SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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





For the quarter ended   June 30, 2005           Commission file number 1-640
                       --------------                                  -----




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




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


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



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




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



Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes X  No
                                                                  ---   ---



Number of shares of the Registrant's  common stock outstanding on July 29, 2005:
48,556,134.






                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                                      INDEX




                                                                          Page
                                                                         number

Part I.     FINANCIAL INFORMATION

  Item 1.   Financial Statements

            Consolidated Balance Sheets -
             December 31, 2004; June 30, 2005 (Unaudited)                  3

            Consolidated Statements of Income -
             Three months and six months ended
              June 30, 2004 and 2005 (Unaudited)                           5

            Consolidated Statements of Comprehensive Income -
             Six months ended June 30, 2004 and 2005 (Unaudited)           6

            Consolidated Statement of Stockholders' Equity -
             Six months ended June 30, 2005 (Unaudited)                    7

            Consolidated Statements of Cash Flows -
             Six months ended June 30, 2004 and 2005 (Unaudited)           8

            Notes to Consolidated Financial Statements (Unaudited)        10

  Item 2.   Management's Discussion and Analysis of Financial
             Condition and Results of Operations                          24

  Item 4.   Controls and Procedures                                       38

Part II.    OTHER INFORMATION

  Item 1.   Legal Proceedings                                             41

  Item 4.   Submission of Matters to a Vote of Security Holders           41

  Item 6.   Exhibits                                                      41

                                      -2-
<PAGE>

                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>

               ASSETS                                   December 31,        June 30,
                                                            2004              2005
                                                        ------------       -----------
                                                         (Restated)        (Unaudited)
 Current assets:
<S>                                                     <C>                <C>
   Cash and cash equivalents                            $  99,185          $  101,190
   Restricted cash and cash equivalents                     7,810               4,691
   Restricted marketable debt securities                    9,446              11,538
   Accounts and other receivables                          24,302              23,323
   Refundable income taxes                                     32                 644
   Receivable from affiliates                               1,634                 422
   Inventories                                             28,781              19,945
   Prepaid expenses                                         1,332               2,284
   Deferred income taxes                                   13,604               5,478
                                                        ---------          ----------

       Total current assets                               186,126             169,515
                                                        ---------          ----------

 Other assets:
   Marketable equity securities                            75,793              82,437
   Restricted marketable debt securities                    3,848                   -
   Investment in Kronos Worldwide, Inc.                   175,578             180,928
   Receivable from affiliate                               10,000               8,000
   Deferred income taxes                                      545                   -
   Goodwill                                                20,772              21,020
   Other                                                    3,715               7,505
                                                        ---------          ----------

       Total other assets                                 290,251             299,890
                                                        ---------          ----------

 Property and equipment:
   Land                                                     5,356               8,787
   Buildings                                               26,877              26,977
   Equipment                                              127,044             104,419
   Construction in progress                                 2,431               5,172
                                                        ---------          ----------
                                                          161,708             145,355
   Less accumulated depreciation and amortization          86,490              76,511
                                                        ---------          ----------

       Net property and equipment                          75,218              68,844
                                                        ---------          ----------

                                                        $ 551,595          $  538,249
                                                        =========          ==========
</TABLE>


                                      -3-
<PAGE>









                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>

    LIABILITIES AND STOCKHOLDERS' EQUITY                December 31,        June 30,
                                                            2004              2005
                                                        ------------       -----------
                                                         (Restated)        (Unaudited)
 Current liabilities:
<S>                                                     <C>                <C>
   Current maturities of long-term debt                 $       42         $       41
   Accounts payable                                         14,649             12,498
   Accrued liabilities                                      23,134             24,520
   Accrued environmental costs                              16,570             16,688
   Payable to affiliates                                       391              3,413
   Income taxes                                              3,661                852
   Deferred income taxes                                    23,842               -
                                                        ----------         ----------

       Total current liabilities                            82,289             58,012
                                                        ----------         ----------

 Noncurrent liabilities:
   Long-term debt                                               85                 64
   Accrued pension costs                                     7,968              7,155
   Accrued postretirement benefits costs                    10,572              9,939
   Accrued environmental costs                              51,247             48,128
   Deferred income taxes                                    45,274             52,485
   Other                                                     4,028              3,102
                                                        ----------         ----------

       Total noncurrent liabilities                        119,174            120,873
                                                        ----------         ----------

 Minority interest                                          58,404             49,274
                                                        ----------         ----------

 Stockholders' equity:
   Common stock                                              6,054              6,069
   Additional paid-in capital                              417,760            425,838
   Retained earnings                                        10,970             15,402
   Accumulated other comprehensive income (loss):
     Marketable securities                                  26,783             31,012
     Currency translation                                 (136,648)          (135,040)
     Pension liabilities                                   (33,191)           (33,191)
                                                        ----------         ----------

       Total stockholders' equity                          291,728            310,090
                                                        ----------         ----------

                                                        $  551,595         $  538,249
                                                        ==========         ==========
</TABLE>



Commitments and contingencies (Notes 12 and 14)



          See accompanying notes to consolidated financial statements.


                                      -4-
<PAGE>





                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

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

                                                            Three months ended                Six months ended
                                                                 June 30,                          June 30,
                                                        --------------------------        ------------------------
                                                            2004            2005             2004            2005
                                                            ----            ----             ----            ----
                                                         (Restated)                      (Restated)

<S>                                                      <C>             <C>              <C>             <C>
Net sales                                                $ 342,036       $  45,730        $ 648,879       $  92,573
Cost of sales                                              262,837          35,203          500,244          71,763
                                                         ---------       ---------        ---------       ---------

    Gross margin                                            79,199          10,527          148,635          20,810

Selling, general and administrative expense                 41,096           5,808           82,406          11,930
Other operating income (expense):
  Currency transaction gains (losses), net                     471              39              869             (15)
  Disposition of property and equipment                         21               -               (2)             (4)
  Other income                                               6,858           1,178            6,944           1,443
  Corporate expense                                         (4,584)         (4,223)         (11,292)        (10,060)
                                                         ---------       ---------        ---------       ---------


    Income from operations                                  40,869           1,713           62,748             244

Equity in earnings of Kronos Worldwide, Inc.                     -          11,766                -          19,556
Other income (expense):
  Trade interest income                                        273              23              476              44
  Interest and dividend income from affiliates                 815             620            1,657           1,239
  Other interest income                                        352             794              709           1,660
  Securities transactions, net                                  (3)            118              (25)         14,696
  Interest expense                                          (8,741)           (117)         (18,167)           (197)
                                                         ---------       ---------        ---------       ---------

    Income from continuing operations before
         income taxes and minority interest                 33,565          14,917           47,398          37,242

Provision (benefit) for income taxes                      (298,663)          4,166         (295,191)         12,255

Minority interest in after-tax earnings                    142,543             785          147,825           1,516
                                                         ---------       ---------        ---------       ---------

    Income from continuing operations                      189,685           9,966          194,764          23,471

Discontinued operations                                        185            -                 190            (326)
                                                         ---------       ---------        ---------       ---------

    Net income                                           $ 189,870       $   9,966        $ 194,954       $  23,145
                                                         =========       =========        =========       =========

Cash dividend per share                                  $    -          $     .25        $     -         $     .25
                                                         =========       =========        =========       =========

Earnings per share:
    Basic net income per share                           $    3.93       $     .20        $    4.04       $     .46
                                                         =========       =========        =========       =========

    Diluted net income per share                         $    3.92       $     .20        $    4.03       $     .46
                                                         =========       =========        =========       =========

Weighted-average shares used in the calculation
   of net income per share:
  Basic                                                     48,361          48,553           48,251          48,522
  Dilutive impact of stock options                              63              40              101              55
                                                         ---------       ---------        ---------       ---------

                                                            48,424          48,593           48,352          48,577
                                                         =========       =========        =========       =========
</TABLE>


          See accompanying notes to consolidated financial statements.

                                      -5-
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                     Six months ended June 30, 2004 and 2005

                                 (In thousands)

                                   (Unaudited)
<TABLE>

                                                              2004            2005
                                                              ----            ----
                                                           (Restated)

<S>                                                        <C>              <C>
Net income                                                 $ 194,954        $ 23,145
                                                           ---------        --------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment -
    unrealized holding gains (losses) arising
    during the period                                        (11,082)          4,229

 Currency translation adjustment, net of tax                  (4,014)          1,608
                                                           ---------        --------

      Total other comprehensive income (loss)                (15,096)          5,837
                                                           ---------        --------

          Comprehensive income                             $ 179,858        $ 28,982
                                                           =========        ========
</TABLE>






          See accompanying notes to consolidated financial statements.


