10-K405

                       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 OF
               1934 - For the fiscal year ended December 31, 1999

                          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
- -------------------------------------------               --------------------
  (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.  X

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 29, 2000,  114,628,514  shares of common stock were  outstanding.
The  aggregate  market  value of the 8.4 million  shares of voting stock held by
nonaffiliates of Valhi, Inc. as of such date approximated $93.6 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, 1999, (i) Valhi's 59% ownership of
NL Industries,  Inc.,  (ii) Valhi's 64% ownership of CompX  International  Inc.,
(iii) Valhi's 69% ownership of Waste Control  Specialists  LLC, (iv) Valhi's 50%
ownership of Tremont Corporation, (v) Tremont's 39% ownership of Titanium Metals
Corporation and (vi) Tremont's 20% ownership of NL.






                                     PART I


ITEM 1.   BUSINESS

         As more fully described on the chart on the opposite page,  Valhi, Inc.
(NYSE: VHI), has continuing  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    currently     the    world's
 NL Industries, Inc.                    fourth-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 12% share
                                        of worldwide  TiO2 sales volume in 1999.
                                        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 applications. CompX has
                                        production  facilities in North America,
                                        Europe and Asia.

Waste Management                        Waste  Control  Specialists  operates  a
 Waste Control Specialists LLC          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.

Titanium Metals                         Titanium Metals Corporation ("TIMET") is
 Titanium Metal Corporation             one of the  world's  leading  integrated
                                        producers  of  titanium  sponge,  ingot,
                                        slab and mill  products.  TIMET  has the
                                        largest sales volumes worldwide, with an
                                        estimated   24%   share   of   worldwide
                                        industry   shipments  of  titanium  mill
                                        products in 1999.  TIMET has  production
                                        facilities in the U.S. and Europe.

         Valhi, a Delaware  corporation,  is the successor of the 1987 merger of
LLC Corporation and The Amalgamated Sugar Company.  Contran  Corporation  holds,
directly  or through  subsidiaries,  approximately  93% of  Valhi's  outstanding
common stock.  Substantially all of Contran's  outstanding  voting stock is held
either  by  trusts   established  for  the  benefit  of  certain   children  and
grandchildren of Harold C. Simmons, of which Mr. Simmons is the sole trustee, or
by Mr.  Simmons  directly.  Mr.  Simmons  is  Chairman  of the  Board  and Chief
Executive  Officer  of  Contran  and Valhi and may be  deemed  to  control  such
companies.

         Each of NL (NYSE: NL), CompX (NYSE: CIX), Tremont (NYSE: TRE) and TIMET
(NYSE:  TIE) 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.

         In early 1997,  the Company  completed  the  transfer of control of the
refined  sugar  operations  previously  conducted  by the Company to Snake River
Sugar Company,  an Oregon  agricultural  cooperative formed by certain sugarbeet
growers.  In 1998, (i) NL sold its specialty chemicals business unit, (ii) CompX
issued  approximately  6 million shares of its common stock in an initial public
offering,  (iii) Valhi  acquired an interest in Tremont  Corporation,  primarily
from Contran and certain Contran  subsidiaries  and (iv) CompX acquired two lock
producers.  In 1999,  CompX  acquired two slide  producers,  and in January 2000
acquired another lock producer.  See Notes 3 and 5 to the Consolidated Financial
Statements.  Discontinued  operations  consist of the Company's  former building
products and fast food  operations.  See Note 19 to the  Consolidated  Financial
Statements.

         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 - "Quantative  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,"  "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  thereunder  and the
impact of TIMET's long-term contracts with certain of its vendors on its ability
to reduce or increase supply or achieve lower costs), customer inventory levels,
the  possibility  of labor  disruptions,  general  global  economic  conditions,
competitive   products  and   substitute   products,   customer  and  competitor
strategies,  the  impact  of  pricing  and  production  decisions,   competitive
technology   positions,   potential   difficulties   in  integrating   completed
acquisitions  (such as CompX's  acquisitions  of two slide producers in 1999 and
its acquisition of a lock producer in January 2000), environmental matters (such
as those  requiring  emission  and  discharge  standards  for  existing  and new
facilities),  government  regulations and possible changes therein, 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  currently  the  world's
fourth-largest  TiO2  producer,  with an estimated  12% share of worldwide  TiO2
sales volumes in 1999. Approximately one-half of Kronos' 1999 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 12% share of North American TiO2 sales volumes.  Ti02 accounted for
substantially all of NL's net sales in 1999.

         Pricing  within the global TiO2  industry is  cyclical,  and changes in
industry economic  conditions,  particularly  supply/demand  relationships,  can
significantly  impact NL's earnings and operating  cash flows.  During the early
1990's,  TiO2 supply  exceeded  demand,  primarily  due to new  chloride-process
capacity coming on-stream, and prices were generally declining.  Prices improved
in the mid-1990's  with a peak in the first half of 1995.  Prices declined until
the first  quarter of 1997,  when selling  prices of TiO2 began to increase as a
result of increased demand. Prices peaked in the fourth quarter of 1998.

         NL's  average  TiO2  selling  prices  declined  during the first  three
quarters of 1999.  However,  NL and other  major  producers  began to  implement
certain TiO2 price increases during the fourth quarter of 1999, and NL's average
TiO2 selling  prices  increased 1% in the fourth quarter of 1999 compared to the
third  quarter of 1999.  Overall,  NL's average  selling  prices in 1999 were 1%
lower than 1998.  Prices at the end of the fourth quarter of 1999 were 1% higher
than the average for the  quarter.  Industry-wide  demand for Ti02  increased in
1999,  with  second-half  1999 demand  higher than  first-half  1999 demand as a
result of, among other things,  customers  buying in advance of announced  price
increases. NL's 1999 sales volumes increased 5% from its 1998 sales volumes with
growth in all major regions.

