RESULTS OF OPERATIONS

Business Overview

We are primarily a holding company. We operate through our wholly-owned and majority-owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International, Inc., Tremont LLC and Waste Control Specialists LLC ("WCS"). Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE: CIX) each file periodic reports with the Securities and Exchange Commission ("SEC").

We have three consolidated operating segments:

· Chemicals - Our chemicals segment is operated through our majority ownership of Kronos. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments ("TiO2"). TiO2 is used for a variety of manufacturing applications, including plastics, paints, paper and other industrial products.

· Component Products - We operate in the component products industry through our majority ownership of CompX. CompX is a leading manufacturer of security products, precision ball bearing slides and ergonomic computer support systems used in the office furniture, transportation, tool storage and a variety of other industries. CompX is also a leading manufacturer of stainless steel exhaust systems, gauges and throttle controls for the performance marine industry.

· Waste Management - WCS is our wholly-owned subsidiary which owns and operates a West Texas facility for the processing, treatment and, storage of hazardous, toxic and low level radioactive waste as well as the disposal of hazardous, toxic and certain low level radioactive waste. WCS is in the process of seeking to obtain regulatory authorization to expand its low-level and mixed low-level radioactive waste disposal capabilities.

General

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this Quarterly Report on Form 10-Q that are not historical in nature are forward-looking in nature about our future that are not statements of historical fact. Statements in this report including, but not limited to, statements found in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements that represent our beliefs and assumptions based on currently available information. In some cases you can identify these forward-looking statements 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 we believe the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause our 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 our other filings with the SEC including, but not limited to, the following:

· Future supply and demand for our products;

· The cyclicality of certain of our businesses (such as Kronos' TiO2 operations;

· 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 TiO2in advance of anticipated price decreases;

· Changes in our raw material and other operating costs (such as energy costs);

· The possibility of labor disruptions;

· General global economic and political conditions (such as changes in the level of gross domestic product in various regions of the world and the impact of such changes on demand for, among other things, TiO2);

· Competitive products and substitute products;

· Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts;

· Customer and competitor strategies;

· The impact of pricing and production decisions;

· Competitive technology positions;

· The introduction of trade barriers;

· Restructuring transactions involving us and our affiliates;

· Potential consolidation or solvency of our competitors;

· Demand for high performance marine components;

· The extent to which our subsidiaries were to become unable to pay us dividends;

· Uncertainties associated with new product development;

· Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian kroner and the Canadian dollar);

· Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime and transportation interruptions);

· The timing and amounts of insurance recoveries;

· Our ability to renew or refinance credit facilities;

· Our ability to maintain sufficient liquidity;

· The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters;

· The ultimate ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefit of which has been recognized under the more likely than not recognition criteria (such as Kronos' ability to utilize its German net operating loss carryforwards);

· Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities, or new developments regarding environmental remediation at sites related to our former operations);

· 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);

· The ultimate resolution of pending litigation (such as NL's lead pigment litigation and litigation surrounding environmental matters of NL and Tremont); and

· Possible future litigation.

Net Income (Loss) Overview

Quarter Ended September 30, 2007 Compared to the Quarter Ended September 30, 2008 -

We reported a net loss of $23.2 million, or $.20 per diluted share, in the third quarter of 2008 compared to a net loss of $52.7 million, or $.46 per diluted share, in the third quarter of 2007. Our diluted loss per share decreased from 2007 to 2008 primarily due to the net effects of:

· lower operating income from each of our Chemicals, Component Products and Waste Management Segments in 2008;

· interest income related to an escrow fund recognized by NL in 2008;

· a goodwill impairment recognized by our Component Products Segment in 2008;

· an income tax charge recognized in 2008 due to a net increase in our reserve for uncertain tax positions;

· an income tax charge recognized by our Chemicals Segment in 2007; and

· an income tax benefit recognized by our Chemicals Segment in 2008.

Our net loss in 2007 includes (i) a charge of $.52 per diluted share as a result of the effect of a reduction of the German income tax rates in 2007 and (ii) an income tax benefit of $.04 per diluted share due to a net decrease in our reserve for uncertain tax positions.

Our net loss in 2008 includes (i) a charge of $.06 per diluted share related to the goodwill impairment recognized on the marine products reporting unit of our Components Products Segment and (ii) a charge of $.07 per diluted share due to a net increase in our reserve for uncertain tax positions.