                                      -6-
<PAGE>





                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                         Six months ended June 30, 2005

                                 (In thousands)

                                   (Unaudited)
<TABLE>

                                                                                    Accumulated other
                                                                             comprehensive income (loss)
                                            Additional                ----------------------------------------
                                   Common     paid-in     Retained     Marketable   Currency     Pension
                                    stock     capital      deficit     securities  translation  liabilities     Total
                                  -------  -----------   ----------   -----------  -----------  -----------   ----------
                                                         (Restated)

Balance at December 31, 2004
<S>                               <C>         <C>          <C>         <C>          <C>           <C>          <C>
  (Restated)                      $6,054      $417,760     $ 10,970    $  26,783    $(136,648)    $ (33,191)   $291,728

Net income                          -             -          23,145         -            -            -          23,145

Issuance of common stock              15         2,490         -            -            -            -           2,505

Dividends                           -             -         (12,139)        -            -            -         (12,139)

Distribution of shares of
  Kronos Worldwide, Inc.
  common stock                      -             -          (2,637)        -            -            -          (2,637)

Income tax on distribution          -             -          (3,937)        -            -            -          (3,937)

Other comprehensive income, net     -             -            -           4,229        1,608         -           5,837

Redemption of preferred stock
  of subsidiary                     -            5,400         -            -            -            -           5,400

Other                               -              188         -            -            -            -             188
                                  ------      --------     --------    ---------    ---------     ---------    --------

Balance at June 30, 2005          $6,069      $425,838     $ 15,402    $  31,012    $(135,040)    $ (33,191)   $310,090
                                  ======      ========     ========    =========    =========     =========    ========
</TABLE>

          See accompanying notes to consolidated financial statements.

                                      -7-
<PAGE>


                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                     Six months ended June 30, 2004 and 2005

                                 (In thousands)

                                   (Unaudited)

<TABLE>

                                                              2004            2005
                                                              ----            ----
                                                           (Restated)

 Cash flows from operating activities:
<S>                                                        <C>               <C>
   Net income                                              $194,954          $ 23,145
   Depreciation and amortization                             29,289             5,567
   Deferred income taxes:
     Continuing operations                                 (306,260)          (12,540)
     Discontinued operations                                     94              (187)
   Minority interest:
     Continuing operations                                  147,919             1,515
     Discontinued operations                                    (94)             (151)
   Equity in earnings of Kronos Worldwide, Inc.                   -           (19,556)
   Distributions from Kronos Worldwide, Inc.                      -             8,835
   Distributions from TiO2 manufacturing joint venture        8,300                 -
   Net (gains) losses from securities transactions               25           (14,696)
   Other, net                                                 1,526              (142)
   Change in assets and liabilities:
     Accounts and other receivables                         (52,976)           (3,542)
     Inventories                                             52,614               756
     Prepaid expenses                                           933              (603)
     Accrued environmental costs                             (4,932)           (2,918)
     Accounts payable and accrued liabilities               (26,407)             (490)
     Income taxes                                            27,492            (6,837)
     Accounts with affiliates                                   306             2,864
     Other, net                                              (1,166)              867
                                                           --------          --------

         Net cash provided (used) by
           operating activities                              71,617           (18,113)
                                                           --------          --------

 Cash flows from investing activities:
   Capital expenditures                                     (12,660)           (7,394)
   Collection of loans to affiliates                          2,000             2,000
   Change in restricted cash equivalents
     and marketable debt securities, net                      2,470             3,118
   Proceeds from disposal of:
     Business unit                                             -               18,094
     Kronos common stock                                       -               19,176
     Property and equipment                                   2,119                12
   Cash of disposed business unit                              -               (4,006)
   Purchase of shares of CompX International Inc.              -                 (572)
   Other, net                                                    84              -
                                                           --------          --------

         Net cash provided (used) by investing activities    (5,987)           30,428
                                                           --------          --------
</TABLE>


                                      -8-
<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                     Six months ended June 30, 2004 and 2005

                                 (In thousands)

                                   (Unaudited)
<TABLE>

                                                              2004            2005
                                                              ----            ----
                                                           (Restated)

 Cash flows from financing activities:
   Indebtedness:
<S>                                                        <C>               <C>
     Borrowings                                            $ 102,220         $   -
     Principal payments                                     (126,072)              (19)
     Deferred financing costs paid                               (28)              (28)
   Dividends paid                                               -              (12,139)
   Distributions to minority interest                        (12,036)           (1,203)
   Proceeds from issuance of common stock:
     NL common stock                                           8,286             2,693
     CompX common stock                                          330               217
                                                           ---------         ---------

       Net cash used by financing activities                 (27,300)          (10,479)
                                                           ---------         ---------

 Cash and cash equivalents - net change from:
   Operating, investing and financing activities              38,330             1,836
   Currency translation                                         (481)              169
 Cash and cash equivalents at beginning of period             89,525            99,185
                                                           ---------         ---------

 Cash and cash equivalents at end of period                $ 127,374         $ 101,190
                                                           =========         =========


 Supplemental disclosures:
     Cash paid (received) for:
       Interest, net of amounts capitalized                $  17,119         $      82
       Income taxes, net                                     (20,126)           27,764

     Noncash investing activity - note receivable
          received upon disposal of business unit          $    -            $   4,179

</TABLE>




          See accompanying notes to consolidated financial statements.

                                      -9-
<PAGE>

                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


Note 1 - Organization and basis of presentation:

     NL Industries,  Inc. (NYSE: NL) is a subsidiary of Valhi, Inc. (NYSE: VHI).
At June 30, 2005, Valhi held  approximately 83% of NL's outstanding common stock
and 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.

     The  consolidated  balance sheet of NL  Industries,  Inc. and  Subsidiaries
(collectively,  the "Company") as of December 31, 2004 has been derived from the
Company's audited consolidated financial statements at that date included in its
Annual  Report on Form 10-K for the year ended  December 31,  2004,  as amended,
filed with the Securities and Exchange  Commission  ("SEC") on May 31, 2005 (the
"2004 Annual Report").  As noted in such 2004 Annual Report, the Company and its
audit  committee  concluded  that the Company  would  restate  its  consolidated
financial  statements as of December 31, 2004,  and for the year then ended,  to
reflect an additional  $4.2 million,  or $.08 per diluted share,  noncash income
tax  benefit in its  results of  operations  for such  year.  Such $4.2  million
relates to recognition of an additional  deferred  income tax benefit related to
discontinued operations, recognized in the fourth quarter of 2004.

     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.  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.

     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  Company's  quarterly  results of  operations  for 2004,  as
presented herein,  reflects this additional income tax benefit, which aggregated
$8.7 million, or $.18 per diluted share, net of minority interest.

     The  consolidated  balance  sheet at June 30,  2005,  and the  consolidated
statements of income, comprehensive income (loss), stockholders' equity and cash
flows for the interim  periods ended June 30, 2004 and 2005,  have been prepared
by the  Company,  without  audit,  in  accordance  with GAAP.  In the opinion of
management,  all adjustments,  consisting only of normal recurring  adjustments,
necessary  to state  fairly  the  consolidated  financial  position,  results of
operations  and cash flows have been made.  The  results of  operations  for the
interim  periods are not necessarily  indicative of the operating  results for a
full year or of future  operations.  Certain  information  normally  included in
financial  statements  prepared in  accordance  with GAAP has been  condensed or
omitted.  The accompanying  consolidated  financial statements should be read in
conjunction with the 2004 Annual Report.

                                      -10-
<PAGE>


     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 second quarter and first six months of 2004.

     As  disclosed  in  the  2004  Annual  Report,   the  Company  accounts  for
stock-based employee compensation in accordance with Accounting Principles Board
Opinion  ("APBO") No. 25,  "Accounting  for Stock Issued to Employees,"  and its
various interpretations. See Note 16. Under APBO No. 25, no compensation cost is
generally  recognized  for fixed stock  options in which the  exercise  price is
greater than or equal to the market price on the grant date.  Prior to 2004, and
following the cash  settlement of certain stock options held by employees of NL,
the  Company  commenced  accounting  for its stock  options  using the  variable
accounting  method of APBO No. 25 because NL 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  stock  options  with an exercise  price at least equal to the market
price on the date of grant) is accrued as an expense,  with subsequent increases
(decreases)  in the  Company's  market  price  resulting in the  recognition  of
additional  compensation  expense (income).  Net compensation cost recognized by
the  Company in  accordance  with APBO No. 25 was nil in the  second  quarter of
2004,  and  approximately  $1.1  million  in the first six  months of 2004.  Net
compensation income recognized by the Company was approximately $400,000 in both
the second quarter and first six months of 2005.

     The following  table presents what the Company's  consolidated  net income,
and related per share  amounts,  would have been in the second quarter and first
six months of 2004 and 2005 if the Company and its  subsidiaries  and affiliates
had  each  elected  to  account  for  their  respective   stock-based   employee
compensation  related to stock options in accordance  with the fair  value-based
recognition  provisions of Statement of Financial  Accounting Standards ("SFAS")
No. 123,  "Accounting  for  Stock-Based  Compensation,"  for all awards  granted
subsequent to January 1, 1995.
<TABLE>

                                                      Three months                Six months
                                                     ended June 30,             ended June 30,
                                                 --------------------        --------------------
                                                  2004          2005          2004          2005
                                                  ----          ----          ----          ----
                                                      (In millions, except per share amounts)

<S>                                              <C>           <C>           <C>           <C>
Net income as reported                           $189.9        $ 10.0        $195.0        $ 23.1

Adjustments, net of applicable income
 tax effects and minority interest:
  Stock-based employee compensation
    expense determined under APBO No. 25             -            (.3)           .6           (.2)
  Stock-based employee compensation expense
    determined under SFAS No. 123                   (.2)           -            (.3)           -
                                                 ------        ------        ------        ------

Pro forma net income                             $189.7        $  9.7        $195.3        $ 22.9
                                                 ======        ======        ======        ======

Diluted net income per share:
  As reported                                    $ 3.92        $  .20        $ 4.03        $  .46
  Pro forma                                      $ 3.92        $  .19        $ 4.04        $  .46

</TABLE>

                                      -11-
<PAGE>


Note 2 - Business segment information:
                                                        % owned at
  Business segment             Entity                 June 30, 2005
---------------------   ------------------------     ---------------

  Component products    CompX International Inc.            68%
  Chemicals             Kronos Worldwide, Inc.              36%

     The  Company's  ownership of CompX is directly  held  principally  by CompX
Group,  Inc., an  82.4%-owned  subsidiary of the Company.  An affiliate of Valhi
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
includes  NL's  ownership  interest in CompX Group  multiplied  by CompX Group's
ownership  interest in CompX.  During the second  quarter of 2005,  NL purchased
approximately  39,000 shares of CompX common stock in open market  transactions,
representing  approximately  .3% of  CompX's  outstanding  common  stock  for an
aggregate amount of approximately $572,000.