         NL expects  industry  demand in 2000 will be relatively  unchanged from
1999, depending primarily upon global economic  conditions.  NL is continuing to
phase-in  previously-announced price increases during the first quarter of 2000.
In addition,  NL recently  announced a price increase in Europe that is expected
to become  effective  at the  beginning  of the second  quarter of 2000.  Should
demand in 2000 remain strong,  NL expects  additional  price  increases could be
announced  later in 2000.  No assurance can be given that demand or price trends
will conform to NL's expectations.  NL's expectations as to the future prospects
of the TiO2  industry  and prices are based on a number of factors  beyond  NL's
control,  including  continued  worldwide  growth  of  gross  domestic  product,
competition in the market place,  unexpected or  earlier-than-expected  capacity
additions,  technological  advancements and other market  conditions.  If actual
developments  differ from NL's  expectations,  NL and the TiO2 industry's future
performance could be unfavorably affected.

         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.

         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,
many of which utilize 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,  but not replace,  the utilization of higher-cost  TiO2. The use of
extenders has not  significantly  changed  anticipated 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 and Titanox trademarks, which provide a variety of performance properties
to meet customers' specific requirements. Kronos' 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 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' 1999 TiO2 sales were to Europe, with
37% to North America and the balance to export  markets.  Kronos'  international
operations  are  conducted  through  Kronos   International,   Inc.  ("KII"),  a
German-based  holding  company  formed in 1989 to  manage  and  coordinate  NL's
manufacturing  operations  in Europe  and  Canada  and its  sales and  marketing
activities in over 100 countries worldwide.

         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).  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  two-thirds of Kronos' current production capacity is based on its
chloride process, which generates less waste than the sulfate process.  Although
most  end-use   applications  can  use  pigments  produced  by  either  process,
chloride-process  pigments  are  generally  preferred  in certain  coatings  and
plastics applications,  and sulfate-process pigments are generally preferred for
certain paper, fibers and ceramics  applications.  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
in the past few years, and worldwide  chloride-process  production facilities in
1999 represented almost 60% of industry capacity.

         Kronos  currently  operates 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,  administrative and sales offices in the U.S. and
Europe.

         Kronos' principal German operating subsidiary leases the land under its
Leverkusen  production  facility  pursuant  to a lease  expiring  in  2050.  The
Leverkusen  facility,  with about  one-third of Kronos'  current 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.  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.

         Kronos  produced  411,000  metric tons of TiO2 in 1999  compared to its
record  level of 434,000  metric tons  produced in 1998 and 408,000  metric tons
produced in 1997. Due primarily to NL's decision to manage  inventory  levels by
curtailing  production  during  the  first  quarter  of  1999,  Kronos'  average
production  capacity  utilization was approximately 93% in 1999 compared to full
capacity  utilization in 1998.  Kronos  believes its current  annual  attainable
production capacity is currently  approximately  440,000 metric tons,  including
the  production  capacity  relating to its  one-half  interest in the  Louisiana
plant.

         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 beach sand ilmenite from Richards Bay
Iron and Titanium  (Proprietary)  Ltd.  (South Africa) under a long-term  supply
contract that expires at the end of 2003.  Natural rutile ore,  another chloride
feedstock,  is purchased  primarily  from Iluka  Resources,  Inc.  (formerly RGC
Mineral Sands Limited) under a long-term supply contract that expires at the end
of 2000.  NL 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 1999.  Kronos also purchases sulfate grade slag for its Canadian plant
from Rio Tinto Iron and  Titanium,  Inc.  (formerly  Q.I.T.  Fer et Titane Inc.)
under a long-term supply contract which expires in 2002.

         Kronos believes the availability of  titanium-containing  feedstock for
both the chloride and sulfate  processes is adequate for the next several years.
NL does not expect to encounter  difficulties or adverse financial  consequences
in obtaining  long-term  extensions to existing  supply  contracts  prior to the
expiration  dates of the  contracts.  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
where  NL  purchases  its raw  material  supplies  could  adversely  affect  the
availability of such feedstock.

         TiO2 manufacturing  joint venture.  Subsidiaries of Kronos and Huntsman
ICI 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.

         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.

         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  production costs and interest  expense,  if
any. Kronos' share of the production costs are reported as part of cost of sales
as the related TiO2 acquired  from the joint venture is sold,  and Kronos' share
of any joint  venture  interest  expense is reported as a component  of interest
expense.

         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 1999,
Kronos had an estimated 12% 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, Kemira Oy,
and Ishihara Sangyo Kaisha,  Ltd. These six largest  competitors  have estimated
individual  worldwide shares of TiO2 production capacity ranging from 5% to 23%,
and an aggregate estimated 74% 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.

         In June  1999,  Imperial  Chemicals  Industries  plc  ("ICI")  sold its
titanium dioxide business, including its 50%-ownership interest in the Louisiana
Ti02  manufacturing  joint  venture  discussed  above,  to HICI,  a newly formed
company  that is  70%-owned  by Huntsman  Corporation  and  30%-owned by ICI. In
February  2000,  Kerr-McGee  announced  an agreement  to acquire  Kemira's  Ti02
business in The  Netherlands  and the U.S.  If this  acquisition  is  completed,
Kronos would become the world's fifth-largest Ti02 producer.

