SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF1934 - For the fiscal year ended December 31, 2001

                          Commission file number 1-5467

                                   VALHI, INC.
-------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                            87-0110150
-------------------------------                           --------------------
(State or other jurisdiction of                              (IRS Employer
 incorporation or organization)                            Identification No.)

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

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

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

                                                     Name of each exchange on
    Title of each class                                   which registered

       Common stock                                  New York Stock Exchange
($.01 par value per share)                           Pacific Stock Exchange

9.25% Liquid Yield Option Notes,                     New York Stock Exchange
     due October 20, 2007

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

                  None.

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

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

As of February 28, 2002,  114,773,617  shares of common stock were  outstanding.
The  aggregate  market  value of the 7.3 million  shares of voting stock held by
nonaffiliates of Valhi, Inc. as of such date approximated $86.6 million.

                       Documents incorporated by reference

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





                              [INSIDE FRONT COVER]


A chart  showing,  as of December  31,  2001,  (i) Valhi's 61%  ownership  of NL
Industries,  Inc., (ii) Valhi's 69% ownership of CompX International Inc., (iii)
Valhi's 90%  ownership of Waste Control  Specialists  LLC, (iv) Valhi's and NL's
80% and 20%, respectively, ownership in Tremont Group, Inc., (v) Tremont Group's
80% ownership of Tremont  Corporation,  (vi) Tremont's 39% ownership of Titanium
Metals Corporation and (vii) Tremont's 21% ownership of NL.





                                     PART I


ITEM 1.   BUSINESS

     As more fully  described on the chart on the  opposite  page,  Valhi,  Inc.
(NYSE:  VHI), has operations  through  majority-owned  subsidiaries or less than
majority-owned affiliates in the chemicals, component products, waste management
and titanium metals  industries.  Information  regarding the Company's  business
segments  and the  companies  conducting  such  businesses  is set forth  below.
Business and geographic  segment financial  information is included in Note 2 to
the  Company's   Consolidated   Financial   Statements,   which  information  is
incorporated herein by reference. The Company is based in Dallas, Texas.

Chemicals                              NL is the world's fifth-largest producer,
  NL Industries, Inc.                  and Europe's second-largest  producer, of
                                       titanium dioxide pigments ("TiO2"), which
                                       are   used   for   imparting   whiteness,
                                       brightness and opacity to a wide range of
                                       products   including  paints,   plastics,
                                       paper, fibers and other "quality-of-life"
                                       products.  NL had an estimated  11% share
                                       of  worldwide  TiO2 sales volume in 2001.
                                       NL has production  facilities  throughout
                                       Europe and North America.

Component Products                     CompX  is  a  leading   manufacturer   of
  CompX International Inc.             ergonomic   computer   support   systems,
                                       precision   ball   bearing   slides   and
                                       security  products for office  furniture,
                                       computer-related   applications   and   a
                                       variety  of  other  products.  CompX  has
                                       production  facilities in North  America,
                                       Europe and Asia.

Waste Management                       Waste   Control   Specialists   owns  and
  Waste Control Specialists LLC        operates a facility in West Texas for the
                                       processing,    treatment,   storage   and
                                       disposal of hazardous,  toxic and certain
                                       types of  low-level  radioactive  wastes.
                                       Waste  Control   Specialists  is  seeking
                                       additional  regulatory  authorizations to
                                       expand   its   treatment   and   disposal
                                       capabilities   for  low-level  and  mixed
                                       radioactive wastes.

Titanium Metals                        Titanium Metals Corporation  ("TIMET") is
  Titanium Metals Corporation          the world's largest  integrated  producer
                                       of  titanium   sponge,   melted  products
                                       (ingot and slab) and mill products. TIMET
                                       had an  estimated  24% share of worldwide
                                       industry   shipments  of  titanium   mill
                                       products  in 2001.  TIMET has  production
                                       facilities in the U.S. and Europe.  TIMET
                                       is continuing  its efforts to develop new
                                       applications    for   titanium   in   the
                                       automotive and other emerging markets.

     Valhi, a Delaware  corporation,  is the successor of the 1987 merger of LLC
Corporation and another entity.  Contran Corporation holds,  directly or through
subsidiaries,   approximately   94%  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 the sole trustee.  Mr. Simmons is Chairman of
the Board and Chief Executive  Officer of Contran and Valhi and may be deemed to
control such companies.  NL (NYSE: NL), CompX (NYSE:  CIX),  Tremont (NYSE: TRE)
and TIMET  (NYSE:  TIE) each  file  periodic  reports  with the  Securities  and
Exchange  Commission.  The  information  set forth  below  with  respect to such
companies has been derived from such reports.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Annual  Report on Form 10-K relating to matters that are not  historical  facts,
including,  but not limited to,  statements  found in this Item 1 -  "Business,"
Item 3 - "Legal Proceedings," Item 7 - "Management's  Discussion and Analysis of
Financial  Condition and Results of Operations" and Item 7A - "Quantitative  and
Qualitative Disclosures About Market Risk," are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes,"   "intends,"  "may,"  "should,"  "could,"   "anticipates,"
"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  risks  and
uncertainties.  Among the factors  that could  cause  actual  future  results to
differ  materially  are the risks and  uncertainties  discussed  in this  Annual
Report and those described from time to time in the Company's other filings with
the Securities  and Exchange  Commission  including,  but not limited to, future
supply and demand for the Company's  products,  the extent of the  dependence of
certain of the  Company's  businesses  on certain  market  sectors  (such as the
dependence of TIMET's titanium metals business on the aerospace  industry),  the
cyclicality of certain of the Company's businesses (such as NL's TiO2 operations
and  TIMET's  titanium  metals  operations),  the  impact of  certain  long-term
contracts on certain of the Company's  businesses (such as the impact of TIMET's
long-term   contracts  with  certain  of  its  customers  and  such   customers'
performance  hereunder),  customer inventory levels (such as the extent to which
NL's 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,  or the relationship  between  inventory levels of
TIMET's  customers and such customer's  current  inventory  requirements and the
impact of such  relationship  on their  purchases  from  TIMET),  changes in 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,   customer  and  competitor
strategies,  the  impact  of  pricing  and  production  decisions,   competitive
technology  positions,  the  introduction  of trade  barriers,  fluctuations  in
currency  exchange  rates (such as changes in the exchange rate between the U.S.
dollar and each of the euro and the Canadian  dollar),  operating  interruptions
(including,  but not limited  to,  labor  disputes,  leaks,  fires,  explosions,
unscheduled or unplanned downtime and transportation interruptions),  recoveries
from insurance claims and the timing thereof (such as NL's insurance claims with
respect to the fire it suffered at one of its German TiO2 production  facilities
in  2001),  potential   difficulties  in  integrating  completed   acquisitions,
uncertainties  associated with new product  development (such as TIMET's ability
to develop new applications for titanium),  environmental matters (such as those
requiring  emission and discharge  standards  for existing and new  facilities),
government laws and  regulations and possible  changes therein (such as a change
in Texas state law which would allow the applicable regulatory agency to issue a
permit for the disposal of low-level radioactive wastes to a private entity such
as Waste Control Specialists,  or 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, Tremont and TIMET) and 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 new information,  future events
or otherwise.



CHEMICALS - NL INDUSTRIES, INC.

     General. NL Industries is an international producer and marketer of TiO2 to
customers in over 100 countries from facilities  located  throughout  Europe and
North  America.  NL's TiO2  operations  are conducted  through its  wholly-owned
subsidiary, Kronos, Inc. Kronos is the world's fifth-largest TiO2 producer, with
an estimated 11% share of worldwide  TiO2 sales  volumes in 2001.  Approximately
one-half of Kronos' 2001 sales volumes were  attributable  to markets in Europe,
where Kronos is the second-largest  producer of TiO2 with an estimated 18% share
of  European  TiO2 sales  volumes.  Kronos has an  estimated  13% share of North
American TiO2 sales volumes.  Ti02 accounted for  substantially  all of NL's net
sales in 2001.

     Pricing  within  the global  TiO2  industry  is  cyclical,  and  changes in
industry  economic  conditions  can  significantly   impact  NL's  earnings  and
operating cash flows.  NL's average TiO2 selling prices (in billing  currencies)
were  generally  decreasing  during  each  quarter  of 2001 as  compared  to the
respective prior quarter.  This compared with generally  increasing TiO2 selling
prices during each quarter of 2000 as compared to the respective  prior quarter,
which  continued the upward trend in prices that began in the fourth  quarter of
1999.

     Products and operations.  Titanium dioxide  pigments are chemical  products
used  for  imparting  whiteness,  brightness  and  opacity  to a wide  range  of
products,  including  paints,  paper,  plastics,  fibers and  ceramics.  TiO2 is
considered to be a  "quality-of-life"  product with demand affected by the gross
domestic product in various regions of the world.

     TiO2 is produced in two crystalline forms: rutile and anatase.  Rutile TiO2
is a more tightly bound crystal that has a higher  refractive index than anatase
TiO2  and,  therefore,   better  opacification  and  tinting  strength  in  many
applications.  Although many end-use  applications  can use either form of TiO2,
rutile TiO2 is the preferred form for use in coatings, plastics and ink. Anatase
TiO2 has a bluer  undertone  and is less  abrasive  than rutile TiO2,  and it is
often preferred for use in paper, ceramics, rubber and man-made fibers.

     Per capita Ti02  consumption  in the United  States and Western  Europe far
exceeds  that in other  areas of the world and these  regions  are  expected  to
continue  to be the  largest  consumers  of TiO2.  Significant  regions for TiO2
consumption  could  emerge  in  Eastern  Europe,  the Far  East or  China if the
economies in these countries develop to the point that quality-of-life products,
including TiO2, are in greater  demand.  Kronos believes that, due to its strong
presence in Western  Europe,  it is well  positioned to participate in potential
growth in consumption of Ti02 in Eastern Europe.

     NL believes  that there are no  effective  substitutes  for TiO2.  However,
extenders such as kaolin clays,  calcium carbonate and polymeric  opacifiers are
used in a number of Kronos' markets. Generally,  extenders are used to reduce to
some extent the  utilization of  higher-cost  TiO2. The use of extenders has not
significantly  changed TiO2 consumption  over the past decade because,  to date,
extenders  generally  have failed to match the  performance  characteristics  of
TiO2.  As a result,  NL believes that the use of extenders  will not  materially
alter the growth of the TiO2 business in the foreseeable future.

     Kronos  currently  produces over 40 different  TiO2 grades,  sold under the
Kronos  trademark,  which  provide a variety of  performance  properties to meet
customers' specific  requirements.  Kronos' major customers include domestic and
international   paint,  paper  and  plastics   manufacturers.   Kronos  and  its
distributors and agents sell and provide technical  services for its products to
over 4,000  customers  with the  majority of sales in Europe and North  America.
Kronos  distributes  its TiO2 by rail,  truck and ocean carrier in either dry or
slurry form.  Kronos and its  predecessors  have  produced and marketed  TiO2 in
North America and Europe for over 80 years. As a result, Kronos believes that it
has developed  considerable  expertise and efficiency in the manufacture,  sale,
shipment and service of its products in domestic and international  markets.  By
volume,  approximately  one-half of Kronos' 2001 TiO2 sales were to Europe, with
about 38% to North America and the balance to export markets.

     Kronos  is also  engaged  in the  mining  and sale of  ilmenite  ore (a raw
material used in the sulfate pigment  production  process described below),  and
Kronos has  estimated  ilmenite  reserves  that are expected to last at least 20
years.  Kronos is also engaged in the manufacture  and sale of iron-based  water
treatment   chemicals  (derived  from  co-products  of  the  pigment  production
processes).  Kronos'  water  treatment  chemicals  are  used  as  treatment  and
conditioning agents for industrial  effluents and municipal  wastewater,  and in
the manufacture of iron pigments.

     Manufacturing process,  properties and raw materials.  TiO2 is manufactured
by Kronos using both the chloride process and the sulfate process. Approximately
70% of Kronos'  current  production  capacity is based on its chloride  process,
which  generates less waste than the sulfate  process.  The sulfate process is a
batch  chemical  process  that  uses  sulfuric  acid to  extract  TiO2.  Sulfate
technology  normally  produces  either anatase or rutile  pigment.  The chloride
process is a  continuous  process in which  chlorine  is used to extract  rutile
Ti02. In general,  the chloride  process is also less intensive than the sulfate
process in terms of capital  investment,  labor and energy.  Because much of the
chlorine is  recycled  and higher  titanium-containing  feedstock  is used,  the
chloride process produces less waste. Once an intermediate TiO2 pigment has been
produced by either the chloride or sulfate process, it is finished into products
with specific  performance  characteristics for particular end-use  applications
through proprietary  processes involving various chemical surface treatments and
intensive  milling and micronizing.  Due to  environmental  factors and customer
considerations,   the   proportion  of  TiO2  industry   sales   represented  by
chloride-process  pigments has increased relative to  sulfate-process  pigments,
and chloride-process production facilities in 2001 represented approximately 60%
of industry capacity.

     During 2001, Kronos operated four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany;  Langerbrugge,  Belgium; and Fredrikstad,  Norway). In North
America, Kronos has a facility in Varennes,  Quebec and, through a manufacturing
joint venture  discussed below, a one-half  interest in a plant in Lake Charles,
Louisiana.  Kronos also owns a Ti02  slurry  facility  in  Louisiana  and leases
various  corporate  and  administrative  offices in the U.S.  and various  sales
offices in Europe.  All of Kronos'  principal  production  facilities are owned,
except  for  the  land  under  the  Leverkusen  facility.   Kronos  also  has  a
governmental  concession  with an unlimited term to operate its ilmenite mine in
Norway. During a portion of 2001, production at Kronos' Leverkusen, Germany TiO2
facility  was halted  due to the  effects  of a March  fire.  See Note 12 to the
Consolidated Financial Statements.

     Kronos'  principal  German operating  subsidiary  leases the land under its
Leverkusen  production  facility  pursuant  to a lease  expiring  in  2050.  The
Leverkusen  facility,  representing about one-third of Kronos' current aggregate
TiO2 production capacity,  is located within an extensive  manufacturing complex
owned by Bayer AG, and Kronos is the only unrelated  party so situated.  Under a
separate supplies and services  agreement  expiring in 2011, Bayer provides some
raw  materials,   auxiliary  and  operating  materials  and  utilities  services
necessary to operate the  Leverkusen  facility.  Both the lease and supplies and
services  agreement restrict Kronos' ability to transfer ownership or use of the
Leverkusen facility.

     Kronos  produced  412,000  metric  tons of TiO2 in  2001,  down 7% from the
record  441,000  metric tons of TiO2 in 2000 and just  slightly  higher than the
411,000  metric  tons of TiO2  Kronos  produced  in 1999.  The  decline  in TiO2
production in 2001 was due in part to the effects of the fire  discussed  above.
Kronos' average production  capacity  utilization rate in 2001 was 91%, compared
to near full capacity  utilization  in 2000 and about 93%  utilization  in 1999.
Kronos   believes  its  current  annual   attainable   production   capacity  is
approximately 455,000 metric tons, including the production capacity relating to
its  one-half  interest in the  Louisiana  plant.  Kronos  expects to be able to
increase its production capacity (primarily at its chloride-process  facilities)
to  approximately  480,000  metric tons during 2005 with only  moderate  capital
expenditures.

     The primary raw materials used in the TiO2 chloride  production process are
chlorine,  coke  and  titanium-containing  feedstock  derived  from  beach  sand
ilmenite and natural  rutile ore.  Chlorine and coke are available from a number
of  suppliers.  Titanium-containing  feedstock  suitable for use in the chloride
process  is  available  from a limited  number of  suppliers  around  the world,
principally  located in Australia,  South Africa,  Canada,  India and the United
States.  Kronos purchases slag refined from ilmenite sand from Richards Bay Iron
and Titanium (Proprietary) Ltd. (South Africa) under a long-term supply contract
that expires at the end of 2006. Natural rutile ore is purchased  primarily from
Iluka  Resources,  Limited  (Australia)  under a long-term  supply contract that
currently  expires  at the end of 2005.  Kronos  does not  expect  to  encounter
difficulties  obtaining long-term  extensions to existing supply contracts prior
to  the  expiration  of the  contracts.  Raw  materials  purchased  under  these
contracts and extensions thereof are expected to meet Kronos' chloride feedstock
requirements over the next several years.

     The primary raw materials used in the TiO2 sulfate  production  process are
sulfuric acid and titanium-containing  feedstock derived primarily from rock and
beach sand  ilmenite.  Sulfuric  acid is available  from a number of  suppliers.
Titanium-containing  feedstock  suitable  for  use in  the  sulfate  process  is
available from a limited number of suppliers  around the world.  Currently,  the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South   Africa.   As  one  of  the  few   vertically-integrated   producers   of
sulfate-process  pigments,  Kronos operates a Norwegian rock ilmenite mine which
provided  all of Kronos'  feedstock  for its  European  sulfate-process  pigment
plants in 2001.  Kronos also purchases sulfate grade slag for its Canadian plant
from Q.I.T. Fer et Titane Inc.  (Canada) under a long-term supply contract which
expires in 2006.

     Kronos believes the availability of titanium-containing  feedstock for both
the  chloride and sulfate  processes  is adequate  for the next  several  years.
Kronos  does not expect to  experience  any  interruptions  of its raw  material
supplies  because of its  long-term  supply  contracts.  However,  political and
economic  instability in certain  countries from which Kronos  purchases its raw
material  supplies could  adversely  affect the  availability of such feedstock.
Should  Kronos'  vendors not be able to meet their  contractual  obligations  or
should Kronos be otherwise unable to obtain necessary raw materials,  Kronos may
incur  higher costs for raw  materials  or may be required to reduce  production
levels,  which may have a material  adverse effect on NL's  financial  position,
results of operations or liquidity.

     TiO2  manufacturing  joint  venture.  Subsidiaries  of Kronos and  Huntsman
International Holdings ("HICI") each own a 50%-interest in a manufacturing joint
venture.  The joint venture owns and operates a  chloride-process  TiO2 plant in
Lake Charles,  Louisiana.  Production from the plant is shared equally by Kronos
and HICI  pursuant to  separate  offtake  agreements.  The  manufacturing  joint
venture operates on a break-even  basis, and accordingly  Kronos' transfer price
for its share of the TiO2 produced is equal to its share of the joint  venture's
costs.  A  supervisory  committee,  composed  of four  members,  two of whom are
appointed  by each  partner,  directs  the  business  and  affairs  of the joint
venture,  including production and output decisions.  Two general managers,  one
appointed and  compensated  by each partner,  manage the operations of the joint
venture acting under the direction of the supervisory committee.

     Competition.  The TiO2  industry  is highly  competitive.  Kronos  competes
primarily on the basis of price,  product quality and technical service, and the
availability of high  performance  pigment grades.  Although certain TiO2 grades
are  considered   specialty  pigments,   the  majority  of  Kronos'  grades  and
substantially all of Kronos'  production are considered  commodity pigments with
price  generally being the most  significant  competitive  factor.  During 2001,
Kronos had an estimated 11% share of worldwide  TiO2 sales  volumes,  and Kronos
believes  that  it is the  leading  seller  of TiO2 in a  number  of  countries,
including Germany and Canada.

     Kronos' principal competitors are E.I. du Pont de Nemours & Co. ("DuPont"),
Millennium  Chemicals,  Inc., HICI,  Kerr-McGee  Corporation and Ishihara Sangyo
Kaisha, Ltd. These five largest competitors have estimated  individual worldwide
shares of TiO2  production  capacity  ranging  from 5% to 23%,  and an aggregate
estimated  70% share of  worldwide  TiO2  production  volume.  DuPont  has about
one-half of total U.S. TiO2 production  capacity and is Kronos'  principal North
American competitor.

     Worldwide capacity additions in the TiO2 market resulting from construction
of greenfield plants require  significant  capital  expenditures and substantial
lead time  (typically  three to five years in NL's  experience).  No  greenfield
plants have been  announced,  and certain  competitors  have announced that they
have either idled or shut down facilities,  but NL expects industry  capacity to
increase as Kronos and its competitors  debottleneck existing facilities.  Based
on factors  described  above,  NL expects  that the average  annual  increase in
industry capacity from announced  debottlenecking projects will be less than the
average  annual  demand  growth for TiO2  during  the next three to five  years.
However,  no assurance  can be given that future  increases in the TiO2 industry
production  capacity and future average annual demand growth rates for TiO2 will
conform  to  NL's  expectations.   If  actual   developments  differ  from  NL's
expectations,  NL and the  TiO2  industry's  performance  could  be  unfavorably
affected.





     Research and  development.  Kronos'  annual  expenditures  for research and
development and certain technical  support programs have averaged  approximately
$6 million during the past three years. TiO2 research and development activities
are  conducted  principally  at  Kronos'  Leverkusen,   Germany  facility.  Such
activities  are  directed  primarily  towards  improving  both the  chloride and
sulfate  production  processes,  improving  product  quality  and  strengthening
Kronos' competitive position by developing new pigment applications.

     Patents and trademarks.  Patents held for products and production processes
are believed to be important to NL and to the continuing  business activities of
Kronos. NL continually  seeks patent protection for its technical  developments,
principally  in the  United  States,  Canada and  Europe,  and from time to time
enters into licensing  arrangements  with third parties.  NL's major trademarks,
including  Kronos,  are  protected  by  registration  in the  United  States and
elsewhere with respect to those products it manufactures and sells.

     Customer base and seasonality. NL believes that neither its aggregate sales
nor  those  of  any of its  principal  product  groups  are  concentrated  in or
materially  dependent  upon any single  customer  or small  group of  customers.
Kronos' largest ten customers  accounted for about one-fourth of chemicals sales
during 2001.  Neither NL's  business as a whole nor that of any of its principal
product  groups  is  seasonal  to any  significant  extent.  Due in  part to the
increase in paint  production  in the spring to meet spring and summer  painting
season demand,  TiO2 sales are generally higher in the second and third calendar
quarters than in the first and fourth calendar quarters.

     Employees. As of December 31, 2001, NL employed approximately 2,500 persons
(excluding employees of the Louisiana joint venture),  with 100 employees in the
United  States and 2,400 at  non-U.S.  sites.  Hourly  employees  in  production
facilities  worldwide,  including the TiO2 joint venture,  are  represented by a
variety of labor unions,  with labor agreements having various expiration dates.
NL believes its labor relations are good.

     Regulatory and  environmental  matters.  Certain of NL'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 NL have the  potential to
cause  environmental  or other  damage.  NL has  implemented  and  continues  to
implement  various  policies and programs in an effort to minimize  these risks.
NL's policy is to maintain  compliance  with applicable  environmental  laws and
regulations at all of its facilities and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely affect NL's production, handling, use, storage,  transportation,  sale
or disposal of such substances as well as NL's consolidated  financial position,
results of operations or liquidity.

     NL's U.S.  manufacturing  operations are governed by federal  environmental
and worker  health and safety laws and  regulations,  principally  the  Resource
Conservation and Recovery Act ("RCRA"),  the Occupational  Safety and Health Act
("OSHA"),  the Clean Air Act, the Clean Water Act, the Safe Drinking  Water Act,
the Toxic Substances Control Act ("TSCA"),  and the Comprehensive  Environmental
Response, Compensation and Liability Act, as amended by the Superfund Amendments
and Reauthorization  Act ("CERCLA"),  as well as the state counterparts of these
statutes.  NL believes that the  Louisiana  Ti02 plant owned and operated by the
joint venture and a slurry  facility owned by NL are in  substantial  compliance
with  applicable   requirements  of  these  laws  or  compliance  orders  issued
thereunder.  From time to time, NL's facilities may be subject to  environmental
regulatory enforcement under such statutes. Resolution of such matters typically
involves the establishment of compliance programs. Occasionally,  resolution may
result in the payment of penalties, but to date such penalties have not involved
amounts  having  a  material  adverse  effect  on  NL's  consolidated  financial
position, results of operations or liquidity.

     NL's   European  and   Canadian   production   facilities   operate  in  an
environmental  regulatory framework in which governmental  authorities typically
are granted  broad  discretionary  powers  which  allow them to issue  operating
permits required for the plants to operate.  NL believes all of its European and
Canadian  plants are in substantial  compliance  with  applicable  environmental
laws.  While the laws regulating  operations of industrial  facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union ("EU").  Germany and Belgium,  each members of the EU, follow the
initiatives of the EU;  Norway,  although not a member,  generally  patterns its
environmental  regulatory  actions  after  the  EU.  Kronos  believes  it  is in
substantial   compliance  with  agreements  reached  with  European   regulatory
authorities  and with an EU directive to control the  effluents  produced by its
TiO2 production facilities.

     NL  has  a  contract   with  a  third   party  to  treat   certain   German
sulfate-process effluents.  Either party may terminate the contract after giving
four  years  notice  with  regard  to  the   Nordenham   plant.   Under  certain
circumstances,  Kronos may terminate the contract after giving six months notice
with respect to treatment of effluents from the Leverkusen plant.

     NL's capital expenditures related to its ongoing  environmental  protection
and  improvement  programs  were  approximately  $5  million  in  2001,  and are
currently expected to approximate $5 million in 2002 and $4 million in 2003.

     NL has been named as a defendant,  potentially responsible party ("PRP") or
both, pursuant to CERCLA and similar state laws in approximately 75 governmental
and private actions  associated with waste disposal sites,  mining locations and
facilities  currently  or  previously  owned,  operated  or  used  by NL or  its
subsidiaries  and  their  predecessors,   certain  of  which  are  on  the  U.S.
Environmental  Protection Agency's Superfund National Priorities List or similar
state lists. See Item 3 - "Legal Proceedings."

COMPONENT PRODUCTS - COMPX INTERNATIONAL INC.

     General.  CompX is a leading manufacturer of precision ball bearing slides,
ergonomic  computer  support  systems and security  products  (cabinet locks and
other locking  mechanisms) for office furniture,  computer-related  applications
and a variety of other products.  CompX's products are principally  designed for
use in medium- to  high-end  applications,  where  product  design,  quality and
durability  are critical to CompX's  customers.  CompX believes that it is among
the world's largest  producers of ergonomic  computer support systems for office
furniture manufacturers, precision ball bearing slides and security products. In
2001,  precision ball bearing slides,  security products and ergonomic  computer
support  systems  accounted  for  approximately  44%,  35% and 17% of net sales,
respectively, with the remaining sales generated from other products.

     In 1999, CompX acquired two slide producers. In 2000, CompX acquired a lock
producer.   See  Note  3  to  the  Consolidated   Financial  Statements.   These
acquisitions have expanded CompX's product lines and customer base.

     Products, product design and development. Precision ball bearing slides are
used in such applications as file cabinets, desk drawers, tool storage cabinets,
imaging  equipment and computer network server cabinets.  These products include
CompX's  Integrated  Slide Lock in which a file cabinet  manufacturer can reduce
the  possibility  of multiple  drawers  being  opened at the same time,  and the
adjustable Ball Lock which reduces the risk of heavily-filled  drawers,  such as
auto mechanic tool boxes, from opening while in movement.

     Security products, or locking mechanisms,  are used in applications such as
computers,  vending and gaming machines,  ignition systems,  motorcycle  storage
compartments,  hotel room safes,  parking meters,  electrical circuit panels and
transportation  equipment as well as office and institutional  furniture.  These
include CompX's KeSet high security system,  which has the ability to change the
keying on a single lock 64 times without removing the lock from its enclosure.

     Ergonomic  computer support systems include  adjustable  computer  keyboard
support  arms,  designed  to attach to office  desks in the  workplace  and home
office environments to alleviate possible strains and stress and maximize usable
workspace, adjustable computer table mechanisms which provide variable workspace
heights, CPU storage devices which minimize adverse effects of dust and moisture
and a number of complementary accessories,  including ergonomic wrist rest aids,
mouse pad supports and computer  monitor  support arms.  These products  include
CompX's  Leverlock  ergonomic  keyboard  arm,  which  is  designed  to make  the
adjustment of the keyboard arm easier for all (including  physically-challenged)
users.

     CompX's  precision  ball  bearing  slides and  ergonomic  computer  support
systems are sold under the Waterloo Furniture Components Limited,  Thomas Regout
and Dynaslide brand names, and its security products are sold under the National
Cabinet Lock,  Fort Lock,  Timberline  Lock and Chicago Lock brand names.  CompX
believes that its brand names are well recognized in the industry.

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

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

     CompX does not believe it is  dependent  upon one or a few  customers,  the
loss of which would have a material  adverse effect on its operations.  In 2001,
the ten largest  customers  accounted for about 36% of component  products sales
(2000 - 35%; 1999 - 33%). In each of the past three years,  none of such largest
customers individually represented over 10% of sales.

     Manufacturing  and  operations.  At December 31, 2001,  CompX  operated six
manufacturing  facilities in North America (two in each of Illinois and Ontario,
Canada and one in each of South  Carolina  and  Michigan),  one  facility in The
Netherlands and two facilities in Taiwan.  Ergonomic  products or precision ball
bearing  slides are  manufactured  in the  facilities  located  in  Canada,  The
Netherlands,  Michigan and Taiwan and security  products are manufactured in the
facilities  located in South Carolina and Illinois.  All of such  facilities are
owned by CompX  except for one of the  facilities  in Taiwan and the facility in
The Netherlands,  which are leased.  See Note 12 to the  Consolidated  Financial
Statements.  CompX  also  leases a  distribution  center  in  California.  CompX
believes that all its facilities are well maintained and  satisfactory for their
intended purposes.

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

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

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

     CompX  competes in the ergonomic  computer  support  system market with one
major producer and a number of smaller domestic and foreign  manufacturers  that
compete  primarily on the basis of product  quality,  features and price.  CompX
competes in the precision ball bearing slide market with two large manufacturers
and a  number  of  smaller  domestic  and  foreign  manufacturers  that  compete
primarily  on the basis of product  quality  and price.  CompX  competes  in the
security products market with a variety of relatively small domestic and foreign
competitors, which makes significant selling price increases difficult. Although
CompX believes that it has been able to compete  successfully  in its markets to
date, there can be no assurance that it will be able to continue to do so in the
future.

     Patents and  trademarks.  CompX  holds a number of patents  relating to its
component  products,  certain of which are  believed by CompX to be important to
its continuing  business  activities,  and owns a number of trademarks and brand
names,  including  National Cabinet Lock, Fort Lock,  Timberline  Lock,  Chicago
Lock,  Thomas  Regout,  STOCK LOCKS,  ShipFast,  Waterloo  Furniture  Components
Limited and Dynaslide.  CompX believes these  trademarks are well  recognized in
the component products industry.

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

     Employees.  As of December 31, 2001,  CompX  employed  approximately  2,000
employees,  including  790 in the  United  States,  710  in  Canada,  340 in The
Netherlands and 160 in Taiwan.  Approximately 79% of CompX's employees in Canada
are covered by a collective  bargaining  agreement which expires in 2003.  CompX
believes its labor relations are satisfactory.

WASTE MANAGEMENT - WASTE CONTROL SPECIALISTS LLC

     General.   Waste  Control  Specialists  LLC,  formed  in  1995,   completed
construction  in early 1997 of the initial  phase of its  facility in West Texas
for the  processing,  treatment,  storage and disposal of certain  hazardous and
toxic  wastes,  and the first of such wastes were received for disposal in 1997.
Subsequently,   Waste   Control   Specialists   has  expanded   its   permitting
authorizations to include the processing, treatment and storage of low-level and
mixed  radioactive  wastes  and the  disposal  of  certain  types  of  low-level
radioactive  wastes. To date, Valhi has contributed $75 million to Waste Control
Specialists in return for its 90% membership equity interest, which cash capital
contributions  were used primarily to fund construction of the facility and fund
Waste Control Specialists' operating losses. The other owner contributed certain
assets,  primarily  land and operating  permits for the facility site, and Waste
Control Specialists also assumed certain indebtedness of the other owner.

     Facility, operations, services and customers. Waste Control Specialists has
been  issued  permits  by the Texas  Natural  Resource  Conservation  Commission
("TNRCC") and the U.S. EPA to accept hazardous and toxic wastes governed by RCRA
and TSCA. The ten-year RCRA and TSCA permits  initially  expire in 2004, but are
subject to renewal by the TNRCC  assuming Waste Control  Specialists  remains in
compliance with the provisions of the permits.  While there can be no assurance,
Waste  Control  Specialists  believes  it will be able to obtain  extensions  to
continue operating the facility for the foreseeable future.

     In November 1997,  the Texas  Department of Health ("TDH") issued a license
to Waste Control Specialists for the treatment and storage, but not disposal, of
low-level and mixed radioactive  wastes.  The current provisions of this license
generally  enable Waste Control  Specialists to accept such wastes for treatment
and storage from U.S. commercial and federal facility generators,  including the
Department  of Energy  ("DOE") and other  governmental  agencies.  Waste Control
Specialists  accepted the first shipments of such wastes in 1998.  Waste Control
Specialists  has also been issued a permit by the TNRCC to establish a research,
development  and  demonstration  facility in which third  parties  could use the
facility to develop and  demonstrate new  technologies  in the waste  management
industry,  including  possibly those involving  low-level and mixed  radioactive
wastes.  Waste Control Specialists has also obtained  additional  authority that
allows Waste Control  Specialists to dispose of certain  categories of low-level
radioactive  materials,   including  naturally-occurring   radioactive  material
("NORM") and exempt-level  materials  (radioactive  materials that do not exceed
certain  specified   radioactive   concentrations  and  which  are  exempt  from
licensing).   Although  there  are  other  categories  of  low-level  and  mixed
radioactive  wastes  which  continue to be  ineligible  for  disposal  under the
increased   authority,   Waste  Control  Specialists  will  continue  to  pursue
additional  regulatory  authorizations  to expand  its  treatment  and  disposal
capabilities  for  low-level  and  mixed  radioactive  wastes.  There  can be no
assurance that any such additional permits or authorizations will be obtained.

     The facility is located on a  1,338-acre  site in West Texas owned by Waste
Control Specialists.  The 1,338 acres are permitted for 11.3 million cubic yards
of  airspace  landfill  capacity  for the  disposal  of RCRA  and  TSCA  wastes.
Following the initial phase of the construction,  Waste Control  Specialists had
approximately  400,000  cubic  yards  of  airspace  landfill  capacity  in which
customers' wastes can be disposed.  Waste Control Specialists constructed during
2001 an additional 100,000 cubic yards of airspace landfill capacity. As part of
its  current  permits,  Waste  Control  Specialists  has  the  authorization  to
construct separate  "condominium"  landfills,  in which each condominium cell is
dedicated to an individual customer's waste materials. Waste Control Specialists
owns  approximately  15,000  additional  acres of land surrounding the permitted
site,  a small  portion  of which  is  located  in New  Mexico.  This  presently
undeveloped  additional  acreage  is  available  for future  expansion  assuming
appropriate permits could be obtained. The 1,338-acre site has, in Waste Control
Specialists'  opinion,  superior  geological  characteristics  which  make it an
environmentally-desirable  location.  The site is located in a relatively remote
and arid section of West Texas.  The ground is composed of triassic red bed clay
for which  the  possibility  of  leakage  into any  underground  water  table is
considered highly remote.

     While the West Texas  facility  operates as a final  repository  for wastes
that cannot be further  reclaimed and recycled,  it also serves as a staging and
processing location for material that requires other forms of treatment prior to
final  disposal as  mandated by the U.S.  EPA or other  regulatory  bodies.  The
facility, as constructed, provides for waste treatment/stabilization,  warehouse
storage,  treatment  facilities for hazardous,  toxic and dioxin wastes, drum to
bulk, and bulk to drum materials  handling and repackaging  capabilities.  Waste
Control  Specialists'  policy is to conduct these  operations in compliance with
its current permits.  Treatment operations involve processing wastes through one
or more  thermal,  chemical  or  other  treatment  methods,  depending  upon the
particular  waste being  disposed  and  regulatory  and  customer  requirements.
Thermal treatment uses a thermal destruction technology as the primary mechanism
for  waste  destruction.   Physical  treatment  methods  include   distillation,
evaporation and separation,  all of which result in the separation or removal of
solid  materials from liquids.  Chemical  treatment uses chemical  oxidation and
reduction, chemical precipitation of heavy metals, hydrolysis and neutralization
of acid and alkaline  wastes,  and basically  results in the  transformation  of
wastes into inert materials through one or more chemical  processes.  Certain of
such treatment  processes may involve technology which Waste Control Specialists
may acquire, license or subcontract from third parties.

     Once treated and  stabilized,  wastes are either (i) placed in the landfill
disposal site,  (ii) stored onsite in drums or other  specialized  containers or
(iii)  shipped  to  third-party   facilities  for  further  treatment  or  final
disposition.  Only wastes which meet certain specified  regulatory  requirements
can be disposed of by placing them in the  landfill,  which is  fully-lined  and
includes a leachate collection system.

     Waste Control Specialists takes delivery of wastes collected from customers
and  transported  on behalf of customers,  via rail or highway,  by  independent
contractors  to  the  West  Texas  site.  Such   transportation  is  subject  to
regulations  governing the transportation of hazardous wastes issued by the U.S.
Department of Transportation.

     In  the  U.S.,  the  major  federal  statutes  governing  management,   and
responsibility  for clean-up,  of hazardous and toxic wastes include RCRA,  TSCA
and CERCLA.  Waste Control  Specialists'  business is heavily dependent upon the
extent to which  regulations  promulgated  under these or other similar statutes
and their enforcement require wastes to be managed and disposed of at facilities
of the type constructed by Waste Control Specialists.

     Waste  Control  Specialists'  target  customers are  industrial  companies,
including  chemical,  aerospace  and  electronics  businesses  and  governmental
agencies,  including the DOE,  which  generate  hazardous  and other  wastes.  A
majority of the  customers  are expected to be located in the  southwest  United
States,  although  customers  outside a 500-mile  radius can be handled via rail
lines. Waste Control Specialists employs its own salesmen to market its services
to potential customers.

     Competition.  The hazardous  waste industry (other than low-level and mixed
radioactive  waste) currently has excess industry capacity caused by a number of
factors, including a relative decline in the number of environmental remediation
projects  generating  hazardous  wastes and efforts on the part of generators to
reduce the volume of waste and/or  manage it onsite at their  facilities.  These
factors  have  led  to  reduced   demand  and  increased   price   pressure  for
non-radioactive   hazardous  waste  management  services.  While  Waste  Control
Specialists believes its broad range of permits for the treatment and storage of
low-level and mixed  radioactive  waste  streams  provides  certain  competitive
advantages,  a key element of Waste Control  Specialists'  long-term strategy to
provide  "one-stop  shopping" for  hazardous,  low-level  and mixed  radioactive
wastes includes obtaining additional regulatory  authorizations for the disposal
of a broad range of low-level and mixed radioactive wastes.

     Competition within the hazardous waste industry is diverse.  Competition is
based primarily on pricing and customer  service.  Price competition is expected
to  be  intense  with  respect  to  RCRA  and  TSCA-related  wastes.   Principal
competitors are Envirocare of Utah,  American Ecology Corporation and Envirosafe
Services,  Inc. These  competitors are well  established and have  significantly
greater  resources  than Waste  Control  Specialists,  which could be  important
competitive  factors.  However,  Waste Control Specialists  believes it may have
certain   competitive   advantages,   including  its   environmentally-desirable
location,  broad  level  of local  community  support,  a public  transportation
network leading to the facility and capability for future site expansion.

     Employees.  At  December  31,  2001,  Waste  Control  Specialists  employed
approximately 105 persons.  Waste Control Specialists reduced its employee level
by approximately 25 individuals in February 2002.

     Regulatory and environmental  matters.  While the waste management industry
has benefited from increased  governmental  regulation,  the industry itself has
become subject to extensive and evolving regulation by federal,  state and local
authorities.  The regulatory process requires businesses in the waste management
industry  to obtain and  retain  numerous  operating  permits  covering  various
aspects  of their  operations,  any of which  could be  subject  to  revocation,
modification  or denial.  Regulations  also allow  public  participation  in the
permitting  process.  Individuals  as well as companies  may oppose the grant of
permits.  In addition,  governmental  policies  are by their  nature  subject to
change and the exercise of broad  discretion by  regulators,  and it is possible
that Waste Control Specialists' ability to obtain any desired applicable permits
on a timely basis, and to retain those permits, could in the future be impaired.
The loss of any  individual  permit  could  have a  significant  impact on Waste
Control Specialists'  financial condition,  results of operations and liquidity,
especially because Waste Control Specialists owns and operates only one disposal
site.  For example,  adverse  decisions by  governmental  authorities  on permit
applications  submitted  by  Waste  Control  Specialists  could  result  in  the
abandonment  of  projects,  premature  closing  of  the  facility  or  operating
restrictions.  Waste Control  Specialists' RCRA and TSCA permits and its license
from the TDH expire in 2004,  although  such permits and licenses are subject to
renewal  if  Waste  Control  Specialists  is in  compliance  with  the  required
operating provisions of the permits and licensing.

     Federal,  state and local authorities have, from time to time,  proposed or
adopted other types of laws and regulations with respect to the waste management
industry,  including laws and regulations  restricting or banning the interstate
or intrastate shipment of certain wastes,  imposing higher taxes on out-of-state
waste shipments compared to in-state shipments, reclassifying certain categories
of hazardous  wastes as  non-hazardous  and  regulating  disposal  facilities as
public  utilities.  Certain  states have  issued  regulations  which  attempt to
prevent waste generated within that particular state from being sent to disposal
sites  outside  that  state.  The U.S.  Congress  has  also,  from time to time,
considered legislation which would enable or facilitate such bans, restrictions,
taxes  and  regulations.  Due to the  complex  nature  of the  waste  management
industry  regulation,  implementation of existing or future laws and regulations
by  different  levels of  government  could be  inconsistent  and  difficult  to
foresee.  Waste  Control  Specialists  will  attempt to monitor  and  anticipate
regulatory,  political and legal  developments which affect the waste management
industry,  but there can be no assurance that Waste Control  Specialists will be
able to do so. Nor can Waste  Control  Specialists  predict  the extent to which
legislation or regulations that may be enacted, or any failure of legislation or
regulations to be enacted, may affect its operations in the future.

     The demand for certain  hazardous waste services expected to be provided by
Waste  Control  Specialists  is dependent in large part upon the  existence  and
enforcement  of  federal,  state and local  environmental  laws and  regulations
governing  the  discharge of hazardous  wastes into the  environment.  The waste
management  industry  could be  adversely  affected  to the extent  such laws or
regulations are amended or repealed or their enforcement is lessened.

     Because of the high degree of public  awareness  of  environmental  issues,
companies in the waste management business may be, in the normal course of their
business,  subject to  judicial  and  administrative  proceedings.  Governmental
agencies  may seek to impose  fines or revoke,  deny  renewal  of, or modify any
applicable  operating  permits or  licenses.  In addition,  private  parties and
special  interest groups could bring actions  against Waste Control  Specialists
alleging, among other things, violation of operating permits.

TITANIUM METALS - TITANIUM METALS CORPORATION

     General.  Titanium  Metals  Corporation  ("TIMET")  is the world's  largest
integrated  producer of titanium  sponge,  melted  products (ingot and slab) and
mill  products.  TIMET is the only  integrated  producer  with major  production
facilities in both the United States and Europe,  the world's  principal markets
for titanium. TIMET estimates that in 2001 it accounted for approximately 24% of
worldwide industry shipments of mill products and approximately 13% of worldwide
sponge production.

     Titanium was first manufactured for commercial use in the 1950s. Titanium's
unique combination of corrosion resistance, elevated-temperature performance and
high  strength-to-weight  ratio  makes  it  particularly  desirable  for  use in
commercial  and military  aerospace  applications  in which these  qualities are
essential  design  requirements for certain critical parts such as wing supports
and jet  engine  components.  While  aerospace  applications  have  historically
accounted  for a substantial  portion of the  worldwide  demand for titanium and
were approximately 40% of industry mill product shipments in 2001, the number of
non-aerospace   end-use   markets  for  titanium  has  expanded   substantially.
Established  industrial uses for titanium include  chemical  plants,  industrial
power plants, desalination plants and pollution control equipment.

     Titanium continues to gain acceptance in many emerging market  applications
including  automotive,   military  armor,  energy,  architecture,  and  consumer
products.  Although  titanium  is  generally  higher  cost than other  competing
metals,  in many cases customers find the physical  properties of titanium to be
attractive from the standpoint of performance,  design alternatives,  life cycle
value and other factors.  Although  emerging market demand currently  represents
only  about 10% of  industry-wide  demand  for  titanium  mill  products,  TIMET
believes the emerging  market demand,  in the  aggregate,  could grow at healthy
double-digit  rates over the next few years.  TIMET is actively  pursuing  these
markets.

     Although difficult to predict, the most attractive emerging segment appears
to be  automotive,  due to  its  potential  for  sustainable  long-term  growth.
Titanium is now used in several consumer car  applications  including the Toyota
Alteeza,  Infinity  Q45,  Corvette  Z06,  Volkswagen  Lupo FSI,  Honda S2000 and
Mercedes S Class.  At the present time,  titanium is primarily  used for exhaust
systems  and  suspension  springs in  consumer  vehicles.  In  exhaust  systems,
titanium provides for significant weight savings, while its corrosion resistance
provides life-of-vehicle durability. In suspension spring applications, titanium
saves  weight,  and its  combination  of low mass and low modulus of  elasticity
allows  the  spring's  height to be reduced  by 20% to 50%  compared  to a steel
spring.

     Titanium  is  also  making  inroads  into  other  automotive  applications,
including turbo charger wheels, brake parts, pistons, valves and internal engine
components. Titanium engine components provide mass-reduction benefits, allowing
a corresponding weight and size reduction in crankshaft  counterbalance  weights
and resultant  improvements  in noise,  vibration and harshness.  The additional
cost  associated  with titanium's use for internal engine parts can be offset by
the  elimination  of  balance  shafts and the  ability to replace  sophisticated
engine mounts with low cost, compact,  simple designs. All of this can translate
into greater styling and structural design freedom for automotive  designers and
engineers.  Titanium is also advantageous  compared to alternative  materials in
that it typically can be formed and  fabricated on the same tooling used for the
steel component it is replacing.

     The decision to select  titanium  components  for consumer  car,  truck and
motorcycle  components  remains highly cost sensitive;  however,  TIMET believes
titanium's  acceptance  in  consumer  vehicles  will  expand  as the  automotive
industry continues to better understand the benefits it offers.

     Industry  conditions.  The titanium  industry  historically has derived the
majority of its business from the aerospace industry. The cyclical nature of the
aerospace  industry has been the principal cause of the historical  fluctuations
in performance of titanium  manufacturing.  Over the past 20 years, the titanium
industry had cyclical peaks in mill products  shipments in 1980,  1989, 1997 and
2001 and cyclical lows in 1983, 1991 and 1999.  Demand for titanium  reached its
highest peak in 1997 when worldwide  industry mill product  shipments reached an
estimated  60,000  metric tons.  Industry  mill product  shipments  subsequently
declined  approximately  5% to an estimated  57,000  metric tons in 1998.  After
falling  16% from  1998  levels to 48,000  metric  tons in 1999 and 2000,  total
industry  shipments  climbed to an estimated  51,000 metric tons in 2001.  TIMET
expects  total  industry  mill  product  shipments  will  decrease  in  2002  by
approximately 16% to about 43,000 metric tons.

     During the latter part of 2001, an economic  slowdown in the U.S. and other
regions  of the  world  began to  negatively  affect  the  commercial  aerospace
industry as evidenced  by, among other  things,  a decline in airline  passenger
traffic,  reported operating losses by a number of airlines,  and a reduction in
the  forecasted  deliveries  of large  commercial  aircraft from both Boeing and
Airbus.  The terrorist  attacks on September 11, 2001,  exacerbated these trends
and had a significant  adverse  impact on the global  economy and the commercial
aerospace  industry.  The major U.S.  airlines  reported  significant  financial
losses in the  fourth  quarter  of 2001,  and  profits  for  European  and Asian
airlines declined.  In response,  airlines have announced a number of actions to
reduce  both  costs  and  capacity  including,  but not  limited  to,  the early
retirement  of airplanes,  the deferral of scheduled  deliveries of new aircraft
and allowing purchase options to expire. These events have resulted in the major
commercial  airframe and jet engine  manufacturers  substantially  reducing both
their  forecast of engine and  aircraft  deliveries  over the next few years and
their production levels in 2002. Although certain recently reported economic and
airline industry data may indicate some modest levels of recovery, TIMET expects
the current slowdown in the commercial  aerospace sector will last for about two
years.

     TIMET believes that demand for mill products for the  commercial  aerospace
sector could decline by up to 40% in 2002,  primarily  due to a  combination  of
reduced aircraft  production rates and excess inventory  accumulated  throughout
the supply  chain since  September  11,  2001.  The  aerospace  supply  chain is
fragmented   and   decentralized,   making  it  difficult  to  quantify   excess
inventories.  However,  TIMET roughly estimates that excess inventory throughout
the supply  chain might be in the range of 3,200 to 5,500 metric tons at the end
of 2001,  and believes it may take up to two years for such excess  inventory to
be substantially absorbed.

     According to The Airline  Monitor,  a leading  aerospace  publication,  the
worldwide  commercial  airline industry reported an estimated  operating loss of
approximately $13 billion in 2001, compared with operating income of $11 billion
in 2000 and $12  billion  in  1999.  According  to The  Airline  Monitor,  large
commercial  aircraft  deliveries for the 1996 to 2001 period peaked in 1999 with
889  aircraft  including  254  wide  body  aircraft.   Wide  body  aircraft  use
substantially  more  titanium  than  their  narrow  body   counterparts.   Large
commercial  aircraft deliveries totaled 834 (including 202 wide bodies) in 2001,
and the most recent forecast of aircraft deliveries by The Airline Monitor calls
for 660  deliveries in 2002,  505 deliveries in 2003 and 515 deliveries in 2004.
After 2004,  The Airline  Monitor  calls for a continued  increase  each year in
large commercial aircraft deliveries with forecasted  deliveries of 920 aircraft
in 2008 exceeding 2001 levels. Compared to 2001, these forecasted delivery rates
represent  anticipated  declines of about 20% in 2002 and just under 40% in each
of  2003  and  2004.   Additionally,   TIMET's   discussions   with  jet  engine
manufacturers and related  suppliers suggest that they are expecting  production
declines  in 2002  relative  to 2001 in the range of 25% to 30%.  The demand for
titanium generally precedes aircraft deliveries by about one year, although this
varies considerably by titanium product. Accordingly, TIMET's cycle historically
precedes the cycle of the aircraft  industry and related  deliveries.  TIMET can
give no  assurance  as to the  extent  or  duration  of the  current  commercial
aerospace  cycle or the  extent  to  which it will  affect  demand  for  TIMET's
products.

     Products and operations. TIMET's products include: (i) titanium sponge, the
basic form of titanium metal used in processed  titanium  products,  (ii) melted
products  comprised of titanium ingot and slab, the result of melting sponge and
titanium scrap,  either alone or with various other alloying  elements and (iii)
milled products that are forged and rolled products produced from ingot or slab,
including  long products  (billet and bar),  flat products  (plate,  sheet,  and
strip), pipe and pipe fittings.

     Titanium sponge (so called because of its  appearance) is the  commercially
pure,  elemental  form of titanium  metal.  The first step in sponge  production
involves the chlorination of titanium-containing rutile ores, derived from beach
sand,  with  chlorine  and  coke to  produce  titanium  tetrachloride.  Titanium
tetrachloride  is purified and then reacted with  magnesium in a closed  system,
producing  titanium  sponge  and  magnesium  chloride  as  co-products.  TIMET's
titanium sponge production  capacity in Nevada  incorporates vacuum distillation
process ("VDP")  technology,  which removes the magnesium and magnesium chloride
residues by applying  heat to the sponge  mass while  maintaining  vacuum in the
chamber.  The combination of heat and vacuum boils the residues from the reactor
mass into the condensing vessel.  The titanium mass is then mechanically  pushed
out of the original reactor,  sheared and crushed,  while the residual magnesium
chloride is electrolytically separated and recycled.