Nine Months Ended September 30, 2007 Compared to Nine Months Ended September 30, 2008 -

We reported a net loss of $29.3 million, or $.25 per diluted share, in the first nine months of 2008 compared to net loss of $31.5 million, or $.27 per diluted share, in the first nine months of 2007. Our diluted loss per share decreased from 2007 to 2008 primarily due to the net effects of:

· lower operating income from each of our Chemicals, Component Products and Waste Management Segments in 2008;

· the elimination of equity in earnings from TIMET starting in the second quarter of 2007 due to the distribution of our TIMET shares in the first quarter of 2007 as a special dividend to our stockholders;

· interest income related to an escrow fund recognized by NL in 2008;

· a goodwill impairment recognized by our Component Products Segment in 2008;

· an income tax charge recognized in 2008 due to a net increase in our reserve for uncertain tax positions;

· an income tax charge recognized by our Chemicals Segment in 2007; and

· an income tax benefit recognized by our Chemicals Segment in 2008.

Our net loss in 2007 includes (net of tax and minority interest):
· a charge of $.05 per diluted share related to the adjustment of certain German income tax attributes within our Chemicals Segment;

· income of $.02 per diluted share related to certain insurance recoveries we recognized;

· a charge of $.52 per diluted share as a result of the effect of a reduction of the German income tax rates in 2007; and

· an income tax benefit of $.04 per diluted share due to a net decrease in our reserve for uncertain tax positions.

Our net loss in 2008 includes (net of tax and minority interest):
· income of $.04 per diluted share related to the adjustment of certain German income tax attributes within our Chemicals Segment;

· interest income of $.02 per diluted share related to certain escrow funds of NL;

· income of $.01 per diluted share related to certain insurance recoveries we recognized;

· a charge of $.06 per diluted share related to goodwill impairment recognized on the marine products reporting unit of our Component Products Segment; and

· a charge of $.07 per diluted share due to a net increase in our reserve for uncertain tax positions.

Current Forecast for 2008 -

We currently expect to report a lower net loss for the full year 2008 as compared to the net loss in 2007 due primarily to the net effects of:
· lower income taxes as the effect of a reduction in German income taxes rates was recognized in 2007;

· no equity in earnings from TIMET as we ceased to account for our interest in TIMET by the equity method following our March 2007 special distribution of TIMET common stock to our stockholders;

· a goodwill impairment charge in the third quarter of 2008 relating to the marine products reporting unit of our Component Products Segment;

· a gain in the fourth quarter of 2008 related to the October 2008 initial closing contained in a settlement agreement related to condemnation proceedings on certain real property formerly owned by NL; and

· lower expected operating income from our Chemicals Segment in 2008 due to continued lower average selling prices and increases in raw material costs.

Segment Operating Results - 2007 Compared to 2008 -

Chemicals -

We consider TiO2 to be a "quality of life" product, with demand affected by gross domestic product (or "GDP") in various regions of the world. Over the long-term, we expect demand for TiO2 will grow by 2% to 3% per year, consistent with our expectations for the long-term growth in GDP. However, even if we and our competitors maintain consistent shares of the worldwide market, demand for TiO2 in any interim or annual period may not change in the same proportion as the change in GDP, in part due to relative changes in the TiO2 inventory levels of our customers. We believe our customers' inventory levels are partly influenced by their expectation for future changes in market TiO2 selling prices.

The factors having the most impact on our reported operating results are:

· Our TiO2 average selling prices;

· Foreign currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro and the Canadian dollar);

· Our TiO2 sales and production volumes; and

· Our manufacturing costs, particularly raw materials, maintenance and energy-related expenses.

The key performance indicators for our Chemicals Segment are our TiO2 average selling prices, and our levels of TiO2 sales and production volumes.