         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,  but NL expects  industry  capacity to
increase  as Kronos and its  competitors  complete  debottlenecking  projects at
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.

         Research and development.  Kronos' annual expenditures for research and
development and certain technical  support programs have averaged  approximately
$7 million during the past three years. TiO2 research and development activities
are conducted principally at KII's 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 and Titanox,  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.
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, 1999,  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 (conducted principally through its
Ti02 joint venture) are governed by federal  environmental and worker health and
safety laws and regulations,  principally the Resource Conservation and Recovery
Act, the Occupational  Safety and Health Act, the Clean Air Act, the Clean Water
Act,  the Safe  Drinking  Water Act, the Toxic  Substances  Control Act, 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  is in  substantial  compliance  with
applicable  requirements of these laws or compliance  orders issued  thereunder.
From time to time,  NL  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  environmental
authorities  and with an EU directive to control the effluents  produced by 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.

         In  order to  reduce  sulfur  dioxide  emissions  into  the  atmosphere
consistent  with  applicable  environmental  regulations,  Kronos  completed the
installation  of off-gas  desulfurization  systems in 1997 at its  Norwegian and
German plants at a cost of $30 million. Kronos expects to complete an $8 million
landfill  expansion  in 2000 for its Belgian  plant which will provide the plant
with twenty years of storage space for neutralized chloride process solids.

         NL's  capital  expenditures   related  to  its  ongoing   environmental
protection  and  compliance  programs are currently  expected to  approximate $7
million in 2000 and $11 million in 2001.

         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,
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 ergonomic computer support
systems,  precision ball bearing slides and security products (cabinet locks and
other locking  mechanisms) for office furniture,  computer related  applications
and a variety of other applications.  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
1999,  precision ball bearing  slides,  ergonomic  computer  support systems and
security  products  accounted for  approximately  48%, 19% and 33% of net sales,
respectively.

         In 1998, CompX acquired two lock producers. In 1999, CompX acquired two
slide producers. In January 2000, CompX acquired another lock producer. See Note
3 to the Consolidated  Financial  Statements and  "Management's  Discussions and
Analysis of  Financial  Condition  and  Results of  Operations  - Liquidity  and
Capital  Resources." These  acquisitions have expanded CompX's product lines and
customer base.

         Products,  product design and development.  CompX's ergonomic  computer
support  systems and precision  ball bearing  slides 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.

         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,  the  Lift-n-Lock  mechanism  that allows  adjustment of the keyboard arm
without  the use of levers or knobs and  Monitor  Master for the  adjustment  of
heavy monitors to reduce eye strain.  In 1999, CompX began a program in which it
will use its  engineering  and design  capabilities  to design  and  manufacture
ergonomic products on a proprietary basis for key customers.

         Precision  ball bearing  slides are used in such  applications  as file
cabinets,  desk  drawers,  tool  storage  cabinets,   electromechanical  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 vending machines,  computers,  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.

         Sales,  marketing and distribution.  CompX sells components to original
equipment manufacturers ("OEMs") and to distributors through a specialized sales
force.  The majority of CompX's sales is 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 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.

         To afford a  competitive  advantage  to CompX as well as to  customers,
sales of ergonomic  computer  support  systems and precision  ball bearing slide
products  in North  America  are  delivered  from  CompX's  Canadian  facilities
primarily   by   means   of  a   company-owned   tractor/trailer   fleet.   This
satellite-monitored  fleet improves the timely and economic delivery of products
to customers.  Another important  economic  advantage to CompX's customers of an
in-house  trucking  fleet is that it allows the  shipment  of many  products  in
returnable  metal baskets (in lieu of corrugated  paper  cartons),  which avoids
both the environmental and economic burden of disposal.

         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  component  products
operations.  In 1997 and 1999, the ten largest customers accounted for about 30%
of  component  products  sales with the largest  customer  less than 10% in each
year. In 1998, the ten largest customers accounted for 40% of CompX's sales with
one customer, Hon Industries Inc., accounting for approximately 10% of sales.

         Manufacturing and operations.  At December 31, 1999, CompX operated six
manufacturing  facilities in North  America (two in each of Ontario,  Canada and
Illinois 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 one of the  facilities in Taiwan,  which is leased.  CompX
also leases a distribution  center in California.  The lock producer acquired in
January 2000 operates out of a leased facility in Wisconsin. 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 on the spot market 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,  and  consequently
overall operating margins can be affected by such raw material cost pressures.

         Competition  and  customer  base.  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 and 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.

         Ergonomic  computer  support  systems and precision ball bearing slides
are sold primarily to the office furniture manufacturing industry. Approximately
15% of security product sales are made through CompX's STOCK LOCKS  distribution
program,  in which  shipments to customers are  generally  made within 24 hours.
Most remaining security products are made through OEMs.