     Titanium ingots and slabs are solid shapes  (cylindrical  and  rectangular,
respectively)  that weigh up to 8 metric tons in the case of ingots and up to 16
metric tons in the case of slabs.  Each is formed by melting  titanium sponge or
scrap or both,  usually with various other  alloying  elements such as vanadium,
aluminum,  molybdenum, tin and zirconium.  Titanium scrap is a by-product of the
forging,  rolling, milling and machining operations,  and significant quantities
of scrap are  generated in the  production  process for most  finished  titanium
products.  The melting  process for ingots and slabs is closely  controlled  and
monitored  utilizing  computer  control systems to maintain  product quality and
consistency and meet customer specifications.  Ingots and slabs are both sold to
customers and further processed into mill products.

     Titanium mill products result from the forging,  rolling,  drawing, welding
and/or  extrusion of titanium ingots or slabs into products of various sizes and
grades.  These mill products include titanium  billet,  bar, rod, plate,  sheet,
strip,  pipe and pipe fittings.  TIMET sends certain products to outside vendors
for further  processing  before being shipped to customers or to TIMET's service
centers.  Many of TIMET's  customers process TIMET's products for their ultimate
end-use or for sale to third parties.

     During  the   production   process  and   following   the   completion   of
manufacturing,  TIMET  performs  extensive  testing on its  products,  including
sponge,  ingot  and  mill  products.  Testing  may  involve  chemical  analysis,
mechanical  testing and ultrasonic and x-ray testing.  The inspection process is
critical to ensuring that TIMET's products meet the high quality requirements of
customers,  particularly in aerospace components production. TIMET certifies its
products meet customer  specification at the time of shipment for  substantially
all customer orders.

     TIMET is reliant on several  outside  processors to perform certain rolling
and finishing  steps in the U.S., and to perform  certain  melting,  forging and
finishing  steps in France.  In the U.S.,  one of the  processors  that performs
these  steps in  relation  to strip  production  and another as relates to plate
finishing  are  owned by a  competitor.  One of the  processors  as  relates  to
extrusion is operated by a customer.  These  processors  are  currently the sole
source  for  these  services.   Other  processors  used  in  the  U.S.  are  not
competitors. In France, the processor is also a joint venture partner of TIMET's
majority-owned  subsidiary.  Although  TIMET believes that there are other metal
producers  with the  capability  to  perform  these same  processing  functions,
arranging  for  alternative  processors,  or possibly  acquiring  or  installing
comparable capabilities, could take several months and any interruption in these
functions  could have a  material  and  adverse  effect on  TIMET's,  results of
operations, financial condition and cash flows in the near term.

     Raw  materials.  The  principal  raw  materials  used in the  production of
titanium  products are titanium sponge,  titanium scrap and alloying  materials.
TIMET processes rutile ore into titanium tetrachloride and further processes the
titanium  tetrachloride into titanium sponge. During 2001,  approximately 32% of
TIMET's  production  was made  from  sponge  internally  produced,  40% was from
purchased sponge, 21% was from titanium scrap and 7% from alloying elements.

     The primary raw materials  used in the  production  of titanium  sponge are
titanium-containing   rutile  ore,  chlorine,   magnesium  and  petroleum  coke.
Titanium-containing rutile ore is currently available from a number of suppliers
around the world, principally located in Australia,  South Africa, India and the
United States. A majority of TIMET's supply of rutile ore is currently purchased
from Australian suppliers. TIMET believes the availability of rutile ore will be
adequate for the foreseeable future and does not anticipate any interruptions of
its raw material  supplies,  although  political or economic  instability in the
countries  from which TIMET  purchases its raw materials  could  materially  and
adversely affect availability.  Although TIMET believes that the availability of
rutile ore is adequate in the  near-term,  there can be no assurance  that TIMET
will  not  experience  interruptions.  Should  TIMET be  unable  to  obtain  the
necessary raw materials,  TIMET may incur higher costs to purchase  sponge which
could have a material adverse effect on TIMET's results of operations, financial
condition and cash flows.

     Chlorine is currently  obtained  from a single  source near TIMET's  Nevada
plant.  That supplier is currently  reorganizing  under  Chapter 11  bankruptcy.
While TIMET does not presently  anticipate any chlorine supply  problems,  there
can be no  assurances  the chlorine  supply will not be  interrupted.  TIMET has
taken steps to mitigate this risk,  including  establishing  the  feasibility of
certain  equipment  modifications to enable it to utilize  alternative  chlorine
suppliers or to purchase and successfully  utilize an intermediate product which
will allow TIMET to bypass the  purchase of  chlorine if needed.  Magnesium  and
petroleum  coke are  generally  available  from a number of  suppliers.  Various
alloying  elements used in the production of titanium ingot are available from a
number of suppliers.

     While TIMET was one of six major  worldwide  producers  of titanium  sponge
during 2001 (and the only active producer in the U.S.), it cannot produce all of
its needs  for all  grades  of  titanium  sponge  internally  and is  dependent,
therefore, on third parties for a portion of its sponge needs. Titanium mill and
melted  products  require varying grades of sponge and/or scrap depending on the
customers'  specifications  and expected end use.  Presently,  TIMET and certain
suppliers in Japan are the only producers of premium quality sponge required for
more demanding aerospace  applications.  However, one additional sponge supplier
is presently  undergoing  qualification tests of its product for premium quality
applications and is expected to be qualified for such during 2002.

     Historically,  TIMET has purchased sponge  predominantly  from producers in
Japan and Kazakhstan. During late 2000 and throughout 2001, TIMET also purchased
sponge from the U.S. Defense Logistics Agency ("DLA") stockpile.  In 2002, TIMET
expects to continue to purchase sponge from Japan, Kazakhstan and the DLA.

     TIMET  has a  ten-year  long-term  supply  agreement  for the  purchase  of
titanium sponge  produced in Kazakhstan.  The sponge contract runs through 2007,
with firm pricing  through 2002  (subject to certain  possible  adjustments  and
possible  early  termination  in 2004).  While the contract  provides for annual
purchases  by TIMET  of 6,000  metric  tons,  the  supplier  agreed  to  reduced
purchases  by TIMET  since  1999 and  certain  other  modified  terms.  TIMET is
currently working under an agreement in principle that provides for a minimum of
1,500  metric  tons  in  2002.  TIMET  has  no  other  long-term  sponge  supply
agreements.

     Properties.  TIMET  currently  has  manufacturing  facilities in the United
States in Nevada, Ohio, Pennsylvania and California, and also has two facilities
in the United Kingdom and one facility in France. Titanium sponge is produced at
the Nevada  facility  while  ingot,  slab and mill  products are produced at the
other facilities. TIMET also maintains eight service centers (five in the United
States and three in  Europe),  which sell  TIMET's  products  on a  just-in-time
basis.  The  facilities in Nevada,  Ohio and  Pennsylvania,  and one of the U.K.
facilities, are owned, and the remainder of the facilities are leased.

     In addition to its U.S.  sponge  capacity  discussed  below,  TIMET's  2002
worldwide melting capacity presently aggregates approximately 45,000 metric tons
(estimated 30% of world  capacity),  and its mill products  capacity  aggregates
approximately   20,000   metric  tons   (estimated   16%  of  world   capacity).
Approximately  35% of TIMET's  worldwide  melting  capacity  is  represented  by
electron beam cold hearth melting furnaces,  63% by vacuum arc remelting ("VAR")
furnaces and 2% by a vacuum induction melting furnace.

     TIMET has operated its major  production  facilities  at varying  levels of
practical capacity during the past three years. In 1999, TIMET's plants operated
at 55% of practical  capacity,  increasing to about 60% in 2000 and 75% in 2001.
In 2002,  TIMET's  plants are  expected  to  operate  at about 60% of  practical
capacity.   However,  practical  capacity  and  utilization  measures  can  vary
significantly based upon the mix of products produced.

     TIMET's VDP sponge facility is expected to operate at approximately  95% of
its annual  practical  capacity of 8,600  metric tons during  2002,  which is up
slightly  from the 2001 level of  utilization  of about 94%.  VDP sponge is used
principally  as a raw material for TIMET's ingot melting  facilities in the U.S.
and Europe.  Approximately  1,200 metric tons of VDP production from the TIMET's
Nevada  facility  was  used  in  its  European  operations  during  2001,  which
represented  about 20% of the sponge  consumed in TIMET's  European  operations.
TIMET  expects the  consumption  of  Nevada-produced  VDP sponge in its European
operations  will increase to about 40% of its sponge  requirements  in 2002. The
raw materials processing facilities in Pennsylvania primarily process scrap used
as melting feedstock, either in combination with sponge or separately.

     TIMET's  U.S.  melting  facilities  produce  ingots  and slabs both sold to
customers and used as feedstock for its mill products operations.  These melting
facilities are expected to operate at approximately 50% of aggregate capacity in
2002.

     Titanium mill products are produced at TIMET's forging and rolling facility
in Ohio,  which  receives  intermediate  titanium  products  (ingots  and slabs)
principally from TIMET's U.S. melting  facilities.  This facility is expected to
operate at 60% of practical capacity in 2002.  Production  capacity  utilization
across TIMET's product lines varies.

     One of TIMET's  facilities in the United Kingdom  produces VAR ingots which
are used primarily as raw material  feedstock at the same facility.  The forging
operation at this facility principally  processes the ingots into billet product
for sale to  customers or for further  processing  into bar and plate at TIMET's
other facility in the United  Kingdom.  TIMET's United Kingdom  melting and mill
products  production  in 2002  is  expected  to be  approximately  60% and  45%,
respectively, of practical capacity. Sponge for melting requirements in both the
United  Kingdom and France that is not  supplied by TIMET's  Nevada  facility is
purchased principally from suppliers in Japan and Kazakhstan.

     Distribution,  market and customer base.  TIMET sells its products  through
its own sales force based in the U.S. and Europe, and through independent agents
worldwide.  TIMET's  marketing and  distribution  system also includes the eight
TIMET-owned service centers.  TIMET believes that it has a competitive sales and
cost advantage  arising from the location of its  production  plants and service
centers,  which  are in  close  proximity  to  major  customers.  These  centers
primarily  sell  value-added  and  customized  mill  products  including bar and
flat-rolled  sheet and strip.  TIMET  believes  its  service  centers  give it a
competitive advantage because of their ability to foster customer relationships,
customize products to suit specific customer requirements and respond quickly to
customer needs.

     Approximately  50% of TIMET's  2001 sales were to  customers  within  North
America,  about 40% to European customers and the balance to other regions. Over
70% of TIMET's sales were  generated by sales to the aerospace  industry.  Sales
under  TIMET's  long-term  supply  agreements  (discussed  below)  accounted for
approximately 40% of its aggregate sales in 2001. Sales to Rolls Royce and other
customers  under  the  Rolls  Royce  long-term  supply   agreement   represented
approximately 15% of TIMET's aggregate sales in 2001. TIMET expects that while a
majority of its 2002 sales will be to the aerospace industry, other markets will
continue to represent a significant portion of sales.

     The  primary  market for  titanium  products  in the  commercial  aerospace
industry  consists  of  two  major  manufacturers  of  large  (over  100  seats)
commercial  aircraft (Boeing Commercial  Airplanes Group and European Aeronautic
Defense and Space  Company,  parent company of the Airbus  consortium)  and four
major manufacturers of aircraft engines (Rolls-Royce,  Pratt & Whitney (a United
Technology company),  General Electric and SNECMA).  TIMET's sales are made both
directly to these major  manufacturers and to companies  (including forgers such
as Wyman-Gordon)  that use TIMET's titanium to produce parts and other materials
for such  manufacturers.  If any of the major  aerospace  manufacturers  were to
significantly reduce build rates from those currently expected, there could be a
material adverse effect, both directly and indirectly, on TIMET.

     TIMET has  long-term  agreements  with certain major  aerospace  customers,
including,  but  not  limited  to,  The  Boeing  Company,  Rolls-Royce,   United
Technologies  Corporation (and related  companies) and  Wyman-Gordon  Company (a
unit of Precision  Castparts  Corporation).  These  agreements  initially became
effective in 1998 and 1999 and expire in 2007 through  2008,  subject to certain
conditions.  The agreements  generally  provide for (i) minimum market shares of
the customers' titanium  requirements or firm annual volume commitments and (ii)
fixed or formula-determined  prices generally for at least the first five years.
Generally,  the agreements  require TIMET's  service and product  performance to
meet  specified  criteria  and  contain a number of other  terms and  conditions
customary  in  transactions  of these types.  In certain  cases,  the  long-term
agreements may be terminated  early if the parties are unable to reach agreement
on pricing after an initial pricing period,  in certain events of nonperformance
by TIMET or in certain other instances.  These agreements were designed to limit
pricing volatility (both up and down) for the long-term benefit of both parties,
while providing TIMET with a committed base of aerospace  volume.  They also, to
varying  degrees,  effectively  obligate  TIMET  to bear  part of the  risks  of
increases in raw  material  and other costs,  but allow TIMET to benefit in part
from decreases in such costs.  These contracts and others  represent the core of
TIMET's long-term aerospace strategy.

     In April 2001,  TIMET reached a settlement of the litigation  between TIMET
and Boeing  related to the parties' 1997  long-term  agreement.  Pursuant to the
settlement,  TIMET  received  a cash  payment of $82  million  from  Boeing.  In
addition,  TIMET and Boeing also  entered  into an amended  long-term  agreement
that, among other things,  allows Boeing to purchase up to 7.5 million pounds of
titanium  product  annually from TIMET through 2007,  subject to certain maximum
quarterly volume levels. Under the amended agreement,  Boeing will advance TIMET
$28.5 million  annually from 2002 through 2007. The agreement is structured as a
take-or-pay  agreement such that Boeing,  beginning in calendar year 2002,  will
forfeit a proportionate part of the $28.5 million annual advance, or effectively
$3.80 per pound,  in the event that its orders for  delivery  for such  calendar
year are less than 7.5 million pounds.  Under a separate  agreement,  TIMET will
establish  and hold  buffer  stock for Boeing at TIMET's  facilities,  for which
Boeing will pay TIMET as such stock is produced.

     TIMET also has a long-term  agreement  with  VALTIMET,  a  manufacturer  of
stainless  steel,  copper,  nickel and welded  titanium  tubing  principally for
industrial  markets.  TIMET owns 44% of  VALTIMET  at  December  31,  2001.  The
agreement  was entered  into in 1997 and expires in 2007.  Under the  agreement,
VALTIMET  has  agreed  to  purchase  a  certain   percentage   of  its  titanium
requirements  from  TIMET.  Selling  prices are formula  determined,  subject to
certain  conditions.  Certain provisions of this contract have been renegotiated
in the past and may be  renegotiated  in the  future to meet  changing  business
conditions.

     As of December 31, 2001,  the  estimated  firm order backlog for Boeing and
Airbus,  as reported by The Airline  Monitor,  was 2,919  planes,  versus  3,224
planes at the end of 2000 and 2,943 planes at the end of 1999.  The backlogs for
Boeing and Airbus reflect orders for aircraft to be delivered  potentially  over
several years. For example,  the first deliveries of the A380 are anticipated to
begin in 2006.  Additionally,  changes in the economic environment and financial
condition  of  airlines  can  result  in  rescheduling  and/or  cancellation  of
contractual orders.  Accordingly,  aircraft  manufacturer backlogs alone are not
necessarily  a reliable  indicator of near-term  business  activity,  but may be
indicative of potential business levels over a longer-term horizon.

     The newer wide body  planes,  such as the Boeing 777 and the Airbus  A-330,
A-340 and A-380,  tend to use a higher  percentage  of titanium in their frames,
engines and parts (as  measured by total fly  weight)  than narrow body  planes.
"Fly weight" is the empty weight of a finished aircraft with engines but without
fuel  or  passengers.  The  Boeing  777,  for  example,  utilizes  titanium  for
approximately 9% of total fly weight,  compared to between 2% to 3% on the older
737, 747 and 767 models.  The estimated  firm order backlog for wide body planes
at year-end  2001 was 801 (27% of total  backlog)  compared to 751 (23% of total
backlog) at the end of 2000. At year-end  2001, the A380 had received a total of
85 firm orders.  TIMET estimates that  approximately  65 metric tons of titanium
will be purchased for each A380 manufactured, the most of any aircraft.

     Outside of aerospace markets, TIMET manufactures a wide range of industrial
products  including sheet,  plate,  tube, bar, billet and skelp for customers in
the chemical process, oil and gas, consumer,  sporting goods, automotive,  power
generation and armor/armament industries.  Approximately 15% of TIMET's sales in
2001 were sold into the industrial markets,  including sales to VALTIMET for the
production of condenser tubing.  For the oil and gas industries,  TIMET provides
seamless  pipe for downhole  casing,  risers,  tapered  stress  joints and other
offshore oil production equipment, including fabrication of subsea manifolds. In
armor and armament, TIMET sells plate products for fabrication into door hatches
on fighting vehicles as well as tank/turret protection.

     TIMET's order backlog was approximately  $225 million at December 31, 2001,
compared to $245  million at December  31, 2000 and $195 million at December 31,
1999.  Substantially all of the 2001 year-end backlog is scheduled to be shipped
during 2002.  However,  TIMET's order backlog may not be a reliable indicator of
future business activity.  Since September 11, 2001, TIMET has received a number
of customer requests to defer or cancel previously scheduled orders and believes
such requests will continue into 2002.

     Through  various  strategic  relationships,  TIMET  seeks to gain access to
unique process  technologies  for the  manufacture of its products and to expand
existing  markets and create and develop  new  markets for  titanium.  TIMET has
explored and will  continue to explore  strategic  arrangements  in the areas of
product  development,  production and distribution.  TIMET also will continue to
work with  existing  and  potential  customers  to  identify  and develop new or
improved applications for titanium that take advantage of its unique qualities.

     Competition.  The  titanium  metals  industry  is highly  competitive  on a
worldwide basis.  Producers of mill products are located primarily in the United
States,  Japan, Europe,  Russia,  China and the United Kingdom.  TIMET is one of
four  integrated  producers  in the world,  with  "integrated  producers"  being
considered as those that produce at least both sponge and ingot.  There are also
a number of  non-integrated  producers that produce mill products from purchased
sponge, scrap or ingot.

     TIMET's principal  competitors in aerospace markets are Allegheny  Teledyne
Inc.,  RTI  International   Metals,   Inc.  and  Verkhanya  Salda  Metallurgical
Production  Organization  ("VSMPO").  These  companies,  along with the Japanese
producers and other  companies,  are also  principal  competitors  in industrial
markets.  TIMET competes  primarily on the basis of price,  quality of products,
technical  support and the availability of products to meet customers'  delivery
schedules.

     In the U.S. market,  the increasing  presence of non-U.S.  participants has
become a significant competitive factor. Until 1993, imports of foreign titanium
products into the U.S. had not been significant. This was primarily attributable
to  relative  currency  exchange  rates,  tariffs  and,  with  respect to Japan,
Kazakhstan  and  Ukraine,  existing  and  prior  duties  (including  antidumping
duties).  However,  imports  of  titanium  sponge,  scrap,  and  mill  products,
principally from Russia and Kazakhstan,  have increased in recent years and have
had a  significant  competitive  impact on the U.S.  titanium  industry.  To the
extent  TIMET has been able to take  advantage of this  situation by  purchasing
sponge, ingot or intermediate and finished mill products from such countries for
use in its own  operations  during  recent years,  the negative  effect of these
imports on TIMET has been somewhat mitigated.

     Generally,  imports  into the U.S.  of  titanium  products  from  countries
designated by the U.S.  Government as "most favored nation" are subject to a 15%
tariff (45% for other  countries).  Titanium  products  for tariff  purposes are
broadly classified as either wrought or unwrought. Wrought products include bar,
sheet, strip, plate and tubing.  Unwrought products include sponge,  ingot, slab
and billet.  For most periods since 1993,  imports of titanium  wrought products
from  Russia  were  exempted  from this duty  under  the  generalized  system of
preferences,  or GSP,  program designed to aid developing  economies.  TIMET has
successfully  resisted efforts to date to expand the scope of the GSP program to
eliminate duties on sponge and other unwrought titanium products from Russia and
Kazakhstan.  Antidumping duties on imports of titanium sponge from Japan and the
former Soviet Union were revoked in 1998, and TIMET's appeal of that  revocation
was not successful.

     Further reductions in, or the complete  elimination of, all or any of these
tariffs,  including expansion of the GSP program to unwrought titanium products,
could lead to increased imports of foreign sponge, ingot, and mill products into
the U.S. and an increase in the amount of such products on the market generally,
which could  adversely  affect pricing for titanium sponge and mill products and
thus the business,  financial condition, results of operations and cash flows of
TIMET. However, TIMET has, since 1993, been a large importer of foreign titanium
sponge and mill products into the U.S. To the extent TIMET remains a substantial
purchaser of these products,  any adverse effects on product pricing as a result
of any reduction in, or elimination  of, any of these tariffs would be partially
ameliorated  by the decreased  cost to TIMET for these products to the extent it
currently bears the cost of the import duties.

     Producers of other metal  products,  such as steel and  aluminum,  maintain
forging,  rolling  and  finishing  facilities  that  could be  modified  without
substantial expenditures to process titanium products. TIMET believes,  however,
that entry as a producer of titanium sponge would require a significant  capital
investment  and  substantial  technical  expertise.  Titanium mill products also
compete with stainless  steels,  nickel alloys,  steel,  plastics,  aluminum and
composites in many applications.

     Research and development.  TIMET's research and development  activities are
directed toward improving process technology,  developing new alloys,  enhancing
the performance of TIMET's products in current  applications,  and searching for
new uses of titanium  products.  TIMET conducts the majority of its research and
development  activities  at  its  Nevada  laboratory.  Additional  research  and
development activities are performed at a TIMET facility in the United Kingdom.

     Patents and trademarks. TIMET holds U.S. and non-U.S. patents applicable to
certain of its titanium alloys and manufacturing  technology.  TIMET continually
seeks patent  protection with respect to its technical base and has occasionally
entered into cross-licensing  arrangements with third parties.  However, most of
the titanium  alloys and  manufacturing  technology used by TIMET do not benefit
from patent or other intellectual  property protection.  TIMET believes that the
trademarks  TIMET and TIMETAL,  which are protected by  registration in the U.S.
and other countries, are significant to its business.

     Employees.  As of December 31, 2001,  TIMET  employed  approximately  2,410
persons (1,460 in the U.S. and 950 in Europe),  compared to 2,220 persons at the
end of 2000 and 2,350 at the end of 1999. During 2002, TIMET expects to decrease
employment,  principally in its manufacturing operations,  due to the previously
discussed  decline in demand  for  titanium  products.  TIMET's  production  and
maintenance  workers at its Nevada  facility  and its  production,  maintenance,
clerical  and  technical  workers in its Ohio  facility are  represented  by the
United Steelworkers of America ("USWA") under contracts expiring in October 2004
and June 2002, respectively.  Employees at TIMET's other U.S. facilities are not
covered by  collective  bargaining  agreements.  About 62% of the  salaried  and
hourly  employees at TIMET's  European  facilities  are  represented  by various
European labor unions, generally under annual agreements.  While TIMET currently
considers its employee  relations to be satisfactory,  it is possible that there
could be future  work  stoppages  that could  materially  and  adversely  affect
TIMET's financial condition, results of operations or cash flows.

     Regulatory and environmental  matters.  TIMET's  operations are governed by
various federal,  state, local and foreign  environmental and worker safety laws
and  regulations.  In the U.S., such laws include the federal Clean Air Act, the
Clean  Water  Act,  RCRA  and  OSHA.  TIMET  uses and  manufactures  substantial
quantities  of  substances   that  are  considered   hazardous  or  toxic  under
environmental and worker safety and health laws and regulations. In addition, at
TIMET's  Nevada  facility,  TIMET  produces and uses  substantial  quantities of
titanium  tetrachloride,  a material  classified  as extremely  hazardous  under
Federal  environmental  laws.  TIMET has used  such  substances  throughout  the
history of its operations. As a result, risk of environmental damage is inherent
in TIMET's  operations.  TIMET's operations pose a continuing risk of accidental
releases of, and worker  exposure to,  hazardous or toxic  substances.  There is
also a risk that government environmental requirements,  or enforcement thereof,
may become more stringent in the future.  There can be no assurances  that some,
or all, of the risks discussed under this heading will not result in liabilities
that would be material to TIMET's results of operations,  financial condition or
cash flows.

     TIMET's  operations  in Europe are  similarly  subject to foreign  laws and
regulations respecting  environmental and worker safety matters, which laws have
had,  and are not  presently  expected  to have,  a material  adverse  effect on
TIMET's results of operations, financial condition or cash flows.

     TIMET  believes  that its  operations  are in  compliance  in all  material
respects with  applicable  requirements of  environmental  and worker health and
safety laws. TIMET's policy is to continually  strive to improve  environmental,
health  and  safety  performance.  From time to time,  TIMET may be  subject  to
environmental regulatory enforcement under various statutes, resolution of which
typically  involves the  establishment  of  compliance  programs.  Occasionally,
resolution  of these  matters  may  result in the  payment of  penalties.  TIMET
incurred capital  expenditures for health,  safety and environmental  compliance
matters of approximately  $2.6 million in 2000 and $2.4 million in 2001, and its
capital budget provides for  approximately  $2.0 million of such expenditures in
2002.  However,  the imposition of more strict  standards or requirements  under
environmental,   health  or  safety  laws  and   regulations   could  result  in
expenditures in excess of amounts estimated to be required for such matters.

OTHER

     Tremont Corporation.  Tremont is primarily a holding company which owns 21%
of NL and 39% of TIMET. In addition,  Tremont owns indirect ownership  interests
in Basic Management,  Inc. ("BMI"), which provides utility services to, and owns
property (the "BMI Complex")  adjacent to, TIMET's  facility in Nevada,  and The
Landwell  Company  L.P.  ("Landwell"),  which is actively  engaged in efforts to
develop  certain  land  holdings  for  commercial,  industrial  and  residential
purposes surrounding the BMI Complex.

     Foreign  operations.  The Company  has  substantial  operations  and assets
located outside the United States,  principally chemicals operations in Germany,
Belgium and Norway, titanium metals operations in the United Kingdom and France,
chemicals and  component  products  operations in Canada and component  products
operations  in The  Netherlands  and  Taiwan.  See  Note  2 to the  Consolidated
Financial  Statements.  Approximately 70% of NL's 2001 aggregate TiO2 sales were
to non-U.S. customers, including 12% to customers in areas other than Europe and
Canada.  Approximately  40% of CompX's  2001 sales  were to  non-U.S.  customers
located principally in Canada and Europe. About 50% of TIMET's 2001 sales are to
non-U.S.  customers,  primarily in Europe.  Foreign  operations  are subject to,
among other  things,  currency  exchange  rate  fluctuations  and the  Company's
results  of  operations  have in the past been both  favorably  and  unfavorably
affected by fluctuations in currency  exchange rates. See Item 7 - "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
Item 7A - "Quantitative and Qualitative Disclosures About Market Risk."

     CompX's  Canadian  component  products  subsidiary  has, from time to time,
entered into currency  forward  contracts to mitigate  exchange rate fluctuation
risk for a portion of its receivables  denominated in currencies  other than the
Canadian  dollar  (principally  the U.S.  dollar) or for similar risk associated
with  future  sales.  See  Note  1 to  the  Consolidated  Financial  Statements.
Otherwise,  the  Company  does  not  generally  engage  in  currency  derivative
transactions.

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

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

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

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

ITEM 2.  PROPERTIES

     Valhi  leases  approximately  34,000  square  feet of office  space for its
principal  executive offices in a building located at 5430 LBJ Freeway,  Dallas,
Texas,  75240-2697.  The  principal  properties  used in the  operations  of the
Company,   including  certain  risks  and  uncertainties  related  thereto,  are
described  in the  applicable  business  sections  of Item 1 -  "Business."  The
Company  believes that its  facilities  are generally  adequate and suitable for
their respective uses.

ITEM 3.  LEGAL PROCEEDINGS

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

     NL lead pigment litigation.  NL was formerly involved in the manufacture of
lead-based  paints and lead  pigments  for use in paint.  NL has been named as a
defendant or third party defendant in various legal proceedings alleging that NL
and approximately seven other former  manufacturers are responsible for personal
injury,  property damage and government  expenditures  allegedly associated with
the use of these products.  NL is vigorously  defending against such litigation.
Considering  NL's previous  involvement in the lead pigment and lead-based paint
businesses,  there can be no assurance that  additional  litigation,  similar to
that described below, will not be filed.

     In addition,  various legislation and administrative regulations have, from
time  to  time,  been  enacted  or  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  plantiffs  to prove  that the
defendant's product resulted in the alleged damage, and bills which would revive
actions  currently  barred by statutes of  limitations.  While no legislation or
regulations  have been  enacted  to date which are  expected  to have a material
adverse effect on NL's consolidated financial position, results of operations or
liquidity,  the imposition of market share liability or other  legislation could
have such an effect. NL has not accrued any amounts for the pending lead pigment
and lead-based  paint  litigation.  There is no assurance that NL will not incur
future  liability  in  respect  of  this  litigation  in  view  of the  inherent
uncertainties  involved in court and jury rulings in pending and possible future
cases. However,  based on, among other things, the results of such litigation to
date,  NL believes that the pending cases are without merit and will continue to
defend  the  cases  vigorously.  Liability  that  may  result,  if  any,  cannot
reasonably be estimated.

     In 1989 and 1990,  the  Housing  Authority  of New Orleans  ("HANO")  filed
third-party  complaints  for  indemnity  and/or  contribution  against NL, other
alleged   manufacturers  of  lead  pigment   (together  with  NL,  the  "pigment
manufacturers")  and the Lead Industries  Association  (the "LIA") in 14 actions
commenced by residents of HANO units seeking  compensatory  and punitive damages
for injuries allegedly caused by lead pigment.  All but two of the actions (Hall
v. HANO,  et al., No.  89-3552,  and Allen v. HANO,  et al., No.  89-427,  Civil
District  Court  for the  Parish  of  Orleans,  State of  Louisiana)  have  been
dismissed. The two remaining cases have been inactive since 1992.

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

     In August 1992, NL was served with an amended complaint in Jackson,  et al.
v. The Glidden Co., et al., Court of Common Pleas,  Cuyahoga County,  Cleveland,
Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and punitive damages for
personal  injury  caused  by the  ingestion  of  lead,  and an  order  directing
defendants  to  abate  lead-based  paint in  buildings.  Plaintiffs  purport  to
represent a class of similarly  situated  persons  throughout the State of Ohio.
While the trial  court has denied  plaintiffs'  motion for class  certification,
discovery  and  pre-trial   proceedings   are  continuing  with  the  individual
plaintiffs.

     In December 1998, NL was served with a complaint on behalf of four children
and their guardians in Sabater,  et al. v. Lead Industries  Association,  et al.
(Supreme Court of the State of New York,  County of Bronx,  Index No. 25533/98).
Plaintiffs  purport to represent a class of all  children and mothers  similarly
situated in New York State.  The complaint  seeks damages from the LIA and other
former pigment manufacturers for establishment of property abatement and medical
monitoring  funds and  compensatory  damages for alleged injuries to plaintiffs.
Discovery regarding class certification is proceeding.

     In  September  1999,  an  amended  complaint  was  filed in  Thomas v. Lead
Industries Association,  et al. (Circuit Court, Milwaukee,  Wisconsin,  Case No.
99-CV-6411)  adding as defendants NL and seven other  companies  alleged to have
manufactured  lead  products  in  paint  to  a  suit  originally  filed  against
plaintiff's  landlords.  Plaintiff, a minor, alleges injuries purportedly caused
by lead on the  surfaces of  premises  in homes in which he  resided.  Plaintiff
seeks compensatory and punitive damages, and NL has denied liability.  Pre-trial
motions and discovery are proceeding. Trial is scheduled for June 2003.

     In October 1999, NL was served with a complaint in State of Rhode Island v.
Lead  Industries  Association,  et al.  (Superior  Court  of Rhode  Island,  No.
99-5226). The State seeks compensatory and punitive damages for medical,  school
and public and private building  abatement  expenses that the State alleges were
caused by lead paint, and for funding of a public education  campaign and health
screening  programs.  Plaintiff seeks  judgments of joint and several  liability
against NL, seven other companies  alleged to have manufactured lead products in
paint and the LIA.  A trial  date has been set for  September  2002 at which the
issue of whether  lead  pigment in paint on Rhode  Island  buildings is a public
nuisance will be tried, and discovery is proceeding.

     In October 1999, NL was served with a complaint in Cofield,  et al. v. Lead
Industries Association, et al. (Circuit Court for Baltimore City, Maryland, Case
No. 24-C-99-004491).  Plaintiffs,  six homeowners,  seek to represent a class of
all owners of non-rental  residential  properties in Maryland.  Plaintiffs  seek
compensatory  and punitive  damages in excess of $20,000 per  household  for the
existence of lead-based  paint in their homes,  including  funds for monitoring,
detecting and abating  lead-based paint in those  residences.  Plaintiffs allege
that the  former  pigment  manufacturers  and other  companies  alleged  to have
manufactured  paint and/or gasoline  additives,  the LIA, and the National Paint
and Coatings  Association  (the  "NPCA") are jointly and  severally  liable.  In
August 2001, plaintiffs voluntarily dismissed substantially all of their claims,
and in December 2001 the trial court dismissed the remaining claim. The time for
appeal of that ruling has not expired.

     In October  1999,  NL was served with a complaint in Smith,  et al. v. Lead
Industries Association, et al. (Circuit Court for Baltimore City, Maryland, Case
No. 24-C-99-004490). Plaintiffs, seven minors, each seek compensatory damages of
$5 million and  punitive  damages of $10 million  for  alleged  injuries  due to
lead-based  paint.  Plaintiffs  allege that NL, other companies  alleged to have
manufactured lead pigment, paint and/or gasoline additives, the LIA and the NPCA
are jointly and severally liable.  NL has denied  liability,  and all defendants
filed  motions to dismiss  various of the claims.  In February  2002,  the trial
court  dismissed all claims except those relating to product  liability for lead
paint and the  Maryland  Consumer  Protection  Act.  Pre-trial  proceedings  and
discovery are continuing.

     In February  2000,  NL was served with a complaint  in City of St. Louis v.
Lead  Industries  Association,  et al.  (Missouri  Circuit  Court 22nd  Judicial
Circuit,  St. Louis City, Cause No. 002-245,  Division 1). The City of St. Louis
seeks compensatory and punitive damages for its expenses discovering and abating
lead-based   paint,   detecting  lead  poisoning  and  providing  medical  care,
educational  programs for City  residents  and the costs of  educating  children
suffering injuries due to lead exposure.  Plaintiff seeks judgments of joint and
several  liability against NL, other companies alleged to have manufactured lead
products for paint and the LIA. The  defendants'  motion to dismiss this case is
currently pending.

     In April 2000,  NL was served with a complaint  in County of Santa Clara v.
Atlantic Richfield  Company,  et al. (Superior Court of the State of California,
County of Santa  Clara,  Case No.  CV788657)  brought  against NL,  other former
pigment  manufacturers and the LIA. The County of Santa Clara seeks to represent
a class of  California  governmental  entities  (other  than the  state  and its
agencies) to recover compensatory damages for funds the plaintiffs have expended
or will in the  future  expend  for  medical  treatment,  educational  expenses,
abatement  or other costs due to exposure  to, or  potential  exposure  to, lead
paint,  disgorgement  of profit,  and  punitive  damages.  Santa  Cruz,  Solano,
Alameda,  San  Francisco,  and Kern  counties,  the cities of San  Francisco and
Oakland,  the Oakland and San  Francisco  unified  school  districts and housing
authorities  and the  Oakland  Redevelopment  Agency  have  joined  the  case as
plaintiffs. Pre-trial proceedings and discovery are continuing.

     In June 2000, two complaints were filed in Texas state court, Spring Branch
Independent  School District v. Lead Industries  Association,  et al.  (District
Court of Harris County,  Texas, No. 2000-31175),  and Houston Independent School
District  v.  Lead  Industries  Association,  et al.  (District  Court of Harris
County,  Texas,  No.  2000-33725).  The  School  Districts  seek past and future
damages and  exemplary  damages for costs they have  allegedly  incurred or will
occur due to the presence of lead-based  paint in their  buildings  from NL, the
LIA and other companies sued as former manufacturers of lead-based paint. NL has
denied all  liability.  Discovery and pre-trial  motions are  proceeding in both
cases. Trial is scheduled in the Spring Branch case in September 2002.

     In June 2000, a complaint was filed in Illinois state court,  Lewis, et al.
v. Lead Industries Association,  et al. (Circuit Court of Cook County, Illinois,
County Department,  Chancery Division,  Case No. 00CH09800).  Plaintiffs seek to
represent two classes,  one of all minors between the ages of six months and six
years who  resided in housing in  Illinois  built  before  1978,  and one of all
individuals  between the ages of six and twenty years who lived between the ages
of six months and six years in Illinois  housing built before 1978 and had blood
lead levels of 10  micrograms/deciliter  or more.  The  complaint  seeks damages
jointly  and  severally  from the former  pigment  manufacturers  and the LIA to
establish a medical  screening fund for the first class to determine  blood lead
levels,  a medical  monitoring  fund for the second class to detect the onset of
latent diseases,  and a fund for a public education campaign.  Pre-trial motions
by the defendants to dismiss the claims are pending.

     In October 2000, NL was served with a complaint  filed in California  state
court in Justice, et al. v. Sherwin-Williams  Company, et al. (Superior Court of
California,  County of San Francisco, No. 314686). Plaintiffs are two minors who
seek  general,  special and punitive  damages for injuries  alleged to be due to
ingestion  of  paint  containing  lead in their  residence.  NL has  denied  all
liability. Discovery is proceeding.

     In January 2001,  NL was served with a complaint in Gaines,  et al., v. The
Sherwin-Williams   Company,   et  al.   (Circuit  Court  of  Jefferson   County,
Mississippi,  Civil Action No. 2000-0604). The complaint seeks joint and several
liability for compensatory and punitive damages from NL,  Sherwin-Williams,  and
four local retailers on behalf of a minor and his mother  alleging  injuries due
to lead pigment  and/or  paint.  The case has been removed to federal  court and
that court has  dismissed  the local paint  retailers.  Discovery  and pre-trial
motions are proceeding.

     In February  2001, NL was served with a complaint in Borden,  et al. v. The
Sherwin-Williams   Company,   et  al.   (Circuit  Court  of  Jefferson   County,
Mississippi,  Civil Action No. 2000-587).  The complaint seeks joint and several
liability for  compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint,  including NL, on behalf of 18 adult
residents  of  Mississippi  who were  allegedly  exposed  to lead  during  their
employment  in  construction  and  repair  activities.   Pre-trial  proceedings,
including those related to removal to federal court, are continuing.

     In May 2001,  NL was served with a  complaint  in City of  Milwaukee  v. NL
Industries,  Inc. and Mautz Paint  (Circuit  Court,  Civil  Division,  Milwaukee
County,  Wisconsin,  Case No.  01CV003066).  Plaintiff  seeks  compensatory  and
equitable relief for lead hazards in Milwaukee homes, restitution for amounts it
has spent to abate lead and  punitive  damages.  NL has  denied  all  liability.
Pre-trial proceedings are continuing.

     In May 2001, NL was served with a complaint in Harris County, Texas v. Lead
Industries  Association,  et al.  (District Court of Harris County,  Texas,  No.
2011-21413).  The complaint  seeks actual and punitive  damages and asserts that
NL,  other  former  manufacturers  of lead  pigment  and the LIA are jointly and
severally  liable for past and future  damages due to the presence of lead paint
in County-owned buildings. NL has denied all liability.  Discovery and pre-trial
motions are proceeding.

     In June 2001,  NL was served with a complaint  in Jefferson  County  School
District v. Lead  Industries  Association,  et al.  (Circuit  Court of Jefferson
County,  Mississippi,  Case No. 2001-69).  The complaint seeks joint and several
liability for  compensatory  and punitive damages for abatement of lead paint in
Jefferson County schools from NL, former manufacturers of lead pigment and paint
and local  retailers.  NL has  denied  all  liability.  The case was  removed to
federal court, and pre-trial proceedings are continuing.

     In December  2001, NL was served with a complaint in Quitman  County School
District  v. Lead  Industries  Association,  et al.  (Circuit  Court of  Quitman
County,  Mississippi,  No.  2001-0106).  The complaint asserts joint and several
liability  and  seeks   compensatory   and  punitive  damages  from  NL,  former
manufacturers of lead pigment and paint and local retailers for the abatement of
lead paint in Quitman County  schools.  NL has denied all  liability.  Pre-trial
proceedings,  including  those  related  to the  removal  of the case to federal
court, are continuing.

     In January and February  2002, NL was served with  complaints by 22 various
New Jersey  municipalities  and counties which have been  consolidated as In re:
Lead Paint Litigation  (Superior Court,  Middlesex County,  Case Code 702). Each
complaint  seeks  abatement  of lead  paint  from  all  housing  and all  public
buildings in each  jurisdiction  and punitive damages jointly and severally from
the former pigment manufacturers and the LIA. NL intends to deny all allegations
of liability.

     In January  2002,  NL was served  with a complaint  in Jackson,  et al., v.
Phillips  Building  Supply of Laurel,  et al.  (Circuit  Court of Jones  County,
Mississippi,  Dkt.  Co.  2002-10-CV1).  The  complaint  seeks  joint and several
liability from three local retailers and six non-Mississippi companies that sold
paint for  compensatory  and  punitive  damages  on behalf  of four  adults  for
injuries alleged to have been caused by the use of lead paint. The case has been
removed  to  federal  court.  NL has denied all  allegations  of  liability  and
pre-trial proceedings are continuing.

     In February  2002,  NL was served with a complaint  in Liberty  Independent
School  District  v. Lead  Industries  Association,  et al.  (District  Court of
Liberty County,  Texas, No. 63,332).  The school district seeks compensatory and
punitive  damages  jointly  and  severally  from NL, the LIA,  and other  former
manufacturers  of lead pigment for paint for property  damages in its buildings.
NL has denied all allegations of liability.

     NL believes  that all of the  foregoing  lead  pigment  actions are without
merit  and  intends  to  continue  to deny all  allegations  of  wrongdoing  and
liability and to defend such actions vigorously.

     Environmental  matters and  litigation.  NL has been named as a  defendant,
PRP,  or both,  pursuant to CERCLA and similar  state laws in  approximately  75
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by NL,
or its  subsidiaries,  or their  predecessors,  certain of which are on the U.S.
Environmental  Protection Agency'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 NL may be
jointly and severally  liable for such costs,  in most cases it is only one of a
number of PRPs who are also jointly and severally liable.

     The extent of CERCLA  liability  cannot be  determined  until the  Remedial
Investigation and Feasibility Study ("RIFS") is complete,  the U.S. EPA issues a
record of decision and costs are allocated  among PRPs.  The extent of liability
under  analogous  state  cleanup  statutes  and for common law  equivalents  are
subject to similar uncertainties.  NL believes it has provided adequate accruals
for  reasonably  estimable  costs for  CERCLA  matters  and other  environmental
liabilities.  At December 31, 2001,  NL had accrued $107 million with respect to
those environmental  matters which are reasonably  estimable.  NL determines the
amount of accrual on a quarterly  basis by analyzing and estimating the range of
reasonably  possible  costs to NL.  Such  costs  include,  among  other  things,
expenditures for remedial investigations, monitoring, managing, studies, certain
legal fees,  clean-up,  removal and remediation.  It is not possible to estimate
the range of costs for certain sites. NL has estimated that the upper end of the
range of reasonably  possible  costs to NL for sites for which it is possible to
estimate costs is approximately $160 million. NL's estimates of such liabilities
have not been discounted to present value, and other than the three  settlements
discussed below with respect to certain of NL's former  insurance  carriers,  NL
has not  recognized  any  insurance  recoveries.  No assurance can be given that
actual  costs will not  exceed  either  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. The  imposition of more stringent  standards or
requirements  under  environmental  laws or  regulations,  new  developments  or
changes  with respect to site cleanup  costs or  allocation  of such costs among
PRPs, or a determination  that NL is potentially  responsible for the release of
hazardous  substances at other sites could result in  expenditures  in excess of
amounts currently estimated by NL to be required for such matters.  Furthermore,
there can be no assurance that additional  environmental  matters will not arise
in the future. More detailed  descriptions of certain legal proceedings relating
to environmental matters are set forth below.

     In July 1991, the United States filed an action in the U.S.  District Court
for the Southern  District of Illinois  against NL and others  (United States of
America v. NL  Industries,  Inc.,  et al., Civ. No. 91-CV 00578) with respect to
the Granite  City,  Illinois  lead smelter  formerly  owned by NL. The complaint
seeks   injunctive   relief  to  compel  the   defendants   to  comply  with  an
administrative order issued pursuant to CERCLA, and fines and treble damages for
the alleged  failure to comply with the order.  NL and the other parties did not
implement  the order,  believing  that the remedy  selected by the U.S.  EPA was
invalid, arbitrary,  capricious and was not selected in accordance with law. The
complaint  also  seeks  recovery  of  past  costs  and a  declaration  that  the
defendants are liable for future costs. Although the action was filed against NL
and ten other defendants, there are 330 other PRPs who have been notified by the
U.S. EPA. Some of those  notified were also  respondents  to the  administrative
order. In September 1995, the U.S. EPA released its amended  decision  selecting
cleanup  remedies for the Granite City site.  In  September  1997,  the U.S. EPA
informed  NL that the past and  future  cleanup  costs were  estimated  to total
approximately  $63.5  million.  In 1999,  the U.S.  EPA and  certain  other PRPs
entered  into  a  consent  decree  settling  their  liability  at the  site  for
approximately  50% of the  site  costs,  and NL and  the  U.S.  EPA  reached  an
agreement in principle to settle NL's  liability at the site for $31.5  million.
NL and the U.S. EPA are negotiating a consent decree embodying the terms of this
agreement in principle.

     NL  previously  reached an agreement  with the other PRPs at a lead smelter
site in Pedricktown,  New Jersey, formerly owned by NL, to settle NL's liability
for $6 million,  of which $4.1  million has already been paid as of December 31,
2001. The settlement does not resolve issues regarding NL's potential  liability
in the event  site costs  exceed $21  million.  However,  NL does not  presently
expect site costs to exceed such amount and has not  provided  accruals for such
contingency.

     In 1998, NL reached an agreement to settle  litigation  with the other PRPs
at a lead smelter site in Portland,  Oregon that was formerly owned by NL. Under
the agreement,  NL agreed to pay a portion of future cleanup costs. In 2000, the
construction  of the  remediation  was completed and is now in the operation and
maintenance phase.

     In 2000, NL reached an agreement  with the other PRPs at the Baxter Springs
subsite in Cherokee  County,  Kansas,  to resolve NL's liability.  NL and others
formerly mined lead and zinc in the Baxter Springs subsite. Under the agreement,
NL agreed to pay a portion  of the  cleanup  costs  associated  with the  Baxter
Springs  subsite.  The U.S. EPA has  estimated  the total  cleanup  costs in the
Baxter  Springs  subsite to be $5.4  million.  The remedial  design phase of the
cleanup is underway.

     In 1996,  the U.S. EPA ordered NL to perform a removal action at a facility
in Chicago,  Illinois  formerly  owned by NL. NL has complied with the order and
has  completed   the  on-site  work  at  the  facility.   NL  is  conducting  an
investigation regarding potential offsite contamination.

     Residents in the vicinity of NL's former  Philadelphia lead chemicals plant
commenced a class action allegedly  comprised of over 7,500 individuals  seeking
medical  monitoring  and damages  allegedly  caused by emissions from the plant.
Wagner,  et al v. Anzon and NL Industries,  Inc., No.  87-4420,  Court of Common
Pleas,  Philadelphia  County.  The complaint  sought  compensatory  and punitive
damages from NL and the current owner of the plant, and alleged causes of action
for, among other things, negligence, strict liability, and nuisance. A class was
certified to include persons who resided,  owned or rented property, or who work
or have  worked  within up to  approximately  three-quarters  of a mile from the
plant from 1960  through the  present.  In December  1994,  the jury  returned a
verdict in favor of NL, and the verdict was affirmed on appeal.  Residents  also
filed  consolidated  actions in the United States District Court for the Eastern
District of  Pennsylvania,  Shinozaki  v. Anzon,  Inc. and Wagner and Antczak v.
Anzon and NL Industries,  Inc., Nos. 87-3441,  87-3502, 87-4137 and 87-5150. The
consolidated  action is a putative class action seeking CERCLA  response  costs,
including cleanup and medical monitoring,  declaratory and injunctive relief and
civil penalties for alleged violations of the Resource Conservation and Recovery
Act ("RCRA"), and also asserting pendent common law claims for strict liability,
trespass,  nuisance and punitive  damages.  The court  dismissed  the common law
claims without  prejudice,  dismissed two of the three RCRA claims as against NL
with  prejudice,  and stayed the case  pending  the  outcome of the state  court
litigation.

     In 2000,  NL  reached  an  agreement  with the  other  PRPs at the  Batavia
Landfill  Superfund  Site in Batavia,  New York to resolve NL's  liability.  The
Batavia  Landfill  is  a  former  industrial  waste  disposal  site.  Under  the
agreement, NL agreed to pay 40% of the future remedial construction costs, which
the U.S. EPA has estimated to be approximately  $11 million in total.  Under the
settlement,  NL is not responsible  for costs  associated with the operation and
maintenance of the remedy.  In addition,  NL received  approximately  $2 million
from settling PRPs. The remedial design phase of the remedy is underway.

     In October  2000,  NL was served with a complaint in Pulliam,  et al. v. NL
Industries,  Inc.,  et al.,  (Superior  Court in  Marion  County,  Indiana,  No.
49F12-0104-CT-001301),  filed on behalf of an alleged  class of all  persons and
entities who own or have owned property or have resided within a one-mile radius
of an  industrial  facility  formerly  owned  by NL  in  Indianapolis,  Indiana.
Plaintiffs  allege that they and their  property  have been injured by lead dust
and  particulates  from the  facility and seek  unspecified  actual and punitive
damages and a removal of all alleged lead contamination  under various theories,
including negligence,  strict liability,  battery, nuisance and trespassing.  In
December 2000, NL answered the complaint,  denying all allegations of wrongdoing
and liability. Discovery is proceeding.

     See also Item 1 -  "Business - Chemicals  -  Regulatory  and  environmental
matters."

     In July 2000,  Tremont entered into a voluntary  settlement  agreement with
the Arkansas  Department of Environmental  Quality pursuant to which Tremont and
other PRPs will undertake certain investigatory and remediation  activities at a
former  barite  mining site  located in Hot Springs  County,  Arkansas.  Tremont
currently  believes  it has accrued  adequate  amounts to cover its share of the
costs for such remediation activities. At December 31, 2001, Tremont had accrued
approximately $5 million related to these matters.

     In 1999,  TIMET and certain other companies that currently have or formerly
had  operations  within the BMI Complex  (the "BMI  Companies")  entered  into a
series of agreements with BMI pursuant to which, among other things, BMI assumed
responsibility for the conduct of soils remediation activities on the properties
described, including the responsibility to complete all outstanding requirements
pertaining to such activities under existing consent  agreements with the Nevada
Division of Environmental Protection. TIMET contributed $2.8 million to the cost
of  this  remediation   (which  payment  was  charged  against  TIMET's  accrued
liabilities  for this  matter).  TIMET  also  agreed  to  convey  to BMI,  at no
additional  cost,  certain lands owned by TIMET  adjacent to its plant site (the
"TIMET Pond Property") upon payment by BMI of the cost to design,  purchase, and
install  the  technology  and  equipment   necessary  to  allow  TIMET  to  stop
discharging  liquid  and solid  effluents  and  co-products  onto the TIMET Pond
Property  (BMI will pay 100% of the first $15.9  million cost for this  project,
and TIMET agreed to contribute 50% of the cost in excess of $15.9 million, up to
a  maximum  payment  by TIMET  of $2  million).  TIMET,  BMI and the  other  BMI
Companies are continuing investigation with respect to certain additional issues
associated  with  the  properties   described  above,   including  any  possible
groundwater issues at the BMI Complex and the TIMET Pond Property.

