SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
Annual Report pursuant to Section 15(d) of the Securities
Exchange Act of 1934 - for the fiscal year ended December 31, 2005
Commission file number 1-640
A. Full title of the plan and the address of the plan if different from that
of the issuer named below:
NL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
B. Name of issuer of the securities held pursuant to the plan and the address
of its principal executive office:
NL INDUSTRIES, INC.
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator has duly caused this Annual Report to be signed by the undersigned
thereunto duly authorized.
NL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
By: NL INDUSTRIES, INC.
PENSION AND EMPLOYEE
BENEFITS COMMITTEE,
Administrator of
NL Industries, Inc.
Retirement Savings Plan
By: /s/ Gregory M. Swalwell
-----------------------------
Gregory M. Swalwell,
Chairman, Pension and
Employee Benefits Committee
June 28, 2006
NL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
FINANCIAL STATEMENTS
WITH REPORTS OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRMS
December 31, 2005
NL INDUSTRIES, INC. RETIREMENT SAVINGS PLAN
Index of Financial Statements
Page
Reports of Independent Registered Public Accounting Firms
Sutton Frost Cary LLP 2
PricewaterhouseCoopers LLP 3
Financial Statements
Statements of Net Assets Available for Benefits -
December 31, 2004 and 2005 4
Statement of Changes in Net Assets Available for Benefits -
Year ended December 31, 2005 5
Notes to Financial Statements 6
Exhibit A
Consent of Independent Registered Public Accounting Firm
(Sutton Frost Cary LLP)
Exhibit B
Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of NL Industries, Inc. Retirement Savings
Plan:
In our opinion, the accompanying statement of net assets available for
benefits and the related statement of changes in net assets available for
benefits present fairly, in all material respects, the net assets available for
benefits of NL Industries, Inc. Retirement Savings Plan (the "Plan") at December
31, 2005, and the changes in net assets available for benefits for the year then
ended in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Plan's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As further described in Note 2, effective December 31, 2005, the Plan
merged into The Employee 401(k) Retirement Plan.
Sutton Frost Cary LLP
Arlington, Texas
June 2, 2006
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator of NL Industries, Inc. Retirement Savings
Plan:
In our opinion, the accompanying statement of net assets available for
benefits presents fairly, in all material respects, the net assets available for
benefits of NL Industries, Inc. Retirement Savings Plan (the "Plan") at December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America. This financial statement is the
responsibility of the Plan's management. Our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this statement in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement, assessing the accounting principles used
and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Dallas, Texas
June 28, 2005
NL INDUSTRIES, INC. RETIREMENT SAVINGS PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
December 31, 2004 and 2005
2004 2005
---- ----
Assets:
Investments at fair value $24,880,674 $ -
Loans to participants 51,789 -
Cash 656 -
----------- -----------
24,933,119 -
Employer contributions receivable 413,461 -
Interest receivable 12,043 -
----------- -----------
Net assets available for benefits $25,358,623 $ -
=========== ===========
See accompanying notes to financial statements.
NL INDUSTRIES, INC. RETIREMENT SAVINGS PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Year ended December 31, 2005
Additions:
Investment income:
Net appreciation in the fair value of investments $ 87,005
Dividends 592,492
Interest 351,780
-----------
Total investment income 1,031,277
-----------
Contributions:
Participants 563,751
Employer 350,138
-----------
Total contributions 913,889
-----------
Total additions 1,945,166
Deductions - benefits to participants 7,031,751
-----------
Net decrease in net assets available for benefits prior to merger (5,086,585)
Merger to The Employee 401(k) Retirement Plan (20,272,038)
Net assets available for benefits:
Beginning of year 25,358,623
-----------
End of year $ -
===========
See accompanying notes to financial statements.
NL INDUSTRIES, INC. RETIREMENT SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS
Note 1 - Description of Plan and summary of significant accounting policies:
General. The financial statements of the NL Industries, Inc. Retirement
Savings Plan (the "Plan") have been prepared in accordance with accounting
principles generally accepted in the United States of America
("GAAP"). The following description of the Plan provides only general
information. Participants should refer to the Plan agreement for a more complete
description of the Plan's provisions. The Plan was merged into The Employee
401(k) Retirement Plan ("Retirement Plan") on December 31, 2005. See Note 2.