     In March 2005, NL paid its $.25 per share regular quarterly dividend in the
form of shares of Kronos common stock in which approximately  266,000 shares, or
approximately  .5% of Kronos'  outstanding  common stock, were distributed to NL
shareholders  in the form of a  pro-rata  dividend.  NL's  distribution  of such
shares of Kronos  common stock is 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  and NL's adjusted tax basis in such
stock at the date of  distribution.  The Company  recognized  a $3.9 million tax
liability in the first quarter of 2005 related to the Kronos shares distributed,
which in accordance with GAAP has been recognized as a direct charge to retained
earnings.

     During the first six months of 2005, NL sold  approximately  470,000 shares
of Kronos common stock in market transactions for an aggregate of $19.2 million.
The Company  recognized a $14.7  million  pre-tax  securities  transaction  gain
related to such sales.

     CompX (NYSE:  CIX) and Kronos (NYSE:  KRO) each file periodic  reports with
the SEC pursuant to the Securities Exchange Act of 1934, as amended.

                                      -12-
<PAGE>


<TABLE>



                                                      Three months                Six months
                                                     ended June 30,             ended June 30,
                                                 --------------------        --------------------
                                                  2004          2005          2004          2005
                                                  ----          ----          ----          ----
                                                                  (In millions)

 Net sales:
<S>                                              <C>           <C>           <C>           <C>
   Chemicals                                     $295.8        $   -         $559.1        $   -
   Component products                              46.2          45.8          89.8          92.6
                                                 ------        ------        ------        ------

     Total net sales                             $342.0        $ 45.8        $648.9        $ 92.6
                                                 ======        ======        ======        ======

 Segment profit:
   Chemicals                                     $ 40.1        $   -         $ 66.3        $   -
   Component products                               5.1           4.7           7.6           8.9
                                                 ------        ------        ------        ------

     Total segment profit                          45.2           4.7          73.9           8.9

 General corporate items:
   Interest and dividend income
     from affiliates                                 .8            .6           1.7           1.2
   Other interest income                             .4            .8            .7           1.7
   Securities transactions, net                    -               .1            -           14.7
   Insurance recoveries                              .5           1.2            .5           1.2
   Other income                                      .1            .1            .1            .2
   General corporate expenses, net                 (4.6)         (4.3)        (11.3)        (10.1)
   Interest expense                                (8.8)          (.1)        (18.2)          (.2)
                                                 ------        ------        ------        ------

                                                   33.6           3.1          47.4          17.6
 Equity in earnings of Kronos                        -           11.8            -           19.6
                                                 ------        ------        ------        ------

     Income from continuing operations
          before income taxes and
          minority interest                      $ 33.6        $ 14.9        $ 47.4        $ 37.2
                                                 ======        ======        ======        ======

</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 3 - Accounts and other receivables:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                 <C>
 Trade receivables                                     $ 24,759            $ 21,577
 Recoverable VAT and other receivables                      551               2,001
 Allowance for doubtful accounts                         (1,008)               (255)
                                                       --------            --------

                                                       $ 24,302            $ 23,323
                                                       ========            ========
</TABLE>


                                      -13-
<PAGE>



Note 4 - Inventories:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                  <C>
 Raw materials                                         $  8,193             $ 4,286
 Work in process                                         10,827               9,560
 Finished products                                        9,696               6,029
 Supplies                                                    65                  70
                                                       --------            --------

                                                       $ 28,781            $ 19,945
                                                       ========            ========
</TABLE>

Note 5 - Marketable equity securities:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                 <C>
 Valhi common stock                                    $ 75,770            $ 82,410
 Other                                                       23                  27
                                                       --------            --------

                                                       $ 75,793            $ 82,437
                                                       ========            ========
</TABLE>

     At June 30, 2005,  the Company owned  approximately  4.7 million  shares of
Valhi common stock with a quoted market price of $17.50 per share  (December 31,
2004 quoted market price - $16.09 per share).

Note 6 - Investment in Kronos:

     At June 30, 2005,  the Company  held 17.5  million  shares of Kronos with a
quoted  market price of $30.19 per share,  or an aggregate  market value of $529
million.

     Securities  transaction  gains  in the  first  six  months  of 2005  relate
primarily  to NL's $14.7  million  pre-tax  gain from the sale of  approximately
470,000  shares of Kronos  common  stock in market  transactions  for  aggregate
proceeds of $19.2 million.

     At June  30,  2005,  Kronos  reported  total  assets  of $1.3  billion  and
stockholders'  equity of $505.4  million.  Kronos' total assets at June 30, 2005
include current assets of $484.0  million,  net property and equipment of $414.3
million  and an  investment  in a TiO2  manufacturing  joint  venture  of $119.6
million.  Kronos' total liabilities at June 30, 2005 include current liabilities
of $173.3  million,  long-term debt of $461.2  million,  accrued  postretirement
benefits and pension costs  aggregating  $67.1 million and deferred income taxes
of $58.2 million.

     During the three months ended June 30, 2005,  Kronos  reported net sales of
$311.7 million,  income from operations of $57.7 million and net income of $32.9
million. During the six months ended June 30, 2005, Kronos reported net sales of
$603.6 million, income from operations of $104.1 million and net income of $54.3
million.


                                      -14-
<PAGE>


Note 7 - Other noncurrent assets:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                 <C>
 Intangible assets                                     $  3,190            $  2,892
 Note receivable                                              -               4,179
 Other                                                      525                 434
                                                       --------            --------

                                                       $  3,715            $  7,505
                                                       ========            ========
</TABLE>

     The note receivable relates to part of the consideration  received by CompX
from the January 2005 sale of its Thomas Regout  operations in Europe.  See Note
15.

Note 8 - Accrued liabilities:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                 <C>
 Employee benefits                                     $ 14,775            $ 11,899
 Other                                                    8,359              12,621
                                                       --------            --------

                                                       $ 23,134            $ 24,520
                                                       ========            ========
</TABLE>


Note 9 - Other noncurrent liabilities:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

<S>                                                    <C>                 <C>
 Insurance                                             $  2,507            $  2,587
 Other                                                    1,521                 515
                                                       --------            --------

                                                       $  4,028            $  3,102
                                                       ========            ========
</TABLE>


Note 10 - Minority interest:
<TABLE>

                                                     December 31,          June 30,
                                                         2004                2005
                                                     ------------         ----------
                                                              (In thousands)

 Minority interest in net assets:
<S>                                                    <C>               <C>
   CompX International Inc.                            $ 49,154            $ 49,274
   NL Environmental Management Services, Inc.             9,250                -
                                                       --------            --------

                                                       $ 58,404            $ 49,274
                                                       ========            ========

</TABLE>

                                      -15-
<PAGE>


<TABLE>

                                                  Three months ended            Six months ended
                                                       June 30,                     June 30,
                                                ---------------------         --------------------
                                                 2004           2005           2004          2005
                                                 ----           ----           ----          ----
                                                                   (In thousands)

Minority interest in net earnings:
<S>                                             <C>            <C>           <C>            <C>
  Kronos Worldwide, Inc.                        $141,051       $  -          $145,837       $  -
  CompX International Inc.                           943          753           1,431         1,454
  NL Environmental Management Services, Inc.         537           32             537            62
  Subsidiary of Kronos Worldwide, Inc.                12           -               20          -
                                                --------       ------        --------       -------

                                                $142,543       $  785        $147,825       $ 1,516
                                                ========       ======        ========       =======
</TABLE>

     In June 2005, NL's majority-owned  subsidiary,  NL Environmental Management
Services, Inc. ("EMS"), received notices from the three minority shareholders of
EMS indicating they were each exercising their right,  which became  exercisable
on June 1, 2005,  to require EMS to purchase  their shares in EMS as of June 30,
2005  for a  formula-determined  amount  as  provided  in  EMS'  certificate  of
incorporation.  In  accordance  with  the  certificate  of  incorporation,   EMS
determined  the amount  payable to the three  former  minority  shareholders  to
purchase their shares of EMS stock, which aggregated approximately $3.9 million.
In accordance with EMS' certificate of incorporation,  EMS' determination of the
amount payable to the former minority shareholders may be subject to review by a
third party.  EMS has set aside such funds as payment for the shares of EMS, but
the former minority shareholders have not tendered their shares, and accordingly
the  liability  owed  to  these  former  minority   shareholders  has  not  been
extinguished for financial reporting purposes as of June 30, 2005. In accordance
with GAAP, the $3.9 million amount payable to the former  minority  shareholders
has been classified as a current liability at June 30, 2005, and the funds which
have  been set  aside  are  classified  as a  current  asset at such  date.  The
difference  between  the $3.9  million  amount  payable to the  former  minority
shareholders of EMS and the $9.3 million carrying value of the minority interest
in  EMS  as  reflected  in  the  Company's   consolidated  financial  statements
immediately prior to such June 30, 2005 purchase date (or $5.4 million) has been
classified  as a  capital  contribution  in  accordance  with  GAAP,  increasing
additional paid-in capital.  The numerator used in calculating basic and diluted
earnings  per share in the  second  quarter  and first  six  months of 2005,  as
presented herein, is comprised of net income for such periods, less $336,000 and
$642,000, respectively, related to accretion of such stock.