     In addition to assessments  discussed above, TIMET is continuing assessment
work with respect to its own active plant site in Nevada. A preliminary study of
certain  groundwater  remediation issues at such Nevada facility and other TIMET
sites  within the BMI Complex was  completed  during  2000.  TIMET  accrued $3.3
million based on the cost estimates set forth in that study.  Such  undiscounted
environmental  remediation  costs are expected to be paid over a period of up to
thirty years.

     In February 2002,  TIMET fulfilled all of its remaining  obligations  under
the 2000  settlement  agreement  of the U. S. EPA's civil action  against  TIMET
(United  States of America v.  Titanium  Metals  Corporation;  Civil  Action No.
CV-S-98-682-HDM (RLH), U. S. District Court, District of Nevada).

     At December 31, 2001,  TIMET had accrued an aggregate of  approximately  $4
million for these environmental matters discussed above.

     In addition to amounts  accrued by NL, Tremont and TIMET for  environmental
matters,  at December 31, 2001,  the Company also had  approximately  $6 million
accrued for the  estimated  cost to complete  environmental  cleanup  matters at
certain of its former  facilities.  Costs for future  environmental  remediation
efforts  are not  discounted  to their  present  value,  and no  recoveries  for
remediation costs from third parties have been recognized. Such accruals will be
adjusted,  if  necessary,   as  further  information  becomes  available  or  as
circumstances  change.  No assurance can be given that the actual costs will not
exceed accrued amounts. At one of such facilities, the Company has been named as
a PRP  pursuant to CERCLA at a Superfund  site in Indiana.  The Company has also
undertaken a voluntary  cleanup  program to be approved by state  authorities at
another  Indiana site. The total  estimated cost for cleanup and  remediation at
the Indiana Superfund site is $39 million. The Company's share of such estimated
cleanup and  remediation  cost is  currently  estimated to be  approximately  $2
million,  of which about one-half has been paid. The Company's estimated cost to
complete the voluntary cleanup program at the other Indiana site, which involves
both surface and groundwater  remediation,  is relatively  nominal.  The Company
believes it has adequately provided accruals for reasonably  estimable costs for
CERCLA  matters  and  other  environmental  liabilities  for all of such  former
facilities.  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 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. Furthermore, there can
be no assurance  that  additional  environmental  matters  related to current or
former operations will not arise in the future.

     Insurance   coverage  claims.  NL  has  previously  filed  actions  seeking
declaratory  judgment and other relief against various  insurance  carriers with
respect  to  costs  of  defense  and  indemnity  coverage  for  certain  of  its
environmental  and lead pigment  litigation.  NL Industries,  Inc. v. Commercial
Union Insurance Cos., et al., Nos.  90-2124,  -2125 (HLS) (District Court of New
Jersey).

     These actions  relating to claims for defense costs and indemnity  coverage
for environmental  matters have been settled with respect to certain defendants.
During  2000 and  2001,  NL  reached  settlements  with  certain  of its  former
insurance carriers.  The settlements  resolved the court proceedings in which NL
had sought  reimbursement  from the carriers for legal defense  expenditures and
indemnity coverage for certain of its environmental remediation expenditures. As
a result of the settlements,  NL recognized a $69.5 million pre-tax gain in 2000
related  to the 2000  settlements,  and an $11.4  million  pre-tax  gain in 2001
related to the 2001  settlements.  Substantially  all of the proceeds from these
settlements  have been  transferred  by the carriers to special  purpose  trusts
formed  by  NL  to  pay  for  certain  of  its  future   remediation  and  other
environmental   expenditures.   See  Note  12  to  the  Consolidated   Financial
Statements.  No further material settlements  relating to litigation  concerning
environmental remediation coverages are expected.

     The action  relating to claims for lead pigment  litigation  defense  costs
sought to recover  defense  costs  incurred in the City of New York lead pigment
case and two other  cases which have since been  resolved  in NL's  favor.  Such
action related to lead paint litigation has been settled.

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

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

     No matters were submitted to a vote of security  holders during the quarter
ended December 31, 2001.

                                     PART II


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

     Valhi's common stock is listed and traded on the New York and Pacific Stock
Exchanges (symbol: VHI). As of February 28, 2002, there were approximately 2,050
holders of record of Valhi common stock. The following table sets forth the high
and low closing per share sales  prices for Valhi  common  stock for the periods
indicated,  according  to the  New  York  Stock  Exchange  Composite  Tape,  and
dividends  paid during such  periods.  On February 28, 2002 the closing price of
Valhi common stock according to the NYSE Composite Tape was $11.80.



                                                                             Dividends
                                                     High         Low           paid

Year ended December 31, 2000

                                                                   
  First Quarter ...........................       $   11.56    $   10.19    $   .05
  Second Quarter ..........................           13.56        10.38        .05
  Third Quarter ...........................           13.00        10.75        .05
  Fourth Quarter ..........................           12.88        11.44        .06

Year ended December 31, 2001

  First Quarter ...........................       $   12.00    $   10.00    $   .06
  Second Quarter ..........................           12.95        10.00        .06
  Third Quarter ...........................           13.30        10.16        .06
  Fourth Quarter ..........................           13.42        11.11        .06



     Valhi's regular quarterly dividend is currently $.06 per share. Declaration
and payment of future  dividends and the amount  thereof will be dependent  upon
the Company's results of operations,  financial condition, cash requirements for
its businesses,  contractual  requirements  and  restrictions  and other factors
deemed relevant by the Board of Directors.










ITEM 6.  SELECTED FINANCIAL DATA

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




                                                               Years ended December 31,
                                                    -------------------------------------------
                                             1997        1998          1999         2000          2001
                                             ----        ----          ----         ----          ----
                                                       (In millions, except per share data)

STATEMENTS OF OPERATIONS DATA:
  Net sales:
                                                                               
    Chemicals .........................   $   984.4    $   907.3    $   908.4    $   922.3    $   835.1
    Component products ................       108.7        152.1        225.9        253.3        211.4
    Waste management (1) ..............        --           --           10.9         16.3         13.0
                                          ---------    ---------    ---------    ---------    ---------

                                          $ 1,093.1    $ 1,059.4    $ 1,145.2    $ 1,191.9    $ 1,059.5
                                          =========    =========    =========    =========    =========

  Operating income:
    Chemicals .........................   $   106.7    $   154.6    $   126.2    $   187.4    $   143.5
    Component products ................        28.3         31.9         40.2         37.5         13.1
    Waste management (1) ..............        --           --           (1.8)        (7.2)       (14.4)
                                          ---------    ---------    ---------    ---------    ---------

                                          $   135.0    $   186.5    $   164.6    $   217.7    $   142.2
                                          =========    =========    =========    =========    =========


  Equity in earnings (losses):
    Waste Control Specialists (1) .....   $   (12.7)   $   (15.5)   $    (8.5)   $    --      $    --
    Tremont Corporation (2) ...........        --            7.4        (48.7)        --           --
    TIMET (3) .........................        --           --           --           (9.0)        (9.2)


  Income from continuing operations (4)   $    27.1    $   225.8    $    47.4    $    77.1    $    93.2
  Discontinued operations .............        33.6         --            2.0         --           --
  Extraordinary item ..................        (4.3)        (6.2)        --            (.5)        --
                                          ---------    ---------    ---------    ---------    ---------

      Net income ......................   $    56.4    $   219.6    $    49.4    $    76.6    $    93.2
                                          =========    =========    =========    =========    =========


DILUTED EARNINGS PER SHARE DATA:
  Income from continuing operations ...   $     .24    $    1.94    $     .41    $     .66    $     .80

  Net income ..........................   $     .49    $    1.89    $     .43    $     .66    $     .80

  Cash dividends ......................   $     .20    $     .20    $     .20    $     .21    $     .24

  Weighted average common shares
   Outstanding ........................       115.9        116.1        116.2        116.3        116.1

BALANCE SHEET DATA (at year end):
  Total assets ........................   $ 2,178.1    $ 2,242.2    $ 2,235.2    $ 2,256.8    $ 2,153.8
  Long-term debt ......................     1,008.1        630.6        609.3        595.4        497.2
  Stockholders' equity ................       384.9        578.5        589.4        628.2        622.3



(1)   Consolidated effective June 30, 1999.
(2)   Commenced recognizing equity in earnings effective July 1, 1998;
      consolidated effective December 31, 1999.
(3)   Commenced reporting equity in earnings effective January 1, 2000.
(4)   Income from continuing operations in 1998 includes the previously-reported
      (i) $330 million pre-tax gain ($152 million net of income taxes and
      minority interest) related to the sale of NL's specialty chemicals
      business unit, (ii) $68 million pre-tax gain ($44 million net of income
      taxes) related to the Company's reduction in interest in CompX and (iii)
      $32 million charge ($21 million net of income taxes) related to cash
      payments made to settle certain litigation. See "Management's Discussion
      and Analysis of Financial Condition and Results of Operations" for a
      discussion of unusual items occurring during 1999, 2000 and 2001. There
      were no unusual items occurring during 1997.





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

RESULTS OF OPERATIONS

Continuing operations

     The Company reported income from continuing operations of $93.2 million, or
$.80 per diluted share,  in 2001 compared to $77.1 million,  or $.66 per diluted
share,  in 2000.  Excluding the effects of unusual items  discussed  below,  the
Company would have reported income from continuing  operations of $30.7 million,
or $.27 per  diluted  share,  in 2001  compared  to $49.3  million,  or $.42 per
diluted share, in 2000. Total operating income decreased 35% in 2001 compared to
2000 due to lower chemicals  earnings at NL, lower component  products operating
income at CompX  International  and higher waste management  operating losses at
Waste Control Specialists.

     The Company's results in 2001 include (i) a pre-tax insurance gain of $16.2
million  ($7.4  million,  or $.06 per  diluted  share,  net of income  taxes and
minority interest) related to insurance recoveries received by NL resulting from
the March 2001 fire at one of NL's facilities,  as insurance recoveries received
exceeded  the  carrying  value  of the  property  destroyed  and  cleanup  costs
incurred,  (ii)  aggregate net  securities  transactions  gains of $47.0 million
($30.7  million,  or $.26 per diluted  share,  net of income  taxes and minority
interest)  related  principally to the disposition of a portion of the shares of
Halliburton  Company  common stock held by the Company,  including  dispositions
when certain  holders of the Company's  LYONs debt  obligation  exercised  their
right to exchange  such debt for such  Halliburton  stock,  (iii)  pre-tax gains
aggregating  $31.9 million ($18.3  million,  or $.16 per diluted  share,  net of
income  taxes and  minority  interest)  related to NL's legal  settlements  with
certain  of  its  former  insurance  carriers  and  the  settlement  of  certain
litigation  to which  Waste  Control  Specialists  was a party  and (iv) a $17.6
million non-cash income tax benefit ($13 million, or $.11 per diluted share, net
of minority interest) related to a change in estimate of NL's ability to utilize
certain  German income tax  attributes.  In addition,  the  Company's  equity in
earnings of TIMET in 2001  includes  $12.7 million of net equity in losses ($6.9
million,  or $.06 per diluted share,  net of income tax benefit)  related to the
combined net effect of TIMET's (i) $62.7 million pre-tax settlement with Boeing,
(ii) $61.5  million  provision  for an other than  temporary  impairment  of its
investment in preferred securities of Special Metals Corporation and (iii) $12.3
million increase in its deferred income tax asset valuation allowance. See Notes
5, 7, 12 and 16 to the Consolidated Financial Statements.

     The  Company's  results in 2000  include a $69.5  million  pre-tax net gain
($28.2  million,  or $.24 per diluted  share,  net of income  taxes and minority
interest)  related to NL's  settlements  with  certain of its  principal  former
insurance  carriers.  The 1999 results include a $90 million non-cash income tax
benefit  ($52  million,  or $.45 per diluted  share,  net of minority  interest)
recognized by NL and a non-cash  impairment  charge of $50 million ($32 million,
or $.28 per  diluted  share,  net of income  taxes) for an other than  temporary
decline in the market  value of TIMET.  See Notes 12 and 16 to the  Consolidated
Financial Statements.

     As discussed in Note 20 to the Consolidated Financial Statements, beginning
in 2002 the Company will no longer recognize  periodic  amortization of goodwill
in its results of  operations.  The Company  would have  reported  income before
extraordinary  item of approximately  $109 million in 2001, or about $16 million
higher than what was actually reported, if the goodwill amortization included in
the Company's  reported net income had not been recognized.  Of such $16 million
difference, approximately $14.5 million and $2.5 million relates to amortization
of goodwill  attributable  to the Company's  chemicals and  components  products
segment, respectively, and approximately $1 million relates to minority interest
associated with the goodwill amortization recognized by certain of the Company's
less-than-wholly-owned subsidiaries.

     Excluding the effect of all of the unusual items discussed  above, and even
after  considering  the  effect of  ceasing to  periodically  amortize  goodwill
beginning in 2002, the Company currently believes its net income in 2002 will be
significantly  lower  compared  to 2001 due  primarily  to  significantly  lower
expected chemicals operating income.

Critical accounting policies and estimates

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

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

o    The Company maintains allowances for doubtful accounts for estimated losses
     resulting from the inability of its customers to make required payments and
     other factors.  The Company takes into  consideration the current financial
     condition  of the  customers,  the age of the  outstanding  balance and the
     current economic  environment when assessing the adequacy of the allowance.
     If the financial  condition of the Company's customers were to deteriorate,
     resulting in an impairment of their  ability to make  payments,  additional
     allowances may be required.

o    The Company  provides  reserves for estimated  obsolescence or unmarketable
     inventory  equal to the  difference  between the cost of inventory  and the
     estimated net realizable  value using  assumptions  about future demand for
     its products and market  conditions.  If actual market  conditions are less
     favorable than those projected by management, additional inventory reserves
     may be required.  NL provides  reserves  for tools and  supplies  inventory
     based generally on both historical and expected future usage requirements.

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

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

o    The Company records a valuation allowance to reduce its deferred income tax
     assets  to  the  amount  that  is   believed  to  be  realized   under  the
     "more-likely-than-not"   recognition   criteria.   While  the  Company  has
     considered  future  taxable  income and ongoing  prudent and  feasible  tax
     planning strategies in assessing the need for a valuation allowance,  it is
     possible  that in the future the  Company  may change its  estimate  of the
     amount of the deferred income tax assets that would  "more-likely-than-not"
     be realized in the  future,  resulting  in an  adjustment  to the  deferred
     income  tax  asset  valuation  allowance  that  would  either  increase  or
     decrease,  as applicable,  reported net income in the period such change in
     estimate was made.

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

Chemicals

     Selling prices for TiO2, NL's principal product,  were generally decreasing
during the first three quarters of 1999,  were generally  increasing  during the
fourth quarter of 1999 and most of 2000, and were  generally  decreasing  during
most of 2001. The most  significant TiO2 price erosion that occurred during 2001
was in European  and export  markets.  NL's  average  TiO2  selling  prices have
continued  to trend  downward  during  the  first  quarter  of 2002.  NL's  TiO2
operations are conducted through its wholly-owned subsidiary Kronos.

     Chemicals   operating   income,  as  presented  below,  is  stated  net  of
amortization of Valhi's purchase accounting adjustments made in conjunction with
its  acquisitions of its interest in NL. Such  adjustments  result in additional
depreciation,  depletion and  amortization  expense  beyond  amounts  separately
reported by NL. Such additional  non-cash expenses reduced  chemicals  operating
income, as reported by Valhi, by approximately $19.5 million,  $18.9 million and
$19.7  million in 1999,  2000 and 2001,  respectively,  as  compared  to amounts
separately reported by NL. As discussed in Note 3 to the Consolidated  Financial
Statements,  the Company commenced consolidating Tremont's results of operations
effective January 1, 2000.  Tremont owns 21% of NL and accounts for its interest
in NL by the equity  method.  Tremont also has purchase  accounting  adjustments
made in conjunction  with the  acquisitions  of its interest in NL. During 1999,
amortization  of such  purchase  accounting  adjustments  were  included  in the
Company's  equity in  earnings of  Tremont.  Beginning  in 2000 when the Company
commenced  consolidating  Tremont's  result of operations,  amortization of such
Tremont purchase  accounting  adjustments  further reduced  chemicals  operating
income, as reported by Valhi,  compared to amounts separately  reported by NL by
approximately $6.2 million and $6.0 million in 2000 and 2001, respectively.  Had
the Company  consolidated  Tremont's results of operations  effective January 1,
1999,  amortization of Tremont's purchase  accounting  adjustments related to NL
would have further reduced  chemicals  operating income, as presented below, for
1999 by  $6.8  million.  A  significant  portion  of  such  purchase  accounting
adjustment  amortization  relates to goodwill  (about $14.5 million in 2001). As
discussed  above,  beginning  in 2002  goodwill  will no  longer be  subject  to
periodic amortization. Accordingly, beginning in 2002 the reduction in chemicals
operating   income   reported   by  the   Company   as   compared   to   amounts
separately-reported  by NL is not  expected  to be as  much  as it  was in  2001
because of the effect of ceasing periodic amortization of such goodwill purchase
accounting adjustments.








                                         Years ended December 31,    % Change
                                          ---------------------   --------------
                                         1999      2000    2001  1999-00  2000-01
                                         ----      ----    ----  -------  -------
                                                        (In millions)
                                                                 
Net sales ...........................    $ 90     $922.3  $835.1   +  2%      - 9
Operating income ....................     126.2    187.4   143.5   + 48%     - 23

Operating income margin .............      14%       20%     17%

TiO2 data:
  Sales volumes (thousands
   of metric tons) ..................      427     436     402      + 2%      - 8
  Average selling price
   index (1983=100) .................      153     161     156      + 6%      - 3



     Chemicals  sales  decreased in 2001 compared to 2000 due primarily to lower
TiO2 sales volumes and lower TiO2 average selling  prices.  Excluding the effect
of fluctuations  in the value of the U.S.  dollar relative to other  currencies,
NL's  average TiO2 selling  prices (in billing  currencies)  during 2001 were 3%
lower compared to 2000, with prices lower in all major regions.  NL's TiO2 sales
volumes in the 2001 were 8% lower than the record  sales  volumes of 2000,  with
slightly  higher  volumes in export markets more than offset by lower volumes in
North America and Europe.  Approximately  one-half of Kronos' TiO2 sales volumes
in 2001 was  attributable to markets in Europe,  with 38%  attributable to North
America and the balance to export markets.

     Chemicals operating income in 2001 decreased compared to 2000 due primarily
to the lower TiO2 sales volumes and average selling prices as well as lower TiO2
production volumes.  NL's TiO2 production volumes were 6% lower in 2001 compared
to the record  production  volumes in 2000,  with operating rates in 2001 of 91%
compared to near full capacity in 2000.  The lower  production  volumes were due
primarily  to the  effects  of the  previously-reported  March 2001 fire at NL's
Leverkusen,  Germany  sulfate-process  facility,  as well as  NL's  decision  to
curtail   production   during  the  period  of  soft  demand.   The   Leverkusen
sulfate-process facility became approximately 50% operational in September 2001,
and returned to full production in late October 2001.

     Chemicals  operating  income in 2001  includes  $27.3  million of  business
interruption  insurance proceeds as payment for losses (unallocated period costs
and lost margin)  caused by the  Leverkusen  fire. The effects of the lower TiO2
sales and  production  volumes were offset in part by the business  interruption
insurance  proceeds.  Of such $27.3 million of business  interruption  insurance
proceeds,  $20.1  million was recorded as a reduction of cost of sales to offset
unallocated  period costs that resulted from lost production,  and the remaining
$7.2  million,  representing  recovery  of lost  margin,  was  recorded in other
income.  The business  interruption  insurance  proceeds  distorts the chemicals
operating income margin percentage in 2001 as there are no sales associated with
the $7.2 million of lost margin operating profit recognized.  See Note 12 to the
Consolidated Financial Statements.

     NL also  recognized  insurance  recoveries  of  $29.1  million  in 2001 for
property  damage and related  cleanup and other  extra  expenses  related to the
fire,  resulting  in an  insurance  gain  of  $16.2  million,  as the  insurance
recoveries exceeded the carrying value of the property destroyed and the cleanup
and other extra  expenses  incurred.  Such  insurance  gain is not reported as a
component of  chemicals  operating  income but is included in general  corporate
items.  NL does not expect to  recognize  any  additional  insurance  recoveries
related to the Leverkusen fire.

     Kronos'  operating income in 2000 increased  compared to 1999 due primarily
to higher  average  TiO2  selling  prices and higher  TiO2 sales and  production
volumes.  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)  during 2000 were 6% higher than 1999, with increased  prices in all
major  regions and the  greatest  improvement  in European  and export  markets.
Kronos'  TiO2 sales  volumes in 2000 were a record and were 2% higher than 1999,
primarily  due to higher sales in Europe and North  America.  Demand for Ti02 in
the first  three  quarters of 2000 was  stronger  than  comparable  year-earlier
periods as a result  of,  among  other  things,  customers  buying in advance of
anticipated  price increases.  Demand for Ti02 softened in the fourth quarter of
2000.  Kronos'  TiO2  production  volumes in 2000 were also a record and were 7%
higher than 1999,  with  operating  rates near full capacity in 2000 compared to
about 93% capacity  utilization in 1999. The lower level of capacity utilization
in 1999 was due to Kronos' decision to manage its inventory levels in early 1999
by  curtailing  production  during  the  first  quarter.  In  addition,  Kronos'
operating income in 1999 includes $5.3 million of foreign  currency  transaction
gains related to certain of NL's short-term intercompany cross-border financings
that were settled in July 1999.

     Pricing  within the TiO2  industry  is  cyclical,  and  changes in industry
economic  conditions can  significantly  impact NL's earnings and operating cash
flows.  The average TiO2  selling  price index (using 1983 = 100) of 156 in 2001
was 3% lower than the 2000 index of 161 (2000 was 6% higher  than the 1999 index
of 153). In comparison, the 2001 index was 11% below the 1990 price index of 175
and 23% higher than the 1993 price index of 127.  Many  factors  influence  TiO2
pricing  levels,  including  industry  capacity,  worldwide  demand  growth  and
customer inventory levels and purchasing decisions.

     NL expects  TiO2  industry  demand in 2002 will  improve  over 2001  levels
because NL expects  worldwide  economic  conditions  will improve and  inventory
levels of its customers will increase.  NL's TiO2 production volumes in 2002 are
expected  to  approximate  NL's 2002 TiO2 sales  volumes.  In January  2002,  NL
announced price increases in all major markets of  approximately  5% to 8% above
existing  December 2001 prices,  scheduled to be  implemented  late in the first
quarter of 2002 and early in the second  quarter of 2002.  NL is hopeful that it
will realize such  announced  prices  increases,  but the extent to which NL can
realize  these and  possibly  other price  increases  during 2002 will depend on
improving market conditions and global economic recovery.  However, because TiO2
prices were generally declining during all of 2001, NL believes that its average
2002 prices in billing  currencies will be significantly  below its average 2001
prices, even if the recently-announced price increases are realized. Overall, NL
expects its TiO2 operating income in 2002 will be significantly lower than 2001,
primarily due to lower average TiO2 selling prices.  NL's expectations as to the
future  prospects of NL and the TiO2 industry are based upon a number of factors
beyond NL's  control,  including  worldwide  growth of gross  domestic  product,
competition in the market place,  unexpected or  earlier-than-expected  capacity
additions and technological  advances.  If actual  developments differ from NL's
expectations, NL's results of operations could be unfavorably affected.

     NL's efforts to  debottleneck  its production  facilities to meet long-term
demand continue to prove  successful.  NL expects its TiO2  production  capacity
will  increase by about 25,000 metric tons  (primarily  at its  chloride-process
facilities),  with  moderate  capital  expenditures,  to increase its  aggregate
production capacity to about 480,000 metric tons during 2005.

     NL has substantial  operations and assets located outside the United States
(principally Germany,  Belgium, Norway and Canada). A significant amount of NL's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S.  dollar (57% in 2001),  primarily the euro,  other major  European
currencies  and the  Canadian  dollar.  In  addition,  a portion  of NL's  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
NL's 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.  Including 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 2001
decreased  5% compared  to 2000 (such  prices in 2000  decreased  1% compared to
1999).  Overall,  fluctuations in the value of the U.S. dollar relative to other
currencies,  primarily  the  euro,  decreased  TiO2  sales  in 2001 by a net $19
million  compared  to 2000,  and  decreased  sales by a net $68  million in 2000
compared to 1999. Fluctuations in the value of the U.S. dollar relative to other
currencies  similarly  impacted  NL's  foreign  currency-denominated   operating
expenses. NL's operating costs that are not denominated in the U.S. dollar, when
translated into U.S. dollars, were lower during 2001 and 2000 as compared to the
respective  prior  years.  Overall,  the net impact of  currency  exchange  rate
fluctuations on NL's operating income  comparisons,  other than the $5.3 million
1999 foreign  currency  transaction gain discussed above, was not significant in
2001 and 2000 compared to the respective prior year.

Component products



                                       Years ended December 31,      % Change
                                       -----------------------      ------------
                                       1999      2000     2001   1999-00   2000-01
                                       ----      ----     ----   -------   -------
                                                      (In millions)

                                                               
Net sales .......................   $  225.9  $  253.3  $  211.4  + 12%     - 17
Operating income ................       40.2      37.5      13.1    - 7     - 65

Operating income margin .........        18%       15%        6%


     Component products sales and operating income decreased in 2001 compared to
2000 due primarily to continued  weak economic  conditions in the  manufacturing
sector  in North  America  and  Europe.  During  2001,  sales of slide  products
decreased  26% compared to 2000,  and sales of security  products and  ergonomic
products each  decreased 13%.  CompX's  efforts to reduce  manufacturing,  fixed
overhead and related  overhead costs partially  offset the effect of the decline
in sales,  although CompX was unable to sufficiently  reduce such costs to fully
compensate for the lower level of sales.  Component products operating income in
2001 also  includes a  restructuring  charge  related to the  consolidation  and
rationalization  of  certain  of its  European  and  North  American  operations
(including  headcount  reductions)  and provisions for obsolete and  slow-moving
inventories  and other items  aggregating  $5.7  million.  Operating  income and
margins were also adversely  impacted in 2001 by unfavorable  changes in product
mix and general pricing pressures.

     Component  products  sales  increased  in 2000  compared to 1999 due to the
effect  of  acquisitions.  Sales of  security  products  in 2000  increased  13%
compared to 1999, and sales of slide products  increased 18%. During 2000, sales
of CompX's  ergonomic  products  decreased  5% compared to 1999.  Excluding  the
effect of acquisitions,  component  products sales in 2000 were essentially flat
compared  to 1999,  with sales of slide  products  up 8% and sales of  ergonomic
products and security  products  down 5% and 7%,  respectively.  The increase in
sales of slide  products is due to market share gains and  increased  demand for
CompX's slide products.  Sales of ergonomic products were negatively impacted in
the second half of 2000 by softening demand in the office furniture  industry in
North  America and loss of market share due to  competition  from  imports.  The
lower  security  products sales were due to weakness in the computer and related
products industry and increased  competition from lower-cost imports.  Component
products  operating  income and operating  income margins in 2000 were adversely
impacted by a change in product mix, with a lower  percentage of sales generated
by certain higher-margin  products in 2000 compared to 1999, as well as expenses
associated  with the  relocation of one of CompX's  operations,  an expansion of
another CompX facility and higher administrative expenses.  Excluding the effect
of  acquisitions,  component  products  operating  income  decreased 11% in 2000
compared to 1999.

     CompX has  substantial  operations  and assets  located  outside the United
States (principally in Canada, The Netherlands 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,  the Dutch guilder,  the
euro 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 value 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 2001,  currency  exchange rate
fluctuations of the Canadian dollar and the euro negatively  impacted  component
products sales compared to 2000  (principally  with respect to slide  products).
Operating  income  comparisons  for this period,  however,  were not  materially
impacted by currency fluctuations.  Excluding the effect of currency,  component
products sales decreased 15% in 2001 compared to 2000. During 2000,  weakness in
the euro  negatively  impacted  component  products  sales and operating  income
comparisons with 1999  (principally  with respect to slide products).  Excluding
the effect of currency and acquisitions,  component  products sales increased 2%
in 2000 compared to 1999, and operating income decreased 9%.

     CompX  expects  the  weak  economic  conditions  experienced  in 2001  will
continue to  negatively  impact its results of operations in 2002. A significant
portion of CompX's business is derived from the office furniture industry, which
has  historically  tended to lag  behind  the rest of the  economy in periods of
economic  recovery.  Ceasing to periodically  amortize goodwill,  however,  will
favorably impact component products operating income in 2002 compared to 2001 by
approximately $2.5 million.


Waste management



                                                    Years ended December 31,
                                              1999            2000           2001
                                              ----            ----           ----
                                                        (In millions)

                                                                 
Net sales .........................         $  19.2        $  16.3        $  13.0
Operating loss ....................            (9.8)          (7.2)         (14.4)


     As  discussed  in  Note 3 to the  Consolidated  Financial  Statements,  the
Company commenced consolidating Waste Control Specialists' results of operations
in the third  quarter  of 1999.  During  the first six  months of 1999  prior to
consolidation, the Company reported its interest in Waste Control Specialists by
the  equity  method.  The  Company's  equity  in net  losses  of  Waste  Control
Specialists during the first six months of 1999 was $8.5 million.

     Waste  management  operating  losses increased in 2001 compared to 2000 due
primarily to the effect of continued weak demand for Waste Control  Specialists'
waste  management  services,  higher  expenses  associated  with its  permitting
efforts and expenses  associated with the start-up of certain new waste disposal
process equipment.  Waste Control Specialists'  operating loss was lower in 2000
compared to 1999 due primarily to the  favorable  effect of certain cost control
measures  implemented during the second half of 1999, which more than offset the
unfavorable  effect of a lower level of sales resulting from weak demand for its
waste management services.

     Waste  Control  Specialists  currently has permits which allow it to treat,
store and dispose of a broad range of hazardous and toxic  wastes,  and to treat
and store a broad range of low-level and mixed radioactive wastes. The hazardous
waste industry (other than low-level and mixed radioactive  waste) currently has
excess  industry  capacity  caused by a number of factors,  including a relative
decline in the number of environmental remediation projects generating hazardous
wastes  and  efforts  on the part of  generators  to reduce  the volume of waste
and/or  manage  wastes  onsite at their  facilities.  These  factors have led to
reduced demand and increased price pressure for non-radioactive  hazardous waste
management services. While Waste Control Specialists believes its broad range of
permits for the treatment and storage of low-level and mixed  radioactive  waste
streams provides certain competitive advantages,  a key element of Waste Control
Specialists'  long-term  strategy to provide "one-stop  shopping" for hazardous,
low-level and mixed radioactive wastes includes obtaining additional  regulatory
authorizations for the disposal of low-level and mixed radioactive wastes.

     The current state law in Texas (where Waste Control  Specialists'  disposal
facility is located)  prohibits  the  applicable  Texas  regulatory  agency from
issuing a permit for the  disposal of low-level  radioactive  waste to a private
enterprise operating a disposal facility in Texas. During the two previous Texas
legislative  sessions,   which  ended  in  May  1999  and  2001,  Waste  Control
Specialists  was supporting a proposed  change in state law that would allow the
regulatory  agency to issue a low-level  radioactive  waste disposal permit to a
private entity. Both legislative sessions ended without any such change in state
law.  There can be no assurance that the state law will in the future be changed
or, assuming the state law is changed,  that Waste Control  Specialists would be
successful in obtaining any future permit modifications.

     Waste Control  Specialists is continuing its attempts to increase its sales
volumes from waste  streams that conform to Waste Control  Specialists'  permits
currently in place. Waste Control Specialists is also continuing to identify and
attempt to obtain  modifications  to its  current  permits  that would allow for
treatment,  storage and disposal of additional  types of wastes.  The ability of
Waste  Control  Specialists  to achieve  increased  sales volumes of these waste
streams,  together with improved  operating  efficiencies  through  further cost
reductions and increased  capacity  utilization,  are important factors in Waste
Control  Specialists'  ability to  achieve  improved  cash  flows.  The  Company
currently  believes Waste Control  Specialists  can become a viable,  profitable
operation.  However,  there can be no assurance that Waste Control  Specialists'
efforts  will prove  successful  in improving  its cash flows.  Valhi has in the
past, and may in the future,  consider  strategic  alternatives  with respect to
Waste Control  Specialists.  Depending on the form of the  transaction  that any
such  strategic  alternative  might take,  it is possible that the Company might
report a loss with respect to such a transaction.

TIMET



                                                    Years ended December 31,
                                                 1999         2000        2001
                                                 ----         ----        ----
                                                        (In millions)

TIMET historical:
                                                                
  Net sales ................................     $480.0      $426.8      $486.9

  Operating income (loss) ..................     $(31.4)     $(41.7)     $ 64.5
  General corporate, net ...................        4.8         6.3       (55.9)
  Interest expense .........................       (7.1)       (7.7)       (4.1)
                                                 ------      ------      ------
                                                  (33.7)      (43.1)        4.5

  Income tax benefit (expense) .............       12.0        15.1       (31.1)
  Minority interest ........................       (9.7)      (10.0)      (15.2)
  Extraordinary item .......................       --           (.9)       --
                                                 ------      ------      ------

    Net loss ...............................     $(31.4)     $(38.9)     $(41.8)
                                                 ======      ======      ======

Equity in earnings (losses) of TIMET* ......        N/A      $ (9.0)     $ (9.2)
                                                             ======      ======


*    Tremont's  equity in earnings of TIMET in 1999 is included in the Company's
     equity in earnings of Tremont in 1999.

     Tremont accounts for its interest in TIMET by the equity method.  Tremont's
equity in earnings of TIMET  differs  from the amounts that would be expected by
applying Tremont's ownership percentage to TIMET's separately-reported  earnings
because of the effect of amortization of purchase accounting adjustments made by
Tremont in conjunction  with Tremont's  acquisitions  of its interests in TIMET.
Amortization of such basis differences  generally increases earnings (or reduces
losses) attributable to TIMET as reported by Tremont.

     In April  2001,  TIMET  settled  the  litigation  between  TIMET and Boeing
related to their 1997 long-term  agreement.  Pursuant to the  settlement,  TIMET
received a cash payment of $82 million. The parties also entered into an amended
long-term  agreement that,  among other things,  allows Boeing to purchase up to
7.5 million  pounds of titanium  product  annually  from TIMET from 2002 through
2007,  subject to certain maximum  quarterly  volume levels.  In  consideration,
Boeing will  annually  advance  TIMET $28.5 million for the upcoming year during
the life of the new  agreement.  The initial  advance for calendar year 2002 was
made in December 2001, with each subsequent  advance to be made in early January
of the  applicable  calendar  year  beginning  in 2003.  The  amended  long-term
agreement is structured as a take-or-pay agreement such that Boeing will forfeit
a  proportionate  part of the $28.5 million annual advance in the event that its
orders for delivery  for such  calendar  year are less than 7.5 million  pounds.
Under a separate agreement TIMET will establish and hold buffer stock for Boeing
at TIMET's  facilities.  TIMET's  operating income in the second quarter of 2001
includes income of approximately  $62.7 million related to this settlement,  net
of associated legal, profit sharing and other costs.

     During 2001,  TIMET's mill products sales volumes  increased 7% compared to
2000, and sales volumes of its melted  products  (ingot and slab) increased 27%.
TIMET's  average  selling prices (in billing  currencies)  for its mill products
increased  2% in 2001  compared  to 2000,  and  melted  product  selling  prices
increased 8%. Operating income comparisons were also impacted by the net effects
of higher  operating rates at certain plants,  lower sponge costs,  higher scrap
costs, higher energy costs,  changes in customer and product mix. In addition to
the Boeing  settlement  discussed above,  TIMET's operating results in 2001 also
include a $10.8 million asset impairment charge related to certain manufacturing
assets and a $3.3 million charge related to TIMET's previously-reported tungsten
matter, further discussed below.

     TIMET's results in 2001 also include a $61.5 million provision for an other
than temporary  impairment of TIMET's  investment in the  convertible  preferred
securities of Special Metals Corporation.  In addition, TIMET's effective income
tax rate in 2001  varies  from the 35% U.S.  federal  statutory  income tax rate
because  of a $30.1  million  increase  in  TIMET's  deferred  income  tax asset
valuation allowance,  as TIMET concluded that such deferred income tax assets do
not currently meet the "more-likely-than-not" recognition criteria.

     TIMET's  results in 2000 were below those of 1999 due in part to lower mill
products  average  selling  prices.  During 2000,  TIMET's mill  products  sales
volumes  declined 1% compared to 1999, and mill products  average selling prices
were 9% lower.  Sales  volumes of melted  products  increased  39% compared with
1999, and average  selling  prices  declined 10%.  TIMET's  results in 2000 also
include special items aggregating to a net charge of $6.3 million, consisting of
restructuring  charges,  equipment-related  impairment charges and environmental
remediation charges aggregating $9.5 million, offset by a $1.2 million gain from
the sale of its  castings  joint  venture and a $2 million  gain  related to the
termination of TIMET's sponge supply agreement with UTSC. UTSC had a take-or-pay
supply  agreement with TIMET that was to be effective for a few more years,  and
UTSC  paid  TIMET  $2  million  in  return  for  cancellation  of its  remaining
commitment to purchase specified  quantities of sponge. The restructuring charge
relates to personnel  reductions of about 170  employees.  In addition,  TIMET's
results in 1999 include $11 million of special  charges  related to, among other
things,  personnel reductions of about 100 people,  slow-moving  inventories and
write-downs  associated  with  TIMET's  investments  in certain  start-up  joint
ventures.

     In March 2001,  TIMET was notified by one of its  customers  that a product
manufactured  from standard grade titanium  produced by TIMET contained what has
been  confirmed to be a tungsten  inclusion.  TIMET  believes that the source of
this tungsten was contaminated silicon purchased from an outside vendor in 1998.
The  silicon was used as an  alloying  addition  to the  titanium at the melting
stage.  TIMET is currently  investigating  the scope of this problem,  including
identification  of the customers who received material  manufactured  using this
silicon  and the  applications  to which such  material  has been placed by such
customers. At the present time, TIMET is aware of only six standard grade ingots
that have been  demonstrated to contain tungsten  inclusions;  however,  further
investigation  may identify  other  material that has been  similarly  affected.
Until this investigation is completed, TIMET is unable to determine the ultimate
liability  TIMET may incur with respect to this matter.  TIMET is  continuing to
work with its affected  customers to determine the  appropriate  remedial  steps
required to satisfy  their  claims.  The $3.3  million  amount  accrued  through
December 31, 2001 represents  TIMET's best estimate of the most likely amount of
loss it will incur.  However,  it may not represent the maximum  possible  loss,
which TIMET is not  presently  able to estimate,  and the amount  accrued may be
periodically  revised in the future as more facts become known.  TIMET has filed
suit seeking full  recovery from the silicon  supplier for any  liability  TIMET
might incur in this matter,  although no assurances can be given that TIMET will
ultimately be able to recover all or any portion of such amounts.  TIMET has not
recorded any recoveries related to this matter at December 31, 2001.

     The  commercial  aerospace  sector has a significant  influence on titanium
companies, particularly mill product producers such as TIMET. Industry shipments
of mill  products  to the  commercial  aerospace  sector in 2001  accounted  for
approximately 90% of aerospace demand and 35% of aggregate titanium mill product
demand. The aerospace  industry,  and consequently the titanium metals industry,
is highly cyclical.

     During the latter part of 2001, an economic  slowdown in the U.S. and other
regions  of the  world  began to  negatively  affect  the  commercial  aerospace
industry as evidenced  by, among other  things,  a decline in airline  passenger
traffic,  reported  operating  losses by a number of airlines and a reduction in
forecasted  deliveries of large commercial aircraft from both Boeing and Airbus.
The terrorist  attack on September 11, 2001  exacerbated  these trends and had a
significant  adverse impact on the global  economy and the commercial  aerospace
industry.  The major U.S.  airlines  reported  significant  losses in the fourth
quarter of 2001.  In response,  airlines  have  announced a number of actions to
reduce  both  costs  and  capacity  including,  but not  limited  to,  the early
retirement of airplanes,  the deferral of scheduled  deliveries of new aircraft,
and allowing purchase options to expire.

     These events have resulted in the major commercial  airframe and jet engine
manufacturers  substantially  reducing  their  forecast  of engine and  aircraft
deliveries over the next few years and their  production  levels in 2002.  TIMET
expects that total  industry  mill product  shipments  will  decrease in 2002 by
approximately  16% to about 43,000  metric tons.  TIMET  Company  believes  that
demand for mill products for the commercial aerospace sector could decline by up
to 40% in 2002,  primarily due to a combination of reduced  aircraft  production
rates and excess  inventory  accumulated  throughout the aerospace  supply chain
since  September 11 that will likely lead to order demand for titanium  products
falling below actual consumption.

     According to The Airline Monitor,  a leading aerospace  publication,  large
commercial  aircraft deliveries totaled 834 (including 202 wide bodies) in 2001,
and the most recent forecast of aircraft deliveries by The Airline Monitor calls
for 660  deliveries in 2002,  505 deliveries in 2003 and 515 deliveries in 2004.
After 2004,  The Airline  Monitor  calls for a continued  increase  each year in
large commercial aircraft deliveries with forecasted  deliveries of 920 aircraft
in 2008 exceeding 2001 levels. Compared to 2001, these forecasted delivery rates
represent  anticipated  declines of about 20% in 2002 and just under 40% in 2003
and  2004.  Additionally,  TIMET's  discussions  with jet  engine  manufacturers
suggest that they are expecting  production declines in 2002 relative to 2001 in
the range of 25% to 30%.

     Although the current business  environment makes it particularly  difficult
to predict  TIMET's  future  performance,  TIMET  expects  its sales in 2002 may
decline to  approximately  $375  million,  reflecting  the  combined  effects of
changes in sales  volume,  selling  prices,  and customer and product mix.  Mill
product sales volumes are expected to decline approximately 20% relative to 2001
to about 10,000  metric tons,  and melted  product sales volumes are expected to
decline by almost  one-third to about 3,000 metric tons. In 2002,  TIMET expects
about 60% of its sales  volumes  will be derived from the  commercial  aerospace
sector  (compared to about  two-thirds in 2001),  with the balance from military
aerospace, industrial, and emerging markets. The sales volume decline in 2002 is
principally driven by an anticipated  reduction in TIMET's commercial  aerospace
sales volume of about 30% compared to 2001, partly offset by sales volume growth
to other markets.  Market  selling  prices on new orders for titanium  products,
while difficult to forecast,  are expected to soften  throughout 2002.  However,
about  one-half of TIMET's  commercial  aerospace  volumes  are under  long-term
agreements  that  provide  TIMET with  price  stability  on that  portion of its
business.

     TIMET  may  sell  substantially  similar  titanium  products  to  different
customers at varying  selling prices due to the effect of long-term  agreements,
timing  of  purchase  orders  and  market  fluctuations.  There  are  also  wide
differences  in selling  prices across  different  titanium  products that TIMET
offers. Accordingly,  the mix of customers and products sold affects its average
selling  price  realized and has an important  impact on sales revenue and gross
margin.  Average selling prices per kilogram,  as reported by TIMET, reflect the
net effects of changes in selling prices,  currency exchange rates, customer and
product mix. Accordingly,  average selling prices are not necessarily indicative
of any one factor.

     Under the amended  Boeing  long-term  agreement,  Boeing will advance TIMET
$28.5 million  annually from 2002 through 2007. The agreement is structured as a
take-or-pay  agreement such that Boeing,  beginning in calendar year 2002,  will
forfeit a proportionate part of the $28.5 million annual advance, or effectively
$3.80 per pound,  in the event that its orders for  delivery  for such  calendar
year are less than 7.5 million pounds.  TIMET presently  intends to recognize as
income any forfeitable  portion of the advance when it becomes virtually assured
that Boeing's  annual orders for delivery will be less than 7.5 million  pounds.
This will generally  result in any take-or-pay  forfeiture  being  recognized in
TIMET's  operating income in the last half of each year. TIMET  anticipates that
Boeing  will  purchase  about 3  million  pounds  of  product  in 2002.  At this
projected order level for 2002,  TIMET expects to recognize about $17 million of
income under the Boeing's take-or-pay provisions. Those earnings,  recognized as
other  income and included in TIMET's  operating  income,  will distort  TIMET's
operating income  percentages as there will be no corresponding  amount reported
in TIMET's sales.

     In response to the current  business  climate,  TIMET is taking a number of
actions in the  near-term to reduce costs.  These  actions  include (i) reducing
plant  operating  rates  and  employment  levels  as  business  declines,   (ii)
negotiating  improved  pricing  at lower  volume  commitments  for  certain  raw
materials,  (iii) reducing  discretionary  spending and (iv) negotiating various
concessions from both suppliers and service providers. TIMET has already reduced
operating rates and employment levels at its melting  facilities since September
11 and expects  similar  actions will occur in the future.  For the longer term,
TIMET is continuing to evaluate product line and facilities  consolidations that
may permit it to  meaningfully  reduce its cost  structure  in the future  while
maintaining and even increasing its market share.  Accordingly,  TIMET's results
in 2002 could  include one or more  restructuring,  asset  impairment  and other
special or similar charges that might be material.

     TIMET's agreement with its labor union at its Ohio plant expires at the end
of June  2002.  TIMET  does not  anticipate  any work  stoppage  or other  labor
disruption.  However, should TIMET's efforts be unsuccessful,  any work stoppage
or other labor  disruption could materially and adversely affect TIMET's results
of operations, financial condition and liquidity.

     TIMET expects its effective income tax rate in 2002 will vary significantly
from the U.S. statutory rate as TIMET does not currently expect that recognition
of an income tax benefit  associated  with its U.S.  losses will be  appropriate
under the "more-likely-than-not" recognition criteria.

     TIMET  presently  expects an operating  loss in 2002 of  approximately  $25
million,  and a net loss for 2002 of approximately  $40 million.  Although TIMET
expects its gross margin to decrease over the year, TIMET presently  expects its
results in the last half of 2002 to be improved compared to the first half. That
anticipated improvement  contemplates that the estimated $17 million expected to
be earned under the Boeing take-or-pay  provision will be recognized in the last
half of the year.

Tremont Corporation

     During  1999,  the  Company  accounted  for its  interest in Tremont by the
equity  method.  The  Company's  equity in Tremont's  earnings  differs from the
amount that would be expected by applying the Company's ownership  percentage to
Tremont's  separately-reported earnings because of the effect of amortization of
purchase   accounting   adjustments  made  in  conjunction  with  the  Company's
acquisitions of its interest in Tremont.  Such non-cash  amortization  increased
losses  attributable  to  Tremont  in  1999,  as  reported  by the  Company,  by
approximately  $3 million,  exclusive of the impact of the other than  temporary
impairment charge related to TIMET discussed below.

     Tremont  accounts  for its  interests  in both NL and  TIMET by the  equity
method.  Tremont's  equity in earnings of TIMET and NL differs  from the amounts
that would be expected by applying Tremont's ownership percentage to TIMET's and
NL's  separately-reported  earnings  because  of the effect of  amortization  of
purchase  accounting  adjustments  made by Tremont in conjunction with Tremont's
acquisitions  of its  interests  in TIMET  and NL.  Amortization  of such  basis
differences  generally  increases  earnings (or reduces losses)  attributable to
TIMET as reported by Tremont  (exclusive of the impact of the impairment  charge
with respect to TIMET  discussed  below),  and  generally  reduces  earnings (or
increases  losses)  attributable to NL as reported by Tremont.  NL's and TIMET's
operating results are discussed above.

     During  1999,  Tremont  reported  a net  loss of $28.2  million,  comprised
principally  of equity in earnings of NL of $28.1  million,  equity in losses of
TIMET of $72.0  million  and an income tax benefit of $18.9  million.  Tremont's
equity in  earnings  of NL in 1999  includes  Tremont's  pro-rata  share  ($17.7
million) of NL's non-cash income tax benefit  discussed below.  Tremont's equity
in losses of TIMET in 1999  includes an  impairment  provision for an other than
temporary decline in the value of TIMET discussed below. The Company's  pro-rata
share  of  such  charge,  together  with  amortization  of  purchase  accounting
adjustments   related  to  the  Company's   investment  in  Tremont  which  were
attributable to Tremont's investment in TIMET, resulted in a $50 million pre-tax
charge related to the other than temporary impairment of TIMET being included in
the Company's equity in losses of Tremont in 1999.

     Tremont  periodically  evaluates  the net carrying  value of its  long-term
assets,  including its  investment in TIMET,  to determine if there has been any
decline in value below their  amortized  cost basis that is other than temporary
and would,  therefore,  require a write-down  which would be accounted  for as a
realized loss. At December 31, 1999,  after  considering  what it believed to be
all  relevant  factors,  including,  among other  things,  TIMET's  consolidated
operating results, financial position, estimated asset values and prospects, the
Company  recorded a non-cash charge to earnings to reduce the net carrying value
of  its  investment  in  TIMET  for  an  other  than  temporary  impairment.  In
determining the amount of the impairment charge, Tremont considered, among other
things, then-recent ranges of TIMET's NYSE market price and estimates of TIMET's
future operating  losses which would further reduce Tremont's  carrying value of
its investment in TIMET as it records additional equity in losses of TIMET.

     At December 31, 2001,  Tremont's  net carrying  value of its  investment in
TIMET was about $4.90 per share  compared  to TIMET's  NYSE stock price of $3.99
per  share at that  date.  However,  TIMET's  stock  price  had been  less  than
Tremont's per share carrying value of its investment in TIMET only since the end
of the third  quarter of 2001.  In this regard,  TIMET's stock price was trading
over $10 per share prior to September  11,  2001,  and on March 13, 2002 TIMET's
stock price was $5.10 per share. Tremont expects the per share carrying value of
its  investment  in TIMET will  decline  during 2002 as it  recognizes  expected
equity in losses of TIMET.  Tremont believes NYSE stock prices,  particularly in
the case of  companies  such as TIMET  which have a major  shareholder,  are not
necessarily  indicative of a company's  enterprise value or the value that could
be realized  if the  company  were sold.  Tremont  will  continue to monitor and
evaluate  the value of its  investment  in TIMET based on,  among other  things,
TIMET's  results of  operations,  financial  condition,  liquidity  and business
outlook.  In the event Tremont determines any decline in value of its investment
in TIMET  below  its net  carrying  value  has  occurred  which  is  other  than
temporary, Tremont would report an appropriate write-down at that time.

General corporate and other items

     General corporate interest and dividend income.  General corporate interest
and  dividend  income  decreased in 2001  compared to 2000 as a slightly  higher
level of distributions  from The Amalgamated  Sugar Company LLC in 2001 was more
than offset by a lower  interest rate on the Company's $80 million loan to Snake
River Sugar Company (which rate was reduced from 12.99% to 6.49% effective April
1, 2000) and a lower average  interest rate on funds  available for  investment.
General  corporate  interest and dividend  income  decreased in 2000 compared to
1999 due primarily to a slightly lower level of distributions  received from The
Amalgamated Sugar Company LLC, as well the effect of the April 1, 2000 reduction
in the  interest  rate on the  Company's  $80 million  loan to Snake River Sugar
Company.  The Company received $23.6 million of dividend  distributions from the
LLC in 2001  compared to $22.7  million in 2000 and $23.5  million in 1999.  See
Notes  5 and 12 to the  Consolidated  Financial  Statements.  Aggregate  general
corporate  interest and dividend income is currently expected to be lower during
2002  compared to 2001 due  primarily to a lower amount of funds  available  for
investment and lower average interest rates.

