RESULTS OF OPERATIONS

Business and results of operations overview

We are primarily a holding company. We operate in the component products industry through our majority-owned subsidiary, CompX International Inc. We also own a non-controlling interest in Kronos Worldwide, Inc. Both CompX (NYSE: CIX) and Kronos (NYSE: KRO) file periodic reports with the Securities and Exchange Commission ("SEC").

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.

We account for our 36% non-controlling interest in Kronos by the equity method. 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.

Forward-looking information

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 facts are forward-looking in nature. Statements found in this report including, but not limited to, the 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 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 extent of the dependence of certain of our businesses on certain market sectors,

· The cyclicality of our businesses (such as Kronos' titanium dioxide pigments ("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 TiO2 in advance of anticipated price decreases),

· Changes in raw material and other operating costs (such as energy and steel costs),

· 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 and component products),

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

· Competitive products and substitute products, including increased competition from low-cost manufacturing sources (such as China),

· Customer and competitor strategies,

· Potential consolidation or solvency of our competitors,

· Demand for office furniture,

· Demand for high performance marine components,

· Substitute products,

· The impact of pricing and production decisions,

· Competitive technology positions,

· The introduction of trade barriers,

· Service industry employment levels,

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

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

· The timing and amounts of insurance recoveries,

· Our ability to maintain sufficient liquidity,

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

· CompX's and Kronos' ability to renew or refinance credit facilities,

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

· Potential difficulties in integrating completed or future acquisitions,

· Decisions to sell operating assets other than in the ordinary course of business,

· Uncertainties associated with new product development,

· The ultimate ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefits of which have been recognized under the more-likely-than-not recognition criteria,

· 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 us, with respect to asserted health concerns associated with the use of such products),

· The ultimate resolution of pending litigation (such as our lead pigment, environmental and patent matters), and

· Possible future litigation.

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

Results of Operations
­­­­­­­­­­­­­­­
Net Loss Overview

Quarter Ended March 31, 2009 Compared to Quarter Ended March 31, 2008

Our net loss attributable to NL stockholders was $11.8 million, or $.24 per share, in the first quarter of 2009 compared to a net loss of $.3 million, or $.01 per share, in the first quarter of 2008. Our loss per share increased from 2008 to 2009 due primarily to the net effect of:

· higher equity in losses from Kronos in 2009,

· lower component products income from operations in 2009,

· higher defined benefit pension expense in 2009, and

· higher insurance recoveries in 2009.

Income (loss) from Operations

The following table shows the components of our loss from operations.

                                     Three months ended
                                          March 31,            %
                                     2008           2009       Change
                                        (In millions)

CompX                              $     3.0       $   (.9 )      (130 )%
Insurance recoveries                      .1            .7         773 %
Corporate expense and other, net        (3.8 )        (4.4 )        16 %

Loss from operations               $     (.7 )     $  (4.6 )       567 %

Amounts attributable to CompX relate to its components products business, while the other amounts generally relate to NL. Each of these items is further discussed below.

CompX International Inc.

                                  Three months ended
                                       March 31,             %
                                  2008           2009        Change
                                     (In millions)

Net sales                       $    40.5       $  28.5          (30 )%
Cost of sales                        31.1          23.7          (24 )%

Gross margin                    $     9.4       $   4.8

Income (loss) from operations   $     3.0       $   (.9 )       (130 )%

Percentage of net sales:
Cost of sales                          77 %          83 %
Income (loss) from operations           7 %          (3 )%

Net sales - Our component products sales decreased $12.0 million, or 30%, to $28.5 million in the first quarter of 2009 as compared to $40.5 million in the first quarter of 2008. Net sales decreased due to lower order rates from our customers resulting from unfavorable economic conditions in North America.

Cost of sales and gross margin - Our component products cost of sales as a percentage of sales increased by 6% in the first quarter of 2009 compared to 2008. As a result, gross margin decreased over the same period. The resulting decline in gross margin is primarily due to reduced coverage of overhead and fixed manufacturing costs from lower sales volume and the related under- utilization of capacity partially offset by cost reductions implemented in response to lower sales.

Income (loss) from operations - Our component products income from operations decreased in the first quarter of 2009 to a loss of $937,000 compared to income of $3.0 million for the first quarter of 2008. As a percentage of net sales, operating income (loss) decreased for the first quarter of 2009 compared to the first quarter of 2008 due to the impact of lower gross margin discussed above.

