide, Inc. using the equity method and ceased consolidation of Kronos'
     operations at that time.