     Legal  settlement,  insurance gains and gain on  sale/leaseback.  The $31.9
million net legal settlement gains in 2001 relate  principally to (i) settlement
of certain  litigation  to which Waste  Control  Specialists  was a party ($20.1
million) and (ii) NL's settlements with certain former insurance carriers ($11.4
million).  The $69.5 million net legal  settlement  gains in 2000 relate to NL's
additional  settlements with certain former insurance  carriers.  These 2000 and
2001  settlements  of NL  resolved  court  proceedings  in which  NL had  sought
reimbursement  from the carriers for legal defense costs and indemnity  coverage
for certain of its environmental remediation  expenditures.  No further material
settlements  relating  to  litigation   concerning   environmental   remediation
coverages  are  expected.  The  insurance  gain in 2001  relates to  proceeds NL
received  related to property  damage  insurance  coverages  for the fire at its
Leverkusen,  Germany  facility,  as the proceeds  received exceeded the carrying
value of the property  destroyed and cleanup and other extra costs incurred.  NL
does not expect to receive  any  additional  insurance  proceeds  related to the
Leverkusen  fire  subsequent  to December 31, 2001.  The gain on  sale/leaseback
relates to CompX's manufacturing facility in The Netherlands. See Note 12 to the
Consolidated Financial Statements.

     Securities  transactions.  Securities  transactions gains in 2001 include a
$33.1  million  realized  gain  from  exchanges  of  LYONs  and  related  to the
disposition of a portion of the shares of Halliburton  Company common stock held
by the Company  when certain  holders of the  Company's  LYONs debt  obligations
exercised  their right to  exchange  their  LYONs for such  Halliburton  shares.
Securities transactions in 2001 also include (i) a $14.2 million gain related to
the  reclassification  of  certain  shares  of  Halliburton  common  stock  from
available-for-sale to trading securities,  (ii) an $11.6 million unrealized loss
related to changes  in market  value of the  Halliburton  shares  classified  as
trading  securities,  (iii) Valhi's sale of 390,000 Halliburton shares in market
transactions  for an aggregate  realized  gain of $13.7  million and (iv) a $2.3
million  charge for an other than  temporary  impairment  of certain  marketable
securities  held by the Company.  Securities  transactions in 2000 include (i) a
$5.6  million   gain   related  to  common   stock   received  by  NL  from  the
demutualization  of an  insurance  company from which NL had  purchased  certain
insurance  policies and (ii) a $5.7 million  charge for an other than  temporary
decline  in  value  of  certain  marketable  securities  held  by  the  Company.
Securities transactions gains in 1999 relate principally to LYONs exchanges. See
Notes 5 and 12 to the Consolidated  Financial  Statements.  Any additional LYONs
exchanges in 2002 or thereafter would similarly result in additional  securities
transaction  gains.  Also,  the Company  held  approximately  515,000  shares of
Halliburton  common stock at December 31, 2001 that were  classified  as trading
securities.  Such 515,000  Halliburton shares were sold during the first quarter
of 2002 for aggregate proceeds of $8.7 million, or $1.9 million greater than the
carrying  value of such shares at December 31,  2001.  The Company will report a
$1.9 million securities transaction gain in the first quarter of 2002 related to
the disposal of such Halliburton shares.

     General  corporate  expenses.   Net  general  corporate  expenses  in  2001
approximated  net expenses in 2000, as lower legal expenses of NL were offset by
higher compensation-related  expenses of Tremont. Net general corporate expenses
increased in 2000  compared to 1999 due  primarily to higher  environmental  and
legal  expenses  of NL and the  effect of  consolidating  Tremont's  results  of
operations  effective  January 1, 2000.  NL's $20 million of  proceeds  from the
disposal of its specialty  chemicals  business unit related to its agreement not
to  compete  in the  rheological  products  business  will  be  recognized  as a
component of general  corporate  income  (expense)  ratably  over the  five-year
non-compete period ending in the first quarter of 2003 ($4 million recognized in
each  of  1999,  2000  and  2001).  See  Note 12 to the  Consolidated  Financial
Statements.  Net general corporate expenses in 2002 are currently expected to be
somewhat higher compared to 2001.

     Interest  expense.  Interest  expense declined in 2001 compared to 2000 due
primarily to lower interest rates on variable-rate  borrowings and a lower level
of outstanding  indebtedness of NL and Valhi, offset in part by higher levels of
indebtedness at CompX.  Interest expense  declined  slightly in 2000 compared to
1999 due primarily to lower average  levels of outstanding  indebtedness  at NL,
offset in part by the effect of  consolidating  Tremont's  results of operations
effective January 1, 2000 and higher levels of indebtedness at CompX.

     In February  2002,  NL announced the  redemption  of $25 million  principal
amount of its 11.75%  Senior  Secured  Notes in March 2002 at par value.  NL may
redeem  additional  amounts of its Senior  Secured  Notes during 2002.  Assuming
interest rates do not increase significantly from year-end 2001 levels, interest
expense in 2002 is expected to be somewhat  lower  compared to 2001 due to lower
anticipated  interest rates on variable-rate  borrowings in the U.S. and a lower
average level of outstanding debt (including Valhi's LYONs).

     At  December  31,  2001,   approximately   $476  million  of   consolidated
indebtedness,  principally  publicly-traded  debt and  Valhi's  loans from Snake
River Sugar Company,  bears interest at fixed  interest  rates  averaging  10.3%
(2000 - $551 million with a weighted average interest rate of 10.2%; 1999 - $596
million with a weighted  average  fixed  interest  rate of 10.4%).  The weighted
average interest rate on $133 million of outstanding variable rate borrowings at
December 31, 2001 was 4.5% compared to an average  interest rate on  outstanding
variable  rate  borrowings of 7.1% at December 31, 2000 and 5.0% at December 31,
1999. The weighted average interest rate on outstanding variable rate borrowings
decreased  from  December 31, 2000 to December 31, 2001 due  principally  to the
reduction in short-term U.S.  interest rates. The weighted average interest rate
increased  from  December  31, 1999 to December 31, 2000 due  principally  to an
increase  in U.S.  short-term  interest  rates and an  increase in the amount of
higher-cost U.S. dollar-denominated indebtedness relative to lower-cost non-U.S.
dollar-denominated indebtedness.

     NL has a certain amount of  indebtedness  denominated  in currencies  other
than the U.S. dollar and, accordingly,  NL's interest expense is also subject to
currency  fluctuations.  See Item 7A, "Quantitative and Qualitative  Disclosures
About Market Risk." Periodic cash interest  payments are not required on Valhi's
9.25% deferred coupon LYONs. As a result, current cash interest expense payments
are lower than accrual basis interest expense.

     Provision  for income  taxes.  The  principal  reasons  for the  difference
between the Company's  effective income tax rates and the U.S. federal statutory
income  tax  rates  are  explained  in  Note  16 to the  Consolidated  Financial
Statements.  Income tax rates vary by jurisdiction  (country and/or state),  and
relative  changes in the  geographic mix of the Company's  pre-tax  earnings can
result in fluctuations in the effective income tax rate.

     Through December 31, 2000, certain subsidiaries, including NL, Tremont and,
beginning in March 1998,  CompX,  were not members of the consolidated  U.S. tax
group of which  Valhi is a member  (the  Contran  Tax  Group),  and the  Company
provided  incremental  income  taxes  on such  earnings.  In  addition,  through
December 31,  2000,  Tremont and NL were each in separate  U.S. tax groups,  and
Tremont provided incremental income taxes on its earnings with respect to NL. As
previously  reported,  effective  January  1, 2001 NL and  Tremont  each  became
members of the  Contran  Tax  Group.  Consequently,  beginning  in 2001 Valhi no
longer provides  incremental income taxes on its earnings with respect to NL and
Tremont nor on Tremont's earnings with respect to NL. In addition,  beginning in
2001 the Company  believes that recognition of an income tax benefit for certain
of Tremont's  deductible  income tax attributes  arising during 2001,  while not
appropriate under the "more-likely-than-not" recognition criteria at the Tremont
separate-company  level,  is  appropriate at the Valhi  consolidated  level as a
result of Tremont  becoming  a member of the  Contran  Tax Group.  Both of these
factors resulted in a reduction in the Company's  consolidated  effective income
tax rate in 2001 compared to 2000.

     During 2001, NL reduced its deferred income tax asset  valuation  allowance
by $24.7  million.  Of such  reduction,  $23.2  million  related  to a change in
estimate  of NL's  ability  to utilize  certain  German  income  tax  attributes
following  the  completion  of a  restructuring  of its German  operations,  the
benefit   of   which   had   not   previously   been   recognized    under   the
"more-likely-than-not"  recognition  criteria.  In  addition,  NL also  utilized
certain tax attributes during 2001 for which the benefit had also not previously
been recognized.

     During 2001,  Tremont  increased  its deferred  income tax asset  valuation
allowance (at the Valhi consolidated  level) by a net $3.8 million due primarily
because Tremont  concluded  certain tax attributes,  including its net operating
loss  carryforwards  generated  prior to  January  1,  2001 now did not meet the
"more-likely-than-not"   recognition   criteria.   Such   net   operating   loss
carryforwards  can only be used to offset future taxable income of Tremont,  and
may not be used to offset future  taxable income of other members of the Contran
Tax Group.

     During 2000, NL reduced its deferred income tax valuation allowance by $2.6
million primarily as a result of utilization of certain tax attributes for which
the benefit had not been previously recognized under the  "more-likely-than-not"
recognition  criteria.  Also during 2000,  Tremont increased its deferred income
tax valuation allowance by $3.3 million primarily due to its equity in losses of
TIMET and other deductible  income tax attributes  arising during 2000 for which
recognition of a deferred tax benefit is not currently considered appropriate by
Tremont under the "more-likely-than-not" recognition criteria.

     In October  2000, a reduction in the German "base" income tax rate from 30%
to 25%, effective January 1, 2001, was enacted. Such reduction in the German tax
rate resulted in an additional  net income tax expense in the fourth  quarter of
2000  of $4.4  million  due to a  revaluation  of NL's  German  tax  attributes,
including  the  effect  of  revaluing   certain  deferred  income  tax  purchase
accounting  adjustments with respect to NL's German assets. The reduction in the
German income tax rate results in an additional  income tax expense  because the
Company has recognized a net deferred income tax asset with respect to Germany.

     In 1999, NL recognized a $90 million non-cash income tax benefit related to
(i) a  favorable  resolution  of NL's  previously-reported  tax  contingency  in
Germany ($36  million)  and (ii) a net  reduction  in NL's  deferred  income tax
valuation  allowance  due to a change in  estimate  of NL's  ability  to utilize
certain  income  tax  attributes  under the  "more-likely-than-not"  recognition
criteria ($54  million).  The $54 million net reduction in NL's deferred  income
tax  valuation  allowance  is  comprised  of (i) a $78  million  decrease in the
valuation  allowance to recognize the benefit of certain  deductible  income tax
attributes which NL now believes meets the recognition  criteria as a result of,
among other things, a corporate  restructuring  of NL's German  subsidiaries and
(ii)  a  $24  million  increase  in  the  valuation   allowance  to  reduce  the
previously-recognized  benefit of certain other deductible income tax attributes
which NL now  believes do not meet the  recognition  criteria due to a change in
German  tax law.  The  German  tax law  change  enacted  on April 1,  1999,  was
effective January 1, 1999 and resulted in an increase in NL's current income tax
expense.

     Also during 1999, NL reduced its deferred income tax valuation allowance by
$16 million  primarily as a result of  utilization of certain tax attributes for
which   the   benefit   had   not   been   previously   recognized   under   the
"more-likely-than-not" recognition criteria.

     As discussed in Note 20 to the Consolidated Financial Statements, effective
January 1, 2002, the Company will no longer recognize  periodic  amortization of
goodwill.  Under GAAP,  generally there is no income tax benefit  recognized for
financial reporting purposes attributable to goodwill amortization. Accordingly,
ceasing to  periodically  amortize  goodwill  beginning in 2002 will result in a
reduction in the Company's overall effective income tax rate in 2002 as compared
to 2001. However,  despite the impact on the Company's effective income tax rate
in 2002 due to ceasing to  periodically  amortize  goodwill,  and  excluding the
effect  in 2001 of  changes  in NL's and  Tremont's  deferred  income  tax asset
valuation  allowances,  the Company  currently  expects its effective income tax
rate for 2002 will  likely be higher as  compared  to 2001 due to changes in the
relative  mix of pre-tax  income,  with a higher  percentage  of pre-tax  income
associated with high tax-rate jurisdictions in 2002 as compared to 2001.

     Minority interest.  See Note 13 to the Consolidated  Financial  Statements.
Minority   interest   in  NL's   subsidiaries   relates   principally   to  NL's
majority-owned  environmental management subsidiary, NL Environmental Management
Services,  Inc.  ("EMS").  EMS was  established  in  1998,  at  which  time  EMS
contractually assumed certain of NL's environmental  liabilities.  EMS' earnings
are based, in part, upon its ability to favorably  resolve these  liabilities on
an aggregate  basis. The shareholders of EMS, other than NL, actively manage the
environmental  liabilities  and  share in 39% of EMS'  cumulative  earnings.  NL
continues to consolidate EMS and provides accruals for the reasonably  estimable
costs for the settlement of EMS' environmental liabilities, as discussed below.

     As discussed above, the Company commenced  consolidating  Tremont's results
of operations beginning in 2000.  Consequently,  the Company commenced reporting
minority interest in Tremont's net earnings beginning in 2000. Minority interest
in  earnings  of  Tremont's  subsidiaries  in 2000  relates to TRECO  L.L.C.,  a
75%-owned  subsidiary  of Tremont  that  holds  Tremont's  interests  in BMI and
Landwell.  In December 2000, TRECO acquired the 25% interest in TRECO previously
held by the other owner of TRECO, and TRECO became a wholly-owned  subsidiary of
Tremont.  Accordingly,  no  minority  interest  in  Tremont's  subsidiaries  was
reported in 2001.

     Related party transactions.  The Company is a party to certain transactions
with related parties. See Note 18 to the Consolidated Financial Statements.

     Discontinued  operations,  extraordinary item and accounting principles not
yet adopted. See Notes 3, 1 and 20 to the Consolidated Financial Statements.

European monetary conversion

     Beginning  January 1, 1999,  11 of the 15  members  of the  European  Union
("EU"),  including  Germany,  Belgium,  The Netherlands and France,  established
fixed conversion  exchange rates between their existing national  currencies and
the European  currency  unit  ("euro").  Such members  adopted the euro as their
common legal currency on that date. The remaining four EU members (including the
United  Kingdom) may convert  their  national  currencies to the euro at a later
date. Certain European countries,  such as Norway, are not members of the EU and
their  national  currencies  will remain  intact.  Each EU  national  government
retained  authority to establish their own tax and fiscal spending  policies and
public  debt  levels,   although   such  public  debt  will  be  issued  in,  or
re-denominated  into, the euro.  However,  monetary  policies,  including  money
supply and official euro interest  rates,  are now established by a new European
Central  Bank.  Following  the  introduction  of  the  euro,  the  participating
countries'  national  currencies  remained legal tender as  denominations of the
euro through  January 1, 2002,  although the exchange rates between the euro and
such currencies  remained fixed.  Beginning  January 1, 2002,  national currency
units were  exchanged  for euros and the euro  became the primary  legal  tender
currency.

     NL. NL conducts substantial  operations in Europe,  principally in Germany,
Belgium, The Netherlands,  France and Norway. In addition, at December 31, 2001,
NL has a certain amount of outstanding indebtedness denominated in the euro. The
national  currency of the country in which such  operations are located are such
operation's   functional  currency.  As  of  January  1,  2001,  the  functional
currencies  of the  German,  Belgian,  Dutch  and  French  operations  had  been
converted  from  their  respective  national  currencies  to the euro.  The euro
conversion may impact NL's operations including,  among other things, changes in
product pricing  decisions  necessitated by cross-border  price  transparencies.
Such changes in product  pricing  decisions could impact both selling prices and
purchasing costs, and consequently favorably or unfavorably impact NL's reported
consolidated  results  of  operations,  financial  condition  or  liquidity.  At
December 31, 2001, NL had substantial net assets denominated in the euro.

     CompX.  As of January 1, 2001,  the  functional  currency of CompX's Thomas
Regout  operations in The  Netherlands  had been  converted to the euro from its
national currency (Dutch  guilders).  CompX does not believe the euro conversion
had a  material  effect on its  consolidated  results of  operations,  financial
condition or liquidity.

     TIMET. TIMET also has substantial  operations and assets located in Europe,
principally in the United Kingdom.  The United Kingdom has not adopted the euro.
Approximately  60% of TIMET's European sales are denominated in currencies other
than  the  U.S.  dollar,  principally  the  British  pound  and  other  European
currencies  tied to the euro.  Certain  purchases of raw  materials  for TIMET's
European operations,  principally titanium sponge and alloys, are denominated in
U.S. dollars while labor and other production costs are primarily denominated in
local  currencies.  The U.S. dollar value of TIMET's foreign sales and operating
costs are  subject  to  currency  exchange  rate  fluctuations  that can  impact
reported earnings.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated cash flows

     Operating activities. Trends in cash flows from operating annual 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.  Changes in assets and liabilities generally result from the timing of
production, sales, purchases and income tax payments.

     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,
depletion and amortization expense,  non-cash interest expense, asset impairment
charges  and  unrealized  securities  transactions  gains and  losses.  Non-cash
interest   expense  relates   principally  to  Valhi  and  NL  and  consists  of
amortization of original issue discount on certain indebtedness and amortization
of deferred  financing  costs.  In addition,  substantially  all of the proceeds
resulting  from NL's legal  settlements in 2000 and 2001 are shown as restricted
cash, and therefore such  settlements had no impact on cash flows from operating
activities.

     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 a current cash outlay 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 marketable securities and 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.  Similarly,  NL's
insurance  gain  in  2001  related  to the  property  destroyed  by  fire at its
Leverkusen  facility  is included in the  determination  of net income,  but the
proceeds received from the insurance company for property damage  reimbursements
are also shown as investing activities.

     Investing  activities.  Capital  expenditures  are  disclosed  by  business
segment in Note 2 to the Consolidated Financial Statements.

     At December 31, 2001,  the estimated cost to complete  capital  projects in
process  approximated  $13.5 million,  of which $11 million relates to NL's Ti02
facilities  (including $4 million  related to  reconstruction  of the Leverkusen
facility) and the remainder  relates to CompX's  facilities.  Aggregate  capital
expenditures  for 2002 are expected to approximate  $48 million ($32 million for
NL, $11 million for CompX and $5 million for Waste Control Specialists). Capital
expenditures  in 2002 are expected to be financed  primarily from  operations or
existing cash resources and credit facilities.

     During 2001, NL and CompX each purchased shares of their respective  common
stocks  in  market  transactions  for an  aggregate  of $15.5  million  and $2.6
million,  respectively,  and Valhi  purchased  shares of Tremont common stock in
market transactions for an aggregate of $198,000. In addition,  (i) EMS loaned a
net $20 million to one of the Contran  family trusts  discussed in Note 1 to the
Consolidated  Financial Statements,  (ii) NL received $23.4 million of insurance
recoveries for property damage and clean-up costs associated with the Leverkusen
fire,  (iii) Valhi sold  390,000  shares of  Halliburton  common stock in market
transactions for aggregate proceeds of $16.8 million and (iv) CompX received $10
million of proceeds from the sale/leaseback of its manufacturing facility in The
Netherlands.

     During  2000,  (i) CompX  acquired a lock  producer  for $9  million  using
borrowings under its unsecured revolving bank credit facility, (ii) NL purchased
$30.9 million of shares of its common stock pursuant to its  previously-reported
share  repurchase  programs,  (iii) CompX  purchased  $8.7 million of its shares
pursuant to its previously-reported  share repurchase program, (iv) NL and Valhi
purchased an aggregate  of $45.4  million of shares of Tremont  common stock and
(v) Tremont  purchased the 25% interest in TRECO LLC it  previously  did not own
for $2.5 million.

     During 1999, (i) CompX acquired two slide producers for approximately $65.0
million  using funds on hand and $20 million of  borrowing  under its  unsecured
revolving bank credit facility, (ii) Valhi contributed an additional $10 million
to Waste Control  Specialists'  equity,  (iii) Valhi  purchased  $1.9 million of
additional  shares of Tremont common stock and $.8 million of additional  shares
of CompX common  stock,  (iv) Valhi sold certain  marketable  securities  for an
aggregate  of  $6.6  million,  (v)  Valhi  received  $2  million  of  additional
consideration  related to the 1997  disposal of its former fast food  operations
and (vi) NL purchased $7.2 million of shares of its common stock.

     Financing  activities.  During 2001,  (i) Valhi borrowed a net $4.0 million
under its revolving bank credit  facility and borrowed a net $16.6 million under
short-term  demand  loans from  Contran,  (ii) CompX  borrowed a net $10 million
under its  revolving  bank credit  facility  and (iii) NL repaid euro 24 million
($21.4  million  when  repaid) of its  short-term  non-U.S.  notes  payable.  In
addition,  (i) a  wholly-owned  subsidiary  of  Valhi  purchased  Waste  Control
Specialists'  bank term loan from the lender at par value,  (ii) $142.6  million
principal  amount at maturity  ($79.9 million  accreted  value) of Valhi's LYONs
debt obligations were retired either through  exchanges or redemptions and (iii)
EMS entered into a $13.4 million reducing revolving intercompany credit facility
with  Tremont,  the  proceeds  of which were used to repay  Tremont's  loan from
Contran.

     Net repayments of  indebtedness in 2000 include (ii) NL's repayments of $50
million  principal  amount of its Senior  Secured  Notes  using cash on hand and
borrowings  under  short-term  euro  or  Norwegian  Krona   denominated   credit
facilities ($43 million when borrowed), (ii) CompX's borrowing a net $19 million
under its unsecured revolving bank credit facility, (iii) NL's repayment of Euro
30.9 million ($28.9 million when paid) of certain of its other  Euro-denominated
short-term  indebtedness and (iv) Valhi's  borrowing a net $10 million under its
bank credit  facility and borrowing a net $5.7 million of short-term  borrowings
from Contran.

     Net repayments of  indebtedness  in 1999 include (i) NL's repayment in full
of the  outstanding  balance under its DM credit facility ($100 million net when
repaid)  using  funds on hand and an increase in  outstanding  borrowings  under
other NL non-U.S.  credit  facilities ($26 million when borrowed),  (ii) CompX's
$20 million of borrowing under its revolving bank credit facility, (iii) Valhi's
$21 million of  borrowing  under its  revolving  bank credit  facility  and (iv)
Valhi's repayment of a net $7.2 million of short-term borrowings from Contran.

     At December  31,  2001,  unused  credit  available  under  existing  credit
facilities  approximated  $77.9  million,  which was  comprised  of $51  million
available to CompX under its revolving credit facility,  $8 million available to
NL under non-U.S.  credit  facilities and $18.9 million available to Valhi under
its  revolving  bank credit  facility.  Provisions  contained  in certain of the
Company's  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. The terms of Valhi's revolving
bank credit facility could require Valhi to either reduce outstanding borrowings
or pledge  additional  collateral  in the event the fair  value of the  existing
pledged  collateral falls below specified  levels.  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.
See Note 11 to the  Consolidated  Financial  Statements.  Other  than  operating
leases discussed in Note 19 to the Consolidated  Financial  Statements,  neither
Valhi nor any of its  subsidiaries  or affiliates are parties to any off-balance
sheet financing arrangements.

Chemicals - NL Industries

     Pricing  within the TiO2  industry  is  cyclical,  and  changes in industry
economic  conditions can  significantly  impact NL's earnings and operating cash
flows.

     At December 31, 2001, NL had cash,  cash  equivalents  and marketable  debt
securities of $199 million, including restricted balances of $83 million, and NL
had $8 million available for borrowing under its non-U.S. credit facilities.  At
December 31, 2001, NL had complied with all  financial  covenants  governing its
debt  agreements.  Based  upon  NL's  expectations  for the  TiO2  industry  and
anticipated  demands on NL's cash resources as discussed  herein,  NL expects to
have  sufficient   liquidity  to  meet  its  near-term   obligations   including
operations, capital expenditures, debt service and dividends. To the extent that
actual  developments  differ from NL's  expectations,  NL's  liquidity  could be
adversely affected.

     NL's capital  expenditures  during the past three years  aggregated  $120.4
million,  including  $23.0  million  ($5.0  million  in 2001)  for NL's  ongoing
environmental  protection  and  compliance  programs  and $22.3  million in 2001
related to  reconstruction  of the Leverkusen  facility  destroyed by fire. NL's
estimated 2002 and 2003 capital expenditures are $32.0 million each, and include
$5.0 million (2003 - $4.0 million) in the area of  environmental  protection and
compliance and $4.0 million in 2002 related to completion of the  reconstruction
of the Leverkusen  facility.  The capital expenditures of the TiO2 manufacturing
joint venture are not included in NL's capital expenditures.

     NL's board of  directors  has  authorized  NL to purchase up to 4.5 million
shares of its common stock in open market or  privately-negotiated  transactions
over an unspecified  period of time. Through December 31, 2001, NL had purchased
3.3 million of its shares  pursuant to such  authorizations  for an aggregate of
$53.6  million,  including  1.1  million  shares  purchased  during  2001 for an
aggregate of $15.5 million.

     In February  2002,  NL announced the  redemption  of $25 million  principal
amount of its  Senior  Secured  Notes at par value.  NL may  redeem  more of its
Senior  Secured Notes in 2002,  although there can be no assurance that any such
additional redemption will be called.

     Certain of NL's U.S.  and non-U.S.  tax returns are being  examined and tax
authorities have or may propose tax deficiencies,  including  non-income related
items and interest.  NL has received  preliminary  tax assessments for the years
1991 to 1997  from the  Belgian  tax  authorities  proposing  tax  deficiencies,
including related interest,  of approximately 10.4 million euro ($9.2 million at
December 31, 2001).  NL has filed protests to the assessments for the years 1991
to 1997. NL is in discussions with the Belgian tax authorities and believes that
a significant  portion of the  assessments is without merit. No assurance can be
given  that  these tax  matters  will be  resolved  in NL's favor in view of the
inherent  uncertainties  involved in court proceedings.  NL believes that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

     At December 31, 2001, NL had recorded net deferred tax  liabilities of $133
million.  NL operates in numerous tax jurisdictions,  in certain of which it has
temporary  differences  that  net  to  deferred  tax  assets  (before  valuation
allowance).  NL has provided a deferred tax valuation  allowance of $154 million
at December  31,  2001,  principally  related to Germany,  partially  offsetting
deferred   tax   assets   which  NL   believes   do  not   currently   meet  the
"more-likely-than-not" recognition criteria.

     NL has been named as a defendant,  potentially  responsible party, or both,
in  a  number  of  legal  proceedings  associated  with  environmental  matters,
including waste disposal  sites,  mining  locations and facilities  currently or
previously owned, operated or used by NL, certain of which are on the U.S. EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
NL evaluates  the  potential  range of its  liability at sites where it has been
named as a PRP or  defendant,  including  sites for which EMS has  contractually
assumed NL's  obligation.  NL believes it has provided  adequate  accruals ($107
million at December 31, 2001) for  reasonably  estimable  costs of such matters,
but NL's ultimate  liability  may be affected by a number of factors,  including
changes in  remedial  alternatives  and costs and the  allocation  of such costs
among PRPs. It is not possible to estimate the range of costs for certain sites.
The  upper  end of the range of  reasonably  possible  costs to NL for sites for
which it is possible to  estimate  costs is  approximately  $160  million.  NL's
estimates of such  liabilities  have not been  discounted to present value,  and
other than certain  previously-reported  settlements  with respect to certain of
NL's former insurance carriers,  NL has not recognized any insurance recoveries.
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. NL is also a defendant in a number
of legal  proceedings  seeking  damages for personal  injury and property damage
allegedly  arising  from  the  sale  of lead  pigments  and  lead-based  paints,
including  cases in which  plaintiffs  purport  to  represent  a class and cases
brought on behalf of government entities. NL has not accrued any amounts for the
pending lead pigment and lead-based paint litigation. There is no assurance that
NL will not incur future liability in respect of this pending litigation in view
of the inherent  uncertainties involved in court and jury rulings in pending and
possible  future cases.  However,  based on, among other things,  the results of
such  litigation  to  date,  NL  believes  that the  pending  lead  pigment  and
lead-based paint litigation is without merit. Liability that may result, if any,
cannot   reasonably  be  estimated.   In  addition,   various   legislation  and
administrative  regulations  have,  from time to time,  been enacted or proposed
that seek to 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 to  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 currently barred by statutes of limitations. NL
currently  believes 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.  There  can  be no
assurance that additional matters of these types will not arise in the future.

     NL periodically evaluates its liquidity  requirements,  alternative uses of
capital,  capital  needs and  availability  of resources in view of, among other
things,  its debt service and capital  expenditure  requirements  and  estimated
future operating cash flows. As a result of this process, NL has in the past and
may  in  the  future  seek  to  reduce,  refinance,  repurchase  or  restructure
indebtedness, raise additional capital, issue additional securities,  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 industry or other industries,  as well as the acquisition of interests
in, and loans to, related entities. In the event of any such transaction, NL may
consider using its available cash,  issuing its equity securities or refinancing
or  increasing  its  indebtedness  to the  extent  permitted  by the  agreements
governing  NL's existing  debt. In this regard,  the  indentures  governing NL's
publicly-traded  debt contain  provisions  which limit the ability of NL and its
subsidiaries to incur additional  indebtedness or hold noncontrolling  interests
in business units.

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

Component products - CompX International

     In 1999, CompX acquired two slide producers for  approximately  $65 million
cash  consideration,  using  available cash on hand and $20 million of borrowing
under its  revolving  bank  credit  facility.  In 2000,  CompX  acquired  a lock
producer  for an  aggregate of $9 million  cash  consideration  using  primarily
borrowings under its bank credit facility.

     CompX's capital  expenditures  during the past three years aggregated $56.1
million.  Such  capital  expenditures  included  manufacturing   equipment  that
emphasizes improved production efficiency and increased production capacity.

     CompX's  board of  directors  has  authorized  CompX to  purchase up to 1.5
million  shares  of its  common  stock in open  market  or  privately-negotiated
transactions  over an  unspecified  period of time.  Through  December 31, 2001,
CompX had purchased 1.1 million  shares  pursuant to such  authorization  for an
aggregate of $11.3 million,  including 260,000 shares purchased in 2001 for $2.6
million.

     CompX  believes that its cash on hand,  together with cash  generated  from
operations  and  borrowing  availability  under  its  credit  facility,  will be
sufficient  to  meet  CompX's  liquidity  needs  for  working  capital,  capital
expenditures,   debt  service,   dividends  and  future   acquisitions  for  the
foreseeable future.

     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,  capital resources 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
available  cash,   issuing   additional  equity  securities  or  increasing  the
indebtedness of CompX or its subsidiaries.

Waste management - Waste Control Specialists

     Waste Control Specialists capital  expenditures during the past three years
aggregated $7.3 million.  Such capital  expenditures  were funded primarily from
Valhi's capital  contributions  ($10 million in 1999 and $20 million in 2000) as
well as certain debt financing provided to Waste Control Specialists by Valhi.

     At December 31, 2001,  Waste  Control  Specialists'  indebtedness  consists
principally of (i) a $4.8 million term loan due in installments through November
2004 and (ii) $11.3 million of other  borrowings  under a $15 million  revolving
credit  facility  that matures in 2004.  All of such  indebtedness  is owed to a
wholly-owned  subsidiary of Valhi, and is therefore  eliminated in the Company's
consolidated financial statements.  Waste Control Specialists will likely borrow
additional amounts during 2002 under its $15 million revolving credit facility.

TIMET


     At December 31, 2001,  TIMET had net cash of  approximately  $12.1  million
($12.4 million of debt and $24.5 million of cash and  equivalents).  At December
31,  2001,  TIMET had over $150  million  available  for  borrowing  under  such
facilities.  TIMET  believes such net cash,  cash flow from  operations  and its
borrowing  availability will satisfy its working capital,  capital  expenditures
and other requirements in 2002.

     TIMET's capital  expenditures  during the past three years aggregated $52.1
million.  TIMET's capital  expenditures during 2002 are currently expected to be
about $12 million.

     At December 31, 2001,  TIMET had $201.2  million  outstanding of its 6.625%
convertible preferred  securities.  Such convertible preferred securities do not
require  principal  amortization,  and  TIMET  has the  right to defer  dividend
payments for one or more  quarters of up to 20  consecutive  quarters.  TIMET is
prohibited from, among other things,  paying dividends on its common stock while
dividends are being  deferred on the  convertible  preferred  securities.  TIMET
suspended the payment of dividends on its common stock during the fourth quarter
of 1999 in view of, among other things,  the  continuing  weakness in demand for
titanium metals  products.  In April 2000,  TIMET exercised its rights under the
convertible   preferred  securities  and  commenced  deferring  future  dividend
payments  on  these  securities.  During  June  2001,  following  TIMET's  legal
settlement  with Boeing,  TIMET resumed  payment of dividends on its convertible
preferred securities, and TIMET also paid the aggregate amount of dividends that
have been previously  deferred on such convertible  preferred  securities ($13.9
million). Prior to September 2001, TIMET was prohibited from paying dividends on
its common stock due to restrictions contained in its U.S. credit agreement.  In
September 2001,  such U.S.  credit  agreement was amended to permit TIMET to pay
dividends  on its common  stock in amounts up to an aggregate of $10 million per
year, provided certain specified conditions were met.

     TIMET used the proceeds  from its  settlement  with Boeing to (i) pay legal
and other costs  associated  with the Boeing  settlement,  (ii) pay the deferred
dividends on its convertible  preferred securities and (iii) repay a substantial
portion of TIMET's outstanding revolving bank debt.

     In October 1998,  TIMET  purchased  for cash $80 million of Special  Metals
Corporation  6.625%  convertible  preferred  stock (the "SMC Preferred  Stock").
Dividends  for the period  October 1998 through  December  1999 were deferred by
Special Metals due to limitations  imposed by their bank credit  agreements.  In
April 2000,  Special Metals resumed  current  dividend  payments of $1.3 million
each  quarter,  however  dividends  and  interest in arrears  were not paid.  On
October 11,  2001,  TIMET was notified by Special  Metals of their  intention to
again defer the payment of dividends  effective with the dividend due on October
28,  2001.  TIMET  believes  that  such  dividends  are  likely  to be  deferred
indefinitely. At December 31, 2001, the aggregate dividends and interest accrued
by TIMET were  approximately  $9 million.  There can be no assurances that TIMET
will again receive regular quarterly dividend payments and/or  reimbursement for
dividend and interest payments in arrears.

     The SMC  Preferred  Stock is not  marketable,  and quoted market prices are
unavailable.  TIMET  understands  that a significant  portion of Special Metal's
sales are to the commercial aerospace industry, and, therefore, its business may
be adversely  impacted by the  terrorist  attacks of September  11, 2001.  TIMET
believes  Special  Metals has a significant  amount of debt relative to its near
term   potential   earnings  and  cash  flow  and  that  a  refinancing   and/or
restructuring  of its capital,  or some portion thereof,  is necessary.  Special
Metals has indicated that it may violate  certain bank  covenants  early in 2002
and that it is considering strategic and financial options, including efforts to
restructure and/or modify the terms of certain debt agreements. Such efforts may
include  negotiations with TIMET to modify the terms of its preferred securities
in  Special  Metals  and/or  exchange,  in  whole  or in  part,  such  preferred
securities for common stock, other securities or other assets.

     At December 31, 2001, TIMET had $4 million accrued related to environmental
issues at certain of TIMET's facilities for groundwater  remediation activities.
The undiscounted  environmental remediation charges are expected to be paid over
a period of up to thirty years.

     TIMET periodically evaluates its liquidity requirements,  capital needs and
availability of resources in view of, among other things,  its alternative  uses
of capital, its debt service requirements,  the cost of debt and equity capital,
and estimated  future  operating cash flows. As a result of this process,  TIMET
has in the past and may in the future seek to raise additional  capital,  modify
its common and preferred dividend  policies,  restructure  ownership  interests,
incur,  refinance  or  restructure  indebtedness,  repurchase  shares of capital
stock,  sell  assets,  or take a  combination  of such  steps or other  steps to
increase or manage its liquidity and capital resources.  In the normal course of
business, TIMET investigates,  evaluates,  discusses and engages in acquisition,
joint  venture,   strategic   relationship   and  other   business   combination
opportunities  in the titanium,  specialty  metal and other  industries.  In the
event of any  future  acquisition  or joint  venture  opportunities,  TIMET  may
consider using then-available liquidity,  issuing equity securities or incurring
additional indebtedness.

Tremont Corporation

     Tremont is primarily a holding company which,  at December 31, 2001,  owned
approximately 39% of TIMET and 21% of NL. At December 31, 2001, the market value
of the 12.3 million  shares of TIMET and the 10.2  million  shares of NL held by
Tremont was approximately $49 million and $156 million, respectively. See Note 7
to the Consolidated Financial Statements.

     In February 2001,  Tremont entered into a $13.4 million reducing  revolving
credit  facility  with  EMS  (NL's   majority-owned   environmental   management
subsidiary),  and Tremont repaid its previously-reported loan from Contran. Such
intercompany  loan  between  EMS and  Tremont  ($12.65  million  outstanding  at
December 31,  2001),  collateralized  by 10.2 million  shares of NL common stock
owned by Tremont, is eliminated in Valhi's consolidated financial statements.

     Tremont has received a tax assessment from the U.S. federal tax authorities
proposing tax  deficiencies of $8.3 million on its 1998 tax return.  Tremont has
appealed the proposed  deficiencies and believes they are substantially  without
merit.  No  assurances  can be given that these tax matters  will be resolved in
Tremont's  favor  in  view  of  the  inherent   uncertainties  involved  in  tax
proceedings.  Tremont believes it has provided  adequate accruals for additional
taxes 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.

     Tremont periodically  evaluates its liquidity  requirements,  capital needs
and  availability  of resources in view of, among other things,  its alternative
uses of  capital,  its debt  service  requirements,  the cost of debt and equity
capital and estimated  future operating cash flows. As a result of this process,
Tremont  has in the past and may in the  future  seek to obtain  financing  from
related parties or third parties, raise additional capital,  modify its dividend
policy,  restructure ownership interests of subsidiaries and affiliates,  incur,
refinance or  restructure  indebtedness,  purchase  shares of its common  stock,
consider  the  sale  of  interests  in  subsidiaries,   affiliates,   marketable
securities or other assets,  or take a combination  of such steps or other steps
to increase or manage liquidity and capital  resources.  In the normal course of
business, Tremont may investigate,  evaluate, discuss and engage in acquisition,
joint venture and other business combination opportunities.  In the event of any
future  acquisition or joint venture  opportunities,  Tremont may consider using
then-available cash, issuing equity securities or incurring indebtedness.


Other

     In 1999,  the  Company  received  $2  million of  additional  consideration
related to the 1997 disposal of the Company's  former fast food  operations.  No
such additional  consideration  is expected to be received in the future related
to the disposed fast food operations.

General corporate - Valhi

     Valhi's  operations are conducted  primarily  through its subsidiaries (NL,
CompX, Tremont and Waste Control  Specialists).  Accordingly,  Valhi'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.  NL increased its quarterly  dividend from $.035 per share to $.15
per share in the first quarter of 2000,  and NL further  increased its quarterly
dividend to $.20 per share in the fourth  quarter of 2000.  At the current  $.20
per share  quarterly rate, and based on the 30.1 million NL shares held by Valhi
at December 31, 2001, Valhi would receive  aggregate annual dividends from NL of
approximately   $24.1  million.   Tremont  Group,   Inc.  owns  80%  of  Tremont
Corporation.  Tremont  Group is  owned  80% by  Valhi  and 20% by NL.  Tremont's
quarterly dividend is currently $.07 per share. At that rate, and based upon the
5.1 million Tremont shares owned by Tremont Group at December 31, 2001,  Tremont
Group would receive  aggregate  annual  dividends from Tremont of  approximately
$1.4 million.  Tremont Group intends to  pass-through  the dividends it receives
from Tremont to its shareholders  (Valhi and NL). Based on Valhi's 80% ownership
of Tremont  Group,  Valhi would  receive $1.2 million in annual  dividends  from
Tremont Group as a pass-through of Tremont Group's dividends from Tremont. CompX
commenced  quarterly dividends of $.125 per share in the fourth quarter of 1999.
At this current  rate and based on the 10.4  million  CompX shares held by Valhi
and its wholly-owned  subsidiary Valcor at December 31, 2001, Valhi/Valcor would
receive annual dividends from CompX of $5.2 million.  Various credit  agreements
to which  certain  subsidiaries  or  affiliates  are parties  contain  customary
limitations on the payment of dividends, typically a percentage of net income or
cash  flow;  however,  such  restrictions  in the past  have  not  significantly
impacted Valhi's ability to service its parent company level obligations.  Valhi
has not guaranteed any  indebtedness of its  subsidiaries or affiliates.  To the
extent  that  one or more of  Valhi's  subsidiaries  were to  become  unable  to
maintain its current level of dividends, either due to restrictions contained in
the  applicable  subsidiary's  credit  agreements  or  otherwise,  Valhi  parent
company's  liquidity could become adversely  impacted.  In such an event,  Valhi
might  consider  reducing or  eliminating  its dividend or selling  interests in
subsidiaries or other assets.

     At December 31, 2001,  Valhi had $3.5 million of parent level cash and cash
equivalents,  had $35 million of outstanding borrowings under its revolving bank
credit  agreement and had $24.6  million of  short-term  demand loans payable to
Contran.  In addition,  Valhi had $18.9 million of borrowing  availability under
its bank credit facility and 515,000 shares of Halliburton  common stock with an
aggregate  market value of $6.7 million  which have been released from the LYONs
escrow and could therefore be sold. During the first quarter of 2002, Valhi sold
such Halliburton shares in market transactions for an aggregate of $8.7 million,
and used a majority of the proceeds to reduce its  outstanding  borrowings  from
Contran.  In January and February 2002, the size of Valhi's bank credit facility
was increased by an aggregate of $17.5 million to $72.5 million.

     Valhi's LYONs do not require current cash debt service.  See Note 11 to the
Consolidated  Financial  Statements.  Exchanges of LYONs for  Halliburton  stock
result  in the  Company  reporting  income  related  to the  disposition  of the
Halliburton stock for both financial reporting and income tax purposes, although
no cash proceeds are generated by such exchanges.  Valhi's potential cash income
tax  liability  that would have been  triggered at December  31, 2001,  assuming
exchanges of all of the outstanding  LYONs for  Halliburton  stock at such date,
was approximately $9 million.

     At  December  31,  2001,  the LYONs had an  accreted  value  equivalent  to
approximately $41 per Halliburton share, and the market price of the Halliburton
common stock was $13.10 per share. The LYONs,  which mature in October 2007, are
redeemable  at the option of the LYON holder in October 2002 for an amount equal
to $636.27 per $1,000  principal  amount at  maturity,  or an aggregate of $27.4
million.  Such  October 2002  redemption  price is  equivalent  to about $44 per
Halliburton  share.  If the market value of  Halliburton  common stock equals or
exceeds $44 per share in October 2002, the Company does not expect a significant
amount of LYONs would be tendered to the Company for redemption at that date. To
the extent the Company was required to redeem the LYONs in October 2002 for cash
and the market  price of  Halliburton  was less than $44 per share,  the Company
would likely sell the Halliburton  shares underlying the LYONs tendered in order
to raise a portion of the cash redemption price due to the LYON holder,  and the
Company would be required to use other  resources to makeup the shortfall due to
the LYONs holder.

     During  2001,  holders  representing  $92.2  million  principal  amount  at
maturity  exchanged their LYONs debt obligation for shares of Halliburton common
stock. Under the terms of the indenture governing the LYONs, the Company has the
option to deliver,  in whole or in part,  cash equal to the market  value of the
Halliburton  shares that are  otherwise  required to be  delivered  to the LYONs
holder in an  exchange,  and a portion  of such  exchanges  during  2001 were so
settled.  Also during 2001, $50.4 million  principal amount at maturity of LYONs
were redeemed by the Company for cash at various  redemption prices equal to the
accreted  value of the  LYONs on the  respective  redemption  dates.  Valhi  may
consider  additional  partial  redemptions or a full redemption of the remaining
notes based on future market conditions and other  considerations.  There can be
no assurance,  however,  that Valhi will pursue an additional partial redemption
or a full redemption of the notes.

     The terms of The  Amalgamated  Sugar  Company LLC provide for annual  "base
level" of cash dividend distributions (sometimes referred to distributable cash)
by the LLC of $26.7  million,  from  which  the  Company  is  entitled  to a 95%
preferential share.  Distributions from the LLC are dependent, in part, upon the
operations of the LLC. The Company records dividend  distributions  from the LLC
as income upon  receipt,  which is the same month in which they are  declared by
the LLC. To the extent the LLC's  distributable cash is below this base level in
any given year, the Company is entitled to an additional 95% preferential  share
of any future  annual LLC  distributable  cash in excess of the base level until
such shortfall is recovered.  Based on the LLC's current  projections  for 2002,
Valhi currently  expects that  distributions  received from the LLC in 2002 will
approximate  its debt service  requirements  under its $250  million  loans from
Snake River. See Notes 5 and 12 to the Consolidated Financial Statements.

     Certain covenants  contained in Snake River's third-party senior debt allow
Snake River to pay periodic installments of debt service payments (principal and
interest) under Valhi's $80 million loan to Snake River prior to its maturity in
2010, and such loan is  subordinated to Snake River's  third-party  senior debt.
Such  covenants  allowed  Snake River to pay interest  debt service  payments to
Valhi on the $80 million loan of $7.2 million in 1999,  $950,000 in 2000 and nil
in 2001.  At December  31,  2001,  the  accrued  and unpaid  interest on the $80
million loan to Snake River  aggregated  $22.7 million.  Such accrued and unpaid
interest is classified as a noncurrent  asset at December 31, 2001.  The Company
currently  believes it will  ultimately  realize both the $80 million  principal
amount and the accrued and unpaid interest,  whether through cash generated from
the future  operations  of Snake River and the LLC or otherwise  (including  any
liquidation  of Snake  River/LLC).  Following  the  repayment  of Snake  River's
third-party   senior  debt  in  April  2009,  Valhi  believes  it  will  receive
significant  debt service  payments on its loan to Snake River as the cash flows
that Snake River  previously  would have been using to fund debt  service on its
third-party senior debt ($15.5 million in 2001) would then become available, and
would be  required,  to be used to fund debt  service  payments on its loan from
Valhi.  Prior to the repayment of the third-party senior debt, Snake River might
also make debt  service  payments  to Valhi,  if  permitted  by the terms of the
senior debt.

     Redemption of the Company's interest in the LLC would result in the Company
reporting  income  related  to the  disposition  of its LLC  interest  for  both
financial  reporting  and income tax  purposes.  The cash proceeds that would be
generated  from such a  disposition  would  likely  be less  than the  specified
redemption  price due to Snake River's ability to  simultaneously  call its $250
million  loans to  Valhi.  As a  result,  the net  cash  proceeds  generated  by
redemption  of the  Company's  interest in the LLC could be less than the income
taxes that would become payable as a result of the disposition.

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

     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.  In this regard, the indentures
governing  the  publicly-traded  debt of NL contain  provisions  which limit the
ability of NL and its  subsidiaries  to incur  additional  indebtedness  or hold
noncontrolling interests in business units.

Summary of debt and other contractual commitments

     As  more  fully  described  in  the  notes  to the  Consolidated  Financial
Statements,  the Company is a party to various debt,  lease and other agreements
which  contractually  and  unconditionally  commit the  Company  to pay  certain
amounts  in the  future.  See  Notes  11 and  19 to the  Consolidated  Financial
Statements.  The following table summarizes such contractual commitments for the
Company and its consolidated  subsidiaries that are unconditional  both in terms
of timing and amount by the type and date of payment.



                                        Unconditional payment due date
                                                                 2007 and
        Contractual commitment         2002  2003/2004 2005/2006  after   Total
        ----------------------         ----  --------- ---------  -----   -----
                                                      (In millions)

                                                           
Indebtedness ......................   $111.2   $246.9   $   .3   $250.0   $608.4

Operating leases ..................      5.9      7.5      3.4     20.2     37.0

Fixed asset acquisitions ..........     13.5      1.8     --       --       15.3
                                      ------   ------   ------   ------   ------

                                      $130.6   $256.2   $  3.7   $270.2   $660.7
                                      ======   ======   ======   ======   ======


     In  addition,  the  Company is a party to  certain  other  agreements  that
contractually and  unconditionally  commit the Company to pay certain amounts in
the future. While the Company believes it is probable that amounts will be spent
in the future under such contracts,  the amount and/or the timing of such future
payments will vary depending on certain  provisions of the applicable  contract.
Agreements  to which the Company is a party that fall into this  category,  more
fully  described in Note 19 to the  Consolidated  Financial  Statements,  are: o
CompX's patent  license  agreements  under which it pays royalties  based on the
volume of certain products manufactured in Canada and sold in the United States;
o NL's  long-term  supply  contracts for the purchase of  chloride-process  TiO2
feedstock; and o TIMET's agreement for the purchase of titanium sponge.

     In  addition,  the  Company is a party to  certain  other  agreements  that
conditionally  commit the Company to pay certain  amounts in the future.  Due to
the  provisions  of such  agreements,  it is possible that the Company might not
ever be required to pay any amounts under these agreements.  Agreements to which
the Company is a party that fall into this  category,  more fully  described  in
Notes 5, 8 and 19 to the Consolidated Financial Statements, are:


o    The Company's  requirement  to escrow funds in amounts up to the next three
     years  of  debt  service  of  Snake  River's   third-party   term  debt  to
     collateralize  such  debt in order to  exercise  its  conditional  right to
     temporarily take control of The Amalgamated Sugar Company LLC;

o    The  Company's  requirement  to pledge  $5  million  of cash or  marketable
     securities as collateral  for Snake  River's  third-party  debt in order to
     permit  Snake River to continue  to make debt  service  payments on its $80
     million loan from Valhi; and

o    Waste Control  Specialists'  requirement to pay certain  amounts based upon
     specified percentages of qualifying revenues.


ITEM 7A.          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     General.  The  Company is exposed  to market  risk from  changes in foreign
currency exchange rates, interest rates and equity security prices. In the past,
the Company has periodically  entered into interest rate swaps or other types of
contracts  in order to manage a portion of its interest  rate market  risk.  The
Company has also periodically  entered into currency forward contracts to either
manage a nominal  portion of foreign  exchange rate market risk  associated with
receivables  denominated  in a  currency  other  than  the  holder's  functional
currency or similar risk  associated  with future  sales,  or to hedge  specific
foreign currency  commitments.  Otherwise,  the Company does not generally enter
into  forward or option  contracts  to manage  such market  risks,  nor does the
Company enter into any such contract or other type of derivative  instrument for
trading or speculative  purposes.  Other than the contracts discussed below, the
Company was not a party to any forward or derivative  option contract related to
foreign exchange rates, interest rates or equity security prices at December 31,
2000 and 2001. See Notes 1 and 15 to the Consolidated Financial Statements for a
discussion of the  assumptions  used to estimate the fair value of the financial
instruments to which the Company is a party at December 31, 2000 and 2001.

     Interest  rates.  The  Company is exposed  to market  risk from  changes in
interest rates,  primarily related to indebtedness and certain  interest-bearing
notes receivable.