         CompX competes in the ergonomic computer support system market with one
major producer and a number of smaller  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 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 competitors, which makes significant 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, and
owns a number of trademarks and brand names,  including  National  Cabinet Lock,
Fort Lock,  Timberline Lock,  Chicago Lock, Thomas Regout,  Tubar,  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  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, 1999, CompX employed approximately 2,145
employees,  including  700 in the  United  States,  890  in  Canada,  385 in The
Netherlands and 130 in Taiwan.  Approximately 85% of CompX's employees in Canada
are covered by a collective  bargaining  agreement which expired in January 2000
and is currently being renegotiated. The provisions of the expired agreement are
being  maintained  during the negotiation  period for a new agreement.  The lock
operations  acquired in January 2000 employed  approximately  240 individuals at
the date of acquisition.  Substantially  all of the 170 hourly employees of such
operation are covered by a collective  bargaining  agreement expiring in October
2000. CompX believes that 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
February  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 such
radioactive  wastes. To date, Valhi has contributed $55 million to Waste Control
Specialists'  equity in  return  for its 69%  membership  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 the
Resource Conservation and Recovery Act ("RCRA") and the Toxic Substances Control
Act ("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
February 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  expects to begin
construction  during 2000 for the next 240,000 cubic yards of 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 a salesforce 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 Waste Management,  Inc.,  Safety-Kleen  Corp.,  American Ecology
Corporation,  U.S. Pollution Control,  Inc. 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, 1999,  Waste Control  Specialists  employed
approximately 120 persons.

         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 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'  ten-year RCRA and TSCA permits  expire in 2004,  although
such  permits  are  subject  to  renewal  if  Waste  Control  Specialists  is in
compliance with the required operating provisions of the permits.

         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  would 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 one of the world's
leading integrated  producers of titanium sponge,  ingot, slab and mill products
and has the  largest  sales  volumes  worldwide.  TIMET is the  only  integrated
producer  with major  manufacturing  facilities  in both the  United  States and
Europe, the world's principal markets for titanium. TIMET estimates that in 1999
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 1999,
the number of  non-aerospace  end-use markets for titanium has expanded.  Today,
numerous  industrial uses for titanium exist,  including chemical and industrial
power  plants,   desalination  plants,  pollution  control  equipment,   medical
implants,  sporting  equipment,  offshore oil and gas production  installations,
geothermal  facilities,  military  armor,  automotive  and  architectural  uses.
Several of these emerging applications  represent potential growth opportunities
that TIMET  believes  may reduce the  industry's  historical  dependence  on the
aerospace market.

         Recent 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  companies,  which had cyclical peaks in
mill  products  shipments in 1980,  1989 and 1997 and cyclical  lows in 1983 and
1991. During 1996 to 1998, TIMET reported  aggregate net income of $176 million,
which  substantially  more than offset the  aggregate  net losses of $93 million
TIMET reported during the 1991 to 1995 period.  TIMET reported a net loss of $31
million in 1999.  TIMET's  outlook for 2000 remains  weak,  and TIMET expects to
report a net loss in 2000  greater  than its  1999  net  loss.  TIMET  currently
expects to return to profitability in late 2001.

         Demand for titanium reached a peak in 1997 when worldwide industry mill
product shipments  aggregated 60,000 metric tons. Since this peak, industry mill
product shipments declined 10% in 1998 to approximately  54,000 metric tons, and
further declined 11% in 1999 to approximately  48,000 metric tons. Industry mill
product  shipment  volumes are  expected  to be lower in 2000  compared to 1999,
although  the rate of  decline  is not  expected  to be as high as the  rates of
decline  experienced  during each of the past two years. TIMET believes that the
reduction in demand for aerospace  products is  attributable to a decline in the
number  of  commercial  aircraft  forecast  to  be  produced,   particularly  in
titanium-intensive  wide body  planes,  compounded  by  reductions  in  customer
inventory  levels  throughout the aerospace  industry  supply chain as customers
adjust to decreases in overall production rates.  Industrial demand for titanium
has also declined due to weakness in Asian and other economies.

         Aerospace demand for titanium products,  which includes both jet engine
components such as rotor blades,  discs,  rings and engine cases,  and air frame
components,  such as bulkheads,  tail sections,  landing gear and wing supports,
can be broken down into commercial and military sectors.  Industry  shipments to
the commercial aerospace sector in 1999 accounted for approximately 85% of total
aerospace demand (35% of total titanium demand).

         TIMET believes  commercial  aircraft deliveries peaked in 1999. Current
expected deliveries for 2000 and 2001, while below the record levels of 1998 and
1999,  are still high by historical  standards,  and the current  generations of
airplanes use substantially more titanium than its predecessors.  The demand for
titanium generally  precedes aircraft  deliveries by about a year, which results
in TIMET's  cycle  preceding  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  result in
demand for titanium.

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

         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,  welded pipe,  pipe fittings,  extrusions  and wire.  TIMET sends
certain products to outside vendors for further  processing before being shipped
to customers or to TIMET's service centers.  TIMET's  customers  usually process
TIMET's products for their ultimate end-use or for sale to third parties.

         During the production process and following the completion of products,
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 is dependent  upon the services of outside  processors to perform
important  processing  functions  with  respect to certain of its  products.  In
particular,  TIMET currently  relies upon a single  processor to perform certain
rolling  steps  with  respect to some of its  plate,  sheet and strip  products.
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  business,  results  of  operations,
financial condition and cash flows in the short term. TIMET is exploring ways to
lessen its dependence on any individual processor.

         Raw  materials.  The principal raw materials  used in the production of
titanium  mill  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.

         While TIMET is one of six major worldwide producers of titanium sponge,
it cannot supply 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.
During  1999,  approximately  25% of  TIMET's  production  was made from  sponge
internally  produced  by  TIMET,  35% was from  purchased  sponge,  32% was from
titanium  scrap and the  remainder  from  alloying  elements.  Based on  TIMET's
evaluation of the relative cost of raw materials and the technical  requirements
of  TIMET's  customers,  TIMET  expects  the mix of raw  materials  in 2000 will
generally be consistent with its 1999 raw material mix. TIMET expects to receive
all of its 2000 purchased sponge needs from suppliers in Japan and Kazakhstan.