Note 11 - Other income:
<TABLE>

                                                             Six months ended
                                                                 June 30,
                                                         ------------------------
                                                         2004                2005
                                                         ----                ----
                                                              (In millions)

<S>                                                    <C>                  <C>
Insurance recoveries                                   $   495              $ 1,200
Contract dispute settlement                              6,289                 -
Other                                                      160                  243
                                                       -------              -------

                                                       $ 6,944              $ 1,443
                                                       =======              =======
</TABLE>

     Insurance  recoveries  in the  first  six  months  of 2005  relate  to NL's
expected recovery from certain  insolvent former insurance  carriers relating to
settlement of excess insurance coverage claims.

                                      -16-
<PAGE>



Note 12 - Provision for income taxes:
<TABLE>

                                                             Six months ended
                                                                 June 30,
                                                         ------------------------
                                                         2004                2005
                                                         ----                ----
                                                              (In millions)

<S>                                                    <C>                  <C>
 Expected tax expense                                  $  16.6              $  13.0
 Non-U.S. tax rates                                        (.2)                 (.1)
 Incremental U.S. tax and rate differences on                                  (2.2)
  equity in earnings of non-tax group companies             .9
 Change in deferred income tax valuation                                         -
   allowance, net                                       (308.4)
 Nondeductible expenses                                    1.9                   .2
 U.S. state income taxes, net                               .3                   .1
 Refund of prior year German income taxes                 (3.1)                  -
 Excess of book basis over tax basis of Kronos                                  1.5
   common stock sold                                        -
 Tax contingency reserve adjustment, net                 (12.9)                  -
 Other, net                                                9.7                  (.2)
                                                       -------              -------

                                                       $(295.2)             $  12.3
                                                       =======              =======
</TABLE>

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

o    Kronos has received a preliminary  tax assessment  related to 1993 from the
     Belgian tax  authorities  proposing  tax  deficiencies,  including  related
     interest,  of  approximately  euro 6 million ($7 million at June 30, 2005).
     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 ($11 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)
     relating  to the years  1998  through  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,
     including  interest,  of Cdn. $5 million ($4  million).  Kronos has filed a
     protest and believes a  significant  portion of the  assessment  is without
     merit.

     No  assurance  can be given  that  these  unresolved  tax  matters  will be
resolved in the Company's or Kronos' favor in view of the inherent uncertainties
involved in settlement initiatives,  and 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.

                                      -17-
<PAGE>


Note 13 - Employee benefit plans:

     The components of net periodic  defined  benefit  pension cost (income) are
presented in the table below.

<TABLE>

                                                  Three months ended            Six months ended
                                                       June 30,                     June 30,
                                                ---------------------         --------------------
                                                 2004           2005           2004          2005
                                                 ----           ----           ----          ----
                                                                   (In thousands)

<S>                                             <C>            <C>           <C>            <C>
 Service cost                                   $  1,459       $ -           $  3,128       $  -
 Interest cost                                     4,989          758          10,020         1,518
 Expected return on plan assets                   (4,678)      (1,014)         (9,400)       (2,031)
 Amortization of prior service cost                  140         -                281          -
 Amortization of net transition   obligations        147          (18)            290           (35)
 Recognized actuarial losses                         966           98           1,928           198
                                                --------       ------        --------       -------

                                                $  3,023       $ (176)       $  6,247       $  (350)
                                                ========       ======        ========       =======
</TABLE>

     The components of net periodic  postretirement benefits other than pensions
("OPEB") cost are presented in the table below.
<TABLE>

                                                  Three months ended            Six months ended
                                                       June 30,                     June 30,
                                                ---------------------         --------------------
                                                 2004           2005           2004          2005
                                                 ----           ----           ----          ----
                                                                   (In thousands)

<S>                                             <C>            <C>           <C>            <C>
 Service cost                                   $     56       $ -           $    113       $  -
 Interest cost                                       469          211             940           422
 Amortization of prior service credit               (256)         (71)           (511)         (143)
 Recognized actuarial losses                          70         -                141          -
                                                --------       ------        --------       -------

                                                $    339       $  140        $    683       $   279
                                                ========       ======        ========       =======
</TABLE>

Note 14 - Commitments and contingencies:

     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 or risk contribution 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

                                      -18-
<PAGE>


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. If any such future  liability
were to be incurred,  it could have a material  adverse  effect on the Company's
consolidated financial position, results of operations and liquidity.

     NL has reached an agreement  with one of its former  insurance  carriers in
which such carrier would  reimburse NL for a portion of its past and future lead
pigment litigation  defense costs,  although the amount which NL will ultimately
recover from such carrier with respect to such defense  costs  incurred by NL is
not yet  determinable.  NL is also  continuing  discussions  with another former
insurance  carrier with respect to recovery of past and future defense costs. In
addition,  during the second  quarter of 2005,  NL  recognized  $1.2  million of
expected recoveries from certain insolvent former insurance carriers relating to
settlement of excess  insurance  claims.  While NL continues to seek  additional
recoveries  of past  defense  costs as well as an  agreement  related  to future
defense costs, there can be no assurance that NL will be successful in obtaining
reimbursement  for either defense costs or indemnity.  NL has not considered any
potential insurance  recoveries in determining related accruals for lead pigment
litigation matters. Any such additional insurance recoveries would be recognized
when their receipt is deemed probable and the amount is determinable.

     Environmental matters and litigation. 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 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

                                      -19-
<PAGE>


amended by the Superfund  Amendments and  Reauthorization  Act  ("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. If any such future liability
were to be incurred,  it could have a material  adverse  effect on the Company's
consolidated financial statements, results of operations and liquidity.

     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 June 30, 2005, no receivables for recoveries had 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 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.

     A summary of the  activity in the  Company's  accrued  environmental  costs
during the first six months of 2005 is presented in the table below.

                                      -20-
<PAGE>


<TABLE>

                                                                               Amount
                                                                           (In thousands)

<S>                                                                          <C>
 Balance at the beginning of the period                                      $ 67,817
 Additions charged to expense                                                   2,976
 Payments                                                                      (5,977)
                                                                             --------

 Balance at the end of the period                                            $ 64,816
                                                                             ========

 Amounts recognized in the balance sheet at the end of the period:
      Current liability                                                      $ 16,688
      Noncurrent liability                                                     48,128
                                                                             --------

                                                                             $ 64,816
                                                                             ========
</TABLE>

     On a quarterly  basis,  the Company  evaluates the  potential  range of its
liability  at sites  where it has been  named as a PRP or  defendant,  including
sites for which EMS has contractually assumed the Company's obligation.  At June
30, 2005, the Company had accrued $64.8 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  $99 million.
The Company's  estimates of such liabilities have not been discounted to present
value.

     At June 30, 2005, 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.

     At June 30, 2005, the Company had $3 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 the
Company's future environmental remediation and other environmental  expenditures
(December  31, 2004 - $8  million).  Use of such  restricted  balances  does not
affect the Company's consolidated net cash flows.

     Other  litigation.  Reference  is  made to the  2004  Annual  Report  for a
discussion of certain other legal proceedings to which the Company is a party.

     NL 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 of NL containing
asbestos,  silica and/or mixed dust.  Approximately  490 of these types of cases
involving a total of  approximately  14,500  plaintiffs and their spouses remain
pending.  NL has not accrued any amounts for this litigation  because  liability
that might result to NL, if any,  cannot be reasonably  estimated.  In addition,
from time to time, NL has received notices  regarding  asbestos or silica claims
purporting to be brought against former  subsidiaries of NL,  including  notices
provided to insurers  with which NL has entered into  settlements  extinguishing
certain insurance policies. These insurers may seek indemnification from NL.

                                      -21-
<PAGE>



     In  addition  to the  litigation  described  above,  the  Company  and  its
affiliates  are also  involved  in  various  other  environmental,  contractual,
product  liability,  patent (or  intellectual  property),  employment  and other
claims and disputes incidental to its present and former businesses.  In certain
cases,  the Company has insurance  coverage for such items;  however the Company
does  not  currently  expect   additional   material   insurance   coverage  for
environmental claims.