     At December  31,  2001,  the  Company's  aggregate  indebtedness  was split
between 78% of fixed-rate instruments and 22% of variable-rate  borrowings (2000
- 79% of fixed-rate instruments and 21% of variable rate borrowings).  The large
percentage of fixed-rate debt instruments  minimizes  earnings  volatility which
would  result from  changes in interest  rates.  The  following  table  presents
principal  amounts  and  weighted  average  interest  rates  for  the  Company's
aggregate  outstanding  indebtedness  at December 31, 2001. The Company's  LYONs
debt  obligations,  which mature in October 2007, are reflected in the following
table as due in October 2002,  the next date at which they are redeemable at the
option  of  the  holder.  At  December  31,  2001,  all  outstanding  fixed-rate
indebtedness was denominated in U.S. dollars,  and the outstanding variable rate
borrowings were denominated in U.S. dollars or the euro. Information shown below
for such  foreign  currency  denominated  indebtedness  is presented in its U.S.
dollar  equivalent at December 31, 2001 using exchange rates of .88 U.S. dollars
per euro and .11 U.S. dollars per kroner.











                                              Amount
                                         Carrying   Fair       Interest   Maturity
            Indebtedness*                 value     value        rate       date
            ------------                --------- ---------    --------    ------
                                                      (In millions)

Fixed-rate indebtedness:
                                                                
  Valhi LYONs .......................    $  25.5   $  25.0        9.2%      2002
  Valhi note payable ................        2.9       2.9        6.2%      2002
  Valcor Senior Notes ...............        2.4       2.4        9.6%      2003
  NL Senior Notes ...................      194.0     194.9       11.7%      2003
  Valhi loans from Snake River ......      250.0     250.0        9.4%      2027
  Other .............................         .8        .8        7.6%   Various
                                                   -------    -------    -------
                                                     475.6      476.0       10.3%
                                                   -------    -------    -------

Variable-rate indebtedness:
  NL notes payable:
    euro-denominated ................       24.0      24.0        3.8%      2002
    kroner-denominated ..............       22.2      22.2        7.3%      2002
  Valhi bank revolver ...............       35.0      35.0        3.8%      2002
  CompX bank revolver ...............       49.0      49.0        4.2%      2003
  Other .............................        2.5       2.5        3.8%   various
                                                   -------    -------    -------
                                                     132.7      132.7        4.5%
                                                   -------    -------    -------

                                                   $ 608.3    $ 608.7        9.1%
                                                   =======    =======    =======


*  Denominated in U.S. dollars, except as otherwise indicated.






     At December 31, 2000,  fixed rate  indebtedness  aggregated  $550.8 million
(fair value - $564.7  million) with a  weighted-average  interest rate of 10.2%;
variable  rate  indebtedness  at such  date  aggregated  $148.7  million,  which
approximates fair value, with a  weighted-average  interest rate of 7.1%. All of
such fixed rate indebtedness was denominated in U.S. dollars. Such variable rate
indebtedness was denominated in U.S. dollars (52% of the total), the euro (32%),
the Norwegian kroner (15%) or the new Taiwan dollar (1%)

     The  Company  has an $80  million  loan to Snake  River  Sugar  Company  at
December 31, 2000 and 2001. Such loan bears interest at a fixed interest rate of
6.49% at such dates,  the  estimated  fair value of such loan  aggregated  $86.4
million and $96.4  million at  December  31,  2000 and 2001,  respectively.  The
potential  decrease in the fair value of such loan resulting from a hypothetical
100 basis point increase in market  interest rates would be  approximately  $5.4
million at December 31, 2001 (2000 - $3.7 million).

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

     As described  above,  at December 31, 2001, NL had the  equivalent of $24.0
million  of  outstanding  euro-denominated  indebtedness  and $22.2  million  of
Norwegian kroner-denominated indebtedness (2000- the equivalent of $47.5 million
of    euro-denominated    indebtedness    and   $22.5   million   of   Norwegian
kroner-denominated  indebtedness).  The  potential  increase in the U.S.  dollar
equivalent of the principal amount outstanding resulting from a hypothetical 10%
adverse  change in  exchange  rates at such  date  would be  approximately  $4.6
million at December 31, 2001 (2000 - $7.0 million).

     Certain  of  CompX's  sales  generated  by  its  Canadian   operations  are
denominated in U.S.  dollars.  To manage a portion of the foreign  exchange rate
market risk  associated  with such  receivables  or similar  exchange  rate risk
associated  with future  sales,  at December  31, 2000 CompX had entered  into a
series of short-term  forward exchange  contracts maturing through March 2001 to
exchange  an  aggregate  of $9.1  million for an  equivalent  amount of Canadian
dollars at an exchange  rate of  approximately  Cdn $1.48 per U.S.  dollar.  The
estimated fair value of such forward exchange  contracts at December 31, 2000 is
not material. No such contracts were held at December 31, 2001.

     Marketable  equity  and debt  security  prices.  The  Company is exposed to
market  risk due to changes  in prices of the  marketable  securities  which are
owned.  The fair value of such debt and equity  securities  at December 31, 2000
and 2001 (including shares of Halliburton  common stock held by the Company) was
$268.0 million and $205.0  million,  respectively.  The potential  change in the
aggregate  fair  value of these  investments,  assuming  a 10% change in prices,
would be $26.8  million at December  31, 2000 and $20.5  million at December 31,
2001.

     Embedded  derivatives.  The  Company's  LYONs debt  obligations  contain an
embedded  derivative  that  allows  the LYONs  holders  to  exchange  their debt
instrument for shares of Halliburton common stock held by the Company. See Notes
5 and 11 to the Consolidated  Financial Statements.  As a result, the LYONs debt
obligations are is exposed to both interest rate and equity security market risk
because  changes in either  market  interest  rates or the price of  Halliburton
common stock will affect the fair value of the debt obligations.

     The LYONs are  exchangeable  at any time at the  option of the  holder  for
14.4308  shares of Halliburton  common stock held by the Company.  The LYONs are
redeemable  at the option of the  holder in  October  2002 for cash in an amount
equal to the accreted value at that date ($636.27 per $1,000 principal amount at
maturity,  or the  equivalent  of about $44 per  Halliburton  share).  The LYONs
mature in October 2007 for $1,000 per LYON (or the  equivalent  of about $69 per
Halliburton  share).  If the market value of Halliburton  common stock equals or
exceeds $44 per share in October 2002, the Company does not expect a significant
amount of LYONs would be tendered to the Company for redemption at that date. To
the extent the Company was required to redeem the LYONs in October 2002 for cash
and the market  price of  Halliburton  was less than $44 per share,  the Company
would likely sell the Halliburton  shares underlying the LYONs tendered in order
to raise a portion of the cash redemption price due to the LYON holders, and the
Company would be required to use other  resources to makeup the shortfall due to
the LYONs holders.  Similarly,  if the market value of Halliburton  common stock
equals or  exceeds  $69 per share in  October  2007  (the  maturity  date of the
LYONs),  the  Company  would  expect  that it would  extinguish  the LYONs  debt
obligations  through  an  exchange  of such debt  obligations  for the shares of
Halliburton common stock held by the Company.  To the extent the market price of
Halliburton  common  stock was less than $69 in October 2007 and the Company was
required to extinguish  the debt through a cash payment of $1,000 per LYON,  the
Company would likely sell the Halliburton  shares  underlying the maturing LYONs
in order to raise a portion of the cash maturity  price due to the LYON holders,
and the Company would be required to use other resources to makeup the shortfall
due to the LYONs holders.

     Other.  The  Company  believes  there  are  certain   shortcomings  in  the
sensitivity  analyses  presented  above,  which  analyses are required under the
Securities and Exchange Commission's regulations.  For example, the hypothetical
effect of changes in interest rates discussed above ignores the potential effect
on other  variables  which affect the Company's  results of operations  and cash
flows,  such as demand for the  Company's  products,  sales  volumes and selling
prices and operating  expenses.  Contrary to the above  assumptions,  changes in
interest  rates rarely result in  simultaneous  parallel  shifts along the yield
curve. Also, certain of the Company's marketable securities are exchangeable for
certain of the Company's debt  instruments,  and a decrease in the fair value of
such securities would likely be mitigated by a decrease in the fair value of the
related  indebtedness.   Accordingly,   the  amounts  presented  above  are  not
necessarily  an accurate  reflection of the  potential  losses the Company would
incur assuming the hypothetical changes in market prices were actually to occur.

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

         None.






                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The  information  required by this Item is incorporated by reference to the
Valhi Proxy Statement. See Note 18 to the Consolidated Financial Statements.





                                     PART IV


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

 (a) and (d)        Financial Statements and Schedules

                    The Registrant

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

 (b)                Reports on Form 8-K

                    Reports on Form 8-K filed for the quarter ended December 31,
                    2001.

                    None.


 (c)                Exhibits

                    Included  as  exhibits  are the items  listed in the Exhibit
                    Index.  Valhi  will  furnish  a copy of any of the  exhibits
                    listed  below upon payment of $4.00 per exhibit to cover the
                    costs to  Valhi  of  furnishing  the  exhibits.  Instruments
                    defining  the  rights of holders of  long-term  debt  issues
                    which do not exceed 10% of  consolidated  total assets as of
                    December 31, 2001 will be furnished to the  Commission  upon
                    request.

Item No.                         Exhibit Item

  3.1               Restated  Articles  of  Incorporation  of the  Registrant  -
                    incorporated  by reference  to Appendix A to the  definitive
                    Prospectus/Joint  Proxy Statement of The  Amalgamated  Sugar
                    Company and LLC Corporation (File No. 1-5467) dated February
                    10, 1987.

  3.2               By-Laws  of the  Registrant  as  amended -  incorporated  by
                    reference  to  Exhibit  3.1  of the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    March 31, 1992.

  4.1               Indenture  dated  October  20, 1993  governing  NL's 11 3/4%
                    Senior  Secured  Notes due 2003,  including  form of note, -
                    incorporated  by reference to Exhibit 4.1 of NL's  Quarterly
                    Report on Form 10-Q (File No.  1-640) for the quarter  ended
                    September 30, 1993.

  9.1               Shareholders' Agreement dated February 15, 1996 among TIMET,
                    Tremont,  IMI plc, IMI Kynoch Ltd. and IMI Americas,  Inc. -
                    incorporated  by  reference  to  Exhibit  2.2  to  Tremont's
                    Current Report on Form 8-K (File No. 1-10126) dated March 1,
                    1996.

  9.2               Amendment  to the  Shareholders'  Agreement  dated March 29,
                    1996 among TIMET,  Tremont, IMI plc, IMI Kynosh Ltd. and IMI
                    Americas,  Inc. - incorporated by reference to Exhibit 10.30
                    to Tremont's  Annual Report on Form 10-K (File No.  1-10126)
                    for the year ended December 31, 1995.

 10.1               Intercorporate Services Agreement between the Registrant and
                    Contran Corporation effective as of January 1, 2001.





Item No.                         Exhibit Item

 10.2               Intercorporate    Services    Agreement    between   Contran
                    Corporation  and  NL  effective  as of  January  1,  2001  -
                    incorporated  by reference to Exhibit 10.1 to NL's Quarterly
                    Report on Form 10-Q (File No.  1-640) for the quarter  ended
                    March 31, 2001.

 10.3               Intercorporate    Services    Agreement    between   Contran
                    Corporation  and Tremont  effective  as of January 1, 2001 -
                    incorporated  by  reference  to  Exhibit  10.1 to  Tremont's
                    Quarterly  Report on Form 10-Q  (File No.  1-10126)  for the
                    quarter ended March 31, 2001.

 10.4               Intercompany  Services Agreement between Contran Corporation
                    and  CompX  effective  January  1,  2001 -  incorporated  by
                    reference  to Exhibit  10.1 to CompX's  Quarterly  Report on
                    Form 10-Q (File No.  1-13905) for the quarter ended June 30,
                    2001.

 10.5               Revolving Loan Note dated May 4, 2001 with Harold C. Simmons
                    Family Trust No. 2 and EMS Financial, Inc. - incorporated by
                    reference to Exhibit 10.1 to NL's  Quarterly  Report on Form
                    10-Q (File No.  1-640) for the quarter  ended  September 30,
                    2001.

 10.6               Security  Agreement  dated May 4, 2001 by and between Harold
                    C.  Simmons  Family  Trust No. 2 and EMS  Financial,  Inc. -
                    incorporated  by reference to Exhibit 10.2 to NL's Quarterly
                    Report on Form 10-Q (File No.  1-640) for the quarter  ended
                    September 30, 2001.

 10.7*              Valhi,  Inc. 1987 Stock Option - Stock  Appreciation  Rights
                    Plan, as amended - incorporated by reference to Exhibit 10.4
                    to the  Registrant's  Annual  Report on Form 10-K  (File No.
                    1-5467) for the year ended December 31, 1994.

 10.8*              Valhi, Inc. 1997 Long-Term  Incentive Plan - incorporated by
                    reference to Exhibit 10.12 to the Registrant's Annual Report
                    on Form 10-K (File No.  1-5467) for the year ended  December
                    31, 1996.

 10.9*              CompX  International  Inc. 1997  Long-Term  Incentive Plan -
                    incorporated   by  reference  to  Exhibit  10.2  to  CompX's
                    Registration Statement on Form S-1 (File No. 333-42643).

10.10*              Form  of  Deferred   Compensation   Agreement   between  the
                    Registrant and certain executive  officers - incorporated by
                    reference  to  Exhibit  10.1 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    March 31, 1999.

10.11               Formation  Agreement of The  Amalgamated  Sugar  Company LLC
                    dated  January 3, 1997 (to be  effective  December 31, 1996)
                    between Snake River Sugar Company and The Amalgamated  Sugar
                    Company - incorporated  by reference to Exhibit 10.19 to the
                    Registrant's  Annual  Report on Form 10-K (File No.  1-5467)
                    for the year ended December 31, 1996.

10.12               Master  Agreement  Regarding  Amendments to The  Amalgamated
                    Sugar   Company   Documents   dated   October   19,  2000  -
                    incorporated   by   reference   to   Exhibit   10.1  to  the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended September 30, 2000.

10.13               Company Agreement of The Amalgamated Sugar Company LLC dated
                    January  3,  1997  (to be  effective  December  31,  1996) -
                    incorporated   by   reference   to  Exhibit   10.20  to  the
                    Registrant's  Annual  Report on Form 10-K (File No.  1-5467)
                    for the year ended December 31, 1996.






Item No.                         Exhibit Item

10.14               First Amendment to the Company  Agreement of The Amalgamated
                    Sugar  Company  LLC dated  May 14,  1997 -  incorporated  by
                    reference  to  Exhibit  10.1 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    June 30, 1997.

10.15               Second Amendment to the Company Agreement of The Amalgamated
                    Sugar Company LLC dated November 30, 1998 - incorporated  by
                    reference to Exhibit 10.24 to the Registrant's Annual Report
                    on Form 10-K (File No.  1-5467) for the year ended  December
                    31, 1998.

10.16               Third Amendment to the Company  Agreement of The Amalgamated
                    Sugar Company LLC dated October 19, 2000 -  incorporated  by
                    reference  to  Exhibit  10.2 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    September 30, 2000.

10.17               Subordinated  Promissory  Note in the  principal  amount  of
                    $37.5  million  between  Valhi,  Inc.  and Snake River Sugar
                    Company,  and  the  related  Pledge  Agreement,  both  dated
                    January 3, 1997 - incorporated by reference to Exhibit 10.21
                    to the  Registrant's  Annual  Report on Form 10-K  (File No.
                    1-5467) for the year ended December 31, 1996.

10.18               Limited Recourse  Promissory Note in the principal amount of
                    $212.5  million  between  Valhi,  Inc. and Snake River Sugar
                    Company,  and the related Limited Recourse Pledge Agreement,
                    both dated  January 3, 1997 -  incorporated  by reference to
                    Exhibit 10.22 to the Registrant's Annual Report on Form 10-K
                    (File No. 1-5467) for the year ended December 31, 1996.

10.19               Subordinated   Loan  Agreement  between  Snake  River  Sugar
                    Company and Valhi,  Inc., as amended and restated  effective
                    May 14, 1997 - incorporated  by reference to Exhibit 10.9 to
                    the  Registrant's  Quarterly  Report on Form 10-Q  (File No.
                    1-5467) for the quarter ended June 30, 1997.

10.20               Second Amendment to the Subordinated  Loan Agreement between
                    Snake River Sugar Company and Valhi, Inc. dated November 30,
                    1998 -  incorporated  by reference  to Exhibit  10.28 to the
                    Registrant's  Annual  Report on Form 10-K (File No.  1-5467)
                    for the year ended December 31, 1998.

10.21               Third Amendment to the Subordinated  Loan Agreement  between
                    Snake River Sugar Company and Valhi,  Inc. dated October 19,
                    2000 -  incorporated  by  reference  to Exhibit  10.3 to the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended September 30, 2000.

10.22               Contingent  Subordinate Pledge Agreement between Snake River
                    Sugar  Company and Valhi,  Inc.,  as  acknowledged  by First
                    Security Bank  National  Association  as  Collateral  Agent,
                    dated  October  19,  2000 -  incorporated  by  reference  to
                    Exhibit 10.4 to the  Registrant's  Quarterly  Report on Form
                    10-Q (File No.  1-5467) for the quarter ended  September 30,
                    2000.

10.23               Contingent  Subordinate  Security  Agreement  between  Snake
                    River Sugar  Company and Valhi,  Inc.,  as  acknowledged  by
                    First  Security  Bank  National  Association  as  Collateral
                    Agent, dated October 19, 2000 - incorporated by reference to
                    Exhibit 10.5 to the  Registrant's  Quarterly  Report on Form
                    10-Q (File No.  1-5467) for the quarter ended  September 30,
                    2000.






Item No.                         Exhibit Item

10.24               Contingent  Subordinate  Collateral Agency and Paying Agency
                    Agreement among Valhi,  Inc.,  Snake River Sugar Company and
                    First Security Bank National  Association  dated October 19,
                    2000 -  incorporated  by  reference  to Exhibit  10.6 to the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended September 30, 2000.

10.25               Deposit   Trust   Agreement   related  to  the   Amalgamated
                    Collateral  Trust among ASC  Holdings,  Inc. and  Wilmington
                    Trust Company dated May 14, 1997 - incorporated by reference
                    to Exhibit 10.2 to the Registrant's Quarterly Report on Form
                    10-Q (File No. 1-5467) for the quarter ended June 30, 1997.

10.26               Pledge  Agreement  between the Amalgamated  Collateral Trust
                    and  Snake  River  Sugar   Company  dated  May  14,  1997  -
                    incorporated   by   reference   to   Exhibit   10.3  to  the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended June 30, 1997.

10.27               Guarantee by the  Amalgamated  Collateral  Trust in favor of
                    Snake River Sugar Company dated May 14, 1997 -  incorporated
                    by reference to Exhibit 10.4 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    June 30, 1997.

10.28               Amended and Restated Pledge Agreement  between ASC Holdings,
                    Inc.  and Snake  River  Sugar  Company  dated May 14, 1997 -
                    incorporated   by   reference   to   Exhibit   10.5  to  the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended June 30, 1997.

10.29               Collateral   Deposit   Agreement  among  Snake  River  Sugar
                    Company,  Valhi,  Inc.  and First  Security  Bank,  National
                    Association dated May 14, 199 - incorporated by reference to
                    Exhibit 10.6 to the  Registrant's  Quarterly  Report on Form
                    10-Q (File No. 1-5467) for the quarter ended June 30, 1997.

10.30               Voting   Rights   and   Forbearance   Agreement   among  the
                    Amalgamated  Collateral Trust, ASC Holdings,  Inc. and First
                    Security  Bank,  National  Association  dated May 14, 1997 -
                    incorporated   by   reference   to   Exhibit   10.7  to  the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended June 30, 1997.

10.31               First   Amendment  to  the  Voting  Rights  and  Forbearance
                    Agreement  among  the  Amalgamated   Collateral  Trust,  ASC
                    Holdings,  Inc. and First Security Bank National Association
                    dated  October  19,  2000 -  incorporated  by  reference  to
                    Exhibit 10.9 to the  Registrant's  Quarterly  Report on Form
                    10-Q (File No.  1-5467) for the quarter ended  September 30,
                    2000.

10.32               Voting Rights and Collateral  Deposit  Agreement among Snake
                    River Sugar Company,  Valhi,  Inc., and First Security Bank,
                    National  Association  dated May 14, 1997 - incorporated  by
                    reference  to  Exhibit  10.8 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    June 30, 1997.

10.33               Subordination  Agreement between Valhi, Inc. and Snake River
                    Sugar Company dated May 14, 1997 - incorporated by reference
                    to Exhibit  10.10 to the  Registrant's  Quarterly  Report on
                    Form 10-Q (File No.  1-5467) for the quarter  ended June 30,
                    1997.






Item No.                         Exhibit Item

10.34               First  Amendment  to  the  Subordination  Agreement  between
                    Valhi,  Inc. and Snake River Sugar Company dated October 19,
                    2000 -  incorporated  by  reference  to Exhibit  10.7 to the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended September 30, 2000.

10.35               Form of Option  Agreement  among Snake River Sugar  Company,
                    Valhi,  Inc. and the holders of Snake River Sugar  Company's
                    10.9%   Senior   Notes  Due  2009  dated  May  14,   1997  -
                    incorporated   by   reference   to  Exhibit   10.11  to  the
                    Registrant's Quarterly Report on Form 10-Q (File No. 1-5467)
                    for the quarter ended June 30, 1997.

10.36               First Amendment to Option Agreements among Snake River Sugar
                    Company,  Valhi Inc., and the holders of Snake River's 10.9%
                    Senior Notes Due 2009 dated October 19, 2000 -  incorporated
                    by reference to Exhibit 10.8 to the  Registrant's  Quarterly
                    Report on Form 10-Q (File No.  1-5467) for the quarter ended
                    September 30, 2000.

10.37               Formation  Agreement  dated as of  October  18,  1993  among
                    Tioxide Americas Inc., Kronos Louisiana,  Inc. and Louisiana
                    Pigment Company, L.P. - incorporated by reference to Exhibit
                    10.2 of NL's Quarterly  Report on Form 10-Q (File No. 1-640)
                    for the quarter ended September 30, 1993.

10.38               Joint Venture Agreement dated as of October 18, 1993 between
                    Tioxide   Americas  Inc.  and  Kronos   Louisiana,   Inc.  -
                    incorporated  by reference to Exhibit 10.3 of NL's Quarterly
                    Report on Form 10-Q (File No.  1-640) for the quarter  ended
                    September 30, 1993.

10.39               Kronos Offtake Agreement dated as of October 18, 1993 by and
                    between  Kronos   Louisiana,   Inc.  and  Louisiana  Pigment
                    Company, L.P. - incorporated by reference to Exhibit 10.4 of
                    NL's Quarterly  Report on Form 10-Q (File No. 1-640) for the
                    quarter ended September 30, 1993.

10.40               Amendment  No. 1 to  Kronos  Offtake  Agreement  dated as of
                    December  20,  1995  between  Kronos  Louisiana,   Inc.  and
                    Louisiana Pigment Company,  L.P. - incorporated by reference
                    to Exhibit  10.22 of NL's  Annual  Report on Form 10-K (File
                    No. 1-640) for the year ended December 31 1995.

10.41               Master Technology and Exchange Agreement dated as of October
                    18, 1993 among Kronos, Inc., Kronos Louisiana,  Inc., Kronos
                    International, Inc., Tioxide Group Limited and Tioxide Group
                    Services Limited - incorporated by reference to Exhibit 10.8
                    of NL's  Quarterly  Report on Form 10-Q (File No. 1-640) for
                    the quarter ended September 30, 1993.

10.42               Allocation  Agreement  dated as of October 18, 1993  between
                    Tioxide Americas Inc., ICI American Holdings,  Inc., Kronos,
                    Inc. and Kronos Louisiana,  Inc. - incorporated by reference
                    to Exhibit 10.10 to NL's Quarterly Report on Form 10-Q (File
                    No. 1-640) for the quarter ended September 30, 1993.

10.43               Lease Contract dated June 21, 1952, between  Farbenfabrieken
                    Bayer    Aktiengesellschaft    and   Titangesellschaft   mit
                    beschrankter  Haftung (German  language  version and English
                    translation  thereof) - incorporated by reference to Exhibit
                    10.14 of NL's  Annual  Report on Form 10-K (File No.  1-640)
                    for the year ended December 31, 1985.





Item No.                         Exhibit Item

10.44               Contract on Supplies  and  Services  among Bayer AG,  Kronos
                    Titan GmbH and  Kronos  International,  Inc.  dated June 30,
                    1995 (English  translation from German language  document) -
                    incorporated  by reference to Exhibit 10.1 of NL's Quarterly
                    Report on Form 10-Q (File No.  1-640) for the quarter  ended
                    September 30, 1995.

10.45               Lease  Agreement,  dated  January 1, 1996,  between  Holford
                    Estates Ltd. and IMI Titanium  Ltd.  related to the building
                    known  as  Titanium  Number  2 Plant at  Witton,  England  -
                    incorporated  by  reference  to Exhibit  10.23 to  Tremont's
                    Annual  Report on Form 10-K (File No.  1-10126) for the year
                    ended December 31, 1995.

10.46               Richards Bay Slag Sales  Agreement dated May 1, 1995 between
                    Richards  Bay Iron and  Titanium  (Proprietary)  Limited and
                    Kronos, Inc. - incorporated by reference to Exhibit 10.17 to
                    NL's  Annual  Report on Form 10-K  (File No.  1-640) for the
                    year ended December 31, 1995.

10.47               Amendment to Richards Bay Slag Sales  Agreement dated May 1,
                    1999,  between Richards Bay Iron and Titanium  (Proprietary)
                    Limited and Kronos,  Inc. -  incorporated  by  reference  to
                    Exhibit  10.4 to NL's  Annual  Report on Form 10-K (File No.
                    1-640) for the year ended December 31, 1999.

10.48               Amendment to Richards Bay Slag Sales Agreement dated June 1,
                    2001 between  Richards  Bay Iron and Titanium  (Proprietary)
                    Limited and Kronos,  Inc. -  incorporated  by  reference  to
                    Exhibit No. 10.5 to NL's Annual  Report on Form 10-K for the
                    year ended December 31, 2001 (File No. 1-640).

10.49               Investment  Agreement  dated  July 9, 1998,  between  TIMET,
                    TIMET  Finance   Management   Company  and  Special   Metals
                    Corporation -  incorporated  by reference to Exhibit 10.1 to
                    TIMET's  Current Report on Form 8-K (File No. 0-28538) dated
                    July 9, 1998.

10.50               Amendment to Investment  Agreement,  dated October 28, 1998,
                    among TIMET,  TIMET Finance  Management  Company and Special
                    Metals  Corporation -  incorporated  by reference to Exhibit
                    10.4 to  TIMET's  Quarterly  Report on Form  10-Q  (File No.
                    0-28538) for the quarter ended September 30, 1998.

10.51               Registration  Rights  Agreement,  dated  October  28,  1998,
                    between TIMET Finance  Management Company and Special Metals
                    Corporation -  incorporated  by reference to Exhibit 10.5 to
                    TIMET's Quarterly Report on Form 10-Q (File No. 0-28538) for
                    the quarter ended September 30, 1998.

10.52               Certificate   of   Designations   for  the  Special   Metals
                    Corporation  Series  A  Preferred  Stock -  incorporated  by
                    reference  to Exhibit  4.5 to Special  Metals  Corporation's
                    Current  Report  on Form  8-K  (File  No.  000-22029)  dated
                    October 28, 1998.

10.53               Registration Rights Agreement dated October 30, 1991, by and
                    between  NL and  Tremont  -  incorporated  by  reference  to
                    Exhibit  4.3 of NL's  Annual  Report on Form 10-K  (File No.
                    1-640) for the year ended December 31, 1991.







Item No.                         Exhibit Item


10.54               Insurance Sharing  Agreement,  effective January 1, 1990, by
                    and between NL, TRE Insurance,  Ltd., and Baroid Corporation
                    - incorporated  by reference to Exhibit 10.20 to NL's Annual
                    Report on Form  10-K  (File No.  1-640)  for the year  ended
                    December 31, 1991.

10.55               Indemnification  Agreement  between  Baroid,  Tremont and NL
                    Insurance,  Ltd. dated  September 26, 1990 - incorporated by
                    reference   to  Exhibit   10.35  to  Baroid's   Registration
                    Statement on Form 10 (No. 1-10624) filed with the Commission
                    on August 31, 1990.

10.56               Purchase  Agreement  dated  January  4,  2002  by and  among
                    Kronos, Inc. as the Purchaser, and Big Bend Holdings LLC and
                    Contran Insurance  Holdings,  Inc., as Sellers regarding the
                    sale  and  purchase  of EWI RE,  Inc.  and EWI  RE,  Ltd.  -
                    incorporated  by  reference  to  Exhibit  No.  10.40 to NL's
                    Annual  Report on Form 10-K  (File No.  1-640)  for the year
                    ended December 31, 2001.

10.57               Settlement  Agreement  and Release of Claims dated April 19,
                    2001  between  Titanium  Metals  Corporation  and the Boeing
                    Company -  incorporated  by  reference  to  Exhibit  10.1 to
                    TIMET's Quarterly Report on Form 10-Q (File No. 0-28538) for
                    the quarter ended March 31, 2001.

21.1                Subsidiaries of the Registrant.

23.1                Consent of PricewaterhouseCoopers LLP



* Management contract, compensatory plan or agreement.





                                   SIGNATURES


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

                                      VALHI, INC.
                                      (Registrant)


                                      By: /s/ Steven L. Watson
                                          ----------------------------------
                                          Steven L. Watson, March 25, 2002
                                          (President)



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



/s/ Harold C. Simmons                        /s/ Steven L. Watson
---------------------------------------     ------------------------------------
Harold C. Simmons, March 25, 2002           Steven L. Watson, March 25, 2002
(Chairman of the Board and                  (President and Director)
 Chief Executive Officer)



/s/ Thomas E. Barry                           /s/ Glenn R. Simmons
---------------------------------------     -----------------------------------
Thomas E. Barry, March 25, 2002             Glenn R. Simmons, March 25, 2002
(Director)                                  (Vice Chairman of the Board)



/s/ Norman S. Edelcup                        /s/ Bobby D. O'Brien
--------------------------------------      -----------------------------------
Norman S. Edelcup, March 25, 2002           Bobby D. O'Brien, March 25, 2002
(Director)                                  (Vice President and Treasurer,
                                            Principal Financial Officer)



/s/ Edward J. Hardin                        /s/ Gregory M. Swalwell
--------------------------------------      ----------------------------------
Edward J. Hardin, March 25, 2002            Gregory M. Swalwell, March 25, 2002
(Director)                                  (Vice President and Controller,
                                            Principal Accounting Officer)



/s/ J. Walter Tucker, Jr.
--------------------------------------
J. Walter Tucker, Jr. March 25, 2002
(Director)



                           Annual Report on Form 10-K

                            Items 8, 14(a) and 14(d)

                   Index of Financial Statements and Schedules


Financial Statements                                                 Page

  Report of Independent Accountants                                   F-2

  Consolidated Balance Sheets - December 31, 2000 and 2001            F-3

  Consolidated Statements of Income -
   Years ended December 31, 1999, 2000 and 2001                       F-5

  Consolidated Statements of Comprehensive Income -
   Years ended December 31, 1999, 2000 and 2001                       F-7

  Consolidated Statements of Stockholders' Equity -
   Years ended December 31, 1999, 2000 and 2001                       F-8

  Consolidated Statements of Cash Flows -
   Years ended December 31, 1999, 2000 and 2001                       F-9

  Notes to Consolidated Financial Statements                          F-12



Financial Statement Schedules

  Report of Independent Accountants                                   S-1

  Schedule I  - Condensed financial information of Registrant         S-2

  Schedule II - Valuation and qualifying accounts                     S-11


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












                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Stockholders and Board of Directors of Valhi, Inc.:

     In our  opinion,  the  accompanying  consolidated  balance  sheets  and the
related consolidated statements of income,  comprehensive income,  stockholders'
equity and cash flows present fairly,  in all material  respects,  the financial
position of Valhi,  Inc. and  Subsidiaries as of December 31, 2000 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001, in conformity with accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management;  our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these  financial  statements in accordance with auditing
standards generally accepted in the United States of America, which 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   statements,   assessing  the  accounting  principles  used  and
significant  estimates made by management,  and evaluating the overall financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.




                                                PricewaterhouseCoopers LLP

Dallas, Texas
March 15, 2002






                          VALHI, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 2001

                      (In thousands, except per share data)



              ASSETS
                                                          2000            2001
                                                          ----            ----

Current assets:
                                                                
  Cash and cash equivalents ....................      $  135,017      $  154,413
  Restricted cash equivalents ..................          69,242          63,257
  Marketable securities ........................            --            18,465
  Accounts and other receivables ...............         182,991         162,310
  Refundable income taxes ......................          14,470           3,564
  Receivable from affiliates ...................             885             844
  Inventories ..................................         242,994         262,733
  Prepaid expenses .............................           7,272          11,252
  Deferred income taxes ........................          14,236          12,999
                                                      ----------      ----------

      Total current assets .....................         667,107         689,837
                                                      ----------      ----------

Other assets:
  Marketable securities ........................         268,006         186,549
  Investment in affiliates .....................         235,791         211,115
  Receivable from affiliate ....................            --            20,000
  Loans and other receivables ..................         100,540         105,940
  Mining properties ............................          13,971          12,410
  Prepaid pension costs ........................          22,789          18,411
  Unrecognized net pension obligations .........            --             5,901
  Goodwill .....................................         359,420         349,058
  Deferred income taxes ........................           2,046           3,818
  Other assets .................................          49,604          32,549
                                                      ----------      ----------

      Total other assets .......................       1,052,167         945,751
                                                      ----------      ----------

Property and equipment:
  Land .........................................          29,644          28,721
  Buildings ....................................         167,653         163,995
  Equipment ....................................         543,915         569,001
  Construction in progress .....................          14,865           9,992
                                                      ----------      ----------
                                                         756,077         771,709
  Less accumulated depreciation ................         218,530         253,450
                                                      ----------      ----------

      Net property and equipment ...............         537,547         518,259
                                                      ----------      ----------

                                                      $2,256,821      $2,153,847
                                                      ==========      ==========








           See accompanying notes to consolidated financial statements


                          VALHI, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 2000 and 2001

                      (In thousands, except per share data)



   LIABILITIES AND STOCKHOLDERS' EQUITY
                                                         2000            2001
                                                         ----            ----

Current liabilities:
                                                              
  Notes payable ..................................   $    70,039    $    46,201
  Current maturities of long-term debt ...........        34,284         64,972
  Accounts payable ...............................        81,572        114,474
  Accrued liabilities ............................       162,431        166,488
  Payable to affiliates ..........................        32,042         38,148
  Income taxes ...................................        15,693          9,578
  Deferred income taxes ..........................         1,922          1,821
                                                     -----------    -----------

      Total current liabilities ..................       397,983        441,682
                                                     -----------    -----------

Noncurrent liabilities:
  Long-term debt .................................       595,354        497,215
  Accrued OPEB costs .............................        50,624         50,146
  Accrued pension costs ..........................        26,697         33,823
  Accrued environmental costs ....................        66,224         54,392
  Deferred income taxes ..........................       294,371        268,468
  Other ..........................................        41,055         32,642
                                                     -----------    -----------

      Total noncurrent liabilities ...............     1,074,325        936,686
                                                     -----------    -----------

Minority interest ................................       156,278        153,151
                                                     -----------    -----------

Stockholders' equity:
  Preferred stock, $.01 par value; 5,000 shares
   authorized; none issued .......................          --             --
  Common stock, $.01 par value; 150,000 shares
   authorized; 125,730 and 125,811 shares issued .         1,257          1,258
  Additional paid-in capital .....................        44,345         44,982
  Retained earnings ..............................       591,030        656,408
  Accumulated other comprehensive income:
    Marketable securities ........................       132,580         86,654
    Currency translation .........................       (60,811)       (79,404)
    Pension liabilities ..........................        (4,517)       (11,921)
  Treasury stock, at cost - 10,570 shares ........       (75,649)       (75,649)
                                                     -----------    -----------

      Total stockholders' equity .................       628,235        622,328
                                                     -----------    -----------

                                                     $ 2,256,821    $ 2,153,847
                                                     ===========    ===========



Commitments and contingencies (Notes 5, 8, 11, 16, 18 and 19)





                          VALHI, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 1999, 2000 and 2001

                      (In thousands, except per share data)




                                              1999           2000          2001
                                              ----           ----          ----

Revenues and other income:
                                                               
  Net sales ...........................   $ 1,145,222    $ 1,191,885    $ 1,059,470
  Other, net ..........................        68,456        127,101        154,000
                                          -----------    -----------    -----------

                                            1,213,678      1,318,986      1,213,470
                                          -----------    -----------    -----------

Cost and expenses:
  Cost of sales .......................       840,326        824,391        774,979
  Selling, general and administrative .       189,036        201,732        195,166
  Interest ............................        72,039         70,354         62,285
                                          -----------    -----------    -----------

                                            1,101,401      1,096,477      1,032,430
                                          -----------    -----------    -----------

                                              112,277        222,509        181,040
Equity in earnings of:
  Titanium Metals Corporation ("TIMET")          --           (8,990)        (9,161)
  Tremont Corporation* ................       (48,652)          --             --
  Waste Control Specialists* ..........        (8,496)          --             --
  Other ...............................          --            1,672            580
                                          -----------    -----------    -----------

    Income before taxes ...............        55,129        215,191        172,459

Provision for income taxes (benefit) ..       (71,285)        94,442         53,179

Minority interest in after-tax earnings        78,992         43,658         26,082
                                          -----------    -----------    -----------

    Income from continuing operations .        47,422         77,091         93,198

Discontinued operations ...............         2,000           --             --

Extraordinary item ....................          --             (477)          --
                                          -----------    -----------    -----------

    Net income ........................   $    49,422    $    76,614    $    93,198
                                          ===========    ===========    ===========



*Prior to consolidation.







          See accompanying notes to consolidated financial statements.

                          VALHI, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  Years ended December 31, 1999, 2000 and 2001

                      (In thousands, except per share data)




                                                           1999          2000          2001
                                                           ----          ----          ----

Basic earnings per share:
                                                                          
  Continuing operations ............................   $       .41   $       .67   $       .81
  Discontinued operations ..........................           .02          --            --
  Extraordinary item ...............................          --            --            --
                                                       -----------   -----------   -----------

  Net income .......................................   $       .43   $       .67   $       .81
                                                       ===========   ===========   ===========

Diluted earnings per share:
  Continuing operations ............................   $       .41   $       .66   $       .80
  Discontinued operations ..........................           .02          --            --
  Extraordinary item ...............................          --            --            --
                                                       -----------   -----------   -----------

  Net income .......................................   $       .43   $       .66   $       .80
                                                       ===========   ===========   ===========


Cash dividends per share ...........................   $       .20   $       .21   $       .24
                                                       ===========   ===========   ===========


Shares used in the calculation of per share amounts:
  Basic earnings per share .........................       115,030       115,132       115,193
  Dilutive impact of stock options .................         1,164         1,138           920
                                                       -----------   -----------   -----------

  Diluted earnings per share .......................       116,194       116,270       116,113
                                                       ===========   ===========   ===========















                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)





                                                     1999         2000        2001
                                                     ----         ----        ----

                                                                  
Net income .....................................   $ 49,422    $ 76,614    $ 93,198
                                                   --------    --------    --------

Other comprehensive income (loss),
 net of tax:
  Marketable securities adjustment:
    Unrealized net gains (losses) arising during
     the period ................................      5,503       1,863      (7,673)
    Reclassification for realized net losses
     (gains) included in net income ............       (492)      2,880     (38,253)
                                                   --------    --------    --------
                                                      5,011       4,743     (45,926)

  Currency translation adjustment ..............    (18,121)    (19,978)    (18,593)

  Pension liabilities adjustment ...............     (2,930)      1,258      (7,404)
                                                   --------    --------    --------

    Total other comprehensive income (loss), net    (16,040)    (13,977)    (71,923)
                                                   --------    --------    --------

      Comprehensive income .....................   $ 33,382    $ 62,637    $ 21,275
                                                   ========    ========    ========









                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)





                                                 Additional           Accumulated other comprehensive income              Total
                                        Common    paid-in    Retained   Marketable   Currency     Pension   Treasury  stockholders'
                                         stock    capital    earnings   securities  translation  liabilitie   stock       equity
                                         ------   -------    --------    ---------    --------    --------   -------      ------

                                                                                                 
Balance at December 31, 1998 .........   $1,255   $42,789   $ 512,468    $ 122,826    $(22,712)   $ (2,845)   $(75,259)  $ 578,522

Net income ...........................     --        --        49,422         --          --          --          --        49,422
Cash dividends .......................     --        --       (23,146)        --          --          --          --       (23,146)
Other comprehensive income (loss), net     --        --          --          5,011     (18,121)     (2,930)       --       (16,040)
Other, net ...........................        1       655        --           --          --          --          --           656
                                         ------   -------   ---------    ---------    --------    --------    --------    ---------

Balance at December 31, 1999 .........    1,256    43,444     538,744      127,837     (40,833)     (5,775)    (75,259)    589,414

Net income ...........................     --        --        76,614         --          --          --          --        76,614
Cash dividends .......................     --        --       (24,328)        --          --          --          --       (24,328)
Other comprehensive income (loss), net     --        --          --          4,743     (19,978)      1,258        --       (13,977)
Common stock reacquired ..............     --        --          --           --          --          --           (19)        (19)
Other, net ...........................        1       901        --           --          --          --          (371)        531
                                         ------   -------   ---------    ---------    --------    --------    --------    ---------

Balance at December 31, 2000 .........    1,257    44,345     591,030      132,580     (60,811)     (4,517)    (75,649)    628,235

Net income ...........................     --        --        93,198         --          --          --          --        93,198
Cash dividends .......................     --        --       (27,820)        --          --          --          --       (27,820)
Other comprehensive income (loss), net     --        --          --        (45,926)    (18,593)     (7,404)       --       (71,923)
Other, net ...........................        1       637        --           --          --          --          --           638
                                         ------   -------   ---------    ---------    --------    --------    --------    ---------

Balance at December 31, 2001 .........   $1,258   $44,982   $ 656,408    $  86,654    $(79,404)   $(11,921)   $(75,649)  $ 622,328
                                         ======   =======   =========    =========    ========    ========    ========   =========









                          VALHI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)



                                                   1999         2000          2001
                                                   ----         ----          ----

Cash flows from operating activities:
                                                                 
Net income ..................................   $  49,422    $  76,614    $  93,198
Depreciation, depletion and amortization ....      64,654       71,091       74,493
Legal settlements, net ......................        --        (69,465)     (10,307)
Securities transaction gains, net ...........        (757)         (40)     (47,009)
Insurance gain ..............................        --           --        (16,190)
Non-cash:
  Interest expense ..........................       9,788        9,446        5,601
  Defined benefit pension expense ...........      (4,543)     (11,874)      (3,651)
  Other postretirement benefit expense ......      (5,091)      (2,641)        (385)
Deferred income taxes .......................     (92,840)      42,912        7,718
Minority interest ...........................      78,992       43,658       26,082
Equity in:
  TIMET .....................................        --          8,990        9,161
  Tremont Corporation* ......................      48,652         --           --
  Waste Control Specialists* ................       8,496         --           --
  Other .....................................        --         (1,672)        (580)
  Discontinued operations ...................      (2,000)        --           --
  Extraordinary item ........................        --            477         --
Distributions from:
  Manufacturing joint venture ...............      13,650        7,550       11,313
  Tremont Corporation* ......................         655         --           --
  Other .....................................        --             81        1,300
Other, net ..................................       1,809        2,581         (477)
                                                ---------    ---------    ---------

                                                  170,887      177,708      150,267

Change in assets and liabilities:
  Accounts and other receivables ............     (34,616)     (10,709)       8,464
  Inventories ...............................      18,671      (30,816)     (28,623)
  Accounts payable and accrued
   liabilities ..............................       1,080       12,955       30,065
  Income taxes ..............................       5,150        3,940        3,439
  Accounts with affiliates ..................      (7,055)      13,544        4,025
  Other, net ................................     (15,812)      (4,183)      (8,988)
                                                ---------    ---------    ---------

    Net cash provided by operating activities     138,305      162,439      158,649
                                                ---------    ---------    ---------



*Prior to consolidation






                          VALHI, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)




                                                1999         2000         2001
                                                ----         ----         ----

Cash flows from investing activities:
                                                              
  Capital expenditures ...................   $ (55,869)   $ (57,772)   $ (70,821)
  Purchases of:
    Business units .......................     (64,975)      (9,346)        --
    NL common stock ......................      (7,210)     (30,886)     (15,502)
    Tremont common stock .................      (1,945)     (45,351)        (198)
    CompX common stock ...................        (816)      (8,665)      (2,650)
    Interest in other subsidiaries .......        --         (2,500)        --
  Investment in Waste Control Specialists*     (10,000)        --           --
  Proceeds from disposal of:
    Marketable securities ................       6,588          158       16,802
    Property and equipment ...............       2,449          577       11,032
  Change in restricted cash
   equivalents, net ......................      (5,176)       1,517        8,022
  Loans to affiliates:
    Loans ................................      (6,000)     (21,969)     (20,000)
    Collections ..........................       6,000       21,969         --
  Property damaged by fire:
    Insurance proceeds ...................        --           --         23,361
    Other, net ...........................        --           --         (3,205)
  Discontinued operations, net ...........       2,000         --           --
  Other, net .............................        (595)       1,351         (635)
                                             ---------    ---------    ---------

    Net cash used by investing activities     (135,549)    (150,917)     (53,794)
                                             ---------    ---------    ---------

Cash flows from financing activities:
  Indebtedness:
    Borrowings ...........................     123,203      123,857       51,356
    Principal payments ...................    (157,310)    (126,252)    (102,014)
  Loans from affiliates:
    Loans ................................      45,000       18,160       81,905
    Repayments ...........................     (52,218)     (12,782)     (78,731)
  Valhi dividends paid ...................     (23,146)     (24,328)     (27,820)
  Valhi common stock reacquired ..........        --            (19)        --
  Distributions to minority interest .....      (3,744)     (10,084)     (10,496)
  Other, net .............................         860        4,411        1,347
                                             ---------    ---------    ---------

    Net cash used by financing activities      (67,355)     (27,037)     (84,453)
                                             ---------    ---------    ---------


Net decrease .............................   $ (64,599)   $ (15,515)   $  20,402
                                             =========    =========    =========



*Prior to consolidation.






          See accompanying notes to consolidated financial statements.

                          VALHI, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)



                                               1999         2000          2001
                                               ----         ----          ----

Cash and cash equivalents - net change from:
  Operating, investing and financing
                                                             
   activities ...........................   $ (64,599)   $ (15,515)   $  20,402
  Currency translation ..................      (3,398)      (2,175)      (1,006)
  Business units acquired ...............       4,785         --           --
  Consolidation of Waste Control
   Specialists and Tremont Corporation ..       3,736         --           --
                                            ---------    ---------    ---------
                                              (59,476)     (17,690)      19,396

  Balance at beginning of year ..........     212,183      152,707      135,017
                                            ---------    ---------    ---------

  Balance at end of year ................   $ 152,707    $ 135,017    $ 154,413
                                            =========    =========    =========


Supplemental disclosures - cash paid for:
  Interest, net of amounts capitalized ..   $  62,208    $  61,930    $  57,775
  Income taxes ..........................      16,296       33,798       36,556

  Business units acquired -
   net assets consolidated:
    Cash and cash equivalents ...........   $   4,785    $    --      $    --
    Goodwill and other intangible assets       22,700        5,091         --
    Other non-cash assets ...............      54,966        7,144         --
    Liabilities .........................     (17,476)      (2,889)        --
                                            ---------    ---------    ---------

    Cash paid ...........................   $  64,975    $   9,346    $    --
                                            =========    =========    =========

  Waste Control Specialists and Tremont
   Corporation - net assets consolidated:
    Cash and cash equivalents ...........   $   3,736    $    --      $    --
    Noncurrent restricted cash ..........       4,710         --           --
    Investment in
      TIMET .............................      85,772         --           --
      NL Industries* ....................     159,799         --           --
      Other joint ventures ..............      13,658         --           --
    Property and equipment ..............      23,716         --           --
    Other non-cash assets ...............      17,933         --           --
    Liabilities .........................     (83,784)        --           --
    Minority interest ...................     (85,610)        --           --
                                            ---------    ---------    ---------

    Net investment at respective dates
     of consolidation ...................   $ 139,930    $    --      $    --
                                            =========    =========    =========


*Eliminated in consolidation.




                          VALHI, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 -       Summary of significant accounting policies:

     Organization  and  basis of  presentation.  Valhi,  Inc.  (NYSE:  VHI) is a
subsidiary  of  Contran   Corporation.   Contran  holds,   directly  or  through
subsidiaries,   approximately   94%  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.  Mr. Simmons, the Chairman of the
Board and Chief Executive Officer of Valhi and Contran, may be deemed to control
such companies.  Certain prior year amounts have been reclassified to conform to
the current year presentation.

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

     Principles of consolidation.  The consolidated financial statements include
the accounts of Valhi and its  majority-owned  subsidiaries  (collectively,  the
"Company"),  except as described below. All material  intercompany  accounts and
balances  have  been  eliminated.  Prior to June 30 1999,  the  Company  did not
consolidate its majority-owned  subsidiary Waste Control Specialists because the
Company was not deemed to control Waste Control Specialists. See Note 3.

     Translation of foreign  currencies.  Assets and liabilities of subsidiaries
whose  functional  currency  is other  than the U.S.  dollar are  translated  at
year-end  rates of exchange and revenues and expenses are  translated at average
exchange rates prevailing during the year. Resulting translation adjustments are
accumulated in stockholders'  equity as part of accumulated other  comprehensive
income,  net of related  deferred income taxes and minority  interest.  Currency
transaction gains and losses are recognized in income currently.

     Net sales. Sales are recorded when products are shipped and title and other
risks and rewards of ownership have passed to the customer, or when services are
performed.  Shipping terms of products  shipped in both the Company's  chemicals
and components  products segments are generally FOB shipping point,  although in
some instances  shipping terms are FOB  destination  point.  Amounts  charged to
customers  for shipping  and  handling  are  included in net sales.  The Company
adopted Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No.
101, as amended,  in 2000.  SAB No. 101  provides  guidance on the  recognition,
presentation  and disclosure of revenue.  The impact of adopting SAB No. 101 was
not material.

     Inventories and cost of sales.  Inventories are stated at the lower of cost
or market.  Inventory costs are generally based on average cost or the first-in,
first-out method.

     Shipping and handling  costs.  Shipping and handling costs of the Company's
chemicals segment are included in selling,  general and administrative  expenses
and were  approximately $54 million in 1999, $50 million in 2000 and $49 million
in 2001.  Shipping and handling  costs of the Company's  component  products and
waste management segments are not material.

     Cash and cash  equivalents and restricted  cash. Cash  equivalents  include
bank time deposits and government  and commercial  notes and bills with original
maturities of three months or less.

     Restricted   cash   equivalents  and  debt   securities.   Restricted  cash
equivalents  and  debt  securities,   invested  primarily  in  U.S.   government
securities  and money  market funds that invest in U.S.  government  securities,
includes amounts  restricted  pursuant to outstanding  letters of credit, and at
December 31, 2001 also includes $74 million held by special purpose trusts (2000
- $70 million) formed by NL Industries,  the assets of which can only be used to
pay for certain of NL's future environmental remediation and other environmental
expenditures.  Such  restricted  amounts are  generally  classified  as either a
current or noncurrent asset depending on the  classification of the liability to
which  the  restricted  amount  relates.   Additionally,   the  restricted  debt
securities  are generally  classified  as either a current or  noncurrent  asset
depending upon the maturity date of each debt security. See Notes 5, 8 and 12.

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

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

     Investment in joint  ventures.  Investments in more than 20%-owned but less
than  majority-owned  companies,  and the Company's  investment in Waste Control
Specialists  prior to June 30 1999, are accounted for by the equity method.  See
Note 7.  Differences  between the cost of each  investment and the Company's pro
rata share of the entity's separately-reported net assets, if any, are allocated
among the assets and  liabilities  of the entity based upon  estimated  relative
fair values.  Such differences  approximate a $61 million credit at December 31,
2001, related  principally to the Company's  investment in TIMET and are charged
or credited  to income as the  entities  depreciate,  amortize or dispose of the
related net assets.