         TIMET has entered into  agreements with certain key suppliers that were
intended  to  assure  anticipated  raw  material  needs  to  satisfy  production
requirements for TIMET's key customers.  Primarily because of the lack of orders
from Boeing discussed  below, the order flow did not meet  expectations in 1999,
and TIMET restructured the terms of certain  agreements.  For example,  in 1997,
TIMET  entered into a ten-year  agreement  for the  purchase of titanium  sponge
produced in Kazakhstan to support  demand for both  aerospace and  non-aerospace
applications.  This sponge purchase  agreement provides for firm pricing for the
first five  years  (subject  to certain  possible  adjustments).  This  contract
provides  for annual  purchases  by TIMET of 6,000 to 10,000  metric  tons.  The
parties  agreed to a reduced  minimum  for 1999 and 2000.  Due to a decrease  in
demand for  titanium,  TIMET has  abandoned its plans to purchase on a long-term
basis premium quality sponge in Japan.

         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,  Africa (South Africa and
Sierra  Leone),  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.  In
addition,  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.  Chlorine is currently  obtained from a single source
near TIMET's Nevada plant,  but alternative  suppliers are available.  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.

         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 ten service  centers (six in the United
States and four 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 2000
worldwide  melting  capacity   aggregates   approximately   48,000  metric  tons
(estimated 26% 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,  62% by vacuum arc remelting ("VAR")
furnaces and 3% 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 1997, TIMET's plants operated
at 90% of  practical  capacity,  decreasing  to 80% in 1998 and 55% in 1999.  In
2000, TIMET's plants are expected to operate at about 50% of practical capacity.
During 1998 and 1999,  TIMET closed or idled  certain  facilities in response to
changing market conditions.

         TIMET's VDP sponge facility is expected to operate at approximately 60%
of its annual  practical  capacity  of 9,100  metric  tons  during  2000,  which
approximates  the 1999 level of utilization  and is down from 85% utilization in
1998. VDP sponge is used principally as a raw material for TIMET's ingot melting
facilities in the U.S., with some VDP production  used in Europe.  TIMET expects
the  consumption  of VDP  sponge  in its  European  operations  to  increase  to
one-third of their sponge  requirements in 2000, which is expected to assist the
Nevada facility in maintaining  operating volumes and manufacturing  cost rates.
Due  to  changing  market  conditions  for  certain  grades  of  sponge,   TIMET
temporarily  idled its older  Kroll-leach  process sponge plant in Nevada at the
end of March 1999.  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
2000, with certain production facilities temporarily idled.

         Titanium  mill  products  are  principally  produced  at a forging  and
rolling facility in Ohio, which receives  titanium ingots and slabs from TIMET's
U.S.  melting  facilities.  These  facilities  are expected to operate at 55% of
practical capacity in 2000.

         One of TIMET's  facilities  in the United  Kingdom  produces VAR ingots
which are both sold to customers and used 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 and 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  2000  is  expected  to be
approximately 60% and 55%, respectively, of practical capacity.

         Sponge for melting  requirements  in both the United Kingdom and France
is purchased principally from suppliers in Japan and Kazakhstan,  with one-third
of 2000  European  requirements  expected to be  provided by TIMET's  Nevada VDP
plant.

         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 ten  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.

         About 50% of TIMET's 1999 sales were to customers within North America,
with about 42% to European customers and the balance to other regions. No single
customer  represents  more than 10% of TIMET's direct sales.  However,  in 1999,
about 85% of TIMET's mill product shipment sales were used by TIMET's  customers
to produce parts and other materials for the aerospace  industry.  TIMET expects
that a majority of its 2000 sales will be to the aerospace sector.

         The aerospace  industry  consists of two major  manufacturers  of large
(over 100 seats) commercial  aircraft (Boeing Commercial  Airplane Group and 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  Boeing,  Rolls-Royce,  United  Technologies  Corporation (and related
companies) and  Wyman-Gordon  Company.  These agreements are intended to provide
for (i) minimum market shares of the customers' titanium requirements (generally
at least  70%)  for  extended  periods  (nine to ten  years)  and (ii)  fixed or
formula-determined  prices  generally  for at least the first five  years.  With
respect  to the  Boeing  contract,  TIMET  believes  its  orders  in  1999  were
significantly  below  contractual  volume   requirements.   TIMET  has  received
virtually no  Boeing-related  orders  under the  contract  for 2000.  Boeing has
informed TIMET that they will either order the required contractual volume under
the  contract  in  2000  or  pay  the  liquidated  damages  provided  for in the
agreement.  Beyond 2000, Boeing is unwilling to commit to the contract. On March
21, 2000,  TIMET filed a lawsuit  against Boeing in Colorado state court seeking
damages for  Boeing's  repudiation  and breach of the Boeing  contract.  TIMET's
complaint  seeks  damages from Boeing that TIMET  believes are in excess of $600
million and a declaration from the court of TIMET's rights under the contract.

         TIMET's  order backlog was  approximately  $195 million at December 31,
1999,  down from $350  million at December 31, 1998 and $530 million at December
31,  1997.  Substantially  all of the 1999  year-end  backlog is  expected to be
delivered  during 2000.  Although  TIMET believes that the backlog is a reliable
indicator of near-term business  activity,  conditions in the aerospace industry
could  change  and  result in future  cancellations  or  deferrals  of  existing
aircraft orders and materially and adversely  affect TIMET's  existing  backlog,
orders, and future financial condition and operating results.