     The  Company  currently  believes  that the  disposition  of all claims and
disputes,  individually or in the aggregate,  should not have a material adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

Note 15 - Discontinued operations:

     As discussed in the 2004 Annual  Report,  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 2), 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 sheet as of December 31, 2004 or its
2004 statement of cash flows. In classifying the net assets of the Thomas Regout
operations as an asset held for sale,  the Company  concluded  that the carrying
amount of the net assets of such  operations  exceeded the estimated  fair value
less costs to sell of such operations,  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 its  estimated  net  realizable
value. Such charge represented an impairment of goodwill.

     In January 2005,  CompX  completed the sale of such operations for proceeds
(net of expenses) of approximately $22.3 million.  The net proceeds consisted of
approximately  $18.1  million  in cash at the  date of sale  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 no longer includes the
results of operations or cash flows of Thomas Regout  subsequent to December 31,
2004 in its consolidated financial statements. The net proceeds from the January
2005  sale of  Thomas  Regout  were  approximately  $860,000  less  than the net
realizable  value  estimated  at the  time  of the  goodwill  impairment  charge
(primarily  due to higher  expenses  associated  with the disposal of the Thomas
Regout  operations),  and  discontinued  operations in the first quarter of 2005
includes a charge related to such differential ($326,000 loss, net of income tax
benefit and minority interest).  During the first six months of 2004, the Thomas
Regout operations reported net sales of $20.6 million, income from operations of
$1.2  million,   interest  expense  of  $800,000  and  net  income  of  $300,000
(approximately $200,000 to NL, net of minority interest).

Note 16 - Accounting principles not yet implemented:

     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 is charged to expense as incurred. Alternatively, in periods of production

                                      -22-
<PAGE>


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.  As  permitted by  regulations  of the SEC the Company will
adopt SFAS No.  123R,  "Share-Based  Payment,"  as of January 1, 2006.  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 January 1, 2006, and to all awards  existing as of December 31, 2005 which
are subsequently modified, repurchased or cancelled. Additionally, as of January
1, 2006,  the Company  will be required to recognize  compensation  cost for the
portion of any  non-vested  award  existing  as of  December  31,  2005 over the
remaining vesting period. Because the number of non-vested awards as of December
31, 2005 with  respect to options  granted by NL is not expected to be material,
and because the Company has not granted any options and does not expect to grant
any options  prior to January 1, 2006,  the effect of adopting  SFAS No. 123R is
not  expected  to be  significant  in so far as it  relates  to  existing  stock
options.  Should NL or its subsidiaries and affiliates,  however, either grant a
significant  number of options or modify,  repurchase or cancel existing options
in the future,  the effect on the Company's  consolidated  financial  statements
could be material.

                                      -23-
<PAGE>


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

RESULTS OF OPERATIONS:

General

     The  Company  reported  net income of $10.0  million,  or $.20 per  diluted
share,  in the second quarter of 2005 compared to net income of $189.9  million,
or $3.92 per diluted  share,  in the second  quarter of 2004.  For the first six
months of 2005, the Company  reported net income of $23.1  million,  or $.46 per
diluted share,  compared to net income of $195.0  million,  or $4.03 per diluted
share, in the first six months of 2004.

     The decrease in the  Company's  diluted  earnings per share from the second
quarter and first six months of 2004 to the second  quarter and first six months
of 2005 is due  primarily  to the net effects of (i) higher  component  products
segment  profit,  (ii)  higher  earnings  attributable  to Kronos'  income  from
operations,  (iii) security transactions gains from the sale of shares of Kronos
common  stock in 2005 and (iv) a  significant  second  quarter  2004  income tax
benefit related to Kronos. The Company currently believes its net income in 2005
will be lower than 2004 due primarily to the effect of such second  quarter 2004
income tax benefits related to Kronos.

     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, 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.

     Also discussed in Note 1, prior to July 2004,  Kronos 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 second quarter and first six months of 2004.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Quarterly Report on Form 10-Q relating to matters that are not historical facts,
are  forward-looking   statements  that  represent   management's   beliefs  and
assumptions based on currently available information. Forward-looking statements
can be  identified  by the use of words such as  "believes,"  "intends,"  "may,"
"should," "could," "anticipates,"  "expected" or comparable  terminology,  or by
discussions  of  strategies  or trends.  Although the Company  believes that the
expectations  reflected in such  forward-looking  statements are reasonable,  it
cannot give any  assurances  that these  expectations  will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could  significantly  impact expected  results,  and actual future results could
differ materially from those described in such forward-looking statements. While
it is not possible to identify all factors,  the Company  continues to face many

                                      -24-
<PAGE>


risks and  uncertainties.  The factors that could cause actual future results to
differ  materially from those described  herein are the risks and  uncertainties
discussed in this Quarterly  Report and those described from time to time in the
Company's  other  filings  with the SEC  include,  but are 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    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.

                                      -25-
<PAGE>


Component products
<TABLE>

                             Three months ended                   Six months ended
                                 June 30,                             June 30,
                      --------------------------------     -------------------------------
                       2004        2005      % Change       2004        2005     % Change
                       ----        ----      --------       ----        ----     --------
                                   (In millions, except percentages and volumes)

<S>                  <C>          <C>             <C>      <C>         <C>            <C>
Net sales            $ 46.2       $ 45.8         -1%       $ 89.8      $ 92.6        +3%
Segment profit          5.1          4.7         -8%          7.6         8.9       +17%
</TABLE>

     Component  product  sales and  operating  income  were  lower in the second
quarter of 2005 as compared to the second  quarter of 2004 due  primarily to the
net effect of lower sales volumes  partially offset by higher selling prices for
certain  products.  Component  product sales and operating income were higher in
the  first  six  months of 2005 as  compared  to the same  period in 2004 as the
effect of higher selling prices for certain products more than offset the impact
of lower sales volumes for certain products.  During the second quarter of 2005,
sales of  precision  slide  products  were 2% higher than the second  quarter of
2004, while sales of security products declined 5%. Sales of ergonomic  products
in the second quarter of 2005 approximated ergonomic product sales in the second
quarter of 2004. For the first six months of 2005,  sales of precision slide and
ergonomic products increased 9% and 5%, respectively,  compared to the first six
months of 2004,  while sales of security  products  declined 3%. The  percentage
changes  in both  precision  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.

     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 the first six months
of 2005,  currency  exchange  rate  fluctuations  did not  significantly  affect
comparisons with 2004.

     While  demand  has  stabilized  across  most of CompX's  product  segments,
certain  customers   continue  to  seek  lower  priced  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. CompX's strategy in responding to the competitive
pricing  pressure  has  included   reducing   production  cost  through  product
reengineering,  improvement in manufacturing  processes or moving  production to
lower-cost  facilities including CompX's 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  pricing  pressures  from Asian
competitors.

                                      -26-
<PAGE>


     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 and
security products to improve operating results.  These actions, along with other
activities to eliminate excess capacity, have been designed to position CompX to
expand more  effectively  on both new product  and new market  opportunities  to
improve CompX's profitability.

Chemicals

     Relative changes in Kronos' TiO2 sales and operating income during the 2004
and 2005 periods  presented  are  primarily due to the net effects of (i) higher
average TiO2 selling prices,  (ii) lower TiO2 selling volumes and (iii) relative
changes  in  foreign  currency  exchange  rates.   Selling  prices  (in  billing
currencies)  for TiO2,  Kronos'  principal  product,  were generally  decreasing
during  the first half of 2004 and  increasing  in the last half of 2004 and the
first six months of 2005.
<TABLE>

                                        Three months ended                   Six months ended
                                            June 30,                             June 30,
                                  ------------------------------       -----------------------------
                                  2004        2005      % Change       2004        2005     % Change
                                  ----        ----      --------       ----        ----     --------
                                            (In millions, except percentages and volumes)

<S>                              <C>         <C>             <C>       <C>        <C>           <C>
Net sales                        $295.8      $311.7         +5%        $559.1     $603.5       +8%
Segment profit                     40.1        59.2        +48%          66.3      107.2      +62%

TiO2 operating
  statistics:
Sales volumes*                    136         122          -10%         255        237        - 7%
Production volumes*               122         127          + 4%         240        249        + 4%

Percentage change in
  Ti02 average selling
  prices:
  Using actual foreign currency
       exchange rates                                      +15%                               +14%
  Impact of changes in foreign
       currency exchange rates                             - 4%                               - 4%
                                                           ----                               ----

  In billing currencies                                    +11%                               +10%
                                                           ====                               ====

_______________________________

* Thousands of metric tons
</TABLE>

     Kronos' sales  increased  $15.9 million (5%) in the second  quarter of 2005
compared to the second  quarter of 2004 and increased  $44.4 million (8%) in the
first six months of 2005 as  compared  to the same period in 2004 due to the net
effects of higher average TiO2 selling  prices,  lower TiO2 selling  volumes and
the favorable effect of fluctuations in foreign currency  exchange rates,  which
increased sales by approximately $10 million and $21 million,  respectively,  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 the second quarter and first six months of 2005
were 11%  higher as  compared  to the  second  quarter of 2004 and 10% higher as
compared  to the  first  six  months  of  2004.  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
the second  quarter of 2005 increased 15% compared to the second quarter of 2004
and  increased  14% for the first six months of 2005  compared  to the first six
months  of  2004.   Reflecting  the   implementation  of  prior  price  increase
announcements, Kronos' average TiO2 selling prices in the second quarter of 2005
increased 2% compared to the first quarter of 2005.