The Plan is a defined contribution plan, which covers eligible salaried and
hourly U.S. employees of NL Industries, Inc. and certain of its U.S.
subsidiaries and affiliates (collectively, the "Employer"), including EWI Re,
Inc. ("EWI") and Kronos Worldwide, Inc (NYSE: KRO). Employees are eligible to
participate in the Plan as of the first entry date, as defined, concurrent with
or next following the completion of six months of eligible service. The Plan is
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA").
NL Industries, Inc. (NYSE: NL) is a subsidiary of Valhi, Inc. (NYSE: VHI).
At December 31, 2005, (i) Valhi held approximately 83% of NL's outstanding
common stock and (ii) Contran Corporation and its subsidiaries held
approximately 92% 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 and the Plan.
At December 31, 2005, NL held approximately 36% of the outstanding common
stock of Kronos, and Valhi held an additional 57% of Kronos' outstanding common
stock. Prior to July 2004, Kronos was a majority-owned subsidiary of NL.
Basis of accounting. The financial statements of the Plan are prepared
under the accrual method of accounting.
Contributions. The majority of the Employer's U.S.
employees are eligible to voluntarily participate in the Plan after six months
of employment. Active participants may make "basic contributions" (as defined by
the Plan) of between 1% and 8% of their eligible compensation. Basic
contributions may consist of a combination of pre-tax and after-tax
contributions. Generally, pre-tax contributions are excluded from the employee's
taxable income until they are distributed. Eligible employees that have elected
to make the maximum basic contribution of 8% may also make supplemental pre-tax
or after-tax contributions of between 1% and up to 92% of their eligible
compensation. Pursuant to the Internal Revenue Code (the "Code"), pre-tax
contributions are limited to $14,000 in 2005 and total participant contributions
(pre-tax and after-tax) and employer contributions are limited to $42,000 in
2005. Eligible employees age 50 or over, by the end of the Plan year, may make
an additional $4,000 pre-tax catch-up contribution.
Highly compensated participants may be required to adjust the amount of
their contributions in order to permit the Plan to satisfy certain
nondiscrimination requirements of the Code.
Contributions from eligible employees are recorded in the period the
employer makes payroll deductions from Plan participants. Employer
contributions, if any, are accrued by the end of each year and are received in
the subsequent year.
Employer contributions include (i) a match equal to a portion of
participants' contributions, (ii) an annual contribution of 4% of employees'
eligible earnings and (iii) with respect to certain participants, a contribution
related to a decision to freeze the U.S. defined benefit plans of NL and Kronos
in 1996. The Company's level of matching contributions is determined annually
and is based upon the attainment of certain operating income target levels
approved by the Management Development and Compensation Committee of the Board
of Directors of Kronos (the "MD&C Committee"). The Company match applies only to
eligible participants' basic contributions. The level of match for 2005 was 50%.
Employees who are eligible to participate in the Plan receive an annual
contribution to their investment accounts of 4% of their eligible compensation,
subject to Internal Revenue Service ("IRS") limitations on eligible
compensation, which for 2005 was $210,000. The Company makes this annual
contribution for each eligible employee regardless of whether the employee
elects to otherwise participate in the Plan. While EWI employees are eligible to
participate in the Plan with the same eligibility requirements and vesting as
described herein, EWI participants are not eligible to make additional after-tax
contributions or to receive an employer match or other employer contributions.
Vesting and benefits. The vesting schedule for participants allows for 20%
vesting of employer contributions following two years of service, 50% vesting
following three years of service, 75% vesting following four years of service,
and 100% vesting following five years of service. A participant with less than
two years of service is 0% vested in employer contributions. Employer
contributions are fully vested upon death, retirement or disability, as provided
in the Plan.
Distributions to participants may occur upon termination or during active
service under prescribed circumstances. Only lump sum distributions are allowed
under the Plan.