Currency - CompX has substantial operations and assets located outside the United States (in Canada and Taiwan). The majority of sales generated from our non-U.S. operations are denominated in the U.S. dollar, with the remainder denominated in currencies other than the U.S. dollar, principally the Canadian dollar and the New Taiwan dollar. Most raw materials, labor and other production costs for these non-U.S. operations are denominated primarily in local currencies. Consequently, the translated U.S. dollar values of CompX's non-U.S. 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. CompX's net sales were negatively impacted while operating income was positively impacted by currency exchange rates in the following amounts as compared to the currency exchange rates in effect during the corresponding period in the prior year:

                                   Three months ended
                                 March 31, 2009 vs. 2008
                            Increase (decrease), in thousands
Impact on:
  Net sales                $                              (593 )
  Income from operations                                   688

The negative impact on sales relates to sales denominated in non-U.S. dollar currencies translated into lower U.S. dollar sales due to a weakening of the local currency in relation to the U.S. dollar. The positive impact on operating income results from the U.S. dollar denominated sales of non-U.S. operations converted into higher local currency amounts due to the strengthening of the U.S. dollar. This positively impacted our gross margin as it results in more local currency generated from sales to cover the costs of non-U.S. operations which are denominated in local currency.

Outlook - Demand for CompX's products continues to slow as customers react to the condition of the overall economy. While changes in market demand are not within its control, CompX is focused on the areas it can impact. Staffing levels are continuously being evaluated in relation to sales order rates resulting in headcount adjustments, to the extent possible, to match staffing levels with demand. We expect that CompX's lean manufacturing and cost improvement initiatives to continue to positively impact productivity and result in a more efficient infrastructure that CompX can leverage when demand growth returns. Additionally, CompX continues to seek opportunities to gain market share in markets it currently serves, expand into new markets and develop new product features in order to mitigate the impact of reduced demand as well as broaden its sales base.

In addition to challenges with overall demand, volatility in the cost of raw materials is ongoing. While the cost of commodity raw materials declined from the fourth quarter of 2008, we currently expect these costs to continue to be volatile in 2009. If raw material prices increase, CompX may not be able to fully recover the cost by passing them on to our customers through price increases due to the competitive nature of the markets we serve and the depressed economic conditions.

As discussed in Note 10 to the Condensed Consolidated Financial Statements, certain competitors have filed claims against CompX for patent infringement. CompX has denied the allegations of patent infringement and is seeking to have the claims dismissed. While we currently believe the disposition of these claims should not have a material adverse effect on our consolidated financial condition, results of operations or liquidity, we could incur costs defending against such claims that could be material.

General corporate and other items

Insurance recoveries - Insurance recoveries relate to amounts we received from certain of our insurance carriers as reimbursement of prior defense costs incurred by us in connection with litigation. We have agreements with certain insurance carriers pursuant to which the carriers reimburse us for a portion of our past and future litigation defense costs. The insurance recoveries include amounts we received from these carriers. We are not able to determine how much we will ultimately recover from these carriers for the past defense costs we incurred because of certain issues that arise regarding which past defense costs qualify for reimbursement.

While we continue to seek additional insurance recoveries for lead pigment and asbestos litigation matters, we do not know if we will be successful in obtaining additional reimbursement for either defense costs or indemnity. We have not considered any additional potential insurance recoveries in determining accruals for lead pigment litigation matters. Any additional insurance recoveries would be recognized when the receipt is probable and the amount is determinable.

Corporate expense - Corporate expenses were $4.4 million in the first quarter of 2009, $600,000 or 16% higher than in the first quarter of 2008 primarily due to higher defined benefit pension expense, partially offset by lower litigation and related costs in 2009. Included in corporate expense are:

· litigation and related costs of $2.5 million in 2009 compared to $3.1 million in 2008 and

· environmental expenses of $79,000 in 2009, compared to $142,000 in 2008.

We expect that corporate expenses in 2009 will continue to be higher than in 2008, in part due to higher pension expense and higher expected litigation and related expenses. The level of our litigation and related expenses varies from period to period depending upon, among other things, the number of cases in which we are currently involved, the nature of such cases and the current stage of such cases (e.g. discovery, pre-trial motions, trial or appeal, if applicable).

Obligations for environmental remediation costs are difficult to assess and estimate, and it is possible that actual costs for environmental remediation will exceed accrued amounts or that costs will be incurred in the future for sites in which we cannot currently estimate our liability. If these events were to occur in the remainder of 2009, our corporate expenses would be higher than we currently estimate. See Note ­­­­­10 to the Condensed Consolidated Financial Statements.