                                    Three months ended Sept. 30,                    Nine months ended Sept. 30,
                                2007             2008         % Change       2007               2008         % Change
                                                       (Dollars in millions)

Net sales                    $    343.3       $    345.6              1 %    $    999.9       $ 1,070.0              7 %
Cost of sales                     277.3            295.9              7           801.4           905.2             13

Gross margin                 $     66.0       $     49.7            (25 )    $    198.5       $   164.8            (17 )

Operating income             $     23.4       $      8.8            (63 )    $     78.3       $    30.6            (61 )

Percent of net sales:
 Cost of sales                       81 %             86 %                           80 %            85 %
 Gross margin                        19               14                             20              15
 Operating income                     7                3                              8               3

Ti02 operating statistics:
 Sales volumes*                     138              121            (12 )%          400             389             (3 )%
 Production volumes*                126              136              -             386             390              1

Percent change in net
 sales:
 Ti02 product pricing                                                 6 %                                            - %
 Ti02 sales volumes                                                 (12 )                                           (3 )
 Ti02 product mix                                                     -                                              2
Changes in currency exchange rates                                    7                                              8

   Total                                                              1 %                                            7 %

* Thousands of metric tons

Net Sales - Our Chemicals Segment's sales increased 1% in the third quarter of 2008 compared to the third quarter of 2007, and increased 7% in the first nine months of 2008 as compared to the same period in 2007. In the third quarter the favorable impact of changes in currency exchange rates, which we estimate increased or sales by $24 million, and increases in average TiO2 prices more than offset the decline in sales volumes. In the year-to-date period, the favorable impact of changes in currency exchange rates, which increased sales by approximately $77 million in the year-to-date period more than offset the impact of lower TiO2 sales volumes. Sales volumes were lower in both the quarter and year-to-date periods as a result of lower demand due to the general downturn in economic growth in all markets. Sales volumes declined less in the year-to-date period as we benefitted from higher export demand earlier in the year. We expect our sales volumes in the fourth quarter of 2008 to be lower than the third quarter of 2008, and we expect our sales volumes for the full year 2008 to be lower than the full year 2007.

Cost of Sales - Our Chemicals Segment's cost of sales increased in the third quarter of 2008 compared to the same period last year primarily due to the impact of a 27% increase in utility costs (primarily energy costs), a 12% increase in raw material costs and currency fluctuations (primarily the euro). Cost of sales increased in the first nine months of 2008 compared to the same period last year primarily due to the impact of a 17% increase in utility costs (primarily energy costs), a 9% increase in raw material costs and currency fluctuations (primarily the euro). Our TiO2 production volumes were flat in the third quarter and increased 1% in the first nine months of 2008 compared to the same periods in 2007, with operating rates were near full capacity in both periods. Our TiO2 production volumes in the first nine months of 2008 were a new record for us.

Our Chemicals Segment's operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos. As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales. We recognized an additional $2.7 million and $2.1 million of additional depreciation expense in the first nine months of 2007 and 2008, respectively, which reduced our reported Chemicals Segment operating income as compared to amounts reported separately by Kronos.

Currency Exchange Rates - Our Chemicals Segment has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada). The majority of sales generated from our foreign operations are denominated in foreign currencies, principally the euro, other major European currencies and the Canadian dollar. A portion of our sales generated from our foreign operations is denominated in the U.S. dollar. Certain raw materials used worldwide, primarily titanium-containing feedstocks, are purchased in U.S. dollars, while labor and other production costs are purchased primarily in local currencies. Consequently, the translated U.S. dollar value of our foreign sales and operating results are subject to currency exchange rate fluctuations which may favorably or adversely impact reported earnings and may affect the comparability of period-to-period operating results. Overall, fluctuations in foreign currency exchange rates had the following effects on our Chemicals Segment's sales and operating income in 2008 as compared to 2007.

                    Three months ended       Nine months ended
                    September 30, 2008       September 30, 2008
                          vs. 2007                vs. 2007
                          Increase (decrease) in millions

Impact on:
 Net sales          $                24     $                 77
 Operating income                     1                      (14 )

Outlook - During the second and third quarters of 2008, we and our competitors announced various price increases and surcharges in response to higher operating costs. A portion of these price increase announcements were implemented during the second and third quarters of 2008, with additional implementation expected during the fourth quarter of 2008. As a result, we expect our average selling prices in the fourth quarter of 2008 will be higher than our average selling prices during the first nine months of the year. We expect overall demand will continue to remain good in export markets, while demand in North America and Europe will be somewhat weaker for the remainder of the year. Overall, we expect our income from operations for the fourth quarter of 2008 will be higher than the third quarter of 2008, as the favorable effects of anticipated improvements in product pricing are expected to offset higher production costs and seasonably lower sales volumes. However, income from operations for the full year 2008 is expected to be lower than 2007. Our expectations as to the future of the TiO2 industry are based upon a number of factors beyond our 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 our expectations, our results of operations could be unfavorably affected.