                                      -27-
<PAGE>


     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 15% and 14%
increases in Kronos'  average TiO2 selling  prices during the second quarter and
first six months of 2005 as compared to the second  quarter and first six months
of 2004 using actual  foreign  currency  exchange  rates  prevailing  during the
respective periods (the GAAP measure),  and the 11% and 10% increases in Kronos'
average TiO2 selling prices in billing  currencies (the non-GAAP measure) during
each of 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).

     Kronos'  TiO2 sales  volumes in the second  quarter and first six months of
2005 decreased 10% and 7%, respectively,  compared to the corresponding  periods
in 2004,  with  volumes  lower in all  regions of the world and with the largest
decline in Europe.  Kronos' income from  operations  comparisons  were favorably
impacted by higher production  levels,  which increased 4% in each of the second
quarter and first six months of 2005 as  compared  to the same  periods in 2004.
Kronos'  operating  rates were near full capacity in those periods,  and Kronos'
production volume in the first six months of 2005 was a new record for Kronos.

     Kronos'  segment  profit in the second  quarter of 2004 includes  income of
$6.3 million  ($4.1  million,  or $.08 per diluted  share,  net of income taxes)
related to settlement of a contract dispute with a customer.

     Kronos has  substantial  operations and assets  located  outside the United
States  (particularly  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

                                      -28-
<PAGE>


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 TiO2 sales by  approximately a net $10 million in
the second  quarter of 2005 as compared to the same period in 2004 and increased
TiO2 sales in the first six months of 2005 by approximately $21 million compared
to the  same  period  in 2004.  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 the second  quarter  and first six months of 2005 as  compared  to the second
quarter  and  first six  months of 2004.  Overall,  the net  impact of  currency
exchange rate fluctuations on Kronos' operating income  comparisons  resulted in
approximately a net $2 million increase and a net $3 million increase in Kronos'
income  from  operations  in the  second  quarter  and first six months of 2005,
respectively, as compared to the corresponding periods in 2004.

     Kronos expects its segment profit in 2005 will be significantly higher than
2004,  due primarily to higher  average  selling  prices.  The  quarterly  price
improvements  in average  selling prices since the third quarter of 2004 are the
key to Kronos'  anticipation  that  second half  segment  profit in 2005 will be
significantly  higher than the second half of 2004. Average prices in the second
half of 2005 as compared to the second quarter of 2005 will likely rise modestly
in North  America,  reflecting  the  expected  partial  implementation  of prior
selling price announcements. In Europe and export markets, average prices in the
second  half of 2005  will  likely  decline  from the  second  quarter  of 2005.
Production  volumes in the second  half of 2005 will  likely be similar to those
achieved in the second half of 2004 and are expected to be below the  production
volumes in the first half of 2005, due primarily to certain  finishing  capacity
being taken temporarily offline in order to complete debottlenecking projects at
Kronos' Leverkusen,  Germany facility.  Sales volumes in the second half of 2005
are  expected to be lower than those in the second half of 2004,  and are likely
to be similar  to the sales  volumes  in the first  half of 2005.  While  Kronos
expects its segment  profit in calendar 2005 will be higher than calendar  2004,
Kronos  expects its segment  profit in the second half of 2005 will be below the
first half of 2005.  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.

     Kronos' efforts to debottleneck its production facilities to meet long-term
demand continue to prove  successful.  Such  debottlenecking  efforts  included,
among other things,  the addition of back-end  finishing  capacity to be able to
process a larger  quantity of the base TiO2 produced and equipment  upgrades and
enhancements to allow for reduced downtime for maintenance  activities.  Kronos'
production  capacity has increased by approximately  30% over the past ten years
due to debottlenecking programs, with only moderate capital expenditures. Kronos
believes its annual  attainable  production  capacity for 2005 is  approximately
500,000 metric tons, with approximately  10,000 metric tons additional  capacity
available in 2006 through its continued debottlenecking efforts.

                                      -29-
<PAGE>



Equity in earnings of Kronos - 2005
<TABLE>

                                                       Three months ended         Six months ended
                                                            June 30,                  June 30,
                                                              2005                      2005
                                                       -------------------       ------------------
                                                                      (In millions)

 Kronos historical:
<S>                                                          <C>                        <C>
   Net sales                                                 $311.7                     $603.5
                                                             ======                     ======

   Segment profit                                              59.2                      107.2
   Security transaction gain                                    5.4                        5.4
   Other general corporate, net                                (1.1)                      (2.2)
   Interest expense                                           (11.6)                     (23.4)
                                                             ------                     ------

                                                               51.9                       87.0
   Income tax expense                                          19.0                       32.7
                                                             ------                     ------

     Net income                                              $ 32.9                     $ 54.3
                                                             ======                     ======

   Equity in earnings of Kronos Worldwide, Inc.              $ 11.8                     $ 19.6
                                                             ======                     ======
</TABLE>

     See the preceding  discussion  relating to Kronos'  segment  profit for the
second  quarter and first six months of 2005. The security  transaction  gain in
the second quarter of 2005 relates to Kronos' sale of its passive  interest in a
Norwegian smelting  operation,  which had a nominal carrying value for financial
reporting  purposes,  for  approximately  $5.4 million ($1.3 million or $.03 per
diluted  share,  net of income  taxes and  minority  interest  to the  Company).
Kronos'  interest  expense  in the second  quarter  and first six months of 2005
relates  principally  to Kronos  International,  Inc.'s  ("KII")  Senior Secured
Notes.

General corporate items

     Securities transactions.  Securities transactions in the second quarter and
first six months of 2005 relate  principally  to a $14.7  million  pre-tax  gain
($8.0 million,  or $.17 per diluted share,  net of income taxes) related to NL's
sale  of  approximately   470,000  shares  of  Kronos  common  stock  in  market
transactions  during  the six  months  ended  June 30,  2005.  See Note 2 to the
Consolidated Financial Statements.

     Interest  expense.  Substantially all of the interest expense in the second
quarter and first six months of 2004 relates to Kronos. Interest expense related
to CompX declined by  approximately  $100,000 and $200,000 in the second quarter
and first six months of 2005, respectively compared to the corresponding periods
in 2004 due primarily to lower average levels of outstanding debt. CompX expects
interest  expense  will  continue to be lower  during the  remainder  of 2005 as
compared  to the last half of 2004 due to lower  average  levels of  outstanding
debt.

     Insurance  recoveries.  NL has reached an agreement  with one of its former
insurance carriers in which such carrier would reimburse NL for a portion of its
past and future lead pigment litigation defense costs, although the amount which
NL will ultimately  recover from such carrier with respect to such defense costs
incurred by NL is not yet determinable.  NL is also continuing  discussions with
another  former  insurance  carrier  with respect to recovery of past and future
defense  costs.  In addition,  during the second  quarter of 2005, NL recognized
$1.2 million of expected  recoveries  from certain  insolvent  former  insurance
carriers relating to settlement of excess insurance coverage claims. See Note 11
to the Consolidated Financial Statements.  While NL continues to seek additional
recoveries  of past  defense  costs as well as an  agreement  related  to future
defense costs, there can be no assurance that NL will be successful in obtaining

                                      -30-
<PAGE>


reimbursement  for either defense costs or indemnity.  NL has not considered any
potential insurance  recoveries in determining related accruals for lead pigment
litigation matters. Any such additional insurance recoveries would be recognized
when their receipt is deemed probable and the amount is determinable.

     General corporate  expenses.  Net general corporate  expenses in the second
quarter  and first six months of 2005 were  lower than the same  periods of 2004
due primarily to lower  environmental  remediation and legal expenses of NL. Net
general corporate  expenses in calendar 2005 are currently expected to be higher
than 2004,  primarily due to higher expected legal expenses of NL resulting from
an increase  in  litigation  and related  expenses  for the  remainder  of 2005.
However,  obligations for environmental  remediation 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  with  respect to sites for which no
estimate of liability  can  presently be made.  See Note 14 to the  Consolidated
Financial Statements.

Provision for income taxes

     The principal  reasons for the difference  between the Company's  effective
income tax rate and the U.S. federal statutory income tax rates are explained in
Note 12 to the Consolidated Financial Statements.

     As  previously  reported,  the  Company's  income tax benefit in the second
quarter  of 2004  includes  (i) a $268.6  million  income  tax  benefit  ($135.7
million,  or $2.80 per diluted share, net of minority  interest)  related to the
reversal of a deferred  income tax asset  valuation  allowance  attributable  to
Kronos'  income  tax  attributes  in Germany  (principally  net  operating  loss
carryforwards)  and (ii) a $43.7  million  income tax benefit  ($.90 per diluted
share) related to income tax attributes of a subsidiary of NL.

Minority interest

     See Note 10 to the Consolidated Financial Statements.

Discontinued operations.

     See Note 15 to the Consolidated Financial Statements.

Accounting principles not yet implemented.