         As of December 31, 1999,  the  estimated  firm order backlog for Boeing
and Airbus,  as reported by The Airline  Monitor,  was 2,943 planes versus 3,224
planes at the end of 1998 and 2,753  planes at the end of 1997.  The newer  wide
body planes,  such as the Boeing 777 and the Airbus A-330 and A-340, 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  1999 was 679 (23% of total
backlog) compared to 820 (25%) at the end of 1998.

         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, the Former Soviet Union ("FSU") and China. TIMET is one
of five 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  believes  that most  producers  will  generally
operate at lower capacity  utilization  levels in 2000 than in 1999,  increasing
price competition.

         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 and the FSU,  existing and prior duties  (including  antidumping  duties).
However, imports of titanium sponge, scrap, and mill products,  principally from
the FSU, 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  such sponge,  scrap or  intermediate
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 nations" 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.  Starting in 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.  The GSP program has been
renewed for two years and is  scheduled to expire  during the second  quarter of
2001.

         In 1997,  GSP benefits to these  products were suspended when the level
of Russian  wrought  products  imports  reached  50% of all  imports of titanium
wrought  products.  A petition was filed in 1997 to restore  duty-free status to
these  products,  and that  petition was granted in June 1998.  In  addition,  a
petition was also filed to bring unwrought products under the GSP program, which
would allow such products from the countries of the FSU (notably  Russia and, in
the case of sponge, Kazakhstan and Ukraine) to be imported into the U.S. without
the payment of regular duties. This petition  concerning  unwrought products has
not been  acted  upon  pending  further  investigation  of the  merits of such a
change.

         In addition to regular duties,  titanium sponge imported from countries
of the FSU (Russia,  Kazakhstan  and Ukraine) has for many years been subject to
substantial  antidumping  penalties.  In addition,  titanium sponge imports from
Japan were subject to a standing  antidumping  order,  but no penalties had been
attached in recent years. In 1998, the  International  Trade Commission  revoked
all outstanding antidumping orders on titanium sponge based upon a determination
that changed  circumstances in the industry did not warrant  continuation of the
orders.  TIMET has appealed that decision,  and briefing  concluded in the third
quarter of 1999. A decision is expected  during 2000 and until such  decision is
reached, the orders remain revoked.

         Further  reductions in, or the complete  elimination  of, all or any of
these tariffs 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  TIMET's  business,  financial  condition,  results  of
operations and cash flows. However,  TIMET has, in recent years, been one of the
largest  importers 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 mitigated 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 produce 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,  which  TIMET
believes is one of the largest titanium research and development  centers in the
world.  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, 1999, TIMET employed approximately 2,350
persons (1,490 in the U.S. and 860 in Europe), down from a total of 2,740 at the
end of 1998 and 3,025 at the end of 1997.  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 2000 and
June 2002,  respectively.  Negotiations  with respect to the Nevada contract are
expected to begin during the third  quarter of 2000.  Employees at TIMET's other
U.S. facilities are not covered by collective bargaining agreements. Over 70% of
the salaried and hourly employees at TIMET's European facilities are represented
by various  European  labor  unions,  generally  under  annual  agreements,  the
majority  of which are  still  under  negotiation  for 2000.  TIMET  expects  to
successfully  complete the  negotiation  of a one year contract in the U.K. that
would  include a modest wage  increase.  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  business,
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 and the Resource  Conservation  and Recovery Act. 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 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  business,  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 are
generally  less  stringent  than U.S.  laws and which have not had,  and are not
presently expected to have, a material adverse effect on TIMET.

         TIMET  believes that its  operations  are in compliance in all material
respects with applicable  requirements of environmental  and worker 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  protection and compliance of
approximately   $4  million  in  1999,  and  its  capital  budget  provides  for
approximately $5 million of such expenditures in 2000.  However,  the imposition
of  more  strict  standards  or  requirements   under   environmental  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
20% 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.  (formerly  Victory  Valley Land Company,  L.P.),
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 beginning in 1999,
component  products  operations in The Netherlands and Taiwan. See Note 2 to the
Consolidated  Financial  Statements.  Approximately  three-quarters of NL's 1999
TiO2 sales were to non-U.S. customers, including 11% to customers in areas other
than Europe and Canada.  Substantially all of CompX's 1999 non-U.S. sales are to
customers located in Canada and Europe.  About half of TIMET's 1999 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 - "Quantative 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),  and the Company has in the past
used currency forward contracts to fix the dollar equivalent of specific foreign
currency  commitments.  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 18 to the Consolidated  Financial Statements under the captions
"Legal proceedings -- lead pigment litigation" and - "Environmental  matters and
litigation" is incorporated herein by reference.

         Discontinued  operations.  See  Note 19 to the  Consolidated  Financial
Statements.