Equity in net loss of Kronos Worldwide, Inc.

                                                 Three months ended
                                                      March 31,                %
                                                  2008          2009        Change
                                                    (In millions)
Kronos historical:
Net sales                                      $    332.5      $ 248.0          (25 )%
Cost of sales                                       275.4        243.9          (11 )%

Gross margin                                   $     57.1      $   4.1

Income (loss) from operations                  $      9.7      $ (26.3 )       (371 )%
Other, net                                             .4            -
Interest expense                                    (10.6 )       (9.7 )
                                                      (.5 )      (36.0 )
Income tax benefit                                    (.1 )       (9.4 )

Net loss                                       $      (.4 )    $ (26.6 )

Equity in net loss of Kronos Worldwide, Inc.   $      (.1 )    $  (9.6 )


Percentage of net sales:
Cost of sales                                          83 %         98 %
Income (loss) from operations                           3 %        (10 )%

TiO2 operating statistics:
Sales volumes*                                        127           97          (24 )%
Production volumes*                                   132           64          (52 )%

Change in Ti02 net sales:
Ti02 product pricing                                                              5 %
Ti02 sales volume                                                               (24 )
Ti02 product mix                                                                 (2 )
Changes in currency exchange rates                                               (4 )

Total                                                                           (25 )%


_______________________________

* Thousands of metric tons

The key performance indicators for Kronos are TiO2 average selling prices and TiO2 sales and production volumes.

Net sales - Kronos' net sales decreased 25% or $84.5 million compared to the first quarter of 2008 primarily due to a 24% decrease in sales volumes. A 5% increase in average TiO2 selling prices over 2008 was mostly offset by the negative impact of currency exchange rates. Kronos estimates the unfavorable effect of changes in currency exchange rates decreased net sales by approximately $13 million, or 4%, as compared to the same period in 2008. Kronos expects average selling prices in the second quarter of 2009 to be lower than the average selling prices in the first quarter of 2009.

Kronos' sales volumes in the first quarter of 2009 were 24% lower compared to 2008 due to the impact of lower demand in its markets resulting from the current economic conditions. Kronos expects demand will continue to remain below 2008 levels for the remainder of the year.

Cost of sales - Kronos' cost of sales decreased $31.5 million or 11% in the first quarter of 2009 compared to 2008 primarily due to the impact of the 24% decrease in sales volumes, a 52% decrease in TiO2 production volumes, a decrease in maintenance costs of $8.2 million and currency fluctuations (primarily the euro). Cost of sales as a percentage of net sales increased to 98% in the first quarter of 2009 compared to 83% in the first quarter of 2008 due to the unfavorable effects of the significant amount of unabsorbed fixed production costs resulting from reduced production volumes. TiO2 production volumes decreased due to temporary plant curtailments during the first quarter of 2009 that resulted in approximately $50 million of unabsorbed fixed production costs which were charged directly to cost of sales in the first quarter of 2009.

Income (loss) from operations - Kronos' income from operations declined by $36 million from operating income of $9.7 million in the first quarter of 2008 to operating losses of $26.3 million in the first quarter of 2009. Kronos' income
(loss) from operations as a percentage of net sales declined to (10)% in the first quarter of 2009 from 3% in the same period for 2008. This decrease was driven by the decline in gross margin, which fell to 2% for the first quarter of 2009 compared to 17% for the first quarter of 2008. Gross margin decreased primarily because of lower sales volumes and higher manufacturing costs resulting from lower production volumes. Changes in currency rates have positively affected Kronos' gross margin and income (loss) from operations. Kronos estimates the positive effect of changes in currency exchange rates increased income from operations by approximately $28 million in the first quarter of 2009 as compared to the same period in 2008.

Interest expense - Kronos' interest expense decreased $.9 million from $10.6 million in the first quarter of 2008 to $9.7 million in the first quarter of 2009 primarily due to changes in currency exchange rates. Excluding the effect of currency exchange rates, Kronos expects that interest expense will be higher in 2009 as compared to 2008 due to anticipated increased average borrowings under its revolving credit facilities.

Kronos has a significant amount of indebtedness denominated in the euro, primarily the 6.5% Senior Secured Notes. The interest expense it recognizes will vary with fluctuations in the euro exchange rate.

Provision for income taxes - Kronos' income tax benefit was $9.4 million in the first quarter of 2009 compared to an income tax benefit of $.1 million in the same period last year.