     See Note 16 to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES:

Consolidated cash flows

Summary

     The Company's primary source of liquidity on an ongoing short-term (defined
as the twelve-month  period ending June 30, 2006) and long-term  (defined as the
five-year period ending December 31, 2009, the time period for which the Company
generally  does  long-term  budgeting)  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.  In addition,  from time-to-time the
Company may 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  may from  time-to-time  sell  assets  outside the
ordinary  course of business,  the proceeds of which are  generally  used to (i)

                                      -31-
<PAGE>


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.

Operating activities

     Cash flows from operating  activities decreased from $71.6 million provided
by operating activities in the first six months of 2004 to $18.1 million of cash
used by operating activities in the first six months of 2005. This $89.7 million
decrease was due primarily to the  deconsolidation of Kronos,  effective July 1,
2004. As such, cash from operating activities in the first six months of 2005 is
not comparable to the corresponding period in 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.

     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 in 2004 and consists of
amortization of original issue discount or premium on certain  indebtedness  and
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 working  capital  assets  and  liabilities  can have a
significant effect on cash flows from operating activities. CompX's average days
sales outstanding related to its continuing operations increased from 38 days at
December 31, 2004 to 42 days at June 30, 2005,  due to the timing of  collection
on the slightly higher accounts  receivable  balance at the end of June. CompX's
average number of days in inventory related to its continuing  operations was 52
days at both December 31, 2004 and June 30, 2005.

                                      -32-
<PAGE>

     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.



     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 in 2004, and by CompX to NL in 2005).
<TABLE>

                                                             Six months ended
                                                                 June 30,
                                                         ------------------------
                                                         2004                2005
                                                         ----                ----
                                                              (In millions)

Cash provided (used) by operating activities:
<S>                                                    <C>                 <C>
  Kronos                                               $ 67.5              $   -
  CompX                                                  13.6                 8.7
  NL Parent                                               3.8                (7.9)
  Other                                                   (.9)              (16.3)
  Eliminations                                          (12.4)               (2.6)
                                                       ------              ------

                                                       $ 71.6              $(18.1)
                                                       ======              ======
</TABLE>

Investing and financing activities

     In  2005,   substantially  all  of  the  Company's   consolidated   capital
expenditures  relate to CompX.  During the first six months of 2005, (i) NL sold
shares of Kronos common stock in market  transactions  for $19.2  million,  (ii)
CompX received a net $18.1 million from the sale of its Thomas Regout operations
(which had approximately $4.0 million of cash at the date of disposal), (iii) NL
acquired  CompX  common  stock in market  transactions  for $572,000 and (iv) NL
collected $2 million on its loan to one of the Contran family trusts.  See Notes
2 and 15 to the Consolidated Financial Statements.

     Distributions to minority  interest in 2005 consist of CompX dividends paid
to  shareholders  other than NL. Other cash flows from  financing  activities in
2005 relate primarily to proceeds from the issuance of NL and CompX common stock
upon exercise of stock options.

     At June 30, 2005,  unused credit available under existing credit facilities
approximated $47.5 million, all under CompX's revolving credit facility.

     Provisions  contained in certain of the Company's and its subsidiaries' and
affiliates' credit agreements could result in the acceleration of the applicable
indebtedness  prior to its stated  maturity for reasons other than defaults from
failing to comply with typical financial covenants.  For example, certain credit
agreements allow the lender to accelerate the maturity of the indebtedness  upon
a change of control (as defined) of the borrower.  In addition,  certain  credit
agreements  could  result  in  the  acceleration  of  all  or a  portion  of the
indebtedness following a sale of assets outside the ordinary course of business,
which  provision was waived in connection with CompX's sale of its Thomas Regout

                                      -33-
<PAGE>


operations.  Other than  operating  leases  discussed in the 2004 Annual Report,
neither  NL  nor  any of its  subsidiaries  or  affiliates  are  parties  to any
off-balance sheet financing arrangements.

Component products - CompX

     CompX  received  approximately  $18.1  million  cash (net of  expenses)  in
January 2005 upon the sale of its Thomas Regout  operations in the  Netherlands.
See Note 15 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 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.

     Certain of the CompX's  sales  generated  by its  non-U.S.  operations  are
denominated in U.S. dollars.  CompX 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.  CompX has
not entered  into these  contracts  for trading or  speculative  purposes in the
past,  nor does CompX  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 June 30,  2005,  CompX held a series of contracts
maturing  through  September 2005, to exchange an aggregate of U.S. $6.5 million
for an equivalent  amount of Canadian dollars at an exchange rates of Cdn. $1.25
to Cdn. $1.26 per U.S.  dollar.  At June 30, 2005, the actual  exchange rate was
Cdn. $1.23 per U.S.  dollar.  The estimated fair values of such foreign currency
forward contracts at June 30, 2005 is not material.

     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 June 30, 2005,  Kronos had cash,  cash  equivalents  and marketable debt
securities of $21.2 million,  including restricted balances of $3.6 million, and
Kronos had  approximately  $155 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

                                      -34-
<PAGE>


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 June 30,  2005,  Kronos'  outstanding  debt was  comprised of (i) $461.1
million related to KII's Senior Secured Notes and (ii) approximately $200,000 of
other  indebtedness.  During the second  quarter of 2005,  Kronos  extended  the
respective  maturity dates of its European and U.S. revolving credit facilities,
each by three years to June 2008 and September 2008, respectively.

     Kronos'   assets   consist   primarily  of  investments  in  its  operating
subsidiaries,  and  Kronos'  ability to service  its parent  level  obligations,
including the Senior Secured Notes,  depends in large part upon the distribution
of earnings of its subsidiaries,  whether in the form of dividends,  advances or
payments on account of intercompany  obligation,  or otherwise.  None of Kronos'
subsidiaries have guaranteed the Senior Secured Notes,  although KII has pledged
65% of the  common  stock  or  other  ownership  interest  of  certain  of KII's
first-tier operating subsidiaries as collateral of such Senior Secured Notes.

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

     Based upon  Kronos'  expectations  for the TiO2  industry  and  anticipated
demand for Kronos' cash  resources as discussed  herein,  Kronos expects to have
sufficient  short-term and long-term liquidity to meet its obligations including
operations, capital expenditures, debt service and dividends. To the extent that
actual developments differ from Kronos' expectations, Kronos' liquidity could be
adversely affected.

     See Note 12 to the Consolidated Financial Statements for certain income tax
examinations  currently  underway with respect to certain of Kronos'  income tax
returns in various non-U.S.  jurisdictions,  and see Note 14 to the Consolidated
Financial  Statements with respect to certain legal  proceedings with respect to
Kronos.

     Certain of the Kronos'  sales  generated  by its  non-U.S.  operations  are
denominated in U.S. dollars. Kronos 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.  Kronos has
not entered  into these  contracts  for trading or  speculative  purposes in the
past,  nor does Kronos  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.  For the
periods ended June 30, 2004 and 2005,  Kronos has not used hedge  accounting for
any of its  contracts.  To manage such  exchange  rate risk,  at June 30,  2005,
Kronos held a series of  contracts,  which  mature  through  December  2005,  to
exchange an aggregate of U.S. $22.5 million for an equivalent amount of Canadian

                                      -35-
<PAGE>


dollars at an exchange rate of Cdn. $1.23 to Cdn. $1.26 per U.S. dollar. At June
30, 2005, the actual exchange rate was Cdn. $1.23 per U.S. dollar. The estimated
fair value of such foreign currency  forward  contracts at June 30, 2005 was not
material.

     Kronos  International's  assets  consist  primarily of  investments  in its
operating subsidiaries, and its ability to service its parent level obligations,
including the Senior Secured Notes,  depends in large part upon the distribution
of earnings of its subsidiaries,  whether in the form of dividends,  advances or
payments  on account  of  intercompany  obligation,  or  otherwise.  None of its
subsidiaries   have  guaranteed  the  Senior  Secured  Notes,   although  Kronos
International has pledged 65% of the common stock or other ownership interest of
certain of its first-tier  operating  subsidiaries  as collateral of such Senior
Secured Notes.

     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' net assets,  will fluctuate based upon changes in currency
exchange rates.

NL Industries

     At June 30, 2005, NL (exclusive of CompX) had cash,  cash  equivalents  and
marketable debt securities of $84.3 million,  including  restricted  balances of
$16.2 million.  Of such  restricted  balances,  $2.8 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
14 to the Consolidated Financial Statements.

     See Note 12 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 14 to the Consolidated  Financial Statements and Part II,
Item 1,  "Legal  Proceedings"  with  respect to certain  legal  proceedings  and
environmental matters with respect to NL.

     In  addition  to  those  legal  proceedings  described  in  Note  14 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

                                      -36-
<PAGE>


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, enactment of such legislation could have such an effect.

     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 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 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.

     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 the fourth
quarter of 2004,  CompX reinstated its regular  quarterly  dividend at the $.125
per share rate. At that rate, and based on the 10.4 million shares of CompX held
directly or indirectly by NL at June 30, 2005, NL would receive aggregate annual
dividends from CompX of $5.2 million. Kronos' current quarterly dividend is $.25
per share.  At that rate, and based on the 17.5 million shares of Kronos held by
NL at June 30, 2005, NL would receive  aggregate annual dividends from Kronos of
$17.5 million.