         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 18 to the  Consolidated  Financial  Statements  under  the
caption  "Legal   proceedings  --  Other   litigation,"   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 other manufacturers are responsible for personal injury, property damage and
government  expenditures  allegedly associated with the use of lead pigments. 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 lead pigment and lead-based  paint litigation
is without  merit.  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.  The actions,  which were pending
in the Civil District Court for the Parish of Orleans, State of Louisiana,  were
dismissed  by  the  district  court  in  1990.  Subsequently,   HANO  agreed  to
consolidate  all the cases and appealed.  In March 1992, the Louisiana  Court of
Appeals,  Fourth  Circuit,  dismissed  HANO's appeal as untimely with respect to
three of these cases.  With  respect to the other cases  included in the appeal,
the court of appeals  reversed the lower court  decision  dismissing  the cases.
These cases were  remanded to the  District  Court for further  proceedings.  In
November  1994,  the  District  Court  granted  defendants'  motion for  summary
judgment  in one of the  remaining  cases  and in June 1995 the  District  Court
granted  defendants'  motion for summary  judgment  in several of the  remaining
cases.  After such grant, only two cases remained pending and have been inactive
since 1992 (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).

         In June 1989, a complaint  was filed in the Supreme  Court of the State
of New York, County of New York, against the pigment  manufacturers and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount 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). In December 1991, the court granted the defendants' motion to
dismiss claims alleging negligence and strict liability and denied the remainder
of the motion. In January 1992, defendants appealed the denial. In May 1993, the
Appellate  Division of the Supreme  Court  affirmed  the denial of the motion to
dismiss plaintiffs' fraud,  restitution and indemnification claims. In May 1994,
the trial  court  granted  the  defendants'  motion to dismiss  the  plaintiffs'
restitution and  indemnification  claims, the plaintiffs  appealed,  and in June
1996  the  Appellate  Division  reversed  the  trial  court's  dismissal  of the
restitution and  indemnification  claims,  reinstating those claims. In December
1998,  plaintiffs  moved for partial summary  judgment on their claims of market
share, alternative liability, enterprise liability and concert of action, and in
April 1999  defendants  moved for  summary  judgment  on statute of  limitations
grounds.  In September 1999, the trial court denied the plaintiffs'  motions for
summary  judgment on market share and conspiracy  issues and denied  defendants'
motion for summary judgment on statute of limitations  grounds.  Plaintiffs have
appealed the denial of their motions.  In February 1999,  claims by the New York
City and the New York City  Health  and  Hospital  Corporation  plaintiffs  were
dismissed  with  prejudice and they are no longer  parties to the case.  Also in
February 1999, the New York City Housing Authority  dismissed with prejudice all
of its claims  except for claims for damages  relating to two housing  projects.
Discovery has resumed.

         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.
The  amended  complaint  asserts  causes  of  action  under  theories  of strict
liability,  negligence  per  se,  negligence,  breach  of  express  and  implied
warranty,  fraud, nuisance,  restitution,  and negligent infliction of emotional
distress.  The complaint  asserts several theories of liability  including joint
and several,  market share,  enterprise and  alternative  liability.  Plaintiffs
moved for class certification in October 1998, and all briefing on the issue was
completed in April 1999.  No decision  regarding  class  certification  has been
issued by the trial court.

         In November 1993, NL was served with a complaint in Brenner,  et al. v.
American Cyanamid, et al. (No. 12596-93), Supreme Court, State of New York, Erie
County alleging injuries to two children purportedly caused by lead pigment. The
complaint seeks $24 million in compensatory  and $10 million in punitive damages
for  alleged   negligent   failure  to  warn,   strict   liability,   fraud  and
misrepresentation,  concert of action, civil conspiracy,  enterprise  liability,
market share  liability,  and alternative  liability.  In June 1998,  defendants
moved for partial  summary  judgment  dismissing  plaintiffs'  market  share and
alternative   liability  claims.  In  January  1999,  the  trial  court  granted
defendants'  summary  judgment motion to dismiss the  alternative  liability and
enterprise liability claims, but denied defendants' motion to dismiss the market
share  liability  claim.  In May 1999,  defendants  appealed the denial of their
motion to dismiss the market share  liability  claim,  and in December 1999, the
Appellate  Division  Fourth  Department  reversed the trial court's market share
decision,  thus granting  defendants' summary judgment motion on that claim. The
case has been  remanded  to the  trial  court  for  further  proceedings  on the
remaining claims. Plaintiffs are seeking a review in the Court of Appeals.

         In  April  1997,  NL was  served  with a  complaint  in  Parker  v.  NL
Industries,  Inc., et al. (Circuit Court, Baltimore City, Maryland, No. 97085060
CC915).  Plaintiff,  now an adult,  and his wife seek  compensatory and punitive
damages from NL,  another  former  manufacturer  of lead paint and a local paint
retailer,  based on  claims  on  negligence,  strict  liability  and  fraud  for
plaintiff's  alleged  ingestion of lead paint as a child.  In February 1998, the
Court dismissed the fraud claim,  and in July 1998 the Court granted NL's motion
for summary  judgment  on all  remaining  claims.  Plaintiffs  appealed,  and in
September  1999 the  Special  Court of  Appeals  reversed  the grant of  summary
judgment to defendants.  In December 1999, the Court of Appeals denied review of
the Special Court of Appeals' decision. Trial has been set for May 2000.

         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  persons  similarly
situated.   The  complaint  alleges  against  NL,  the  LIA,  and  other  former
manufacturers  of lead pigment  various causes of action  including  negligence,
strict products liability, fraud and misrepresentation, concert of action, civil
conspiracy,  enterprise liability, market share liability, breach of warranties,
nuisance  and  violation  of New  York  State's  consumer  protection  act.  The
complaint  seeks  damages for  establishment  of property  abatement and medical
monitoring funds and compensatory damages for alleged injuries to plaintiffs. In
February  2000,  the trial  court  granted  defendants'  motions to dismiss  the
product defect, express warranty, nuisance and consumer fraud statute claims.