Benefits are recorded when paid.
Investments. Investments are recorded at fair value based upon the quoted
market price reported on the last trading day of the period for those securities
listed on a national securities exchange. Listed securities for which no sale
was reported on that date are valued at the mean between the last reported bid
and ask prices. Short-term investments are stated at fair value.
Purchases and sales of investments are reflected on a trade-date basis.
Gains or losses on sales of securities are based on average cost. The Plan
presents in the statements of changes in net assets available for benefits the
net appreciation (depreciation) in the fair value of its investments, which
consists of realized gains or losses, and unrealized appreciation (depreciation)
on investments.
Investment income. Income (loss) from investments is recorded on an accrual
basis. Dividend income is recorded on the ex-dividend date.
Participants' accounts. During the year, participants could direct the Plan
administrator to invest, in 1% increments, their account balance in publicly
traded registered investment companies and pooled funds which are both
administered by Merrill Lynch Trust Company ("Merrill Lynch") or NL's common
stock. The Plan's assets were invested principally in investment funds managed
by (i) Merrill Lynch, (ii) Massachusetts Financial Services, (iii) Oppenheimer
Funds Distributor, Inc., (iv) Harris Associates Securities L.P., (v) Calvert
Asset Management Company and (vi) State Street Research Funds.
Participants may reallocate investments among the available funds on a
daily basis. With respect to investments in NL common stock, participants may
make only one purchase or sale per month. Prior to 2005, participants were also
permitted to invest in the common stocks of Kronos, Valhi and Halliburton
Company, and during 2005 participants could only make sales, but not purchases,
of these common stocks. Prior to the investment in one of the available funds,
contributions may be held as cash and temporarily invested in securities with
maturities of less than one year, issued or guaranteed by the U.S. government or
any agency or instrumentality thereof, or deposited in a bank savings account.
On September 27, 2005 participants were notified that they would not be
able to hold the common stocks of NL, Kronos, Valhi or Halliburton Company in
their account after December 30, 2005. No future contributions or account
transfers could be made to the NL stock fund after October 7, 2005, and if the
participant had not liquidated the balances in the NL, Kronos, Valhi and
Halliburton stock funds prior to December 16, 2005, the Plan would begin to
liquidate them and transfer the proceeds to the Merrill Lynch Equity Index 1
Fund.
In addition to the investment funds described above, a "Loan Fund" is
maintained to account for loans to participants, as permitted by the Plan. A
participant is able to borrow from his/her fund account an amount ranging from a
minimum of $1,000 up to a maximum that is generally equal to the lesser of
$50,000 or 50% of his/her vested account balance. A loan is collateralized by
the balance in the participant's account and bears interest at rates
commensurate with local prevailing rates, which ranged from 5.00% to 9.00%
during the year ended December 31, 2005. Principal and interest are repaid
ratably over a four- to five-year period through semimonthly payroll deductions.
Each participant's account is credited with the eligible employee's
contribution and an allocation of the Employer's contribution and Plan earnings.
Allocations are based on participant earnings, matching or account balances, as
defined in the Plan.
Forfeitures. Forfeitures of employer contributions may occur if a
participant terminates employment and receives a distribution of his account
prior to the full vesting period. Amounts forfeited are used in the following
order in accordance with Plan provisions: (i) to restore the accounts of
reemployed participants, (ii) to restore the accounts of participants or
beneficiaries who apply for forfeited benefits and (iii) to reduce employer
contributions. In 2005, forfeitures were $13,140, and there were no forfeiture
reinstatements. The balance in the forfeiture account was $8,690 at December 31,
2004 and $44,911 at December 31, 2005 before transfer to the Retirement Plan. In
2005, $19,000 of the forfeiture account was used to reduce employer
contributions for the prior year.
Plan termination. The Employer has the right under the Plan to discontinue
its contributions at any time and to terminate the Plan in compliance with the
provisions of ERISA. In the event the Plan is terminated, the accounts of all
participants will become fully vested. The merger of the Plan into the
Retirement Plan (see Note 2) was not a termination of the Plan.