     The  Company  and  related  entities  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.  The Company intends to consider such acquisition  activities in the
future and, in connection with this activity,  may consider  issuing  additional
equity   securities  and  increasing  the  indebtedness  of  the  Company,   its
subsidiaries and related  companies.  From time to time, the Company and related
entities  also evaluate the  restructuring  of ownership  interests  among their
respective subsidiaries and related companies.

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.  See page
     28.

                                      -37-
<PAGE>


ITEM 4.  CONTROLS AND PROCEDURES

     General. As discussed in Note 1 to the Consolidated  Financial  Statements,
the Company and its audit  committee  concluded  that the Company should restate
its consolidated  financial  statements as of December 31, 2004 and for the year
then ended,  to reflect an additional  $4.2 million,  or $.08 per diluted share,
noncash  income tax  benefit in its  results  of  operations  for the year ended
December 31, 2004.  Such $4.2 million  relates to  recognition  of an additional
deferred income tax benefit related to discontinued operations, to be recognized
in the fourth quarter of 2004 as a component of discontinued operations.

     The  guidance  set forth in Auditing  Standard  No. 2 ("AS2") of the Public
Company Accounting  Oversight Board states that restatement of previously-issued
financial  statements  to reflect the  correction  of a  misstatement  should be
regarded as at least a significant  control deficiency and as a strong indicator
that a material weakness in internal control over financial reporting exists. In
connection  with this  restatement,  the Company has  concluded  that a material
weakness  existed as of December  31,  2004 which  precludes  the  Company  from
concluding that its internal  control over financial  reporting was effective as
of December 31, 2004. Therefore, the Company's previous conclusion,  as reported
in the Company's  Management Report on Internal Control Over Financial Reporting
contained  in Item 9A of its  Annual  Report  on Form  10-K for the  year  ended
December 31, 2004 (as filed on March 30,  2005),  that it  maintained  effective
internal control over financial  reporting as of December 31, 2004, as set forth
in its Annual  Report on Form 10-K for the year ended  December  31,  2004,  was
restated,  in which (i) the Company concluded it lacked effective controls as of
December  31,  2004  surrounding  the  proper  consideration  of the  effect  of
subsequent events on the evaluation of certain income tax attributes and related
deferred  income  tax  asset  valuation  allowances  in the  preparation  of its
December  31, 2004  consolidated  financial  statements  and (ii) the  Company's
independent registered public accounting firm issued an opinion stating that the
Company did not maintain effective internal control over financial  reporting as
of December 31, 2004.

     In  order  to  remediate  this  material  weakness,  in  May  2005,  and in
connection  with the  Company's  quarterly  close  process for the quarter ended
March 31,  2005,  the  Company  enhanced  its focus  and  instituted  additional
procedures,  to be performed each quarter in connection with the Company's close
process,  that are designed to help ensure that  subsequent  events are properly
evaluated as they pertain to the evaluation of income tax attributes and related
deferred  income  tax  asset  valuation  allowances  in the  preparation  of its
consolidated  financial  statements.  Such  actions  taken with  respect to this
enhanced focus and additional procedures instituted include:

o    The  Company  formed a formal  committee  comprised  of the  Company's  Tax
     Director and Chief  Financial  Officer.  Immediately  before the  Company's
     consolidated  financial statements are issued each quarter,  such committee
     will meet and discuss events or circumstances  that have arisen  subsequent
     to  the  balance  sheet  date,   and  will  evaluate  any  such  events  or
     circumstances to consider  whether any additional  evidence has arisen that
     would  justify  (i)  reversal of an existing  valuation  allowance  or (ii)
     recognizing a valuation  allowance for an existing gross deferred tax asset
     without any current valuation allowance, and

o    Prior to such meeting,  the Company's Chief  Financial  Officer will review
     applicable  resource materials  regarding the evaluation of deferred income
     tax  asset  valuation  allowances  and the  effect  on such  evaluation  of
     subsequent  events,  in order to provide a proper  focus in such meeting on
     the effect of any subsequent events.

                                      -38-
<PAGE>


     In connection  with the Company's  quarterly close process for its quarters
ended March 31, 2005 and June 30, 2005,  this  committee  met and  discussed the
items as described  above.  The Company  remediated  this weakness as of May 10,
2005 (the date of its Form 10-Q for the quarter ended March 31, 2005).

     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
Chief Executive Officer, and Gregory M. Swalwell,  the Company's Vice President,
Finance and Chief  Financial  Officer,  has evaluated  the Company's  disclosure
controls and procedures as of June 30, 2005. Based upon their evaluation,  these
executive  officers have  concluded that the Company's  disclosure  controls and
procedures were effective as of June 30, 2005.

     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 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 an
     unauthorized  acquisition,  use or disposition of the Company's assets that
     could  have a  material  effect  on the  Company's  Consolidated  Financial
     Statements.

     Changes  in  Internal  Control  Over  Financial  Reporting.  Other than the
additional procedures discussed above, instituted in May 2005 in connection with
the  Company's  quarterly  close  process for the quarter  ended March 31, 2005,
there  has been no change  to the  Company's  internal  control  over  financial
reporting  during the quarter ended June 30, 2005 that has materially  affected,
or is reasonably  likely to materially  affect,  the Company's  internal control
over financial reporting.

                                      -39-
<PAGE>


                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

     Reference is made to Note 14 to the Consolidated  Financial  Statements and
to the 2004 Annual Report for descriptions of certain previously  reported legal
proceedings.

     Thomas v. Lead Industries  Association,  et al. (Circuit Court,  Milwaukee,
Wisconsin,  Case No.  99-CV-6411).  In July 2005,  the  Wisconsin  Supreme Court
affirmed the appellate  court's  dismissal of plaintiff's  civil  conspiracy and
enterprise  liability  claims and reversed and  remanded the  appellate  court's
dismissal of plaintiff's risk contribution claim.

     State of Rhode  Island v. Lead  Industries  Association,  et al.  (Superior
Court of Rhode Island, No. 99-5226). In June 2005, NL filed a motion for summary
judgment on the state's Unfair Trade Practices Act claim.

     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.). With respect to the
eight  plaintiffs  remaining  in  Holmes  County  Mississippi,  three  of  these
plaintiffs  voluntarily  dismissed  their claims without  prejudice in May 2005.
With respect to the two plaintiffs  remaining in Jefferson County,  one of these
plaintiffs voluntarily dismissed his claim without prejudice in May 2005.

     City of Milwaukee v. NL Industries,  Inc. and Mautz Paint  (Circuit  Court,
Civil Division, Milwaukee County, Wisconsin, Case No. 01CV003066). In July 2005,
NL withdrew its petition to the Wisconsin  Supreme  Court seeking  review of the
appellate  court's  ruling in December 2004 that reversed and remanded the trial
court's dismissal of the case.

     Jackson,  et al., v. Phillips  Building  Supply of Laurel,  et al. (Circuit
Court of Jones County,  Mississippi,  Dkt. Co.  2002-10-CV1).  In May 2005,  the
court set a trial date of November 2006.

     Harris County, Texas v. Lead Industries Association, et al. (District Court
of Harris County, Texas, No. 2001-21413). In May 2005, the plaintiff voluntarily
dismissed the case without prejudice.

     City of  Chicago  vs.  American  Cyanamid,  et al.  (Circuit  Court of Cook
County, Illinois, No. 02CH16212). In May 2005, the Illinois Supreme Court denied
plaintiff's  petition seeking review of the appellate court's decision affirming
the dismissal of the case.

     Russell v. NL Industries,  Inc., et al.  (Circuit Court of LeFlore  County,
Mississippi,  Civil  Action  No.  No.2002-0235-CICI).  In May  2005,  the  court
dismissed the case with prejudice.

Item 4. Submission of Matters to a Vote of Security Holders

     The Company's 2005 Annual Meeting of Shareholders was held on May 19, 2005.
Cecil H. Moore,  Jr., Glenn R. Simmons,  Harold C. Simmons,  Thomas P. Stafford,
Steven L. Watson and Terry N. Worrell were elected as directors,  each receiving
votes "For" their election from at least 93.4% of the 48.5 million common shares
eligible to vote at the Annual Meeting.

Item 6. Exhibits

               31.1 -  Certification

               31.2 -  Certification

                                      -40-
<PAGE>


               32.1 -  Certification

     The Company  has  retained a signed  original of any of the above  exhibits
that  contains  signatures,  and the Company  will  provide  such exhibit to the
Commission or its staff upon request.  NL will also furnish,  without charge,  a
copy of its Code of Business Conduct and Ethics, its Audit Committee Charter and
its Corporate Governance  Guidelines,  each as adopted by the Company's board of
directors,  upon request.  Such requests  should be directed to the attention of
NL's Corporate  Secretary at NL's corporate offices located at 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240.

                                      -41-
<PAGE>


                                   SIGNATURES


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



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



Date   August 3, 2005                 By /s/ Gregory M. Swalwell
                                         ----------------------------------
                                             Gregory M. Swalwell
                                               Vice President, Finance and
                                               Chief Financial Officer
                                              (Principal Financial Officer)


Date   August 3, 2005                 By /s/ James W. Brown
                                         ----------------------------------
                                             James W. Brown
                                              Vice President and Controller
                                              (Principal Accounting Officer)



                                      -42-
<PAGE>