     Goodwill and other intangible assets. Goodwill,  representing the excess of
cost over fair value of individual net assets acquired in business  combinations
accounted for by the purchase method, is stated net of accumulated  amortization
of $77.8 million at December 31, 2001 (2000 - $60.9 million).  Through  December
31, 2001, goodwill was amortized by the straight-line  method over not more than
40 years. Upon adoption of Statement of Financial  Accounting Standards ("SFAS")
No.  142,  Goodwill  and Other  Intangible  Assets,  effective  January 1, 2002,
goodwill will no longer be subject to periodic amortization. See Notes 9 and 20.

     Intangible assets,  consisting principally at December 31, 2000 and 2001 of
the estimated  fair value of certain  patents  acquired in  connection  with the
acquisition of certain  business  units by CompX,  are stated net of accumulated
amortization  of $1.0  million at December 31, 2001 (2000 - $.8  million).  Such
intangible  assets have been,  and will continue to be upon adoption of SFAS No.
142 effective January 1, 2002,  amortized by the  straight-line  method over the
lives of the patents  (approximately 11.25 years remaining at December 31, 2001)
with  no  assumed  residual  value  at  the  end  of the  life  of the  patents.
Amortization  expense of intangible assets was $2.1 million in 1999, $474,000 in
2000 and $229,000 in 2001, and is expected to be approximately  $250,000 in each
of 2002 through 2006.

     Through  December  31,  2001,  when  events  or  changes  in  circumstances
indicated  that  goodwill  or  other  intangible  assets  may  be  impaired,  an
evaluation was performed to determine if an impairment  existed.  Such events or
circumstances  included,  among other  things,  (i) a  prolonged  period of time
during which the Company's net carrying value of its investment in  subsidiaries
whose common  stocks are  publicly-traded  was greater than quoted market prices
for such stocks and (ii)  significant  current and prior  periods or current and
projected periods with operating losses related to the applicable business unit.
All relevant  factors  were  considered  in  determining  whether an  impairment
existed. If an impairment was determined to exist, goodwill and, if appropriate,
the underlying long-lived assets associated with the goodwill, were written down
to reflect the estimated  future  discounted cash flows expected to be generated
by the underlying  business.  Effective January 1, 2002, the Company will assess
impairment of goodwill and other  intangible  assets in accordance with SFAS No.
142. See Note 20.

     Property and  equipment,  mining  properties,  depreciation  and depletion.
Property and equipment are stated at cost.  Mining properties are stated at cost
less accumulated  depletion.  Depreciation for financial  reporting  purposes is
computed principally by the straight-line method over the estimated useful lives
of ten to 40 years for buildings and three to 20 years for equipment.  Depletion
for  financial  reporting  purposes is computed  by the  unit-of-production  and
straight-line methods.  Accelerated  depreciation and depletion methods are used
for income tax purposes, as permitted.  Upon sale or retirement of an asset, the
related cost and accumulated  depreciation are removed from the accounts and any
gain or loss is recognized in income currently.

     Expenditures  for  maintenance,  repairs and minor  renewals are  expensed;
expenditures for major  improvements  are capitalized.  The Company will perform
certain planned major  maintenance  activities  during the year,  primarily with
respect to the chemicals  segment.  Repair and maintenance costs estimated to be
incurred in  connection  with such  planned  major  maintenance  activities  are
accrued in advance and are included in cost of goods sold.

     Interest costs related to major long-term capital projects and renewals are
capitalized as a component of  construction  costs.  Interest costs  capitalized
related to the Company's  consolidated business segments were not significant in
1999, 2000 or 2001.

     When  events or  changes  in  circumstances  indicate  that  assets  may be
impaired,  an evaluation is performed to determine if an impairment exists. Such
events or changes in circumstances  include, among other things, (i) significant
current  and prior  periods or current  and  projected  periods  with  operating
losses,  (ii) a significant  decrease in the market value of an asset or (iii) a
significant  change  in the  extent  or  manner  in which an asset is used.  All
relevant  factors  are  considered.  The test for  impairment  is  performed  by
comparing the estimated  future  undiscounted  cash flows (exclusive of interest
expense)  associated  with  the  asset  to the  asset's  net  carrying  value to
determine  if a  write-down  to market  value or  discounted  cash flow value is
required.  Through  December 31, 2001, if the asset being tested for  impairment
was acquired in a business combination accounted for by the purchase method, any
goodwill which arose out of that business combination was also considered in the
impairment test if the goodwill  related  specifically to the acquired asset and
not to other  aspects of the acquired  business,  such as the  customer  base or
product lines.  Effective January 1, 2002, the Company will assess impairment of
goodwill in accordance with SFAS No. 142, and the Company will assess impairment
of  other  long-lived   assets  (such  as  property  and  equipment  and  mining
properties) in accordance with SFAS No. 144. See Note 20.

     Long-term debt.  Long-term debt is stated net of unamortized original issue
discount ("OID").  OID is amortized over the period during which interest is not
paid and deferred  financing costs are amortized over the term of the applicable
issue, both by the interest method.

     Derivatives  and  hedging  activities.  The Company  adopted  SFAS No. 133,
Accounting  for  Derivative  Instruments  and  Hedging  Activities,  as amended,
effective January 1, 2001. Under SFAS No. 133, all derivatives are recognized as
either assets or  liabilities  and measured at fair value.  The  accounting  for
changes  in fair  value of  derivatives  depends  upon the  intended  use of the
derivative,  and such  changes  are  recognized  either  in net  income or other
comprehensive  income.  As permitted by the transition  requirements of SFAS No.
133, as amended,  the  Company has  exempted  from the scope of SFAS No. 133 all
host contracts  containing  embedded  derivatives  which were issued or acquired
prior to  January  1,  1999.  Other  than  certain  currency  forward  contracts
discussed  below,  the Company was not a party to any significant  derivative or
hedging  instrument  covered by SFAS No. 133 at January 1, 2001.  The accounting
for  such  currency  forward  contracts  under  SFAS No.  133 is not  materially
different from the accounting for such contracts under prior GAAP, and therefore
the impact to the Company of adopting SFAS No. 133 was not material.

     Certain of the Company's  sales  generated by its non-U.S.  operations  are
denominated in U.S.  dollars.  The Company  periodically  uses currency  forward
contracts  to  manage a very  nominal  portion  of  foreign  exchange  rate risk
associated  with  receivables  denominated in a currency other than the holder's
functional  currency or similar exchange rate risk associated with future sales.
The Company  has not entered  into these  contracts  for trading or  speculative
purposes in the past, nor does the Company  currently  anticipate  entering into
such  contracts  for trading or  speculative  purposes  in the  future.  At each
balance  sheet  date,  any  such   outstanding   currency  forward  contract  is
marked-to-market  with any resulting gain or loss recognized in income currently
as part of net currency  transactions.  To manage such  exchange  rate risk,  at
December  31, 2000 the Company held  contracts  maturing  through  March 2001 to
exchange an aggregate of U.S. $9.1 million for an equivalent  amount of Canadian
dollars at an exchange rate of Cdn. $1.48 per U.S. dollar. At December 31, 2000,
the actual exchange rate was Cdn. $1.50 per U.S. dollar.  No such contracts were
held at December 31, 2001.

     The  Company  periodically  uses  interest  rate  swaps and other  types of
contracts  to manage  interest  rate risk with  respect to  financial  assets or
liabilities.  The Company has not entered  into these  contracts  for trading or
speculative  purposes  in the past,  nor does the Company  currently  anticipate
entering into such contracts for trading or speculative  purposes in the future.
The Company was not a party to any such contract during 1999, 2000 or 2001.

     Income  taxes.  Valhi  and  its  qualifying  subsidiaries  are  members  of
Contran's  consolidated United States federal income tax group (the "Contran Tax
Group"). The policy for intercompany allocation of federal income taxes provides
that  subsidiaries  included in the Contran Tax Group  compute the provision for
income  taxes on a separate  company  basis.  Subsidiaries  make  payments to or
receive payments from Contran in the amounts they would have paid to or received
from the Internal  Revenue  Service had they not been members of the Contran Tax
Group. The separate  company  provisions and payments are computed using the tax
elections made by Contran.

     Through  December 31, 2000, NL and Tremont  Corporation  were separate U.S.
taxpayers  and were not members of the Contran Tax Group.  Effective  January 1,
2001, NL and Tremont became members of the Contran Tax Group.  See Note 3. CompX
is a separate U.S. taxpayer and is not a member of the Contran Tax Group.  Waste
Control  Specialists  LLC and The  Amalgamated  Sugar Company LLC are treated as
partnerships for income tax purposes.

     Deferred  income tax assets and liabilities are recognized for the expected
future tax  consequences  of  temporary  differences  between the income tax and
financial  reporting  carrying  amounts  of assets  and  liabilities,  including
investments in the Company's  subsidiaries and affiliates who are not members of
the Contran Tax Group.  The Company  periodically  evaluates  its  deferred  tax
assets in the various taxing  jurisdictions in which it operates and adjusts any
related valuation allowance based on the estimate of the amount of such deferred
tax assets which the Company  believes does not meet the  "more-likely-than-not"
recognition criteria.

     Earnings per share.  Basic earnings per share of common stock is based upon
the weighted  average number of common shares actually  outstanding  during each
period.  Diluted  earnings  per share of common  stock  includes  the  impact of
outstanding  dilutive stock options.  The weighted average number of outstanding
stock  options  excluded  from the  calculation  of diluted  earnings  per share
because  their  impact  would have been  antidilutive  aggregated  approximately
313,000 in 1999, 246,000 in 2000 and 297,000 in 2001.

     Deferred  income.  Deferred  income,  related  principally to a non-compete
agreement discussed in Note 12, is amortized over the periods earned,  generally
by the straight-line method.

     Stock options. The Company accounts for stock-based  employee  compensation
in accordance with Accounting  Principles  Board Opinion No. 25,  Accounting for
Stock Issued to Employees, and its various  interpretations.  Under APBO No. 25,
no  compensation  cost is generally  recognized for fixed stock options in which
the  exercise  price is greater  than or equal to the market  price on the grant
date. Compensation cost recognized by the Company in accordance with APBO No. 25
was not significant during 1999 and was approximately $2 million in each of 2000
and 2001.

     Environmental   costs.   The  Company   records   liabilities   related  to
environmental  remediation  obligations when estimated  future  expenditures are
probable  and  reasonably  estimable.  Such  accruals  are  adjusted  as further
information  becomes  available  or  circumstances   change.   Estimated  future
expenditures are generally not discounted to their present value.  Recoveries of
remediation  costs from other  parties,  if any, are  recognized  as assets when
their receipt is deemed probable.  At December 31, 2000 and 2001, no receivables
for recoveries have been recognized.

     Closure and post closure costs. The Company provides for estimated  closure
and post-closure monitoring costs for its waste disposal site over the operating
life of the facility as airspace is consumed  ($802,000 and $1.2 million accrued
at December 31, 2000 and 2001, respectively).  Such costs are estimated based on
the technical requirements of applicable state or federal regulations, whichever
are stricter, and include such items as final cap and cover on the site, methane
gas and leachate management and groundwater monitoring. Cost estimates are based
on  management's   judgment  and  experience  and  information   available  from
regulatory agencies as to costs of remediation.  These estimates are sometimes a
range of possible  outcomes,  in which case the Company  provides for the amount
within the range which  constitutes  its best estimate.  If no amount within the
range  appears  to be a better  estimate  than any  other  amount,  the  Company
provides for at least the minimum amount within the range. See Note 20.

     Estimates  of  the  ultimate  cost  of  remediation  require  a  number  of
assumptions,  are inherently  difficult and the ultimate outcome may differ from
current estimates.  As additional  information becomes available,  estimates are
adjusted  as  necessary.  Where the Company  believes  that both the amount of a
particular  environmental  liability and the timing of the payments are reliably
determinable,  the cost in current  dollars is  inflated  at 3% per annum  until
expected time of payment.

     The Company's  waste disposal site has an estimated  remaining life of over
100 years based upon current site plans and annual volumes of waste. During this
remaining site life, the Company estimates it will provide for an additional $23
million of closure and  post-closure  costs,  including  inflation.  Anticipated
payments  of  environmental  liabilities  accrued at  December  31, 2001 are not
expected to begin until 2004 at the earliest.

     Extraordinary item. The extraordinary loss in 2000, stated net of allocable
income  tax  benefit  and  minority  interest,   relates  to  the  write-off  of
unamortized  deferred  financing  costs and premiums paid in connection with the
early  retirement of certain NL Industries  indebtedness.  See Notes 11, 13, and
16.

     Other.  Advertising  costs related to the Company's  consolidated  business
segments,  expensed as  incurred,  were $2.0  million in each of 1999,  2000 and
2001.  Research and  development  costs  related to the  Company's  consolidated
business segments,  expensed as incurred, were $8 million in 1999 and $7 million
in each of 2000 and 2001.

Note 2 -       Business and geographic segments:

                                                           % owned by Valhi at
 Business segment                 Entity                    December 31, 2001

  Chemicals             NL Industries, Inc.                         61%
  Component products    CompX International Inc.                    69%
  Waste management      Waste Control Specialists                   90%
  Titanium metals       Tremont Group, Inc.                         80%

     Tremont Group (80% owned by Valhi and 20% owned by NL) is a holding company
which owns 80% of Tremont Corporation  ("Tremont") at December 31, 2001. Tremont
is also a holding  company and owns an additional  21% of NL and 39% of TIMET at
December 31, 2001. See Note 3.

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

     The Company's  reportable operating segments are comprised of the chemicals
business  conducted by NL, the component  products  business  conducted by CompX
and,  beginning in July 1999, the waste management  business  conducted by Waste
Control Specialists.

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

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

     Waste  Control  Specialists  operates  a  facility  in West  Texas  for the
processing,  treatment and storage of  hazardous,  toxic and low-level and mixed
radioactive  wastes,  and for the  disposal of  hazardous  and toxic and certain
types of low-level and mixed radioactive  wastes.  Waste Control  Specialists is
seeking  additional  regulatory  authorizations  to  expand  its  treatment  and
disposal capabilities for low-level and mixed radioactive wastes.

     TIMET is a  vertically  integrated  producer  of  titanium  sponge,  melted
products (ingot and slab) and a variety of titanium mill products for aerospace,
industrial and other applications with production facilities located in the U.S.
and Europe.

     The  Company  evaluates  segment  performance  based on  segment  operating
income,  which is defined as income  before  income taxes and interest  expense,
exclusive of certain non-recurring items (such as gains or losses on disposition
of business units and other  long-lived  assets  outside the ordinary  course of
business and certain legal settlements) and certain general corporate income and
expense items (including  securities  transactions gains and losses and interest
and  dividend  income)  which  are not  attributable  to the  operations  of the
reportable  operating  segments.  The  accounting  policies  of  the  reportable
operating  segments are the same as those described in Note 1. Segment operating
profit includes the effect of amortization of any goodwill and other  intangible
assets attributable to the segment.

     Interest income included in the calculation of segment  operating income is
not material in 1999, 2000 or 2001.  Capital  expenditures  include additions to
property  and  equipment  and mining  properties  but exclude  amounts  paid for
business units acquired in business  combinations  accounted for by the purchase
method.  See Note 3.  Depreciation,  depletion and amortization  related to each
reportable  operating  segment  includes  amortization of any goodwill and other
intangible  assets  attributable  to  the  segment.   Amortization  of  deferred
financing costs is included in interest expense. There are no intersegment sales
or any other significant intersegment transactions.

     Segment assets are comprised of all assets  attributable to each reportable
operating segment, including goodwill and other intangible assets. The Company's
investment in the TiO2  manufacturing  joint venture (see Note 7) is included in
the chemicals business segment assets.  Corporate assets are not attributable to
any  operating  segment and consist  principally  of cash and cash  equivalents,
restricted cash equivalents,  marketable  securities and loans to third parties.
At December 31,  2001,  approximately  38% of  corporate  assets were held by NL
(2000 - 31%), with substantially all of the remainder held by Valhi.

     For  geographic  information,  net  sales  are  attributed  to the place of
manufacture    (point-of-origin)    and   the    location   of   the    customer
(point-of-destination);   property  and  equipment  and  mining  properties  are
attributed to their physical  location.  At December 31, 2001, the net assets of
non-U.S.  subsidiaries  included in consolidated  net assets  approximated  $664
million (2000 - $650 million).







                                                    Years ended December 31,
                                                 1999        2000         2001
                                                 ----        ----         ----
                                                        (In millions)
Net sales:
                                                              
  Chemicals ................................   $  908.4    $  922.3    $  835.1
  Component products .......................      225.9       253.3       211.4
  Waste management (after consolidation) ...       10.9        16.3        13.0
                                               --------    --------    --------

    Total net sales ........................   $1,145.2    $1,191.9    $1,059.5
                                               ========    ========    ========

Operating income:
  Chemicals ................................   $  126.2    $  187.4    $  143.5
  Component products .......................       40.2        37.5        13.1
  Waste management (after consolidation) ...       (1.8)       (7.2)      (14.4)
                                               --------    --------    --------

    Total operating income .................      164.6       217.7       142.2

General corporate items:
  Legal settlement gains, net ..............       --          69.5        31.9
  Securities transactions ..................         .8        --          47.0
  Interest and dividend income .............       43.0        40.3        38.0
  Insurance gain ...........................       --          --          16.2
  Gain on sale/leaseback ...................       --          --           2.2
  General expenses, net ....................      (24.1)      (34.6)      (34.1)
Interest expense ...........................      (72.0)      (70.4)      (62.3)
                                               --------    --------    --------
                                                  112.3       222.5       181.1
Equity in:
  TIMET ....................................       --          (9.0)       (9.2)
  Tremont Corporation ......................      (48.7)       --          --
  Waste Control Specialists ................       (8.5)       --          --
  Other ....................................       --           1.7          .6
                                               --------    --------    --------

    Income from continuing operations
     before income taxes ...................   $   55.1    $  215.2    $  172.5
                                               ========    ========    ========

Net sales - point of origin:
  United States ............................   $  399.5    $  436.0    $  379.9
  Germany ..................................      459.4       444.1       398.5
  Belgium ..................................      138.7       137.8       126.8
  Norway ...................................       88.3        98.3       102.8
  Netherlands ..............................       36.8        35.8        32.2
  Other Europe .............................       92.8        92.7        82.3
  Canada ...................................      259.7       253.7       230.7
  Taiwan ...................................         .7        12.1         9.6
  Eliminations .............................     (330.7)     (318.6)     (303.3)
                                               --------    --------    --------

                                               $1,145.2    $1,191.9    $1,059.5
                                               ========    ========    ========

Net sales - point of destination:
  United States ............................   $  412.7    $  459.3    $  401.8
  Europe ...................................      520.1       515.2       462.4
  Canada ...................................      104.4        97.0        82.5
  Asia .....................................       45.0        53.6        51.3
  Other ....................................       63.0        66.8        61.5
                                               --------    --------    --------

                                               $1,145.2    $1,191.9    $1,059.5
                                               ========    ========    ========









                                                       Years ended December 31,
                                                     1999       2000        2001
                                                     ----       ----        ----
                                                            (In millions)
Depreciation, depletion and amortization:
                                                                  
  Chemicals ...................................      $52.5      $54.1      $54.6
  Component products ..........................        9.6       12.6       14.9
  Waste management (after consolidation) ......        1.5        3.3        3.8
  Corporate ...................................        1.1        1.1        1.2
                                                     -----      -----      -----

                                                     $64.7      $71.1      $74.5
                                                     =====      =====      =====

Capital expenditures:
  Chemicals ...................................      $32.7      $31.1      $53.7
  Component products ..........................       19.7       23.1       13.2
  Waste management (after consolidation) ......         .3        3.3        3.1
  Corporate ...................................        3.2         .3         .8
                                                     -----      -----      -----

                                                     $55.9      $57.8      $70.8
                                                     =====      =====      =====






                                                          December 31,
                                              1999          2000           2001
                                              ----          ----           ----
                                                        (In millions)
Total assets:
  Operating segments:
                                                               
    Chemicals ........................      $1,413.8      $1,313.1      $1,296.5
    Component products ...............         205.4         227.2         227.3
    Waste management .................          33.9          32.3          31.1
  Investment in:
    Titanium Metals Corporation ......          85.8          72.7          60.3
    Other joint ventures .............          13.7          13.1          12.4
  Corporate and eliminations .........         482.6         598.4         526.2
                                            --------      --------      --------

                                            $2,235.2      $2,256.8      $2,153.8
                                            ========      ========      ========

Net property and equipment
 and mining properties:
  United States ......................      $   67.3      $   82.5      $   84.0
  Germany ............................         278.5         246.5         243.1
  Canada .............................          94.3          88.2          83.0
  Norway .............................          64.1          57.7          55.2
  Belgium ............................          57.5          53.7          52.6
  Netherlands ........................          17.6          17.2           7.3
  Other Europe .......................           1.3          --            --
  Taiwan .............................           4.9           5.7           5.5
                                            --------      --------      --------

                                            $  585.5      $  551.5      $  530.7
                                            ========      ========      ========









Note 3 -  Business combinations and disposals:

     NL  Industries,  Inc.  At the  beginning  of 1999,  Valhi  held 58% of NL's
outstanding common stock, and Tremont held an additional 20% of NL. During 1999,
2000 and 2001, NL purchased shares of its own common stock in market and private
transactions for an aggregate of $53.6 million,  thereby  increasing Valhi's and
Tremont's ownership of NL to 61% and 21% at December 31, 2001, respectively. See
Note 18. The Company  accounted for such  increases in its interest in NL by the
purchase method (step acquisition).

     CompX  International Inc. At the beginning of 1999, the Company held 64% of
CompX's common stock.  During 1999,  2000 and 2001,  Valhi  purchased  shares of
CompX common  stock,  and CompX  purchased  shares of its own common  stock,  in
market  transactions for an aggregate of $12.1 million,  thereby  increasing the
Company's  ownership  interest of CompX to 69% at December 31, 2001. The Company
accounted  for such  increases in its  interest in CompX by the purchase  method
(step acquisition).

     In 1999, CompX acquired two slide producers for an aggregate of $65 million
cash consideration.  In 2000, CompX acquired a lock producer for an aggregate of
$9 million cash  consideration.  Such  acquisitions  were  accounted  for by the
purchase method.

     Waste Control  Specialists  LLC. In 1995,  Valhi acquired a 50% interest in
newly-formed  Waste Control  Specialists  LLC. Valhi  contributed $25 million to
Waste  Control  Specialists  at  various  dates  through  early 1997 for its 50%
interest.   Valhi  contributed  an  additional  $10  million  to  Waste  Control
Specialists'  equity  in each  of  1997,  1998  and  1999,  and  contributed  an
additional  $20 million to Waste Control  Specialists'  equity in 2000,  thereby
increasing  its  membership  interest  from 50% to 90% at December  31,  2001. A
substantial  portion of such  equity  contributions  were used by Waste  Control
Specialists to reduce the then-outstanding balance of its revolving intercompany
borrowings from the Company.

     In 1995, the other owner of Waste Control Specialists,  KNB Holdings, Ltd.,
contributed certain assets, primarily land and certain operating permits for the
facility site, and Waste Control  Specialists also assumed certain  indebtedness
of the other owner.  KNB Holdings is controlled  by an  individual  who had been
granted the duties of chief executive officer of Waste Control Specialists under
an  employment  agreement  previously-effective  through  at  least  2001.  Such
individual had the ability to establish management policies and procedures,  and
had the  authority  to make  routine  operating  decisions,  for  Waste  Control
Specialists.  Prior  to June  1999,  the  rights  granted  to the  owner  of the
remaining  membership  interest under the employment  agreement  discussed above
overcame the Company's presumption of control at its majority ownership interest
level, and the Company  accounted for its interest in Waste Control  Specialists
by the  equity  method.  As of June  1999,  that  individual  resigned  as chief
executive officer and a new chief executive officer unrelated to the other owner
was appointed. Accordingly, the Company was then deemed to control Waste Control
Specialists.  The Company  commenced  consolidating  Waste Control  Specialists'
balance  sheet at June 30,  1999,  and  commenced  consolidating  its results of
operations and cash flows in the third quarter of 1999. See Note 7.

     Valhi is entitled to a 20%  cumulative  preferential  return on its initial
$25 million  investment,  after which earnings are generally split in accordance
with ownership  interests.  The  liabilities of the other owner assumed by Waste
Control   Specialists  in  1995  exceeded  the  carrying  value  of  the  assets
contributed.  Accordingly,  all of Waste  Control  Specialists'  cumulative  net
losses to date have accrued to the Company for financial reporting purposes, and
all of Waste  Control  Specialists  future net  income or net  losses  will also
accrue to the Company until Waste Control  Specialists  reports  positive equity
attributable to the other owner. See Note 13.

     Tremont  Corporation and Tremont Group,  Inc. At the beginning of 1999, the
Company  held  48% of  Tremont  Corporation's  common  stock,  and  the  Company
accounted for its interest in Tremont by the equity method.  During 1999,  Valhi
purchased in market and private transactions additional shares of Tremont for an
aggregate of $1.9 million which, by late December 1999,  increased the Company's
ownership  of Tremont to 50.2% at December 31,  1999.  Accordingly,  the Company
commenced  consolidating  Tremont's  balance sheet at December 31, 1999, and the
Company commenced  consolidating  Tremont's results of operations and cash flows
effective January 1, 2000. See Note 7.

     During 2000,  Valhi and NL each  purchased  shares of Tremont in market and
private  transactions for an aggregate of $45.4 million,  increasing Valhi's and
NL's ownership of Tremont to 64% and 16% at December 31, 2000, respectively. See
Note 18. Effective with the close of business on December 31, 2000, Valhi and NL
each  contributed  their Tremont shares to newly-formed  Tremont Group in return
for an 80% and 20%  ownership  interest  in  Tremont  Group,  respectively,  and
Tremont  Group  became  the owner of the 80% of  Tremont  that  Valhi and NL had
previously owned in the aggregate.  Tremont Group recorded the shares of Tremont
received from Valhi and NL at  predecessor  carryover  cost basis.  During 2001,
Valhi purchased a nominal number of additional Tremont Corporation common shares
for  $198,000.  The Company  accounted  for such  increases  in its  interest in
Tremont during 1999, 2000 and 2001 by the purchase method (step acquisition).

     In December 2000,  TRECO LLC, a 75%-owned  subsidiary of Tremont,  acquired
the 25%  interest in TRECO  previously  held by the other owner for $2.5 million
cash consideration, and TRECO became a wholly-owned subsidiary of Tremont.

     Other.  NL (NYSE:  NL), CompX (NYSE:  CIX),  Tremont (NYSE:  TRE) and TIMET
(NYSE:  TIE) each file periodic reports pursuant to the Securities  Exchange Act
of 1934, as amended.  Discontinued operations represent additional consideration
received  by the Company in 1999  related to the 1997  disposal of its fast food
operations.

     Effective  July 1,  2001,  the  Company  adopted  SFAS  No.  141,  Business
Combinations,  for all business combinations initiated on or after July 1, 2001,
and all purchase business combinations (including step acquisitions). Under SFAS
No. 141, all business combinations are accounted for by the purchase method, and
the pooling-of-interests  method became prohibited.  The Company did not qualify
to use the  pooling-of-interests  method of accounting for business combinations
prior to July 1, 2001.

Note 4 -       Accounts and other receivables:



                                                             December 31,
                                                         2000             2001
                                                         ----             ----
                                                            (In thousands)

                                                                
Accounts receivable ..........................       $ 186,887        $ 166,126
Notes receivable .............................           1,740            2,484
Accrued interest .............................             272               26
Allowance for doubtful accounts ..............          (5,908)          (6,326)
                                                     ---------        ---------

                                                     $ 182,991        $ 162,310







Note 5 -       Marketable securities:



                                                                December 31,
                                                              2000          2001
                                                              ----          ----
                                                               (In thousands)

Current assets:
                                                                  
  Halliburton Company common stock (trading) .............   $   --     $  6,744
  Halliburton Company common stock (available-for-sale) ..       --        8,138
  Restricted debt securities .............................       --        3,583
                                                             --------   --------

                                                             $   --     $ 18,465
                                                             ========   ========
Noncurrent assets (available-for-sale):
  The Amalgamated Sugar Company LLC ......................   $170,000   $170,000
  Restricted debt securities .............................       --       16,121
  Halliburton Company common stock .......................     97,108       --
  Other common stocks ....................................        898        428
                                                             --------   --------

                                                             $268,006   $186,549


     Amalgamated.  Prior to 1999, the Company transferred control of the refined
sugar operations previously conducted by the Company's wholly-owned  subsidiary,
The  Amalgamated  Sugar  Company,  to  Snake  River  Sugar  Company,  an  Oregon
agricultural  cooperative  formed by certain  sugarbeet growers in Amalgamated's
areas  of  operations.  Pursuant  to the  transaction,  Amalgamated  contributed
substantially  all of its net assets to the  Amalgamated  Sugar  Company  LLC, a
limited liability company  controlled by Snake River, on a tax-deferred basis in
exchange for a non-voting  ownership  interest in the LLC. The cost basis of the
net assets  transferred by Amalgamated to the LLC was approximately $34 million.
As part of such transaction, Snake River made certain loans to Valhi aggregating
$250 million.  Such loans from Snake River are  collateralized  by the Company's
interest in the LLC. Snake River's  sources of funds for its loans to Valhi,  as
well as for the $14 million it contributed to the LLC for its voting interest in
the LLC,  included  cash capital  contributions  by the grower  members of Snake
River and $180  million  in debt  financing  provided  by Valhi,  of which  $100
million was repaid  prior to 1999 when Snake River  obtained an equal  amount of
third-party term loan financing.  After such repayments,  $80 million  principal
amount of Valhi's loans to Snake River remain outstanding. See Notes 8 and 11.

     The Company and Snake  River share in  distributions  from the LLC up to an
aggregate of $26.7 million per year (the "base" level),  with a preferential 95%
share going to the Company. To the extent the LLC's distributions are below this
base level in any given  year,  the Company is  entitled  to an  additional  95%
preferential  share of any future annual LLC distributions in excess of the base
level until such shortfall is recovered.  Under certain conditions,  the Company
is entitled to receive  additional cash  distributions  from the LLC,  including
amounts discussed in Note 8. The Company may, at its option,  require the LLC to
redeem the Company's  interest in the LLC beginning in 2010, and the LLC has the
right to  redeem  the  Company's  interest  in the LLC  beginning  in 2027.  The
redemption   price  is  generally  $250  million  plus  the  amount  of  certain
undistributed income allocable to the Company. In the event the Company requires
the LLC to redeem the Company's  interest in the LLC,  Snake River has the right
to  accelerate  the maturity of and call  Valhi's $250 million  loans from Snake
River.

     The LLC Company Agreement contains certain  restrictive  covenants intended
to protect the Company's interest in the LLC,  including  limitations on capital
expenditures  and additional  indebtedness  of the LLC. The Company also has the
ability  to  temporarily  take  control  of the LLC in the event  the  Company's
cumulative  distributions  from  the  LLC  fall  below  specified  levels.  As a
condition to  exercising  temporary  control,  the Company  would be required to
escrow  funds in  amounts up to the next  three  years of debt  service of Snake
River's  third-party  term loan (an aggregate of $25 million) unless the Company
and Snake River's third-party lender otherwise mutually agree.  Through December
31, 2001,  the Company's  cumulative  distributions  from the LLC had not fallen
below the specified levels.

     Beginning  in 2000,  Snake River  agreed that the annual  amount of (i) the
distributions paid by the LLC to the Company plus (ii) the debt service payments
paid by Snake River to the  Company on the $80 million  loan will at least equal
the  annual  amount of  interest  payments  owed by Valhi to Snake  River on the
Company's  $250 million in loans from Snake  River.  In the event that such cash
flows  to the  Company  are less  than  the  required  minimum  amount,  certain
agreements among the Company,  Snake River and the LLC made in 2000, including a
reduction in the amount of  cumulative  distributions  which must be paid by the
LLC to the Company in order to prevent  the  Company  from having the ability to
temporarily take control of the LLC, would  retroactively  become null and void.
Through  December  31,  2001,  Snake  River and the LLC  maintained  the minimum
required levels of cash flows to the Company.

     The  Company  reports  the  cash  distributions  received  from  the LLC as
dividend  income.  See Note 12.  The  amount  of such  future  distributions  is
dependent  upon,  among  other  things,  the  future  performance  of the  LLC's
operations. Because the Company receives preferential distributions from the LLC
and has the right to  require  the LLC to redeem its  interest  in the LLC for a
fixed and determinable  amount  beginning at a fixed and determinable  date, the
Company  accounts  for  its  investment  in  the  LLC  as an  available-for-sale
marketable security carried at estimated fair value. In estimating fair value of
the Company's  interest in the LLC, the Company  considers,  among other things,
the  outstanding  balance  of  the  Company's  loans  to  Snake  River  and  the
outstanding balance of the Company's loans from Snake River.

     Halliburton.  At  December  31,  2001,  Valhi  held 1.1  million  shares of
Halliburton  common stock  (aggregate  cost of $9 million)  with a quoted market
price of $13.10 per share, or an aggregate market value of $15 million.  Of such
Halliburton shares,  approximately  515,000 Halliburton shares are classified as
trading securities and 621,000 are classified as available-for-sale  securities.
Valhi's LYONs debt  obligations  are  exchangeable at any time, at the option of
the LYON  holder,  for the shares of  Halliburton  common  stock  classified  as
available-for-sale, and the carrying value of such Halliburton shares is limited
to  the  accreted  LYONs  obligations.  The  Halliburton  shares  classified  as
available-for-sale  are held in escrow  for the  benefit  of the  holders of the
LYONs.  Valhi receives the regular quarterly  dividend on all of the Halliburton
shares held, including shares held in escrow. The available-for-sale Halliburton
shares are  classified  as a current  asset at  December  31,  2001  because the
related LYON  obligations,  which are redeemable at the option of the holders in
October 2002, are classified as a current  liability at such date.  During 1999,
2000 and 2001,  certain LYON holders exchanged their LYONs for 7,000,  5,000 and
1.2 million Halliburton shares,  respectively.  The shares classified as trading
securities  were  reclassified  from  available-for-sale  during  2001 when they
became  eligible  to, and were,  released to Valhi from the LYONs  escrow.  Also
during 2001, an  additional  390,000  Halliburton  shares were released to Valhi
from the  LYONs  escrow  and were  sold in  market  transactions  for  aggregate
proceeds of $16.8 million.  See Notes 11 and 12.  Halliburton  provides services
and products to customers in the oil and gas industry,  and provides engineering
and construction services for commercial, industrial and governmental customers.
Halliburton (NYSE: HAL) files periodic reports with the SEC.

     Other.  The aggregate cost of the debt securities,  restricted  pursuant to
the terms of one of NL's environmental  special purpose trusts discussed in Note
1, is  approximately  $19.7 million at December 31, 2001.  The aggregate cost of
other noncurrent  available-for-sale  securities is nominal at December 31, 2001
(December 31, 2000 - $2.3 million). See Note 12.






Note 6 -       Inventories:



                                                               December 31,
                                                          2000             2001
                                                          ----             ----
                                                             (In thousands)

Raw materials:
                                                                  
  Chemicals ..................................         $ 66,061         $ 79,162
  Component products .........................           11,866            9,677
                                                       --------         --------
                                                         77,927           88,839
                                                       --------         --------

In process products:
  Chemicals ..................................            7,117            9,675
  Component products .........................           11,454           12,619
                                                       --------         --------
                                                         18,571           22,294
                                                       --------         --------

Finished products:
  Chemicals ..................................          107,895          117,976
  Component products .........................           12,811            8,494
                                                       --------         --------
                                                        120,706          126,470
                                                       --------         --------

Supplies (primarily chemicals) ...............           25,790           25,130
                                                       --------         --------

                                                       $242,994         $262,733


Note 7 -       Investment in affiliates:



                                                              December 31,
                                                          2000            2001
                                                          ----            ----
                                                             (In thousands)

                                                                  
Ti02 manufacturing joint venture ...............        $150,002        $138,428
Titanium Metals Corporation ....................          72,655          60,272
Other joint ventures ...........................          13,134          12,415
                                                        --------        --------

                                                        $235,791        $211,115


     TiO2  manufacturing   joint  venture.  A  Kronos  TiO2  subsidiary  (Kronos
Louisiana,  Inc.,  or "KLA") and another  Ti02  producer  are equal  owners of a
manufacturing  joint venture  (Louisiana  Pigment Company,  L.P., or "LPC") that
owns and operates a TiO2 plant in Louisiana. KLA and the other Ti02 producer are
each   required  to  purchase   one-half  of  the  TiO2  produced  by  LPC.  The
manufacturing joint venture operates on a break-even basis, and consequently the
Company reports no equity in earnings of LPC. Each owner's acquisition  transfer
price  for its  share of the TiO2  produced  is equal to its  share of the joint
venture's production costs and interest expense, if any.

     LPC's net sales  aggregated  $171.6  million,  $185.9  million  and  $187.4
million in 1999,  2000 and 2001,  respectively,  of which $85.3  million,  $92.5
million and $93.4  million,  respectively,  represented  sales to Kronos and the
remainder  represented  sales to LPC's other owner.  Substantially  all of LPC's
operating costs during the past three years represented costs of sales.

     At December 31, 2001,  LPC reported  total assets and  partners'  equity of
$296.4  million  and $279.6  million,  respectively  (2000 - $321.0  million and
$302.2 million, respectively). Over 80% of LPC's assets at December 31, 2000 and
2001 are comprised of property and equipment;  the remainder of LPC's assets are
comprised principally of inventories, receivables from its partners and cash and
cash equivalents.  LPC's liabilities at December 31, 2000 and 2001 are comprised
primarily of trade payables and accruals.  LPC has no  indebtedness  at December
31, 2000 and 2001.

     Titanium  Metals  Corporation.  At December 31, 2001, the Company held 12.3
million  shares of TIMET with a quoted  market  price of $3.99 per share,  or an
aggregate  market value of $49 million (2000 - 12.3 million shares with a quoted
market price of $6.75 per share, or an aggregate market value of $83 million).

     At December 31, 2001,  TIMET  reported  total assets of $699.4  million and
stockholders'  equity  of  $298.1  million  (2000 - $759.1  million  and  $357.5
million,  respectively).  TIMET's  total  assets at December  31,  2001  include
current assets of $308.7  million,  property and equipment of $275.3 million and
goodwill and other  intangible  assets of $54.1 million (2000 - $248.2  million,
$302.1 million and $62.6 million,  respectively).  TIMET's total  liabilities at
December 31, 2001 include current liabilities of $122.4 million,  long-term debt
of $19.3 million,  accrued OPEB costs of $16.0 million and convertible preferred
securities  of $201.3  million  (2000 - $115.8  million,  $19.0  million,  $18.2
million and $201.2 million, respectively). During 2001, TIMET reported net sales
of $486.9  million,  operating  income of $64.5  million and a net loss of $41.8
million (2000 - net sales of $426.8 million,  an operating loss of $41.7 million
and a net loss of $38.9 million).

     Tremont  Corporation.  Effective  December 31, 1999, the Company  commenced
consolidating  Tremont's balance sheet, and the Company commenced  consolidating
Tremont's  results of operations and cash flows  effective  January 1, 2000. See
Note 3. During 1999,  Tremont  reported a net loss of $28.2  million,  comprised
principally  of equity in earnings of NL of $28.1  million,  equity in losses of
TIMET of $72.0 million and an income tax benefit of $18.9 million. The Company's
equity  in  losses  of  Tremont  in 1999  included  a $50.0  million  impairment
provision for an other than temporary decline in the value of TIMET.

     Waste Control  Specialists LLC. The Company commenced  consolidating  Waste
Control  Specialists'  results of operations and cash flows in the third quarter
of 1999. For periods prior to consolidation during the first six months of 1999,
Waste  Control  Specialists  reported a net loss of $8.5  million,  all of which
accrued  to  Valhi  for  financial  reporting  purposes,  and net  sales of $8.3
million. See Note 3.

     Other. At December 31, 2000 and 2001,  other joint ventures,  held by TRECO
LLC, are comprised of (i) a 32% interest in Basic Management, Inc., which, among
other things,  provides  utility  services in the  industrial  park where one of
TIMET's plants is located, and (ii) a 12% interest in The Landwell Company L.P.,
which is  actively  engaged in efforts to develop  certain  real  estate.  Basic
Management owns an additional 50% interest in Landwell.

     At December 31, 2001, the combined  balance sheets of Basic  Management and
Landwell  reflected total assets and partners' equity of $89.2 million and $49.7
million,  respectively  (2000 - $96.6 million and $55.4 million,  respectively).
The combined  total assets at December 31, 2001 include  current assets of $32.1
million,  property and  equipment of $18.1  million,  deferred  charges of $13.7
million, land and development costs of $13.1 million,  long-term notes and other
receivables of $9.4 million and investment in undeveloped  land and water rights
of $2.3 million (2000 - $41.5  million,  $18.3  million,  $14.2  million,  $11.9
million,   $7.5  million  and  $2.5  million,   respectively).   Combined  total
liabilities at December 31, 2001 include  current  liabilities of $16.5 million,
long-term debt of $18.5 million and deferred  income taxes of $4.0 million (2000
- $16.7 million, $19.2 million and $4.6 million, respectively).

     During 2001, Basic Management and Landwell  reported  combined  revenues of
$19.3 million, income before income taxes of $575,000 and net income of $761,000
(2000 - $28.8 million, $8.5 million and $7.6 million, respectively; 1999 - $11.0
million,  $364,000 and $551,00,  respectively).  Landwell is treated for federal
income tax purposes as a partnership,  and accordingly  the combined  results of
operations  of Basic  Management  and Landwell  includes a provision  for income
taxes on Landwell's  earnings  only to the extent that such  earnings  accrue to
Basic Management.

Note 8 -       Other noncurrent assets:



                                                               December 31,
                                                           2000             2001
                                                           ----             ----
                                                              (In thousands)
Loans and other receivables:
  Snake River Sugar Company:
                                                                  
    Principal ....................................       $ 80,000       $ 80,000
    Interest .....................................         17,526         22,718
  Other ..........................................          4,754          5,706
                                                         --------       --------
                                                          102,280        108,424
  Less current portion ...........................          1,740          2,484
                                                         --------       --------

  Noncurrent portion .............................       $100,540       $105,940
                                                         ========       ========

Other assets:
  Restricted cash equivalents ....................       $ 22,897       $  4,713
  Intangible assets ..............................          2,646          2,440
  Waste disposal site operating permits ..........          3,299          2,527
  Refundable insurance deposits ..................          1,011          1,609
  Deferred financing costs .......................          2,527          1,120
  Other ..........................................         17,224         20,140
                                                         --------       --------

                                                         $ 49,604       $ 32,549
                                                         ========       ========


     Valhi's loan to Snake River,  as amended,  is  subordinate to Snake River's
third-party senior term loan and bears interest at a fixed rate of 6.49% (12.99%
during 1999 and the first three  months of 2000),  with all amounts due no later
than 2010.  Covenants  contained in Snake River's  third-party  senior term loan
allow Snake River, under certain  conditions,  to pay periodic  installments for
debt  service  on the $80  million  loan  prior to its  maturity  in 2010.  Such
covenants allowed Snake River to pay interest debt services payments to Valhi of
$7.2 million in 1999 and $950,000 in 2000. The Company does not currently expect
to receive any significant  debt service  payments from Snake River during 2002,
and  accordingly  all  accrued  and unpaid  interest  has been  classified  as a
noncurrent asset as of December 31, 2001. Under certain  conditions,  Valhi will
be required to pledge $5 million in cash equivalents or marketable securities to
collateralize  Snake  River's  third-party  senior term loan as a  condition  to
permit continued  repayment of the $80 million loan. No such cash equivalents or
marketable securities have yet been required to be pledged at December 31, 2001.

     The  reduction  of interest  income  resulting  from the  reduction  in the
interest  rate on the $80 million loan from 12.99% to 6.49%  effective  April 1,
2000  will be  recouped  and  paid to the  Company  via  additional  future  LLC
distributions  from  The  Amalgamated  Sugar  Company  LLC upon  achievement  of
specified levels of future LLC profitability.  If Snake River and the LLC do not
maintain minimum specified levels of cash flow to the Company, the interest rate
on the loan to Snake River would revert back to 12.99%  retroactive  to April 1,
2000.  Through December 31, 2001, Snake River and the LLC maintained the minimum
required  levels  of cash  flows to the  Company.  See Note 5.  Snake  River has
granted  to  Valhi  a lien on  substantially  all of  Snake  River's  assets  to
collateralize the $80 million loan, such lien becoming effective  generally upon
the  repayment of Snake  River's  third-party  senior term loan with a scheduled
maturity date of April 2009.

Note 9 - Goodwill:

     Changes in the carrying  amount of goodwill  during the past three years is
presented  in the table  below.  Goodwill  related  to the  chemicals  operating
segment was  generated  from the  Company's  various  step  acquisitions  of its
interest in NL Industries.  Goodwill related to the component products operating
segment was generated  principally from CompX's acquisitions of certain business
units during 1998,  1999 and 2000,  with a very small amount  generated from the
Company's various step acquisitions of CompX.



                                                  Operating segment
                                                             Component
                                                 Chemicals    products    Total
                                                          (In millions)

                                                                
Balance at December 31, 1998 ................     $234.0      $ 25.3     $259.3
Goodwill acquired during the year ...........        1.9        24.1       26.0
Periodic amortization .......................       (9.7)       (2.1)     (11.8)
Consolidation of Tremont Corporation ........       85.2        --         85.2
Changes in foreign exchange rates ...........       --          (2.2)      (2.2)
                                                  ------      ------     ------

Balance at December 31, 1999 ................      311.4        45.1      356.5
Goodwill acquired during the year ...........       16.0         4.1       20.1
Periodic amortization .......................      (13.4)       (2.5)     (15.9)
Changes in foreign exchange rates ...........       --          (1.3)      (1.3)
                                                  ------      ------     ------

Balance at December 31, 2000 ................      314.0        45.4      359.4

Goodwill acquired during the year ...........        7.7        --          7.7
Periodic amortization .......................      (14.5)       (2.4)     (16.9)
Changes in foreign exchange rates ...........       --          (1.1)      (1.1)
                                                  ------      ------     ------

Balance at December 31, 2001 ................     $307.2      $ 41.9     $349.1
                                                  ======      ======     ======


     Upon adoption of SFAS No. 142 effective  January 1, 2002 (see Note 20), the
goodwill  related to the  chemicals  operating  segment  will be assigned to the
reporting  unit (as that term is defined in SFAS No.  142)  consisting  of NL in
total, and the goodwill related to the components product operating segment will
be assigned to two reporting units within that operating segment, one consisting
of CompX's  security  products  operations  and the other  consisting of CompX's
ergonomic and slide products operations.

Note 10 -      Accrued liabilities:



                                                              December 31,
                                                         2000              2001
                                                         ----              ----

Current:
                                                                  
  Employee benefits ..........................         $ 44,397         $ 39,974
  Environmental costs ........................           56,323           64,165
  Deferred income ............................            7,241            9,479
  Interest ...................................            6,172            5,162
  Other ......................................           48,298           47,708
                                                       --------         --------

                                                       $162,431         $166,488
                                                       ========         ========

Noncurrent:
  Insurance claims and expenses ..............         $ 22,424         $ 19,182
  Employee benefits ..........................           11,893            8,616
  Deferred income ............................            5,453            1,333
  Other ......................................            1,285            3,511
                                                       --------         --------

                                                       $ 41,055         $ 32,642
                                                       ========         ========






Note 11 - Notes payable and long-term debt:



                                                                December 31,
                                                             2000         2001
                                                             ----         ----
                                                               (In thousands)

                                                                  
Notes payable - Kronos bank credit agreements ........     $ 70,039     $ 46,201
                                                           ========     ========

Long-term debt:
  Valhi:
    Snake River Sugar Company ........................     $250,000     $250,000
    Liquid Yield Option Notes (LYONs) ................      100,333       25,472
    Bank credit facility .............................       31,000       35,000
    Other ............................................        2,880        2,880
                                                           --------     --------

                                                            384,213      313,352
                                                           --------     --------

  Subsidiaries:
    NL Senior Secured Notes ..........................      194,000      194,000
    CompX bank credit facility .......................       39,000       49,000
    Waste Control Specialists bank term loan .........        5,311         --
    Valcor Senior Notes ..............................        2,431        2,431
    Other ............................................        4,683        3,404
                                                           --------     --------

                                                            245,425      248,835
                                                           --------     --------

                                                            629,638      562,187

  Less current maturities ............................       34,284       64,972
                                                           --------     --------

                                                           $595,354     $497,215


     Valhi.  Valhi's $250  million in loans from Snake River Sugar  Company bear
interest at a weighted  average fixed interest rate of 9.4%, are  collateralized
by the Company's  interest in The  Amalgamated  Sugar Company LLC and are due in
January  2027.  Currently,  these loans are  nonrecourse  to Valhi.  Up to $37.5
million  principal  amount of such loans will become  recourse to Valhi when the
balance of Valhi's loan to Snake River (including accrued interest) becomes less
than $37.5  million.  Under certain  conditions,  Snake River has the ability to
accelerate the maturity of these loans. See Notes 5 and 8.

     The zero coupon Senior Secured  LYONs,  $43.1 million  principal  amount at
maturity in October 2007  outstanding  at December  31,  2001,  were issued with
significant OID to represent a yield to maturity of 9.25%. No periodic  interest
payments are required.  Each $1,000 in principal amount at maturity of the LYONs
is  exchangeable,  at any time at the option of the  holders  of the LYONs,  for
14.4308  shares  of  Halliburton  common  stock  held by Valhi.  Such  shares of
Halliburton common stock,  classified as available-for-sale,  are collateral for
the LYONs debt  obligations and are held in escrow for the benefit of holders of
the LYONs.  Valhi  receives  the  regular  quarterly  dividend  on the  escrowed
Halliburton shares.  During 1999, 2000 and 2001, holders representing  $483,000,
$336,000 and $92.2 million principal amount at maturity,  respectively, of LYONs
exchanged such LYONs for  Halliburton  shares.  Under the terms of the indenture
governing the LYONs, the Company has the option to deliver, in whole or in part,
cash equal to the market  value of the  Halliburton  shares  that are  otherwise
required to be delivered  to the LYONs  holder in an exchange,  and a portion of
such  exchanges  during 2001 was so settled.  Also during  2001,  $50.4  million
principal  amount at maturity of LYONs were  redeemed by the Company for cash at
various  redemption  prices  equal to the  accreted  value  of the  LYONs on the
respective  redemption  dates.  The LYONs are  redeemable,  at the option of the
holder, in October 2002, at $636.27 per $1,000 principal amount (the issue price
plus accrued OID through such purchase  date),  or an aggregate of $27.4 million
based on the number of LYONs  outstanding at December 31, 2001, and  accordingly
the LYONs are  classified  as a current  liability at December  31,  2001.  Such
redemptions  may be paid,  at Valhi's  option,  in cash,  shares of  Halliburton
common stock, or a combination thereof.  The LYONs are redeemable,  at any time,
at Valhi's  option,  for cash equal to the issue price plus  accrued OID through
the  redemption  date. At December 31, 2000 and 2001,  the net carrying value of
the  LYONs  per  $1,000   principal   amount  at  maturity  was  $541  and  $592
respectively,  and the  quoted  market  price of the  LYONs  was $605 and  $580,
respectively.