Through our debottlenecking program, we have added capacity to our German chloride-process facility. In addition, equipment upgrades and enhancements in several locations have allowed us to reduce downtime for maintenance activities. Our production capacity has increased by approximately 30% over the past ten years with only moderate capital expenditures. We believe our annual attainable TiO2 production capacity for 2008 is approximately 532,000 metric tons, with some additional capacity expected to be available in 2009 through our continued debottlenecking efforts.

Component Products -

The key performance indicator for our Component Products Segment is operating
income margin.

                                 Three months ended Sept. 30,                     Nine months ended Sept. 30,
                             2007             2008          % Change          2007             2008         % Change
                                                     (Dollars in millions)

Net sales                 $     46.4       $     43.9              (5 )%   $    135.2       $    128.1             (5 )%
Cost of sales                   34.4             32.7              (5 )          99.2             96.5             (3 )

Gross margin              $     12.0       $     11.2              (7 )%   $     36.0       $     31.6            (12 )%

Operating income (loss)   $      4.3       $     (5.2 )          (219 )%   $     14.7       $      2.3            (84 )%

Percent of net sales:
 Cost of sales                    74 %             74 %                            73 %             75 %
 Gross margin                     26               26                              27               25
 Operating income                  9              (12 )                            11                2

Cost of Sales - Our Component Products Segment's cost of sales decreased in both the third quarter and first nine months of 2008 as compared to the same periods in 2007 due to decreased sales volumes. As a percent of sales, cost of sales was flat in the third quarter and increased in the first nine months of 2008 compared to 2007 primarily as a result of higher raw materials costs, not all of which could be recovered through price increases or surcharges combined with reduced coverage of fixed manufacturing costs from lower sales volume.

Goodwill impairment - During the third quarter of 2008, we recorded a goodwill impairment charge of $10.1 million for the marine components reporting unit of our Component Products Segment. See Note 6 to the Condensed Consolidated Financial Statements.

Operating Income - Excluding the goodwill impairment charge discussed above, our Component Products Segment's operating income as a percentage of sales improved slightly in the third quarter primarily as a result of facility consolidation costs incurred during the third quarter of 2007, cost reductions and improved product mix. Excluding the goodwill impairment charge, operating income as a percentage of sales was flat for the comparative nine-month periods.

Currency Exchange Rates - Our Component Products Segment has substantial operations and assets located outside the United States in Canada and Taiwan. The majority of sales generated from our foreign operations are denominated in the U.S. dollar, with the rest denominated in foreign currencies, principally the Canadian dollar and the New Taiwan dollar. Most of our raw materials, labor and other production costs for foreign operations are denominated primarily in local currencies. Consequently, the translated U.S. dollar values of our 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. Overall, fluctuations in currency exchange rates had the following effects on our Component Products Segment's sales and operating income (loss) in 2008 as compared to 2007.

                         Three months ended Nine months ended
                         September 30, 2008 September 30, 2008
                              Vs. 2007           Vs. 2007
                            Increase (decrease) in millions
Impact on:
 Net sales                       $ -               $1.0
 Operating income (loss)         .3                (.1)

Outlook - Demand continues to be slow across all product segments as customers react to the condition of the overall economy. However, we are experiencing a greater softness in demand in the industries that we serve which are more directly connected to lower consumer spending, as further explained below.

· Our Security Products reporting unit is the least affected by the softness in consumer demand, because we sell products to a diverse number of business customers across a wide range of markets, most of which are not directly impacted by changes in consumer demand. While demand within this segment is not as affected by softness in the overall economy, we expect sales to be lower in the short term.

· Our Furniture Components reporting unit sales are primarily concentrated in the office furniture, toolbox, home appliance and a number of other industries. Several of these industries are more directly affected by consumer demand than those served by our Security Products segment. We expect many of the markets served by Furniture Components to continue to experience low demand in the short term.

· Our Marine Component reporting unit has been affected the most by the slowing economy as the decrease in consumer confidence, the decline in home values, a tighter credit market and higher fuel costs have resulted in a significant reduction in consumer spending in the marine market. The marine market is not currently expected to recover until consumer confidence returns and home values stabilize.

While changes in market demand are not within our control, we are focused on the areas that we can impact. We expect our lean manufacturing and cost cutting . . .