Management estimates. The preparation of financial statements in accordance
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, and changes therein, and disclosure of
contingent assets and liabilities. Actual results may, in some instances, differ
from previously estimated amounts.
Risks and uncertainties. The Plan provides for various investment options
in a variety of stocks, bonds, fixed income securities, mutual funds and other
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is at least reasonably possible that
changes in the values of investment securities will occur in the near term and
that such changes could materially affect participants' account balances and the
amounts reported in the Plan's statement of net assets available for benefits.
Expenses of administering the Plan. The Plan provides that the Employer
will generally reimburse the Plan for administrative expenses paid by the Plan.
The Employer paid all of the Plan's 2005 administrative expenses.
Tax status. The Plan has been notified by the IRS, by letter dated December
12, 2002, that it is a qualified plan under Section 401(a) and Section 401(k) of
the Code, and is therefore exempt from federal income taxes under provisions of
Section 501(a) of the Code.
The Plan has been amended since it was notified of its exempt status by the
IRS. Management believes the Plan currently is designed and operates in
accordance with the applicable requirements of the Code and therefore remains
exempt from federal income taxes under provisions of Section 501(a) of the Code.
Note 2 - Plan Merger:
On December 31, 2005, the Plan was merged into the Retirement Plan
resulting in the transfer of net assets thereto of $20,272,038. Participants of
the Plan began to participate in the Retirement Plan on January 1, 2006.
The merger and resulting change in custodians initiated a "Black Out"
period beginning December 19, 2005 and continuing through January 16, 2006.
During this period, changes could not be made to participant accounts and funds
could not be withdrawn from either the Plan or the Retirement Plan.
Note 3 - Related-party transactions:
Prior to December 31, 2005, certain Plan investments were held in shares of
mutual funds or common collective trusts managed by Merrill Lynch. Merrill Lynch
served as trustee for the Plan until December 31, 2005. Therefore, transactions
involving these investments qualify as party-in-interest transactions.
Three of the available fund options invested in the common stock of NL,
Kronos and Valhi. The activity in these securities for the year ended December
31, 2005 was as follows:
Sales and
distributions, Realized
Purchases at cost Gain (loss) Fair value
--------- -------------- ----------- ----------
NL common stock $4,825 $425,730 $(102,075) $ -
Kronos common stock - 120,130 200,301 -
Valhi common stock - 8,607 40,278 -
Dividend income received from related parties for the year ended December
31, 2005 consisted of $15,350 from NL, $11,619 from Kronos and $1,070 from
Valhi.
Note 4 - Investments:
The Plan's investments are stated at fair value based on quoted market
prices and net appreciation for the year is reflected in the Plan's statement of
changes in net assets available for benefits. The net appreciation consists of
realized gains and losses and unrealized appreciation and depreciation on
investments. The following presents investments that represent 5% or more of the
Plan's net assets.
December 31,
-----------------------------
2004 2005
---- ----
Merrill Lynch Retirement Preservation Trust $8,857,247 $ -
placeStateMassachusetts Financial Services Value Fund 5,916,528 -
Merrill Lynch Equity Index Trust 2,615,066 -
Oakmark International Fund 1,966,013 -
Oppenheimer Capital Appreciation Fund 1,725,733 -
During 2005, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) appreciated by
$87,005 as follows:
Mutual funds $ 211,538
Common stocks (246,985)
Common collective trusts 122,452
----------
$ 87,005
==========
EXHIBIT A
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33025913) of NL Industries, Inc. of our report dated
June 2, 2006 relating to the financial statements of the NL Industries, Inc.
Retirement Savings Plan, which appears in this Form 11-K.
Sutton Frost Cary LLP
Dallas, Texas
June 28, 2006
EXHIBIT B
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33025913) of NL Industries, Inc. of our report dated
June 28, 2005 relating to the financial statements of the NL Industries, Inc.
Retirement Savings Plan, which appears in this Form 11-K.
PricewaterhouseCoopers LLP
Dallas, Texas
June 28, 2006