     At  December  31,  2001,  Valhi has a $55  million  revolving  bank  credit
facility which matures in November 2002,  generally bears interest at LIBOR plus
1.5% (for LIBOR-based borrowings) or prime (for prime-based borrowings),  and is
collateralized  by 30 million shares of NL common stock held by Valhi.  The size
of the facility was  increased to $70 million in January  2002,  and was further
increased to $72.5 million in February 2002. The agreement  limits dividends and
additional  indebtedness  of Valhi and contains  other  provisions  customary in
lending transactions of this type. In the event of a change of control of Valhi,
as defined,  the lenders would have the right to accelerate  the maturity of the
facility. The maximum amount which may be borrowed under the facility is limited
to  one-third  of the  aggregate  market  value of the shares of NL common stock
pledged as  collateral.  Based on NL's  December 31, 2001 quoted market price of
$15.27 per share,  the 30 million  shares of NL common stock  pledged  under the
facility  provide  more  than  sufficient   collateral  coverage  to  allow  for
borrowings up to the full amount of the  facility,  even after  considering  the
January  and  February  2002  increases  in the  size of the  facility  to $72.5
million.  Valhi  would  become  limited  to  borrowing  less than the full $72.5
million  amount of the  facility,  or would be  required  to  pledge  additional
collateral  if the full amount of the facility had been  borrowed,  only if NL's
stock price were to fall below  approximately  $7.25 per share.  At December 31,
2001, $35 million was outstanding under this facility, consisting of $30 million
of  LIBOR-based  borrowings  (at an  interest  rate of 3.625%) and $5 million of
prime-based  borrowings  (at an interest  rate of 4.75%).  At December 31, 2001,
$18.9 million was available for borrowing under this facility.

     Other Valhi indebtedness consists of an unsecured $2.9 million note payable
bearing  interest  at 6.2% and due in  November  2002.  Such note was  issued in
connection with Valhi's purchase of 90,000 shares of Tremont  Corporation common
stock from an officer of Tremont in 2000. See Note 18.

     NL Industries. NL's 11.75% Senior Secured Notes due 2003 are collateralized
by a series of intercompany  notes from Kronos  International,  Inc. ("KII"),  a
wholly-owned subsidiary of Kronos, to NL, the terms of which mirror those of the
Senior Secured Notes (the "NL Mirror Notes").  The Senior Secured Notes are also
collateralized  by a first priority lien on the stock of Kronos. In the event of
foreclosure,   the  Senior  Secured   noteholders   would  have  access  to  the
consolidated   assets,   earnings   and  equity  of  NL  and  NL  believes   the
collateralization  of the Senior  Secured  Notes,  as  described  above,  is the
functional economic equivalent to a full and unconditional  guarantee by Kronos.
The Senior  Secured  Notes are  redeemable,  at NL's option,  at par value.  The
Senior Secured Notes are issued pursuant to an indenture which contains a number
of covenants and restrictions  which, among other things,  restricts the ability
of NL and its subsidiaries to incur debt, incur liens, pay dividends or merge or
consolidate  with, or sell or transfer all or substantially  all of their assets
to, another  entity.  In the event of a change of control of NL, as defined,  NL
would be required to make an offer to purchase the Senior  Secured Notes at 101%
of the principal  amount. NL would also be required to make an offer to purchase
a specified  amount of the Senior Notes at par value in the event NL generates a
certain  amount of net  proceeds  from the sale of assets  outside the  ordinary
course of business,  and such net proceeds are not otherwise  used for specified
purposes  within a specified time period.  The quoted market price of the Senior
Secured Notes per $1,000  principal amount was $1,010 and $1,005 at December 31,
2000 and 2001,  respectively.  During 2000,  NL redeemed  $50 million  principal
amount of its Senior  Secured  Notes with a 1.5% premium.  In February  2002, NL
announced the  redemption of an additional $25 million  principal  amount of the
Senior Secured Notes in March 2002 at par.

     At  December   31,   2001,   notes   payable   consist  of  27  million  of
euro-denominated  borrowings  and 200  million  of  Norwegian  Krona-denominated
borrowings  (aggregating $46 million) which mature during 2002 and bear interest
at rates  ranging  from  3.8% to 7.3%  (2000 - 51  million  of  euro-denominated
borrowings  and 200  million  of  Norwegian  Krona-denominated  borrowings).  At
December 31, 2001,  NL had $8 million  available for  borrowing  under  non-U.S.
credit facilities.

     CompX.  CompX has a $100 million  unsecured  revolving bank credit facility
which matures in 2003 and bears interest at rates based upon the Eurodollar Rate
(4.2% at December  31,  2001).  The  facility  contains  certain  covenants  and
restrictions  customary in lending  transactions of this type which, among other
things, restricts the ability of CompX and its subsidiaries to incur debt, incur
liens  and pay  dividends.  In the  event of a change of  control  of CompX,  as
defined,  the lenders  would have the right to  accelerate  the  maturity of the
facility.  CompX would also be required under certain  conditions to use the net
proceeds  from the sale of assets  outside  the  ordinary  course of business to
reduce outstanding  borrowings under the facility,  and such a transaction would
also result in a permanent  reduction of the size of the  facility.  In December
2001,  CompX  amended  the  facility  to  permit  the   sale/leaseback   of  its
manufacturing  facility in The Netherlands  (see Note 12) without  requiring the
use of the net proceeds from such transaction to reduce  outstanding  borrowings
under the  facility and without  requiring a permanent  reduction in the size of
the  facility.  At December 31, 2001,  $51 million was  available  for borrowing
under this facility.

     Other  indebtedness.  In February 2001, a wholly-owned  subsidiary of Valhi
purchased  Waste  Control  Specialists'  bank term  loan from the  lender at par
value, and such debt became payable to such Valhi subsidiary. Valcor's unsecured
9 5/8% Senior Notes due November 2003 are redeemable at the Company's  option at
par value.  At December 31, 2000 and 2001, the quoted market price of the Valcor
Notes was $982 and $1,006 per $1,000 principal amount, respectively.

        Aggregate maturities of long-term debt at December 31, 2001

Years ending December 31,                                      Amount
                                                           (In thousands)

  2002                                                        $ 66,891
  2003                                                         246,624
  2004                                                             270
  2005                                                             152
  2006                                                             144
  2007 and thereafter                                          250,025
                                                              --------
                                                               564,106
Less unamortized OID on Valhi LYONs                              1,919
                                                              --------

                                                              $562,187

     The LYONs are  reflected in the above table as due October  2002,  the next
date  they  are  redeemable  at the  option  of  the  holder,  at the  aggregate
redemption  price on such date of $27.4  million  ($636.27 per $1,000  principal
amount at maturity in October 2007).

     Restrictions. In addition to the NL Senior Secured Notes and the CompX bank
credit facility  discussed above,  other subsidiary credit agreements  typically
require the respective subsidiary to maintain minimum levels of equity,  require
the  maintenance of certain  financial  ratios,  limit  dividends and additional
indebtedness and contain other provisions and restrictive covenants customary in
lending  transactions  of this type. At December 31, 2001,  the  restricted  net
assets of consolidated subsidiaries approximated $586 million.

     At December 31, 2001,  amounts available for the payment of Valhi dividends
pursuant to the terms of Valhi's revolving bank credit facility  aggregated $.05
per Valhi share outstanding per quarter, plus an additional $14.2 million.

Note 12 -      Other income, net:



                                                    Years ended December 31,
                                                 1999         2000        2001
                                                 ----         ----        ----
                                                         (In thousands)

Securities earnings:
                                                               
  Dividends and interest ..................   $  43,040    $  40,250    $ 38,003
  Securities transactions, net ............         757           40      47,009
                                              ---------    ---------    --------
                                                 43,797       40,290      85,012
Legal settlement gains, net ...............        --         69,465      31,871
Insurance gain ............................        --           --        16,190
Business interruption insurance ...........        --           --         7,222
Currency transactions, net ................       9,865        6,383       1,824
Noncompete agreement income ...............       4,000        4,000       4,000
Disposal of property and equipment, net ...        (635)      (1,178)      1,375
Pension curtailment gain ..................        --           --           116
Other, net ................................      11,429        8,141       6,390
                                              ---------    ---------    --------

                                              $  68,456    $ 127,101    $154,000
                                              =========    =========    ========


     Interest and dividend income in 1999, 2000 and 2001 includes $23.5 million,
$22.7  million  and  $23.6  million,  respectively,  of  dividend  distributions
received  from  The  Amalgamated  Sugar  Company  LLC.  See  Note 5.  Noncompete
agreement  income  relates to NL's  agreement  not to  compete in the  specialty
chemicals  industry  and is  recognized  in income  ratably  over the  five-year
noncompete  period  ending in February  2003.  The pension  curtailment  gain is
discussed in Note 17.

     Net  securities  transactions  gains in 2001 are  comprised  of (i) a $33.1
million  realized gain related to LYONs exchanges and the resulting  disposition
of a portion of the shares of  Halliburton  common  stock,  (ii) a $13.7 million
realized gain related to the sale of 390,000 shares of Halliburton  common stock
in market  transactions,  (iii) a $14.2 million  unrealized  gain related to the
reclassification  of  515,000  Halliburton  shares  from  available-for-sale  to
trading securities,  (iv) an $11.6 million unrealized loss related to changes in
market value of the Halliburton  shares classified as trading securities and (v)
a $2.3 million impairment charge for an other than temporary decline in value of
certain marketable securities held by the Company. See Notes 5 and 11.

     Securities  transactions  in 2000  include a $5.6  million  gain related to
certain shares of common stock NL received pursuant to the demutualization of an
insurance  company from which NL had purchased  certain  policies.  Such shares,
valued by NL based upon the insurance company's initial public offering price of
$14.25 per share,  were placed by NL in a trust, the assets of which may only be
used to pay for certain of NL's retiree benefits.  The Company accounted for the
$5.6 million  contribution of the insurance  company's common stock to the trust
as a reduction of its accrued OPEB costs. See Note 17.  Securities  transactions
in 2000  also  include  a $5.7  million  impairment  charge  for an  other  than
temporary decline in value of certain marketable securities held by the Company.
Securities  transactions  during 1999 relate principally to LYON exchanges.  See
Notes 5 and 11.

     In 2000, NL recognized a $69.5 million net gain from legal settlements with
certain  of its  former  insurance  carriers.  The  settlements  resolved  court
proceedings in which NL sought reimbursement from the carriers for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.  The gain is stated net of $3.1 million of commissions  associated
with the  settlements.  In 2001, NL  recognized  $11.7 million of net gains from
legal settlements, of which $11.4 million relates to additional settlements with
certain of its former insurance  carriers.  Proceeds from  substantially  all of
these  settlements  were  transferred by the carriers to special  purpose trusts
formed  by  NL  to  pay  for  certain  of  its  future   remediation  and  other
environmental  expenditures.  At  December  31, 2000 and 2001,  restricted  cash
equivalents  and debt  securities  include an  aggregate  of $70 million and $74
million, respectively, held by such special purpose trusts.

     In 2001, Waste Control Specialists recognized a $20.1 million net gain from
a legal settlement related to certain previously-reported  litigation.  Pursuant
to the settlement,  Waste Control  Specialists,  among other things,  received a
cash payment of approximately $20.1 million, net of attorney fees.

     In March 2001, NL suffered a fire at its Leverkusen, Germany TiO2 facility.
Production at the facility's chloride-process plant returned to full capacity on
April 8, 2001. The facility's  sulfate-process  plant became  approximately  50%
operational  in September  2001,  and became fully  operational  in late October
2001. The damages to property and the business interruption losses caused by the
fire were covered by insurance,  but the effect on the financial  results of the
Company on a  quarter-to-quarter  basis was impacted by the timing and amount of
insurance recoveries.  Chemicals operating income in 2001 includes $27.3 million
of business  interruption  insurance  recoveries losses caused by the Leverkusen
fire. Of such business  interruption proceeds amount, $20.1 million was recorded
as a reduction of cost of sales to offset unallocated period costs that resulted
from lost  production and the remaining $7.2 million,  representing  recovery of
lost  margin,  was  recorded  as  other  income.  NL also  recognized  insurance
recoveries of $29.1 million in 2001 for property  damage and related cleanup and
other extra  costs,  resulting  in an  insurance  gain of $16.2  million as such
recoveries exceeded the carrying value of the property destroyed and the cleanup
and other extra  expenses  incurred.  The Company  does not expect to report any
additional insurance recoveries related to the Leverkusen fire.

     Net gains from  disposal of property  and  equipment in 2001 include a $2.2
million gain related to the sale/leaseback of CompX's manufacturing  facility in
The Netherlands.  Pursuant to the  sale/leaseback,  CompX sold the manufacturing
facility  with a net  carrying  value of $8.2  million  for $10.0  million  cash
consideration  in  December  2001,  and  CompX  simultaneously  entered  into  a
leaseback of the facility with a nominal  monthly  rental for  approximately  30
months.  CompX has the  option  to  extend  the  leaseback  period  for up to an
additional  two years with  monthly  rentals of $40,000 to  $100,000.  CompX may
terminate  the  leaseback at any time without  penalty.  In addition to the cash
received up front,  CompX  included an estimate of the fair market  value of the
monthly rental during the  nominal-rental  leaseback  period as part of the sale
proceeds.  A portion of the gain from the sale of the facility after transaction
costs,  equal to the present  value of the  monthly  rentals  over the  expected
leaseback  period  (including the fair market value of the monthly rental during
the nominal-rental  leaseback  period),  has been deferred and will be amortized
into income over the expected  leaseback  period.  CompX will  recognize  rental
expense over the leaseback  period,  including  amortization of the prepaid rent
consisting of the estimated  fair market value of the monthly  rental during the
nominal-rental leaseback period.

Note 13 - Minority interest:



                                                             December 31,
                                                        2000               2001
                                                        ----               ----
                                                            (In thousands)
Minority interest in net assets:
                                                                  
NL Industries ............................           $ 66,761           $ 68,566
Tremont Corporation ......................             34,235             32,610
CompX International ......................             49,003             44,767
Subsidiaries of NL .......................              6,279              7,208
                                                     --------           --------

                                                     $156,278           $153,151




                                                 Years ended December 31,
                                            1999           2000           2001
                                            ----           ----           ----
                                                     (In thousands)
Minority interest in net earnings
 (losses) - continuing operations:
                                                              
NL Industries .....................      $ 66,760       $ 30,869       $ 23,061
Tremont Corporation ...............          --            2,091           (175)
CompX International ...............         9,013          7,810          2,236
Subsidiaries of NL ................         3,322          2,436            960
Subsidiaries of Tremont ...........          --              455           --
Subsidiaries of CompX .............          (103)            (3)          --
                                         --------       --------       --------

                                         $ 78,992       $ 43,658       $ 26,082
                                         ========       ========       ========


     Tremont Corporation.  The Company commenced consolidating Tremont's balance
sheet effective  December 31, 1999, and commenced  consolidating  its results of
operations  effective  January  1,  2000.  Accordingly,  the  Company  commenced
reporting minority interest in Tremont's net earnings in 2000. See Note 3.

     Waste Control  Specialists.  Waste Control  Specialists was formed by Valhi
and  another  entity in 1995.  See Note 3.  Waste  Control  Specialists  assumed
certain  liabilities  of the  other  owner  and such  liabilities  exceeded  the
carrying value of the assets contributed by the other owner.  Consequently,  all
of Waste Control Specialists aggregate inception-to-date net losses have accrued
to the  Company  for  financial  reporting  purposes,  and all of Waste  Control
Specialists  future  net income or net losses  will also  accrue to the  Company
until Waste Control  Specialists  reports  positive  equity  attributable to the
other owner. Accordingly, no minority interest in Waste Control Specialists' net
assets or net losses is reported at December 31, 2001.

     Other.  Minority interest in the extraordinary losses of NL was $162,000 in
2000. See Note 1.






Note 14 - Stockholders' equity:



                                                  Shares of common stock
                                            Issued       Treasury     Outstanding
                                                     (In thousands)

                                                               
Balance at December 31, 1998 .........      125,521      (10,545)       114,976

Issued ...............................           90         --               90
                                            -------      -------       --------

Balance at December 31, 1999 .........      125,611      (10,545)       115,066

Issued ...............................          119         --              119
Reacquired ...........................         --             (1)            (1)
Other ................................         --            (24)           (24)
                                            -------      -------       --------

Balance at December 31, 2000 .........      125,730      (10,570)       115,160

Issued ...............................           81         --               81
                                            -------      -------       --------

Balance at December 31, 2001 .........      125,811      (10,570)       115,241
                                            =======      =======       ========




     For financial  reporting  purposes,  treasury  stock includes the Company's
proportional  interest in 1.2 million  Valhi shares held by NL.  However,  under
Delaware  Corporation  Law,  100%  of  a  parent  company's  shares  held  by  a
majority-owned subsidiary of the parent is considered to be treasury stock. As a
result,  shares  outstanding for financial  reporting purposes differ from those
outstanding for legal purposes.

     In January 1998, the Company's board of directors authorized the Company to
purchase  up to 2  million  shares  of  its  common  stock  in  open  market  or
privately-negotiated  transactions  over an  unspecified  period of time.  As of
December 31, 2001, the Company had purchased approximately 383,000 shares for an
aggregate of $3.7 million pursuant to such authorization.

     Valhi options.  Valhi has an incentive  stock option plan that provides for
the  discretionary  grant of,  among other  things,  qualified  incentive  stock
options,  nonqualified stock options,  restricted common stock, stock awards and
stock  appreciation  rights. Up to five million shares of Valhi common stock may
be issued  pursuant to this plan.  Options are generally  granted at a price not
less than fair market value on the date of grant,  generally vest ratably over a
five-year  period  beginning one year from the date of grant and expire 10 years
from the date of grant. Restricted stock, when granted, is generally forfeitable
unless  certain  periods of  employment  are completed and held in escrow in the
name of the grantee until the restriction period expires.  No stock appreciation
rights have been granted.

     Outstanding  options at December  31, 2001  represent  approximately  2% of
Valhi's  outstanding  shares at that date and  expire at various  dates  through
2011, with a weighted-average remaining term of 3.5 years. At December 31, 2001,
options to purchase 1.9 million Valhi shares were  exercisable at prices ranging
from $4.96 to $12.06 per share, or an aggregate  amount payable upon exercise of
$13.2 million.  All of such exercisable options are exercisable at various dates
through 2010 at prices lower than the  Company's  December 31, 2001 market price
of $12.70 per share.  At December 31, 2001,  options to purchase  170,000 shares
are  scheduled to become  exercisable  in 2002,  and an aggregate of 4.1 million
shares were available for future grants.






     The following  table sets forth changes in  outstanding  options during the
past three years under all option plans in effect during such periods.



                                                                                                        Amount
                                                                                    Exercise           payable
                                                                                    price per            upon
                                                                    Shares            share            exercise
                                                                               (In thousands, except
                                                                                 per share amounts)

                                                                                                 
Outstanding at December 31, 1998                                      2,901           $ 4.76-$14.66       $20,059

Granted                                                                 323            12.00- 12.06         3,876
Exercised                                                               (87)            5.48-  9.50          (621)
Canceled                                                               (172)            6.56- 14.66        (2,500)
                                                                     ------            ------------       -------

Outstanding at December 31, 1999                                      2,965             4.76- 12.16        20,814

Granted                                                                 248            11.00- 11.06         2,728
Exercised                                                              (116)            4.76- 12.00          (848)
Canceled                                                               (415)            4.76- 12.16        (2,133)
                                                                     ------            ------------       -------

Outstanding at December 31, 2000                                      2,682           $ 4.96-$12.06       $20,561

Granted                                                                   8                   10.50            84
Exercised                                                               (76)            4.96- 12.00          (591)
Canceled                                                               (230)            5.36- 12.00        (1,410)
                                                                     ------            ------------       -------

Outstanding at December 31, 2001                                      2,384           $ 4.96-$12.06       $18,644
                                                                     ======           =============       =======


     Stock option plans of subsidiaries and affiliates.  NL, CompX,  Tremont and
TIMET each  maintain  plans  which  provide for the grant of options to purchase
their  respective  common  stocks.  Provisions  of these  plans vary by company.
Outstanding options to purchase common stock of NL, CompX,  Tremont and TIMET at
December 31, 2001 are summarized below.



                                                                           Amount
                                                        Exercise           payable
                                                        price per          upon
                                    Shares                share          exercise
                                                  (In thousands, except
                                                   per share amounts)

                                                                
NL Industries                       2,014            $ 5.00-$21.97       $32,960
CompX                                 856             10.00- 20.00        14,161
Tremont                                27              8.13- 56.50           628
TIMET                               1,554              3.60- 35.31        29,957


     Other.  The  following  pro forma  information,  required  by SFAS No. 123,
"Accounting for Stock-Based Compensation," is based on an estimation of the fair
value of options issued subsequent to January 1, 1995. The weighted average fair
values of Valhi  options  granted  during 1999 and 2000 were $5.96 and $5.43 per
share,  respectively.  The  aggregate  fair value of the Valhi  options  granted
during 2001 was not  material.  The fair values of such options were  calculated
using  the  Black-Scholes  stock  option  valuation  model  with  the  following
weighted-average  assumptions:  stock price volatility of 39% to 40%,  risk-free
rates of return of 6.0% to 6.8%, dividend yields of 1.7% to 1.8% and an expected
term of 10 years. The  Black-Scholes  model was not developed for use in valuing
employee stock  options,  but was developed for use in estimating the fair value
of traded options that have no vesting  restrictions and are fully transferable.
In  addition,   it  requires  the  use  of  subjective   assumptions   including
expectations of future  dividends and stock price  volatility.  Such assumptions
are only used for making the  required  fair  value  estimate  and should not be
considered as indicators of future dividend policy or stock price  appreciation.
Because  changes in the subjective  assumptions  can materially  affect the fair
value  estimate,   and  because  employee  stock  options  have  characteristics
significantly   different  from  those  of  traded  options,   the  use  of  the
Black-Scholes  option-pricing  model may not provide a reliable  estimate of the
fair value of employee stock options.

     Had the Company,  NL, CompX,  Tremont and TIMET each elected to account for
their  respective  stock-based  employee  compensation  for all  awards  granted
subsequent to January 1, 1995 in accordance with the fair value-based accounting
method of SFAS No. 123, the Company's  reported net income would have  decreased
by $3.6  million,  $3.8  million  and  $3.7  million  in 1999,  2000  and  2001,
respectively, or $.03, $.04 and $.03 per basic share, respectively. For purposes
of this pro forma  disclosure,  the estimated fair value of options is amortized
to expense over the options' vesting period. Such pro forma impact on net income
and basic earnings per share is not necessarily  indicative of future effects on
net income or earnings per share.

Note 15 - Financial instruments:



                                                       December 31,
                                                 2000                  2001
                                           ----------------       ------------
                                           Carrying   Fair     Carrying   Fair
                                            amount    Valu      amount    value
                                                       (In millions)

Cash, cash equivalents and restricted
                                                            
 cash equivalents ......................   $  227.2 $  227.2   $  222.4 $  222.4

Marketable securities:
  Current ..............................   $   --   $   --     $   18.5 $   18.5
  Noncurrent ...........................      268.0    268.0      186.5    186.5

Loan to Snake River Sugar Company ......   $   80.0 $   86.4   $   80.0 $   96.4

Notes payable and long-term debt
 (excluding capitalized leases):
  Publicly-traded
   fixed rate debt:
    Valhi LYONs ........................   $  100.3 $  112.3   $   25.5 $   25.0
    NL Senior Secured Notes ............      194.0    195.9      194.0    194.9
    Valcor Senior Notes ................        2.4      2.4        2.4      2.4
  Snake River Sugar Company loans ......      250.0    250.0      250.0    250.0
  Other fixed-rate debt ................        4.1      4.1        3.7      3.7
  Variable rate debt ...................      148.6    148.6      132.7    132.7

Minority interest in:
  NL common stock ......................   $   66.8 $  235.3   $   68.6 $  132.6
  CompX common stock ...................       49.0     44.6       44.8     61.3
  Tremont common stock .................       34.2     33.9       32.6     36.7

Valhi common stockholders' equity ......   $  628.2 $1,324.3   $  622.3 $1,463.6


     The fair value of the Company's  publicly-traded  marketable securities and
debt,  minority interest in NL Industries,  CompX and Tremont and Valhi's common
stockholders'  equity are all based upon quoted market prices. The fair value of
the Company's  investment in The Amalgamated Sugar Company LLC is based upon the
$250  million  redemption  price  of  such  investment,  less  the  $80  million
outstanding balance of the Company's loan to Snake River Sugar Company. The fair
value of the  Company's  fixed-rate  loan to Snake River Sugar  Company is based
upon relative  changes in market  interest  rates since the interest  rates were
fixed. The fair value of Valhi's  fixed-rate  nonrecourse loans from Snake River
Sugar  Company  is based  upon  the $250  million  redemption  price of  Valhi's
investment in the Amalgamated Sugar Company LLC, which investment collateralizes
such  nonrecourse  loans.  Fair values of variable  interest rate debt and other
fixed-rate debt are deemed to approximate book value. See Notes 5 and 11.

        The estimated fair value of CompX's currency forward contracts at
December 31, 2000 is insignificant. See Note 1.






Note 16 - Income taxes:



                                                      Years ended December 31,
                                                      1999      2000       2001
                                                      ----      ----       ----
                                                            (In millions)
Components of pre-tax income:
  United States:
                                                                
    Contran Tax Group ............................   $(14.2)   $(20.7)   $ 31.5
    NL tax group .................................     22.9      72.5      --
    CompX tax group ..............................     14.0       7.6      (1.0)
    Tremont tax group/Equity in Tremont ..........    (48.7)    (10.5)     --
                                                     ------    ------    ------
                                                      (26.0)     48.9      30.5
  Non-U.S. subsidiaries ..........................     81.1     166.3     142.0
                                                     ------    ------    ------

                                                     $ 55.1    $215.2    $172.5
                                                     ======    ======    ======

Expected tax expense, at U.S. federal
 statutory income tax rate of 35% ................   $ 19.3    $ 75.3    $ 60.4
Non-U.S. tax rates ...............................      (.6)     (7.1)     (4.8)
Incremental U.S. tax and rate differences
 on equity in earnings of non-tax group
 companies .......................................     15.7      17.8       8.0
Change in NL's and Tremont's deferred income
 tax valuation allowance, net ....................    (93.4)       .7     (20.9)
Resolution of German income tax audits ...........    (36.5)     (5.5)     --
Change in German income tax law ..................     24.1       4.4      --
U.S. state income taxes, net .....................      (.9)      2.1       2.5
No tax benefit for goodwill amortization .........      4.1       5.4       5.8
Other, net .......................................     (3.1)      1.3       2.2
                                                     ------    ------    ------

                                                     $(71.3)   $ 94.4    $ 53.2
                                                     ======    ======    ======

Components of income tax expense (benefit):
  Currently payable (refundable):
    U.S. federal and state .......................   $(11.1)   $ (3.0)   $ 11.2
    Non-U.S ......................................     32.6      54.5      34.3
                                                     ------    ------    ------
                                                       21.5      51.5      45.5
                                                     ------    ------    ------
  Deferred income taxes (benefit):
    U.S. federal and state .......................    (48.7)     40.0      21.0
    Non-U.S ......................................    (44.1)      2.9     (13.3)
                                                     ------    ------    ------
                                                      (92.8)     42.9       7.7
                                                     ------    ------    ------

                                                     $(71.3)   $ 94.4    $ 53.2
                                                     ======    ======    ======

Comprehensive provision for income
 taxes (benefit) allocable to:
  Continuing operations ..........................   $(71.3)   $ 94.4    $ 53.2
  Discontinued operations ........................     --        --        --
  Extraordinary item .............................     --         (.5)     --
  Other comprehensive income:
    Marketable securities ........................      2.0       3.9     (24.7)
    Currency translation .........................    (10.7)    (14.9)     (2.3)
    Pension liabilities ..........................     (1.9)       .8      (3.9)
                                                     ------    ------    ------

                                                     $(81.9)   $ 83.7    $ 22.3
                                                     ======    ======    ======






     The  components  of the net deferred tax liability at December 31, 2000 and
2001, and changes in the deferred income tax valuation allowance during the past
three years,  are summarized in the following  tables.  At December 31, 2000 and
2001, 98% and 95%, respectively, of the deferred tax valuation allowance relates
to NL tax jurisdictions,  principally  Germany, and all of the remainder relates
to Tremont's U.S. federal income tax jurisdiction.



                                                                     December 31,
                                                             2000                 2001
                                                       -----------------      -------------
                                                      Assets   Liabilities Assets   Liabilities
                                                                      (In millions)
Tax effect of temporary differences related to:
                                                                         
  Inventories ......................................   $  4.3    $ (3.2)   $  4.2    $ (3.5)
  Marketable securities ............................     --       (84.8)     --       (56.4)
  Mining properties ................................     --        (1.4)     --        (1.2)
  Property and equipment ...........................     62.1     (99.4)     43.2     (94.1)
  Accrued OPEB costs ...............................     21.1      --        19.0      --
  Accrued environmental liabilities and
   other deductible differences ....................     76.5      --        73.7      --
  Other taxable differences ........................     --      (165.0)     --      (167.8)
  Investments in subsidiaries and affiliates not
   members of the Contran Tax Group ................      7.5     (29.0)     12.4     (38.9)
  Tax loss and tax credit carryforwards ............    126.2      --       119.2      --
Valuation allowance ................................   (195.0)     --      (163.3)     --
                                                       ------    ------    ------    ------
    Adjusted gross deferred tax assets (liabilities)    102.7    (382.8)    108.4    (361.9)
Netting of items by tax jurisdiction ...............    (86.5)     86.5     (91.6)     91.6
                                                       ------    ------    ------    ------
                                                         16.2    (296.3)     16.8    (270.3)
Less net current deferred tax asset (liability) ....     14.2      (1.9)     13.0      (1.8)
                                                       ------    ------    ------    ------

    Net noncurrent deferred tax asset (liability) ..   $  2.0    $(294.4)  $  3.8    $(268.5)
                                                       ======    ======    ======    ======




                                                        Years ended December 31,
                                                      1999       2000       2001
                                                      ----       ----       ----
                                                             (In millions)

Increase (decrease) in valuation allowance:
  Increase in certain deductible temporary
   differences which the Company believes do
   not meet the "more-likely-than-not"
                                                                 
 recognition criteria ...........................    $  1.6     $  3.3    $  3.8
Recognition of certain deductible tax
 attributes for which the benefit had not
 previously been recognized under the
 "more-likely-than-not" recognition criteria ....     (95.0)      (2.6)    (24.7)
Change in German tax law ........................      24.1       --        --
Foreign currency translation ....................     (14.7)     (15.7)     (7.5)
Offset to the change in gross deferred
 income tax assets due principally to
 redeterminations of certain tax attributes
 and implementation of certain tax
 planning strategies ............................     183.1      (25.0)     (3.7)
Consolidation of Tremont Corporation:
  For financial reporting purposes ..............      13.6       --        --
  For income tax purposes .......................      --        (12.1)     --
Other, net ......................................        .8        (.9)       .4
                                                     ------     ------    ------

                                                     $113.5     $(53.0)   $(31.7)
                                                     ======     ======    ======


     In 1999, NL recognized a $90 million non-cash income tax benefit related to
(i) a  favorable  resolution  of NL's  previously-reported  tax  contingency  in
Germany ($36  million)  and (ii) a net  reduction  in NL's  deferred  income tax
valuation  allowance  due to a change in  estimate  of NL's  ability  to utilize
certain  income  tax  attributes  under the  "more-likely-than-not"  recognition
criteria ($54  million).  The $54 million net reduction in NL's deferred  income
tax  valuation  allowance  was  comprised  of (i) a $78 million  decrease in the
valuation  allowance to recognize the benefit of certain  deductible  income tax
attributes which NL now believes meets the recognition  criteria as a result of,
among other things, a corporate  restructuring  of NL's German  subsidiaries and
(ii)  a  $24  million  increase  in  the  valuation   allowance  to  reduce  the
previously-recognized  benefit of certain other deductible income tax attributes
which NL now  believes do not meet the  recognition  criteria due to a change in
German tax law.  The German  tax law  change was  effective  January 1, 1999 and
resulted in an increase in NL's current income tax expense.

     A  reduction  in the  German  "base"  income  tax rate  from 30% to 25% was
enacted in October 2000 and became  effective in January 2001. This reduction in
the German income tax rate resulted in a $4.4 million  increase in the Company's
income tax expense in 2000  because the Company had  recognized  a net  deferred
income tax asset with respect to Germany.

     In 2001, NL completed a restructuring of its German subsidiaries,  and as a
result NL  recognized a $17.6  million net income tax  benefit.  This benefit is
comprised  of a  $23.2  million  decrease  in NL's  deferred  income  tax  asset
valuation  allowance  due to a change in  estimate  of NL's  ability  to utilize
certain  German  income  tax  attributes   that  did  not  previously  meet  the
"more-likely-than-not"   recognition   criteria,   offset  by  $5.6  million  of
incremental   U.S.   taxes  on   undistributed   earnings  of  certain   foreign
subsidiaries.

     Certain of the  Company's  U.S. and  non-U.S.  income tax returns are being
examined and tax authorities have or may propose tax deficiencies.  For example,
NL has received  preliminary tax assessments for the years 1991 to 1997 from the
Belgian tax authorities proposing tax deficiencies,  including related interest,
of  approximately  10.4 million euro ($9 million at December 31,  2001).  NL has
filed  protests  to the  assessments  for  the  years  1991  to  1997.  NL is in
discussions  with the Belgian tax  authorities  and believes  that a significant
portion of the assessments is without merit.

     Tremont has received a tax assessment from the U.S. federal tax authorities
proposing tax  deficiencies  of $8.3 million.  Tremont is appealing the proposed
deficiencies and believes they are substantially without merit.

     No  assurance  can be given that these tax matters  will be resolved in the
Company's favor in view of the inherent  uncertainties involved in court and tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not have a  material  adverse  effect on its  consolidated
financial position, results of operations or liquidity.

     At December 31, 2001,  (i) NL had the  equivalent of $317 million of German
income tax loss carryforwards with no expiration date, (ii) NL had $3 million of
U.S.  net  operating  loss  carryforwards  expiring in 2019 and $5.7  million of
alternative  minimum tax ("AMT") credit  carryforwards  with no expiration date,
(iii) Tremont had $9.5 million of U.S. net operating loss carryforwards expiring
in 2018  through  2020  and $.7  million  of AMT  credit  carryforwards  with no
expiration  date  and (iv)  CompX  had the  equivalent  of $4.7  million  of net
operating loss carryforwards in The Netherlands with no expiration date and $8.4
million of U.S. net operating loss carryforwards  expiring in 2007 through 2018.
The U.S.  tax  attribute  carryforwards  of NL and  Tremont  may only be used to
offset future taxable income of the respective  company and are not available to
offset future taxable income of other members of the Contran Tax Group,  and the
U.S. net operating loss  carryforward of CompX may only be used to offset future
taxable income of an acquired subsidiary of CompX and are limited in utilization
to approximately  $400,000 per year. During 1999, CompX utilized $300,000 of its
U.S. net operating loss  carryforwards to reduce its current U.S. taxable income
(nil in 2000 and 2001).





Note 17 - Employee benefit plans:

     Defined  benefit  plans.  The Company  maintains  various  defined  benefit
pension plans. Variances from actuarially assumed rates will result in increases
or decreases in accumulated  pension  obligations,  pension  expense and funding
requirements  in future  periods.  The funded  status of the  Company's  defined
benefit  pension plans,  the components of net periodic  defined benefit pension
cost  related to the  Company's  consolidated  business  segments and charged to
continuing  operations and the rates used in determining  the actuarial  present
value of  benefit  obligations  are  presented  in the tables  below.  Effective
January 1, 2001,  approximately 50 individuals  previously  compensated by Valhi
commenced  being  compensated by Contran.  Accrued defined benefit pension costs
related to such  individuals at December 31, 2000 were  approximately  $225,000.
During  2001,  Valhi made a cash  payment to Contran of  $225,000,  and the plan
assets and liabilities  related to such individuals were transferred to Contran.
Effective  January  1, 2001,  CompX  ceased  providing  future  defined  pension
benefits under its plan in The  Netherlands,  resulting in a curtailment gain of
$116,000.  See Note 12. As of December 31, 2001, certain  obligations related to
the  terminated  plan had not been fully  settled and are  reflected  in accrued
defined benefit pension costs.



                                                         Years ended December 31,
                                                            2000         2001
                                                            ----         ----
                                                             (In thousands)

Change in projected benefit obligations ("PBO"):
                                                                
  Benefit obligations at beginning of the year .......   $ 291,686    $ 281,540
  Service cost .......................................       4,368        3,974
  Interest cost ......................................      17,297       17,428
  Participant contributions ..........................       1,027        1,004
  Actuarial losses ...................................       1,890       10,359
  Plan amendments ....................................        --          1,819
  Curtailment gain ...................................        --           (116)
  Change in foreign exchange rates ...................     (16,209)      (3,385)
  Benefits paid ......................................     (18,519)     (17,432)
  Transfer of obligations to Contran .................        --         (4,862)
                                                         ---------    ---------

      Benefit obligations at end of the year .........   $ 281,540    $ 290,329
                                                         =========    =========

Change in plan assets:
  Fair value of plan assets at beginning of the year .   $ 244,555    $ 243,213
  Actual return on plan assets .......................      13,866        5,470
  Employer contributions .............................      16,620        7,577
  Participant contributions ..........................       1,078        1,004
  Change in foreign exchange rates ...................     (14,387)      (6,244)
  Benefits paid ......................................     (18,519)     (17,432)
  Transfer of plan assets to Contran .................        --         (3,243)
                                                         ---------    ---------

      Fair value of plan assets at end of year .......   $ 243,213    $ 230,345
                                                         =========    =========

Funded status at end of the year:
  Plan assets less than PBO ..........................   $ (38,327)   $ (59,984)
  Unrecognized actuarial loss ........................      32,374       53,383
  Unrecognized prior service cost ....................       1,948        4,371
  Unrecognized net transition obligations ............         788        4,269
                                                         ---------    ---------

                                                         $  (3,217)   $   2,039
                                                         =========    =========

Amounts recognized in the balance sheet:
  Prepaid pension costs ..............................   $  22,789    $  18,411
  Unrecognized net pension obligations ...............        --          5,901
  Accrued pension costs:
    Current ..........................................      (6,356)      (6,241)
    Noncurrent .......................................     (26,697)     (33,823)
  Accumulated other comprehensive income .............       7,047       17,791
                                                         ---------    ---------

                                                         $  (3,217)   $   2,039
                                                         =========    =========









                                                            December 31,
                 Rate                          1999                2000                2001
                 ----                          ----                ----                ----

                                                                        
Discount                                     4% - 7.5%           4% - 7.8%         5.8% - 7.3%
Increase in future compensation levels     2.5% - 4.5%           3% - 4.5%         2.8% - 4.5%
Long-term return on assets                   4% -10.0%           4% -10.0%         6.8% -10.0%





                                                     Years ended December 31,
                                                  1999        2000        2001
                                                  ----        ----        ----
                                                       (In thousands)

Net periodic pension cost:
                                                              
Service cost benefits ......................   $  4,316    $  4,368    $  3,974
Interest cost on PBO .......................     18,329      17,297      17,428
Expected return on plan assets .............    (18,120)    (17,832)    (18,386)
Amortization of prior service cost .........        287         258         201
Amortization of net transition obligations .        580         532         509
Recognized actuarial losses ................      1,328         369         703
                                               --------    --------    --------

                                               $  6,720    $  4,992    $  4,429
                                               ========    ========    ========


     The projected benefit obligations, accumulated benefit obligations and fair
value of plan  assets for all defined  benefit  pension  plans with  accumulated
benefit  obligations  in excess of fair value of plan assets were $257  million,
$235 million and $197 million, respectively, at December 31, 2001 (2000 - $218.4
million, $196.6 million and $172.8 million,  respectively). At December 31, 2000
and 2001,  approximately  65% and 69%,  respectively,  of such  unfunded  amount
relates to NL's non-U.S.  plans, and most of the remainder relates to certain of
NL's U.S. plans.

     Defined   contribution   plans.  The  Company   maintains  various  defined
contribution pension plans with Company contributions based on matching or other
formulas.   Defined   contribution   plan  expense   related  to  the  Company's
consolidated  business segments  approximated $2.8 million in 1999, $3.4 million
in 2000 and $2.5 million in 2001.

     Postretirement benefits other than pensions. Certain subsidiaries currently
provide  certain  health care and life insurance  benefits for eligible  retired
employees.  At December  31, 2000 and 2001,  60% and 61%,  respectively,  of the
Company's  aggregate  accrued OPEB costs relates to NL, and substantially all of
the remainder relates to Tremont.

     The components of the periodic OPEB cost and accumulated  OPEB  obligations
and the  rates  used in  determining  the  actuarial  present  value of  benefit
obligations    are   presented   in   the   tables   below.    Variances    from
actuarially-assumed  rates will result in  additional  increases or decreases in
accumulated OPEB obligations, net periodic OPEB cost and funding requirements in
future  periods.  At December 31, 2001,  the expected rate of increase in future
health care costs  ranges from 8% to 11.2% in 2002,  declining to rates of about
5.0% in 2010 and  thereafter.  If the health care cost trend rate was  increased
(decreased)  by one  percentage  point for each year,  OPEB  expense  would have
increased by $.3 million  (decreased by $.2 million) in 2001,  and the actuarial
present value of  accumulated  OPEB  obligations at December 31, 2001 would have
increased by $2.4 million (decreased by $2.2 million).









                                                         Years ended December 31,
                                                            2000         2001
                                                            ----         ----
                                                              (In thousands)

Change in accumulated OPEB obligations:
                                                                 
  Obligations at beginning of the year .................   $ 54,410    $ 53,942
  Service cost .........................................         84          94
  Interest cost ........................................      3,828       3,572
  Actuarial losses (gains) .............................      1,423        (230)
  Plan asset reimbursements ............................       --         1,197
  Change in foreign exchange rates .....................        (67)       (145)
  Benefits paid ........................................     (5,736)     (7,742)
                                                           --------    --------

  Obligations at end of the year .......................   $ 53,942    $ 50,688
                                                           ========    ========

Change in plan assets:
  Fair value of plan assets at beginning of the year ...   $  5,968    $ 11,842
  Actual return on plan assets .........................      2,705         460
  Employer contributions ...............................      8,905       1,840
  Benefits paid ........................................     (5,736)     (7,742)
                                                           --------    --------

  Fair value of plan assets at end of the year .........   $ 11,842    $  6,400
                                                           ========    ========

Funded status at end of the year:
  Plan assets less than benefit obligations ............   $(42,100)   $(44,288)
  Unrecognized net actuarial gain ......................     (2,676)     (2,522)
  Unrecognized prior service credit ....................    (12,067)     (9,551)
                                                           --------    --------

                                                           $(56,843)   $(56,361)
                                                           ========    ========

Accrued OPEB costs recognized in the balance sheet:
  Current ..............................................   $ (6,219)   $ (6,215)
  Noncurrent ...........................................    (50,624)    (50,146)
                                                           --------    --------

                                                           $(56,843)   $(56,361)
                                                           ========    ========






                                                    Years ended December 31,
                                                 1999         2000        2001
                                                 ----         ----        ----
                                                         (In thousands)

Net periodic OPEB cost (credit):
                                                               
Service cost ...............................    $    40     $    84     $    94
Interest cost ..............................      2,069       3,828       3,572
Expected return on plan assets .............       (526)       (521)       (773)
Amortization of prior service credit .......     (2,075)     (2,516)     (2,516)
Recognized actuarial losses (gains) ........       (573)         24        (123)
                                                -------     -------     -------

                                                $(1,065)    $   899     $   254
                                                =======     =======     =======






                                                            December 31,
                  Rate                       1999                  2000               2001
                  ----                       ----                  ----               ----

                                                                              
Discount                                       7.5%              7.25%-7.3%               7%
Increase in future compensation levels     nil - 6%               nil  - 6%        nil -   6%
Long-term return on assets                 nil - 9%              nil  -7.7%        nil - 7.7%







Note 18 - Related party transactions:

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

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

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




                                                                December 31,
                                                             2000           2001
                                                             ----           ----
                                                               (In thousands)

Current receivables from affiliates:
                                                                   
  TIMET ............................................       $   599       $   677
  Other ............................................           286           167
                                                           -------       -------

                                                           $   885       $   844
                                                           =======       =======

Noncurrent receivable from affiliate -
  loan to Contran family trust .....................       $  --         $20,000
                                                           =======       =======

Current payables to affiliates:
  Demand loan from Contran:
    Tremont Corporation ............................       $13,403       $  --
    Valhi ..........................................         8,000        24,574
  Income taxes payable to Contran ..................         1,666         6,410
  Louisiana Pigment Company ........................         8,710         6,362
  Contran - trade items ............................          --             501
  TIMET ............................................           252           286
  Other ............................................            11            15
                                                           -------       -------

                                                           $32,042       $38,148


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

     In  2001,  NL  Environmental   Management  Services,   Inc  ("EMS"),   NL's
majority-owned  environmental management subsidiary,  entered into a $25 million
revolving credit facility with one of the family trusts discussed in Note 1 ($20
million  outstanding at December 31, 2001). The loan bears interest at prime, is
due on demand with 60 days  notice and is  collateralized  by certain  shares of
Contran's  Class A common stock and Class E cumulative  preferred  stock held by
the trust.  The value of the  collateral is dependent,  in part, on the value of
the Company as Contran's  beneficial ownership interest in the Company is one of
Contran's  more  substantial  assets.  The terms of this loan were  approved  by
special  committees of both NL's and EMS' respective board of directors composed
of  independent  directors.  At December 31, 2001,  $5 million is available  for
borrowing by the family trust,  and the loan has been classified as a noncurrent
asset because EMS does not presently  intend to demand repayment within the next
12 months.

     In 1998,  Tremont entered into a revolving  advance agreement with Contran.
Through February 2001,  Tremont had net borrowings of $13.4 million from Contran
under such facility,  primarily to fund Tremont's  purchases of shares of NL and
TIMET common stock. Such borrowings from Contran bore interest at prime less .5%
and were payable upon demand.  In February  2001,  Tremont  entered into a $13.4
million  reducing  revolving  credit  facility with EMS and used the proceeds to
repay its loan from  Contran.  Such  intercompany  loan between EMS and Tremont,
collateralized  by 10 million  shares of NL common  stock owned by  Tremont,  is
eliminated in Valhi's  consolidated  financial  statements at December 31, 2001.
The terms of  Tremont's  loans from both  Contran  and EMS were  approved by the
independent  directors of Tremont,  and the terms of Tremont's loan from EMS was
approved  by a  special  committee  of  EMS'  board  of  directors  composed  of
independent directors.

     During 1999,  2000 and 2001,  Valhi borrowed  varying  amounts from Contran
pursuant to the terms of a demand note. Such unsecured  borrowings bear interest
at a rate of prime less .5%.

     Interest  income on all loans to related parties was $.3 million in each of
1999 and 2000 and $.9  million  in 2001.  Interest  expense  on all  loans  from
related  parties was $.5 million in 1999,  $1.3 million in 2000 and $1.4 million
in 2001.

     Payables to Louisiana  Pigment  Company are  primarily  for the purchase of
TiO2  (see Note 7).  Purchases  in the  ordinary  course  of  business  from the
unconsolidated TiO2 manufacturing joint venture are disclosed in Note 7.

     Under the terms of  various  intercorporate  services  agreements  ("ISAs")
entered into between the Company and various related parties, including Contran,
employees  of  one  company  will  provide  certain  management,  tax  planning,
financial and administrative  services to the other company on a fee basis. Such
charges are based upon  estimates  of the time  devoted by the  employees of the
provider of the services to the affairs of the recipient,  and the  compensation
of such  persons.  Because  of the large  number of  companies  affiliated  with
Contran,  the Company  believes it benefits  from cost savings and  economies of
scale gained by not having  certain  management,  financial  and  administrative
staffs duplicated at each entity,  thus allowing certain  individuals to provide
services to multiple companies but only be compensated by one entity.  These ISA
agreements are reviewed and approved by the applicable  independent directors of
the companies that are parties to the agreements.

     The net ISA fees charged by Contran to the Company aggregated approximately
$1.5 million in 1999,  $2.6 million in 2000 and $8.5 million in 2001.  Effective
July 1, 2000,  three  individuals who had previously  been  compensated by Valhi
commenced  to  be  compensated  by  Contran,  and  effective  January  1,  2001,
approximately  50 additional  individuals who had previously been compensated by
Valhi also commenced to be compensated by Contran.  The increases in the net ISA
fees  charged  by  Contran  from 1999 to 2000,  and from  2000 to 2001,  are due
principally to these changes.

     NL has an ISA with TIMET whereby NL provides  certain services to TIMET for
$300,000 in each of 1999,  2000 and 2001.  TIMET has an ISA with Tremont whereby
TIMET  provides  certain  services to Tremont for $200,000 in 1999,  $300,000 in
2000 and $400,000 in 2001.  Certain other  subsidiaries  of the Company are also
parties to similar ISAs among  themselves,  and expenses  associated  with these
agreements are eliminated in Valhi's consolidated financial statements.

     Certain of the Company's  insurance  coverages that were reinsured in 1999,
2000 and 2001 were arranged for and brokered by EWI Re, Inc.  Parties related to
Contran own all of the  outstanding  common stock of EWI.  Through  December 31,
2000,  a  son-in-law  of  Harold  C.  Simmons  managed  the  operations  of EWI.
Subsequent to December 31, 2000, such individual  provides  advisory services to
EWI as requested by EWI. The Company  generally does not compensate EWI directly
for  insurance,   but  understands  that,  consistent  with  insurance  industry
practice,  EWI  receives  a  commission  for its  services  from  the  insurance
underwriters.

     Through  January  2002,  an entity  controlled by one of Harold C. Simmons'
daughters owned a majority of EWI, and Contran owned all or substantially all of
the remainder of EWI. In January 2002, NL purchased EWI from its previous owners
for an aggregate cash purchase price of approximately $9 million, and EWI became
a  wholly-owned  subsidiary  of NL.  The  purchase  was  approved  by a  special
committee  of NL's  board  of  directors  consisting  of two of its  independent
directors,  and the purchase price was negotiated by the special committee based
upon its  consideration  of relevant  factors,  including but not limited to due
diligence performed by independent consultants and an appraisal of EWI conducted
by an independent third party selected by the special committee.

     Basic  Management,  Inc.,  among other things,  provides  utility  services
(primarily water  distribution,  maintenance of a common electrical facility and
sewage  disposal   monitoring)  to  TIMET  and  other  manufacturers  within  an
industrial  complex located in Nevada. The other owners of BMI are generally the
other  manufacturers  located  within the complex.  Power and sewer services are
provided on a cost reimbursement basis, similar to a cooperative, while water is
provided at the same rates as are charged by BMI to an  unrelated  third  party.
Amounts  paid by TIMET to BMI for utility  services  were $1.0  million in 1999,
$1.6 million in 2000 and $1.5 million in 2001.  TIMET also paid BMI a facilities
usage fee of  $800,000  in 1999 and $1.3  million in each of 2000 and 2001.  The
$1.3 million  annual  facilities  usage fee will continue  through 2005 and then
decline to $500,000 annually for 2006 through 2010, at which time the facilities
usage fee expires.

     During 2001,  Tremont  paid BMI $600,000  pursuant to an agreement in which
Tremont  and other  owners of BMI  agreed  to cover  the costs of  certain  land
improvements made by BMI to the land owned by Tremont and other BMI owners.  The
cost of the land  improvement  was  divided  among the  companies  based on each
company's proportional share in the improved acreage.






     During 2000, (i) Valhi purchased 90,000 shares of Tremont common stock from
an officer of Tremont for $2.9 million and 1,700 shares of its common stock from
an employee of Valhi for $19,000  and (ii) NL  purchased  414,000  shares of its
common stock from officers and directors of NL for an aggregate of $9.4 million.
See Notes 3 and 11. Such purchases were at market prices on the respective dates
of purchase.