Kronos has substantial net operating loss carryforwards in Germany (the equivalent of $817 million for German corporate purposes and $229 million for German trade tax purposes at December 31, 2008). At March 31, 2009, Kronos has concluded that no deferred income tax asset valuation allowance is required to be recognized with respect to such carryforwards, principally because (i) such carryforwards have an indefinite carryforward period, (ii) Kronos has utilized a portion of such carryforwards during the most recent three-year period and (iii) Kronos currently expects to utilize the remainder of such carryforwards over the long term. However, prior to the complete utilization of these carryforwards, particularly if the current economic downturn continues and Kronos generates operating losses in its German operations for an extended period of time, it is possible that Kronos might conclude the benefit of the carryforwards would no longer meet the more-likely-than-not recognition criteria, at which point Kronos would be required to recognize a valuation allowance against some or all of the then-remaining tax benefit associated with the carryforwards.

Currency - Kronos has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada). The majority of its non-U.S. operations' sales 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 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 Kronos' non-U.S. sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect the comparability of period-to-period operating results. Overall, we estimate that fluctuations in currency exchange rates had the following effects on Kronos' sales and income from operations for first quarter of 2009 as compared to the first quarter of 2009.

                                 Three months ended
                               March 31, 2009 vs. 2008
                          Increase (decrease), in millions
Impact on:
 Net sales                $                             (13 )
 Income from operations   $                              28

Outlook - Kronos currently expects that income from operations will continue to be lower in 2009 as compared to 2008 primarily due to higher production costs resulting in part from significantly reduced production volumes and the resulting unabsorbed fixed production costs. Kronos currently expects to report a net loss in 2009 as compared to reporting net income in 2008 due to lower expected income from operations in 2009.

In response to the worldwide economic slowdown and weak consumer confidence, Kronos is significantly reducing its production volumes in 2009 in order to reduce its finished goods inventory and improve its liquidity. Overall industry pigment demand is expected to be lower in 2009 as compared to 2008 as a result of worldwide economic conditions. While Kronos currently expects its sales volumes in 2009 will be lower as compared to 2008, it expects to gain market share following anticipated reductions in industry capacity due to competitors' permanent plant shutdowns. Kronos believes average selling prices in 2009 will decline from year-end 2008 levels during the first half of the year but it anticipates prices will rise during the second half of 2009, which should result in slightly higher average worldwide TiO2 selling prices for the year. To mitigate the negative impact of its significantly reduced production volumes, Kronos is reducing its operating costs where possible, including maintenance expenditures and personnel costs.

Kronos' expectations as to the future of the TiO2 industry are based upon a number of factors beyond its control, including worldwide growth of gross domestic product, competition in the marketplace, solvency and continued operation of competitors, unexpected or earlier than expected capacity additions or reductions and technological advances. If actual developments differ from its expectations, Kronos' results of operations could be unfavorably affected.

Kronos believes that its annual attainable production capacity for 2009 is approximately 532,000 metric tons. Kronos expects that its production volumes in 2009 will be significantly lower than attainable capacity and currently expects it will operate at 70% to 80% of its attainable production capacity in 2009. Expected capacity utilization levels could be adjusted upwards or downwards to match changes in demand for Kronos' product.

Noncontrolling interest in subsidiary - Noncontrolling interest in net income
(loss) of subsidiary decreased $291,000 in the first three months of 2009 as compared to the first three months of 2008 due to lower earnings of CompX in 2009.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated cash flows

Operating activities

Trends in cash flows from operating activities, excluding the impact of deferred taxes and relative changes in assets and liabilities, are generally similar to trends in our income from operations. Cash flows from operating activities decreased from $2.9 million provided by operating activities in the first three months of 2008 to $601,000 used in operating activities in the first three months of 2009.

The $3.5 million decrease in cash provided by operating activities includes the net effect of:

· Kronos' suspension of its quarterly dividend in 2009,

· a higher amount of net cash provided by changes in receivables, inventories, payables and accrued liabilities in 2009 of $7.5 million due primarily to relative changes in CompX's working capital levels,

· higher loss from operations in 2009 of $3.9 million, and

· higher cash paid for income taxes in 2009 of $2.9 million due in part to the timing of taxes paid on CompX's non-U.S. earnings.

We do not have complete access to CompX's cash flows in part because we do not own 100% of CompX. A detail of our consolidated cash flows from operating activities is presented in the table below. Intercompany dividends have been eliminated.

. . .