     COAM Company is a partnership which has sponsored research  agreements with
the  University of Texas  Southwestern  Medical  Center at Dallas to develop and
commercially market a safe and effective treatment for arthritis (the "Arthritis
Research  Agreement")  and  to  develop  and  commercially  market  patents  and
technology  resulting  from a cancer  research  program  (the  "Cancer  Research
Agreement").  At December 31, 2001, COAM partners are Contran, Valhi and another
Contran  subsidiary.  Harold C.  Simmons is the manager of COAM.  The  Arthritis
Research  Agreement,  as  amended,  provides  for  payments  by COAM of up to $2
million over the next three years and the Cancer Research Agreement, as amended,
provides  for funds of up to $10.4  million  over the next nine  years.  Funding
requirements  pursuant  to the  Arthritis  and Cancer  Research  Agreements  are
without  recourse to the COAM partners and the  partnership  agreement  provides
that no  partner  shall  be  required  to make  capital  contributions.  Capital
contributions are expensed as paid. The Company's contributions to COAM were nil
in each of the past three years,  and the Company does not  currently  expect it
will make any capital contributions to COAM in 2002.

     Amalgamated  Research,  Inc.,  a  wholly-owned  subsidiary  of the Company,
conducts  certain  research and  development  activities  within and outside the
sweetener industry for The Amalgamated Sugar Company LLC and others. Amalgamated
Research has also granted to The Amalgamated  Sugar Company LLC a non-exclusive,
perpetual  royalty-free  license  to use all  currently  existing  or  hereafter
developed  technology  which is applicable to sugar  operations and provides for
certain royalties to The Amalgamated Sugar Company from future sales or licenses
of the subsidiary's technology. Research and development services charged to The
Amalgamated  Sugar  Company  LLC were  $779,000  in 1999,  $764,000  in 2000 and
$828,000  in 2001.  The  Amalgamated  Sugar  Company LLC also  provides  certain
administrative  services  to  Amalgamated  Research.  The cost of such  services
provided by the LLC,  based upon  estimates  of the time devoted by employees of
the LLC to the affairs of Amalgamated  Research,  and the  compensation  of such
persons, is netted against the agreed-upon research and development services fee
paid by the LLC to Amalgamated Research.

Note 19 - Commitments and contingencies:

Legal proceedings

     Lead pigment litigation. Since 1987, NL, other former manufacturers of lead
pigments  for  use in  paint  and  lead-based  paint  and  the  Lead  Industries
Association have been named as defendants in various legal  proceedings  seeking
damages  for  personal  injury,  property  damage  and  government  expenditures
allegedly caused by the use of lead-based paints.  Certain of these actions have
been  filed by or on behalf of states  or large  United  States  cities or their
public  housing  authorities,  school  districts  and  certain  others have been
asserted as class actions. These legal proceedings seek recovery under a variety
of theories,  including  negligent  product design,  failure to warn,  breach of
warranty,  conspiracy/concert  of action,  enterprise  liability,  market  share
liability, intentional tort, and fraud and misrepresentation.

     The plaintiffs in these actions  generally seek to impose on the defendants
responsibility for lead paint abatement and asserted health concerns  associated
with the use of  lead-based  paints,  including  damages  for  personal  injury,
contribution  and/or  indemnification  for medical expenses,  medical monitoring
expenses and costs for educational programs. Most of these legal proceedings are
in various pre-trial stages; some are on appeal.

     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 not accrued any  amounts  for the pending  lead  pigment and
lead-based paint litigation.  Considering NL's previous  involvement in the lead
and  lead  pigment  businesses,  there  can  be  no  assurance  that  additional
litigation similar to that currently pending will not be filed.

     Environmental matters and litigation. The Company's operations are governed
by various federal, state, local and foreign environmental laws and regulations.
The Company's policy is to comply with environmental laws and regulations at all
of its plants and to continually strive to improve environmental  performance in
association with applicable industry initiatives.  The Company believes that its
operations  are  in  substantial  compliance  with  applicable  requirements  of
environmental   laws.  From  time  to  time,  the  Company  may  be  subject  to
environmental regulatory enforcement under various statutes, resolution of which
typically involves the establishment of compliance programs.

     Some of NL's  current and former  facilities,  including  several  divested
secondary  lead smelters and former mining  locations,  are the subject of civil
litigation,  administrative  proceedings or investigations arising under federal
and state  environmental  laws.  Additionally,  in connection with past disposal
practices,  NL has been  named as a  defendant,  potentially  responsible  party
("PRP"),  or both, pursuant to CERCLA or similar state loans in approximately 75
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by NL,
its subsidiaries and 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 NL may be jointly and severally liable
for such costs,  in most cases,  it is only one of a number of PRPs who may also
be jointly  and  severally  liable.  In  addition,  NL is a party to a number of
lawsuits filed in various  jurisdictions  alleging CERCLA or other environmental
claims.   At  December  31,  2001,   NL  had  accrued  $107  million  for  those
environmental matters which NL believes are reasonably estimable. NL believes it
is not possible to estimate the range of costs for certain sites.  The upper end
of range of reasonably  possible  costs to NL for sites for which NL believes it
is possible to estimate costs is approximately $160 million.

     At December  31,  2001,  Tremont had accrued  approximately  $5 million for
environmental  cleanup  matters,  principally  related to one site in  Arkansas.
Tremont  believes  it is only one of a number of  apparently  solvent  PRPs that
would ultimately share in any cleanup costs for this site.

     At  December  31,  2001,  TIMET had  accrued  approximately  $4 million for
environmental cleanup matters, principally related to TIMET's facility in Nevada
and a former TIMET facility in California.

     The Company has also accrued  approximately $6 million at December 31, 2001
in respect of other environmental cleanup matters,  including amounts related to
one  Superfund  site in  Indiana  where  the  Company,  as a  result  of  former
operations,  has been named as a PRP and certain  former  sites of the  disposed
building  products  segment.  Such accrual is near the upper end of the range of
the Company's estimate of reasonably possible costs for such matters.

     The  imposition  of  more  stringent   standards  or   requirements   under
environmental  laws or regulations,  new developments or changes with respect to
site cleanup costs or  allocation  of such costs among PRPs, 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. 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.

     Other litigation. NL has been named as a defendant in various lawsuits in a
variety of jurisdictions  alleging personal injuries as a result of occupational
exposure to asbestos, silica and/or mixed dust in connection with formerly-owned
operations. Various of these actions remain pending.

     In March 1997, NL was served with a complaint  filed in the Fifth  Judicial
District Court of Cass County,  Texas (Ernest  Hughes,  et al. v.  Owens-Corning
Fiberglass  Corporation,  et al., No. 97-C-051) on behalf of approximately 4,000
plaintiffs and their spouses  alleging  injury due to exposure to asbestos,  and
seeking  compensatory and punitive  damages.  NL has filed an answer denying the
material allegations. The case has been inactive since 1998.

     In February 1999, and October 2000, NL was served with complaints in Cosey,
et al. v. Bullard, et al., No. 95-0069, and Pierce, et al. v. GAF, et al., filed
in  the  Circuit  Court  of  Jefferson   County,   Mississippi,   on  behalf  of
approximately  1,600 and 275  plaintiffs,  respectively,  alleging injury due to
exposure  to  asbestos  and/or  silica and  seeking  compensatory  and  punitive
damages. NL has filed answers in both cases denying the material  allegations of
the  complaint.  The  Cosey  Case was  removed  to  federal  court  and has been
transferred to the U.S.  District Court for the Eastern District of Pennsylvania
for consolidated proceedings.

     NL is a defendant in various other asbestos, silica and/or mixed dust cases
pending in Ohio,  Indiana  and West  Virginia on behalf of  approximately  6,900
personal injury claimants.

     In December 1997, a complaint was filed in the United States District Court
for  the  Northern   District  of  Illinois   against  the  Company   (Finnsugar
Bioproducts,  Inc. v. The Amalgamated Sugar Company LLC, et al., No. 97 C 8746).
The complaint,  as amended,  alleges certain  technology used by The Amalgamated
Sugar Company LLC in its manufacturing  processes  infringes a certain patent of
Finnsugar and seeks, among other things,  unspecified damages. The technology is
owned by  Amalgamated  Research and licensed to,  among  others,  the LLC.  Both
Amalgamated  Research and the LLC are defendants in the action.  Defendants have
answered the complaint denying infringement, and filed a counterclaim seeking to
have  Finnsugar's  patent declared invalid and  unenforceable.  Discovery on the
merits portion of both  plaintiff's and  defendants'  claims has been completed.
Plaintiff and defendants each filed summary judgment motions. In April 2001, the
court granted certain of the defendants' summary judgment motions, and the court
also ruled that  Finnsugar's  patent was invalid.  Finnsugar  moved the court to
reconsider its decisions,  and the remaining  summary  judgment motions filed by
both plaintiff and defendants  remain pending.  If such pending summary judgment
motions do not resolve the matter,  a brief period of additional  discovery will
occur.  The  Company  believes,  and  understands  the LLC  believes,  that  the
complaint is without  merit and that the Company's  technology  does not violate
Finnsugar's  patent. The Company intends,  and understands that the LLC intends,
to defend against this action vigorously.

     In August and September  2000, NL and one of its  subsidiaries,  NLO, Inc.,
were named as  defendants  in each of the four  lawsuits  listed below that were
filed  in  federal  court  in the  Western  District  of  Kentucky  against  the
Department  of Energy  ("DOE") and a number of other  defendants  alleging  that
nuclear material supplied by, among others, the Feed Material  Production Center
("FMPC") in Fernald,  Ohio, owned by the DOE and formerly managed under contract
by NLO,  harmed  employees  and others at the DOE's  Paducah,  Kentucky  Gaseous
Diffusion Plant  ("PGDP").  With respect to each of the four cases listed below,
NL believes  that the DOE is  obligated to provide  defense and  indemnification
pursuant to its contract with NLO, and pursuant to its  statutory  obligation to
do so, as the DOE has done in several  previous  cases relating to management of
the FMPC.  NL has so  advised  the DOE.  Answers in the four cases have not been
filed and, as described below, three of the four cases have been settled. NL and
NLO have moved to dismiss the  complaints  in all four claims.  If those motions
are not granted,  NL and NLO intend to deny all allegations of wrongdoing and to
defend the cases vigorously.

o    In Rainer,  et al. v. E.I. du Pont de  Nemours,  et al.,  ("Rainer  I") No.
     5:00CV-223-J,  plaintiffs  purport to represent a class of former employees
     at the PGDP and members of their  households  and seek actual and  punitive
     damages of $5 billion each for alleged negligence,  infliction of emotional
     distress,  ultra-hazardous  activity/strict  liability and strict  products
     liability and battery.  No answer or response to that complaint is yet due,
     and pre-trial proceedings continue.

o    In  Rainer,  et  al.  v.  Bill  Richardson,   et  al.,  ("Rainer  II")  No.
     5:00CV-220-J,  plaintiffs  purport to represent the same classes  regarding
     the  same  matters   alleged  in  Rainer  I,  and  allege  a  violation  of
     constitutional  rights  and seek the same  recovery  sought in Rainer I, as
     well as asserting claims for battery, fraud, deceit, and misrepresentation,
     infliction of emotional distress,  negligence,  and conspiracy,  concert of
     action,  joint venture and enterprise  liability.  No answer or response to
     that complaint is yet due.

o    In Dew,  et al. v.  Bill  Richardson,  et al.,  ("Dew")  No.  5:00CV00221R,
     plaintiffs purport to represent classes of all PGDP employees who sustained
     pituitary  tumors or cancer as a result of exposure to  radiation  and seek
     actual and  punitive  damages of $2 billion  each for alleged  violation of
     constitutional  rights,  assault and battery,  fraud and misrepresentation,
     infliction    of   emotional    distress,    negligence,    ultra-hazardous
     activity/strict liability, strict products liability,  conspiracy,  concert
     of action, joint venture and enterprise liability,  and equitable estoppel.
     Pre-trial proceedings and discovery continue.

o    In Shaffer,  et al. v. Atomic Energy  Commission,  et al.,  ("Shaffer") No.
     5:00CV00307M, plaintiffs purport to represent classes of PGDP employees and
     household members, subcontractors at PGDP, and landowners near the PGDP and
     seek actual and punitive damages of $1 billion each and medical  monitoring
     for the same counts  alleged in Dew. In March 2001,  the  magistrate  judge
     ordered that the landowner plaintiffs be severed from the action and pursue
     their claims in a separate action,  Oreskovich v. Atomic Energy Commission,
     No.  01CV-63-M.  All of the Oreskovich  plaintiffs  subsequently  dismissed
     their claims against NL and NLO with prejudice. In addition, all but two of
     the named  plaintiffs  in the Shaffer  action have  dismissed  their claims
     against the Settling  Defendants without  prejudice.  In February 2002, the
     court held that all causes of action  asserted in the complaint that have a
     one-year limitations period would be dismissed. In their motion to dismiss,
     NL and NLO argued that all claims in the complaint, except the fraud claim,
     were subject to dismissal because they have a one-year  limitations period.
     The court denied the motion to dismiss claims brought by certain decedents'
     estates.  The court  reserved  ruling on other  arguments  in the motion to
     dismiss  that,  if  granted,  would  dispose  of  all  plaintiffs'  claims,
     indicating that it would address those arguments by separate opinion.

     NL has reached an agreement  pursuant to which the Rainer I, Rainer II, and
Shaffer cases against NL and NLO will be settled and dismissed  with  prejudice,
and in March 2002,  the trial court  approved  the  settlement.  The time during
which the settlement may be appealed has not yet expired.  The DOE has agreed to
reimburse NL for the settlement amount.

     In September  2000,  TIMET was named in an action  filed by the U.S.  Equal
Employment Opportunity Commission in federal district court in Las Vegas, Nevada
(U.S. Equal Employment  Opportunity  Commission v. Titanium Metals  Corporation,
CV-S-00-1172DWH-RJJ).  The complaint  alleges that several  female  employees at
TIMET's  Nevada plant were the subject of sexual  harassment.  TIMET  intends to
vigorously  defend  this  action,  but in any  event  TIMET  does not  presently
anticipate  that any  adverse  outcome  in this case  would be  material  to its
consolidated financial position, results of operations or liquidity.

     In June 2001,  Gutierrex-Palmenberg,  Inc. ("GPI") filed a complaint in the
U.S. District Court, District of Arizona,  against Waste Control Specialists LLC
(Guiterrez -  Palmenberg,  Inc. vs. Waste Control  Specialists  LLC, No. CIV '01
0981 PHX MS). The complaint  alleges that Waste Control  Specialists owes GPI in
excess of $380,000.  Waste Control  Specialists has  counterclaimed  for $55,000
that it  believes  it is owed from GPI.  Waste  Control  Specialists  intends to
defend against the action vigorously.

     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)  and other  claims and
disputes incidental to its present and former businesses.  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.

     Concentrations  of credit risk.  Sales of TiO2 accounted for  substantially
all of NL's sales  during the past three years.  TiO2 is  generally  sold to the
paint,   plastics  and  paper   industries,   which  are  generally   considered
"quality-of-life"  markets  whose demand for TiO2 is  influenced by the relative
economic  well-being  of the various  geographic  regions.  TiO2 is sold to over
4,000 customers. In each of the past three years, approximately one-half of NL's
TiO2 sales volume were to Europe with about 38%  attributable  to North America,
and the ten largest customers accounted for about one-fourth of chemicals sales.

     Component products are sold primarily to original  equipment  manufacturers
in North America and Europe.  In 2001, the ten largest  customers  accounted for
approximately 36% of component products sales (2000 - 35%; 1999 - 33%).

     The majority of TIMET's sales are to customers in the  aerospace  industry,
including  airframe  and engine  manufacturers.  TIMET's ten  largest  customers
accounted  for  about 30% of its sales in 1999 and about 48% in each of 2000 and
2001.

     At December 31, 2001,  consolidated  cash, cash  equivalents and restricted
cash includes $121 million invested in U.S. Treasury securities  purchased under
short-term  agreements to resell (2000 - $159 million), of which $62 million are
held in trust for the Company by a single U.S. bank (2000 - $67 million).

     Capital  expenditures.  At December 31, 2001 the estimated cost to complete
capital  projects in process  approximated  $13.5 million,  of which $11 million
relates to NL's TiO2 facilities  (including $4 million related to reconstruction
of the  Leverkusen,  Germany  facility  destroyed by fire in March 2001) and the
remainder  relates  to  CompX.  In  addition,  CompX  is  obligated  to  acquire
approximately  10  acres  of land  from  the  municipality  of  Maastricht,  The
Netherlands,  for approximately $2 million within the next two to three years as
part of an agreement made in conjunction with the sale/leaseback of its existing
Netherlands facility. See Note 12.

     Royalties.  Royalty  expense,  which relates  principally  to the volume of
certain products  manufactured in Canada and sold in the United States under the
terms of a third-party  patent license  agreement,  approximated $1.1 million in
each of 1999 and 2000 and $675,000 in 2001.

     Long-term  contracts.  NL has long-term  supply  contracts that provide for
NL's chloride-process  TiO2 feedstock  requirements through 2006. The agreements
require NL to purchase  certain  minimum  quantities  of feedstock  with average
minimum annual purchase commitments aggregating approximately $159 million.

     TIMET has  long-term  agreements  with certain major  aerospace  customers,
including The Boeing Company,  Rolls-Royce plc, United Technologies  Corporation
(and related  companies) and  Wyman-Gordon  Company,  pursuant to which TIMET is
intended to be the major supplier of titanium  products to these customers.  The
agreements  are intended to provide for minimum  market shares of the customer's
titanium  requirements  (generally  at  least  70%)  for  approximately  10-year
periods.  The  agreements  generally  provide  for  fixed or  formula-determined
prices, at least for the first five years. With respect to TIMET's contract with
Boeing,  although Boeing placed orders and accepted  delivery of certain volumes
in 1999 and 2000, the level of orders was  significantly  below the  contractual
volume  requirements for those years.  Boeing informed TIMET in 1999 that it was
unwilling to commit to the contract  beyond the year 2000. In March 2000,  TIMET
filed a lawsuit  against The Boeing Company  seeking damages for Boeing's breach
of the contract  and a  declaration  from the court of TIMET's  rights under the
contract.  In June 2000,  Boeing filed its answer to TIMET's  complaint  denying
substantially  all of  TIMET's  allegations  and  making  certain  counterclaims
against TIMET.  In April 2001,  TIMET settled the  litigation  between TIMET and
Boeing related to their 1997 long-term  purchase and supply agreement.  Pursuant
to the  settlement,  TIMET  received a cash payment of $82 million.  The parties
also entered  into an amended  long-term  agreement  that,  among other  things,
allows Boeing to purchase up to 7.5 million pounds of titanium  product annually
from TIMET from 2002 through 2007,  subject to certain maximum  quarterly volume
levels. In  consideration,  Boeing will annually advance TIMET $28.5 million for
purchases in the upcoming year.  The initial  advance for calendar year 2002 was
made in December 2001, with each subsequent advance made in early January of the
applicable  calendar year beginning in 2003. The amended long-term  agreement is
structured  as  a  take-or-pay   agreement  such  that  Boeing  will  forfeit  a
proportionate  part of the $28.5  million  annual  advance in the event that its
orders for delivery  for such  calendar  year are less than 7.5 million  pounds.
Under a separate agreement TIMET will establish and hold buffer stock for Boeing
at TIMET's facilities.

     TIMET also has a long-term arrangement for the purchase of titanium sponge.
The contract is effective  through 2007, with firm pricing through 2002 (subject
to certain  possible  adjustments and possible early  termination in 2004).  The
agreement provides for annual purchases by TIMET of 6,000 metric tons,  although
the  supplier  has agreed to reduced  purchases  by TIMET since  1999.  TIMET is
currently  operating  under an agreement in principle  that provides for minimum
purchases  by TIMET of 1,500  metric  tons in 2002 and  certain  other  modified
terms.  During 2001,  TIMET accrued $3.0 million  relating to its agreement with
the  sponge  supplier  for  settlement  of  purchases  less  than  the  required
contractual  minimum for 2001 and prior years,  of which $2.0  million  remained
unpaid  as  of  December  31,  2001.  TIMET  has  no  other  long-term  purchase
agreements.

     Waste Control  Specialists has agreed to pay two separate  consultants fees
for performing  certain  services  based on specified  percentages of certain of
Waste Control Specialist's revenues. One such agreement currently provides for a
security  interest  in Waste  Control  Specialists'  facility  in West  Texas to
collateralize Waste Control Specialists' obligation under that agreement,  which
is limited to $18.4  million.  A third  similar  agreement,  under  which  Waste
Control  Specialists  was  obligated  to  pay  up  to  $10  million  to  another
independent  consultant,  was terminated during 2000.  Expense related to all of
these agreements was not significant during the past three years.

     Operating leases.  Kronos' principal German operating subsidiary leases the
land under its Leverkusen TiO2 production  facility pursuant to a lease expiring
in 2050.  The  Leverkusen  facility,  with  approximately  one-third  of Kronos'
current TiO2  production  capacity,  is located  within the  lessor's  extensive
manufacturing complex, and Kronos is the only unrelated party so situated. Under
a separate supplies and services agreement expiring in 2011, the lessor provides
some raw  materials,  auxiliary and operating  materials and utilities  services
necessary to operate the  Leverkusen  facility.  Both the lease and the supplies
and services  agreements  restrict NL's ability to transfer  ownership or use of
the Leverkusen  facility.  The Company also leases  various other  manufacturing
facilities and equipment.  Most of the leases  contain  purchase  and/or various
term renewal  options at fair market and fair rental  values,  respectively.  In
most cases the Company  expects  that,  in the normal  course of business,  such
leases will be renewed or replaced by other leases.  Rent expense related to the
Company's  consolidated  business segments approximated $10 million in 1999, $11
million in 2000 and $12 million in 2001.  At December 31, 2001,  future  minimum
payments under  noncancellable  operating  leases having an initial or remaining
term of more than one year were as follows:

Years ending December 31,                              Amount
                                                   (In thousands)

  2002                                                $ 5,943
  2003                                                  4,509
  2004                                                  2,955
  2005                                                  1,818
  2006                                                  1,549
  2007 and thereafter                                  20,269
                                                      -------

                                                      $37,043

     Third-party  indemnification.  Amalgamated Research licenses certain of its
technology to third  parties.  With respect to such  technology  licensed to two
customers,  Amalgamated  Research has  indemnified  such  customers for up to an
aggregate of $1.75 million  against any damages they might incur  resulting from
any claims for infringement of the Finnsugar  patents  discussed  above.  During
2000,  Finnsugar  filed a complaint  against one of such  customers  in the U.S.
District Court for the Eastern District of Michigan alleging that the technology
licensed  to such  customer  by the  Company  infringes  certain of  Finnsugar's
patents  (Finnsugar  Bioproducts,  Inc. v. The Monitor Sugar Company,  Civil No.
00-10381).  Amalgamated Research is not a party to this litigation.  The Company
denies such infringement, however the Company is providing defense costs to such
customer under the terms of their indemnification  agreement up to the specified
limit of $750,000.  Other than providing  defense costs pursuant to the terms of
the indemnification  agreements,  Amalgamated  Research does not believe it will
incur any losses as a result of providing such indemnification.

Note 20 - Accounting principles not yet adopted:

     Goodwill.  The  Company  will  adopt  SFAS  No.  142,  Goodwill  and  Other
Intangible  Assets,  effective  January 1, 2002.  Under SFAS No. 142,  goodwill,
including goodwill arising from the difference between the cost of an investment
accounted  for by the equity method and the amount of the  underlying  equity in
net assets of such equity method investee ("equity method  goodwill"),  will not
be amortized on a periodic  basis.  Instead,  goodwill (other than equity method
goodwill)  will be subject to an impairment  test to be performed at least on an
annual basis, and impairment  reviews may result in future periodic  write-downs
charged to earnings. Equity method goodwill will not be tested for impairment in
accordance with SFAS No. 142;  rather,  the overall carrying amount of an equity
method  investee will continue to be reviewed for impairment in accordance  with
existing GAAP. There is currently no equity method goodwill  associated with any
of the Company's  equity method  investees.  Under the transition  provisions of
SFAS No.  142,  all  goodwill  existing  as of June 30,  2001  will  cease to be
periodically  amortized  as of January 1, 2002,  but all  goodwill  arising in a
purchase  business  combination  (including step  acquisitions)  completed on or
after July 1, 2001  would not be  periodically  amortized  from the date of such
combination.  The Company would have reported net income of  approximately  $109
million,  or $.94  per  diluted  share,  in 2001  if the  goodwill  amortization
included in the Company's reported net income had not been recognized.

     As  discussed  in Note 9, the Company has  assigned  its  goodwill to three
reporting units (as that term is defined in SFAS No. 142). Goodwill attributable
to the  chemicals  operating  segment  will be  assigned to the  reporting  unit
consisting  of NL in total.  Goodwill  attributable  to the  component  products
operating  segment will be assigned to two reporting units within that operating
segment,  one consisting of CompX's security  products  operations and the other
consisting of CompX's ergonomic  products and slide products  operations.  Under
SFAS No. 142, such goodwill will deemed to not be impaired if the estimated fair
value of the applicable reporting unit exceeds the respective net carrying value
of such reporting units,  including the allocated goodwill. If the fair value of
the reporting unit is less than carrying value, then a goodwill  impairment loss
would be recognized  equal to the excess,  if any, of the net carrying  value of
the  reporting  unit  goodwill  over its  implied  fair  value  (up to a maximum
impairment equal to the carrying value of the goodwill).  The implied fair value
of  reporting  unit  goodwill  would be the  amount  equal to the  excess of the
estimated  fair  value of the  reporting  unit  over the  amount  that  would be
allocated  to the  tangible  and  intangible  net assets of the  reporting  unit
(including  unrecognized  intangible  assets) as if such reporting unit had been
acquired in a purchase  business  combination  accounted for in accordance  with
SFAS No. 141.

     In  determining  the  estimated  fair value of the NL reporting  unit,  the
Company will consider quoted market prices for NL common stock. The Company will
also use other appropriate valuation techniques,  such as discounted cash flows,
to estimate the fair value of the two CompX reporting units.

     The Company has completed  its initial,  transitional  goodwill  impairment
analysis under SFAS No. 142 as of January 1, 2002,  and no goodwill  impairments
were deemed to exist. In accordance  with the  requirements of SFAS No. 142, the
Company will review goodwill of its three reporting units for impairment  during
the third quarter of each year starting in 2002.  Goodwill will also be reviewed
for  impairment  at other  times  during  each year when  events or  changes  in
circumstances indicate that an impairment might be present.

     Impairment  of  long-lived  assets.  The  Company  will adopt SFAS No. 144,
Accounting  for the  Impairment  or Disposal  of  Long-Lived  Assets,  effective
January 1, 2002.  SFAS No. 144 retains the  fundamental  provisions  of existing
GAAP with  respect  to the  recognition  and  measurement  of  long-lived  asset
impairment  contained  in  SFAS  No.  121,  Accounting  for  the  Impairment  of
Long-Lived  Assets and for Lived-Lived  Assets to be Disposed Of. However,  SFAS
No. 144 provides new guidance intended to address certain  implementation issues
associated  with SFAS No.  121,  including  expanded  guidance  with  respect to
appropriate  cash  flows  to be used to  determine  whether  recognition  of any
long-lived  asset  impairment  is  required,  and if required how to measure the
amount of the  impairment.  SFAS No. 144 also requires that any net assets to be
disposed of by sale to be reported at the lower of carrying  value or fair value
less cost to sell,  and expands the  reporting  of  discontinued  operations  to
include any  component of an entity with  operations  and cash flows that can be
clearly distinguished from the rest of the entity. Adoption of SFAS No. 144 will
not have a significant effect on the Company as of January 1, 2002.

     Asset  retirement  obligations.  The  Company  will  adopt  SFAS  No.  143,
Accounting  for Asset  Retirement  Obligations,  no later than  January 1, 2003.
Under  SFAS No.  143,  the fair  value of a  liability  for an asset  retirement
obligation  covered  under the scope of SFAS No. 143 would be  recognized in the
period in which the liability is incurred,  with an  offsetting  increase in the
carrying amount of the related  long-lived asset. Over time, the liability would
be accreted to its present value,  and the capitalized cost would be depreciated
over the useful life of the related asset. Upon settlement of the liability,  an
entity would either  settle the  obligation  for its recorded  amount or incur a
gain or loss upon  settlement.  The Company is still  studying  this standard to
determine,  among other things,  whether it has any asset retirement obligations
which are covered  under the scope of SFAS No. 143,  and the effect,  if any, on
the Company of adopting SFAS No. 143 has not yet been determined.

Note 21 -      Quarterly results of operations (unaudited):



                                                      Quarter ended
                                                     --------------
                                          March 31  June 30  Sept. 30   Dec. 31
                                          --------  -------  --------   -------
                                           (In millions, except per share data)

Year ended December 31, 2000
                                                            
  Net sales ...........................   $ 301.7   $ 320.0   $ 308.1   $ 262.1
  Operating income ....................      49.1      66.6      57.4      44.6

  Income from continuing
   operations .........................   $  10.5   $  35.0   $  13.0   $  18.6
  Extraordinary item ..................      --        --        --         (.5)
                                          -------   -------   -------   -------

      Net income ......................   $  10.5   $  35.0   $  13.0   $  18.1
                                          =======   =======   =======   =======

  Basic earnings per common share:
    Continuing operations .............   $   .09   $   .30   $   .11   $   .16
    Extraordinary item ................      --        --        --        --
                                          -------   -------   -------   -------

      Net income ......................   $   .09   $   .30   $   .11   $   .16
                                          =======   =======   =======   =======

Year ended December 31, 2001
  Net sales ...........................   $ 288.8   $ 276.3   $ 262.5   $ 231.9
  Operating income ....................      49.2      39.7      31.5      21.8

      Net income ......................   $  31.6   $  47.6   $  10.3   $   3.7

  Basic earnings per common share .....   $   .27   $   .41   $   .09   $   .03


     The sum of the  quarterly  per share  amounts  may not equal the annual per
share amounts due to relative  changes in the weighted  average number of shares
used in the per share computations.

     During the fourth quarter of 2000,  the Company  recognized a $26.5 million
pre-tax  gain  related  to NL's  legal  settlement  with  certain  of its former
insurance  carriers and a $5.7 million  pre-tax  impairment  charge for an other
than temporary  decline in value of certain  marketable  securities  held by the
Company.  See Note 12.  During the  fourth  quarter of 2000,  the  Company  also
recognized an extraordinary loss related to the early  extinguishment of certain
NL indebtedness. See Notes 1 and 11.

     During the fourth  quarter of 2001,  the  Company  recognized  (i) an $11.7
million insurance gain related to insurance  recoveries received by NL resulting
from  fire  at  its  Leverkusen   facility,   (ii)  $16.6  million  of  business
interruption  insurance  proceeds  related to the Leverkusen fire as payment for
unallocated  period costs and lost margin  attributable  to prior 2001 quarters,
and (iii) a $17.6 million net income tax benefit related principally to a change
in estimate of NL's ability to utilize certain German income tax attributes. See
Notes 12 and 16. In addition,  the Company's  equity in earnings of TIMET during
the  fourth  quarter  of 2001  includes  the  effect of  TIMET's  $61.5  million
provision  for an other than  temporary  decline  in value of certain  preferred
securities held by TIMET and a $12.3 million increase in TIMET's deferred income
tax asset valuation allowance.






                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES



To the Stockholders and Board of Directors of Valhi, Inc.:

     Our audits of the  consolidated  financial  statements  referred  to in our
report dated March 15, 2002,  appearing on page F-2 of the 2001 Annual Report on
Form 10-K of Valhi,  Inc.,  also  included an audit of the  financial  statement
schedules  listed in the index on page F-1 of this Form  10-K.  In our  opinion,
these financial  statement  schedules present fairly, in all material  respects,
the  information  set forth  therein when read in  conjunction  with the related
consolidated financial statements.







                                                  PricewaterhouseCoopers LLP


Dallas, Texas
March 15, 2002






                          VALHI, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 2000 and 2001

                                 (In thousands)



                                                           2000           2001
                                                           ----           ----

Current assets:
                                                                
  Cash and cash equivalents ......................     $    3,383     $    3,520
  Marketable securities ..........................           --           14,882
  Accounts and notes receivable ..................          5,582          5,862
  Receivables from subsidiaries and
   affiliates:
    Loan .........................................           --              755
    Dividends ....................................          6,362           --
    Other ........................................             27            136
  Deferred income taxes ..........................            775           --
  Other ..........................................            141            255
                                                       ----------     ----------

      Total current assets .......................         16,270         25,410
                                                       ----------     ----------

Other assets:
  Marketable securities ..........................        267,556        170,212
  Investment in and advances to
   subsidiaries and affiliates ...................        739,865        748,697
  Loans and notes receivable .....................         99,334        104,933
  Other assets ...................................          1,807            905
  Property and equipment, net ....................          2,872          2,691
                                                       ----------     ----------

      Total other assets .........................      1,111,434      1,027,438
                                                       ----------     ----------

                                                       $1,127,704     $1,052,848

Current liabilities:
  Current maturities of long-term debt ...........     $   31,000     $   63,352
  Payables to subsidiaries and affiliates:
    Demand loan from Contran Corporation .........          8,000         24,574
    Income taxes, net ............................          2,056          8,891
    Other ........................................          1,122            100
  Accounts payable and accrued liabilities .......          5,217          2,888
  Income taxes ...................................          1,427          1,301
  Deferred income taxes ..........................           --              617
                                                       ----------     ----------

      Total current liabilities ..................         48,822        101,723
                                                       ----------     ----------

Noncurrent liabilities:
  Long-term debt .................................        353,213        250,000
  Deferred income taxes ..........................         86,214         68,371
  Other ..........................................         11,220         10,426
                                                       ----------     ----------

      Total noncurrent liabilities ...............        450,647        328,797
                                                       ----------     ----------

Stockholders' equity .............................        628,235        622,328
                                                       ----------     ----------

                                                       $1,127,704     $1,052,848





                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)




                                                   1999       2000        2001
                                                   ----       ----        ----

Revenues and other income:
                                                               
  Interest and dividend income ..............   $ 36,671    $ 33,108    $ 30,601
  Securities transaction gains (losses), net         757      (2,490)     48,142
  Other, net ................................      7,804       4,356       2,997
                                                --------    --------    --------

                                                  45,232      34,974      81,740
                                                --------    --------    --------

Costs and expenses:
  General and administrative ................     14,942      11,118       9,862
  Interest ..................................     33,097      34,646      31,295
                                                --------    --------    --------

                                                  48,039      45,764      41,157
                                                --------    --------    --------

                                                  (2,807)    (10,790)     40,583

Equity in earnings of subsidiaries and
 affiliates .................................     32,870      86,895      70,190
                                                --------    --------    --------

  Income before income taxes ................     30,063      76,105     110,773

Provision for income taxes (benefit) ........    (17,359)       (986)     17,575
                                                --------    --------    --------

  Income from continuing operations .........     47,422      77,091      93,198

Discontinued operations .....................      2,000        --          --

Extraordinary item ..........................       --          (477)       --
                                                --------    --------    --------

  Net income ................................   $ 49,422    $ 76,614    $ 93,198
                                                ========    ========    ========








                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)



                                                 1999         2000        2001
                                                 ----         ----        ----

Cash flows from operating activities:
                                                              
  Net income ...............................   $ 49,422    $ 76,614    $ 93,198
  Securities transactions, net .............       (757)      2,490     (48,142)
  Noncash interest expense .................      8,058       8,802       5,089
  Deferred income taxes ....................     (4,182)     (2,929)      8,546
  Equity in earnings of subsidiaries
   and affiliates:
    Continuing operations ..................    (32,870)    (86,895)    (70,190)
    Discontinued operations ................     (2,000)       --          --
    Extraordinary item .....................       --           477        --
  Dividends from subsidiaries
   and affiliates ..........................      3,819      20,792      55,696
  Other, net ...............................        610         844         327
                                               --------    --------    --------
                                                 22,100      20,195      44,524
  Net change in assets and liabilities .....     (6,766)      9,483      (2,528)
                                               --------    --------    --------

      Net cash provided by
       operating activities ................     15,334      29,678      41,996
                                               --------    --------    --------

Cash flows from investing activities:
  Purchase of:
    Tremont common stock ...................     (1,945)    (19,311)       (198)
    CompX common stock .....................       (816)       --          --
    Subsidiary debt from lender ............       --          --        (5,273)
  Investment in Waste Control Specialists ..    (10,000)    (20,000)       --
  Proceeds from disposal of marketable
   securities ..............................      6,588        --        16,802
  Loans to subsidiaries and affiliates:
    Loans ..................................    (11,833)    (34,232)    (11,505)
    Collections ............................      8,717      48,307       2,746
  Other, net ...............................       (350)       (221)       (176)
                                               --------    --------    --------

      Net cash provided (used) by
       investing activities ................     (9,639)    (25,457)      2,396
                                               --------    --------    --------







                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                 Condensed Statements of Cash Flows (Continued)

                  Years ended December 31, 1999, 2000 and 2001

                                 (In thousands)




                                             1999           2000          2001
                                             ----           ----          ----

Cash flows from financing activities:
  Indebtedness:
                                                              
    Borrowings .......................     $ 21,000      $ 56,880      $ 35,000
    Principal payments ...............         --         (44,000)      (67,662)
  Loans from affiliates:
    Loans ............................       45,000        15,768        81,905
    Repayments .......................      (52,218)       (8,982)      (66,310)
  Dividends ..........................      (23,146)      (24,328)      (27,820)
  Common stock reacquired ............         --             (19)         --
  Other, net .........................          656           899           632
                                           --------      --------      --------

      Net cash used by
       financing activities ..........       (8,708)       (3,782)      (44,255)
                                           --------      --------      --------

Cash and cash equivalents:
  Net increase (decrease) ............       (3,013)          439           137
  Balance at beginning of year .......        5,957         2,944         3,383
                                           --------      --------      --------

  Balance at end of year .............     $  2,944      $  3,383      $  3,520
                                           ========      ========      ========


Supplemental disclosures -
 cash paid for:
  Interest ...........................     $ 24,900      $ 25,326      $ 26,785
  Income taxes (received), net .......      (11,191)      (12,612)        2,320









                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                    Notes to Condensed Financial Information



Note 1 -       Basis of presentation:

     The Consolidated  Financial  Statements of Valhi, Inc. and Subsidiaries are
incorporated herein by reference.


Note 2 -       Marketable securities:



                                                                December 31,
                                                            2000           2001
                                                            ----           ----
                                                              (In thousands)

Current assets - Halliburton Company common stock:
                                                                  
  Trading ........................................       $   --         $  6,744
  Available-for-sale .............................           --            8,138
                                                         --------       --------

                                                         $   --         $ 14,882
                                                         ========       ========

Noncurrent assets (available-for-sale):
  The Amalgamated Sugar Company LLC ..............       $170,000       $170,000
  Halliburton Company common stock ...............         97,108           --
  Other securities ...............................            448            212
                                                         --------       --------

                                                         $267,556       $170,212



Note 3 -       Investment in and advances to subsidiaries and affiliates:



                                                                December 31,
                                                            2000          2001
                                                            ----          ----
                                                               (In thousands)

Investment in:
                                                                  
  NL Industries (NYSE: NL) ...........................     $483,524     $499,529
  Tremont Group, Inc. ................................      164,382      162,502
  Valcor and subsidiaries ............................       70,749       64,984
  Waste Control Specialists LLC ......................       19,169        6,364
                                                           --------     --------
                                                            737,824      733,379
Noncurrent loan to Waste Control Specialists LLC .....        2,041       15,318
                                                           --------     --------

                                                           $739,865     $748,697

Current loan to Waste Control Specialists LLC ........     $   --       $    755
                                                           ========     ========


     Tremont Group. is a holding  company which owns 80% of Tremont  Corporation
(NYSE:  TRE) at December 31, 2000 and 2001.  Prior to December  31, 2000,  Valhi
owned 64% of Tremont  Corporation  and NL owned an  additional  16% of  Tremont.
Effective  with the close of business on December  31,  2000,  Valhi and NL each
contributed  their Tremont  shares to Tremont Group in return for an 80% and 20%
ownership  interest,  respectively,  in Tremont Group.  Tremont Corporation is a
holding company whose  principal  assets at December 31, 2001 are a 39% interest
in Titanium Metals Corporation (NYSE: TIE) and a 21% interest in NL.

     Valcor's principal asset is a 66% interest in CompX International,  Inc. at
December 31, 2001 (NYSE:  CIX).  Valhi owns an additional 3% of CompX  directly,
and Valhi's direct  investment in CompX is considered  part of its investment in
Valcor.




                                                     Years ended December 31,
                                                   1999        2000        2001
                                                   ----        ----        ----
                                                          (In thousands)

Equity in earnings of subsidiaries and affiliates

Continuing operations:
                                                                
  NL Industries ..............................   $ 77,950    $ 79,190    $57,183
  Tremont Group/Tremont Corporation ..........    (48,652)      4,420      3,961
  Valcor .....................................     14,761      12,927      4,214
  Waste Control Specialists LLC ..............    (11,189)     (9,642)     4,832
                                                 --------    --------    -------

                                                 $ 32,870    $ 86,895    $70,190
                                                 ========    ========    =======

Discontinued operations - Valcor .............   $  2,000    $   --      $  --
                                                 ========    ========    =======

Extraordinary item - NL Industries ...........   $   --      $   (477)   $  --
                                                 ========    ========    =======


Dividends from subsidiaries and affiliates

Declared:
  NL Industries ..............................   $  4,219    $ 19,589    $24,108
  Tremont Group/Tremont Corporation ..........        877       1,054      1,152
  Valcor .....................................         47       5,187      6,437
  Waste Control Specialists LLC ..............       --          --       17,637
                                                 --------    --------    -------

                                                    5,143      25,830     49,334

Net change in dividends receivable ...........     (1,324)     (5,038)     6,362
                                                 --------    --------    -------

    Cash dividends received ..................   $  3,819    $ 20,792    $55,696
                                                 ========    ========    =======



Note 4 -       Loans and notes receivable:



                                                           December 31,
                                                     2000                2001
                                                     ----                 ----
                                                            (In thousands)

Snake River Sugar Company:
                                                                  
  Principal ..........................             $ 80,000             $ 80,000
  Interest ...........................               17,526               22,718
Other ................................                1,808                2,215
                                                   --------             --------

                                                   $ 99,334             $104,933






Note 5 -       Long-term debt:



                                                             December 31,
                                                       2000               2001
                                                       ----               ----
                                                             (In thousands)

                                                                  
Snake River Sugar Company ..................          $250,000          $250,000
LYONs ......................................           100,333            25,472
Bank credit facility .......................            31,000            35,000
Other ......................................             2,880             2,880
                                                      --------          --------
                                                       384,213           313,352

Less current maturities ....................            31,000            63,352
                                                      --------          --------

                                                      $353,213          $250,000



     Valhi's $250 million in loans from Snake River bear  interest at a weighted
average  fixed  interest  rate of  9.4%,  are  collateralized  by the  Company's
interest  in The  Amalgamated  Sugar  Company  LLC and are due in January  2027.
Currently,  these loans are  nonrecourse  to Valhi.  Up to $37.5 million of such
loans will become  recourse  to Valhi when the balance of Valhi's  loan to Snake
River (including accrued interest) becomes less than $37.5 million.  See Note 4.
Under certain conditions, Snake River has the ability to accelerate the maturity
of these loans.

     The zero coupon Senior Secured  LYONs,  $43.1 million  principal  amount at
maturity in October 2007  outstanding  at December  31,  2001,  were issued with
significant OID to represent a yield to maturity of 9.25%. No periodic  interest
payments are required.  Each $1,000 in principal amount at maturity of the LYONs
is  exchangeable,  at any time at the option of the  holders  of the LYONs,  for
14.4308  shares  of  Halliburton  common  stock  held by Valhi.  Such  shares of
Halliburton common stock,  classified as available-for-sale,  are collateral for
the LYONs debt  obligation  and are held in escrow for the benefit of holders of
the LYONs.  Valhi  receives  the  regular  quarterly  dividend  on the  escrowed
Halliburton shares.  During 1999, 2000 and 2001, holders representing  $483,000,
$336,000 and $92.2 million principal amount at maturity,  respectively, of LYONs
exchanged such LYONs for  Halliburton  shares.  Under the terms of the indenture
governing the LYONs, the Company has the option to deliver, in whole or in part,
cash equal to the market  value of the  Halliburton  shares  that are  otherwise
required to be delivered  to the LYONs  holder in an exchange,  and a portion of
such  exchanges  during 2001 was so settled.  Also during  2001,  $50.4  million
principal  amount at maturity of LYONs were  redeemed by the Company for cash at
various  redemption  prices  equal to the  accreted  value  of the  LYONs on the
respective  redemption  dates.  The LYONs are  redeemable,  at the option of the
holder, in October 2002, at $636.27 per $1,000 principal amount (the issue price
plus accrued OID through such purchase  date),  or an aggregate of $27.4 million
based on the number of LYONs  outstanding at December 31, 2001, and  accordingly
the LYONs are  classified  as a current  liability at December  31,  2001.  Such
redemptions  may be paid,  at Valhi's  option,  in cash,  shares of  Halliburton
common stock, or a combination thereof.  The LYONs are redeemable,  at any time,
at Valhi's  option,  for cash equal to the issue price plus  accrued OID through
the redemption date.

     At  December  31,  2001,  Valhi has a $55  million  revolving  bank  credit
facility which matures in November 2002,  generally bears interest at LIBOR plus
1.5% (for LIBOR-based borrowings) or prime (for prime-based borrowings),  and is
collateralized  by 30 million shares of NL common stock held by Valhi.  The size
of the facility was  increased to $70 million in January  2002,  and was further
increased to $72.5 million in February 2002. The agreement  limits dividends and
additional  indebtedness  of Valhi and contains  other  provisions  customary in
lending transactions of this type. In the event of a change of control of Valhi,
as defined,  the lenders would have the right to accelerate  the maturity of the
facility. The maximum amount which may be borrowed under the facility is limited
to  one-third  of the  aggregate  market  value of the shares of NL common stock
pledged as  collateral.  Based on NL's  December 31, 2001 quoted market price of
$15.27 per share,  the 30 million  shares of NL common stock  pledged  under the
facility  provide  more  than  sufficient   collateral  coverage  to  allow  for
borrowings up to the full amount of the  facility,  even after  considering  the
January  and  February  2002  increases  in the  size of the  facility  to $72.5
million.  Valhi  would  become  limited  to  borrowing  less than the full $72.5
million  amount of the  facility,  or would be  required  to  pledge  additional
collateral  if the full amount of the facility had been  borrowed,  only if NL's
stock price were to fall below  approximately  $7.25 per share.  At December 31,
2001, $35 million was outstanding under this facility  consisting of $30 million
of  LIBOR-based  borrowings  (at an  interest  rate of 3.625%) and $5 million of
prime-based  borrowings  (at an interest  rate of 4.75%).  At December 31, 2001,
$18.9 million was available for borrowing under this facility.

     Other  indebtedness  consists of an unsecured note payable bearing interest
at a fixed rate of interest of 6.2% and due in November 2002.

Note 6 -       Income taxes:



                                                     Years ended December 31,
                                                 1999        2000         2001
                                                 ----        ----         ----
                                                        (In thousands)

Income tax provision (benefit)
 attributable to continuing operations:
                                                              
  Currently payable (refundable) ...........   $(13,177)   $  1,943    $  9,029
  Deferred income taxes (benefit) ..........     (4,182)     (2,929)      8,546
                                               --------    --------    --------

                                               $(17,359)   $   (986)   $ 17,575
                                               ========    ========    ========

Cash paid (received) for income taxes, net:
  Paid to (received from) subsidiaries .....   $  1,121    $ (1,019)   $   (439)
  Paid to (received from) Contran ..........    (12,395)    (11,600)      2,607
  Paid to tax authorities, net .............         83           7         152
                                               --------    --------    --------

                                               $(11,191)   $(12,612)   $  2,320
                                               ========    ========    ========



     At December 31, 2000, NL, Tremont  Corporation and CompX were separate U.S.
taxpayers  and were not members of the Contran Tax Group.  Effective  January 1,
2001,  Tremont and NL became  members of the Contran  Tax Group.  Waste  Control
Specialists  LLC  and  The   Amalgamated   Sugar  Company  LLC  are  treated  as
partnerships for federal income tax purposes.  Valhi Parent Company's  provision
for income taxes (benefit)  includes a tax provision  (benefit)  attributable to
Valhi's equity in earnings (losses) of Waste Control Specialists.








                                                                Deferred tax
                                                              asset (liability)
                                                                December 31,
                                                             2000         2001
                                                             ----         ----
                                                              (In thousands)

Components of the net deferred tax asset
 (liability) - tax effect of temporary
 differences related to:
                                                                 
    Marketable securities ..............................   $(85,767)   $(56,836)
    Investment in subsidiaries and affiliates not
     members of the Contran Tax Group ..................      1,562       1,760
    Reduction of deferred income tax assets of
     subsidiaries that are members of the Contran Tax
     Group - separate company U.S. net operating loss
     carryforwards and other tax attributes that do not
     exist at the Valhi level ..........................       --        (9,748)
    Accrued liabilities and other deductible differences      4,884       4,729
    Other taxable differences ..........................     (6,118)     (8,893)
                                                           --------    --------

                                                           $(85,439)   $(68,988)
                                                           ========    ========

Current deferred tax asset (liability) .................   $    775    $   (617)
Noncurrent deferred tax liability ......................    (86,214)    (68,371)
                                                           --------    --------

                                                           $(85,439)   $(68,988)
                                                           ========    ========







                          VALHI, INC. AND SUBSIDIARIES

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                 (In thousands)




                                               Additions
                                    Balance at charged to                                   Balance
                                    beginning  costs and   Net        Currency              at end
           Description               of year   expenses  deductions translation Other(a)    of year
---------------------------------    ------    ------      -----      -----      ----       -----

Year ended December 31, 1999:
                                                                         
  Allowance for doubtful accounts   $ 2,687   $    787    $  (269)   $  (262)   $  3,270   $ 6,213
                                    =======   ========    =======    =======    ========   =======

  Amortization of intangibles:
    Goodwill ....................   $33,241   $ 11,753    $  --      $  --      $   --     $44,994
    Other .......................    10,601      2,058       --       (1,573)       --      11,086
                                    -------   --------    -------    -------    --------   -------

                                    $43,842   $ 13,811    $  --      $(1,573)   $   --     $56,080
                                    =======   ========    =======    =======    ========   =======

Year ended December 31, 2000:
  Allowance for doubtful accounts   $ 6,213   $    645    $  (787)   $  (163)   $   --     $ 5,908
                                    =======   ========    =======    =======    ========   =======

  Amortization of intangibles:
    Goodwill ....................   $44,994   $ 15,952    $  --      $   (55)   $   --     $60,891
    Other .......................    11,086        474     (8,245)    (2,530)       --         785
                                    -------   --------    -------    -------    --------   -------

                                    $56,080   $ 16,426    $(8,245)   $(2,585)   $   --     $61,676
                                    =======   ========    =======    =======    ========   =======

Year ended December 31, 2001:
  Allowance for doubtful accounts   $ 5,908   $  1,588    $(1,080)   $   (90)   $   --     $ 6,326
                                    =======   ========    =======    =======    ========   =======

  Amortization of intangibles:
    Goodwill ....................   $60,891   $ 16,963    $  --      $   (75)   $   --     $77,779
    Other .......................       785        229       --           (4)       --       1,010
                                    -------   --------    -------    -------    --------   -------

                                    $61,676   $ 17,192    $  --      $   (79)   $   --     $78,789
                                    =======   ========    =======    =======    ========   =======




(a)  1999  -  Consolidation  of  Waste  Control   Specialists  LLC  and  Tremont
     Corporation.

     Note - Certain prior year amounts have been  reclassified to conform to the
     current year presentation.