         In April 1999, NL was served with an amended complaint in Sweet, et al.
v. Sheahan, et al., (U.S.  District Court,  Northern District of New York, Civil
Action  No.  97-CV-1666/LEK-DNH),  adding  NL  and  other  defendants  to a suit
originally filed against plaintiffs' landlord.  Plaintiffs,  a parent and child,
allege injuries  purportedly caused by lead pigment, and seek recovery of actual
and punitive damages from their landlord,  alleged former  manufacturers of lead
pigment and the Lead  Industries  Association,  and purport to allege  causes of
action against the former  pigment  manufacturers  based on  negligence,  strict
product  liability,  fraud  and  misrepresentation,  concert  of  action,  civil
conspiracy and market share liability.  In November 1999, the trial court denied
defendants'  motion to dismiss  based upon absence of federal  jurisdiction.  In
January 2000, the court certified for interlocutory  review the issue of federal
jurisdiction.  Defendants  have  requested  such review  from the U.S.  Court of
Appeals for the Second Circuit.

         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.  Plaintiff  alleges strict liability,
negligence,    negligent    misrepresentation    and    omissions,    fraudulent
misrepresentations  and  omissions,  concert of  action,  civil  conspiracy  and
enterprise   liability   causes  of  action   against  NL,  seven  other  former
manufacturers of lead products  contained in paint and the LIA. In January 2000,
NL filed an answer denying all allegations of wrongdoing and liability,  and all
manufacturer  defendants  filed a motion to dismiss the product defect claim and
strike the demand for relief under the Wisconsin consumer protection statute.

         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).  Rhode  Island,  by  and  through  its  Attorney  General,  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 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 Lead  Industries
Association.  Plaintiffs  allege public nuisance,  violation of the Rhode Island
Unfair  Trade  Practices  and  Consumer   Protection   Act,  strict   liability,
negligence,    negligent    misrepresentation    and    omissions,    fraudulent
misrepresentation and omissions, civil conspiracy, unjust enrichment,  indemnity
and equitable relief to protect children.  In January 2000,  defendants moved to
dismiss all claims. Plaintiffs' response is not yet due.

         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 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 NL, fourteen other companies alleged to
have  manufactured  lead  pigment,  paint and/or  gasoline  additives,  the Lead
Industries  Association  and the  National  Paint and Coatings  Association  are
jointly and severally  liable for alleged  negligent  product design,  negligent
failure to warn, supplier negligence,  strict liability/defective design, strict
liability/failure  to  warn,  nuisance,   indemnification,   fraud  and  deceit,
conspiracy,  concert of action,  aiding and abetting,  and enterprise liability.
Plaintiffs  seek damages in excess of $20,000 per  household.  In October  1999,
defendants  removed  the case to  Maryland  federal  court.  In  February  2000,
defendants moved to dismiss the design defect, fraud and deceit, indemnification
and nuisance claims.

         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, six minors, each seek compensatory damages
of $5 million and punitive  damages of $10 million.  Plaintiffs  allege that NL,
fourteen other companies alleged to have manufactured lead pigment, paint and/or
gasoline additives,  the Lead Industries  Association and the National Paint and
Coatings  Association  are jointly and  severally  liable for alleged  negligent
product  design,  negligent  failure  to warn,  supplier  negligence,  fraud and
deceit,   conspiracy,   concert  of  action,   aiding   and   abetting,   strict
liability/failure  to warn and  strict  liability/defective  design.  In October
1999, defendants removed the case to Maryland federal court and in November 1999
the case was  remanded  to state  court.  In  February  2000,  NL  answered  the
complaint  and denied all  allegations  of  wrongdoing  and  liability,  and all
defendants  filed  motions to dismiss  the  product  defect and fraud and deceit
claims.

         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, 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, eight other companies  alleged to have  manufactured lead products for paint
and the LIA.  Plaintiff  alleges claims of public nuisance,  product  liability,
negligence,  negligent misrepresentation,  fraudulent  misrepresentation,  civil
conspiracy,  unjust enrichment and indemnity. NL intends to deny all allegations
of wrongdoing and liability and to defend the case vigorously.

         NL believes that 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.

         NL has 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).  The action relating to lead pigment
litigation  defense costs,  filed in May 1990 against Commercial Union Insurance
Company ("Commercial Union") seeks 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. In July 1991, the court granted NL's motion for summary  judgment
and  ordered  Commercial  Union to pay NL's  reasonable  defense  costs for such
cases. In June 1992, NL filed an amended complaint in the United States District
Court for the District of New Jersey against Commercial Union seeking to recover
costs incurred in defending four  additional lead pigment cases which have since
been resolved in NL's favor.  In August 1993,  the court granted NL's motion for
summary  judgment and ordered  Commercial  Union to pay the reasonable  costs of
defending  those cases.  In July 1994,  the court entered  judgment on the order
requiring  Commercial  Union to pay  previously-incurred  NL costs in  defending
those cases.  In September 1995, the U.S. Court of Appeals for the Third Circuit
reversed and remanded for further  consideration the decision by the trial court
that  Commercial  Union was  obligated to pay the Company's  reasonable  defense
costs in certain of the lead  pigment  cases.  The trial court made its decision
applying New Jersey law; the Appeals Court  concluded that New York law, and not
New  Jersey  law,  applied  and  remanded  the  case to the  trial  court  for a
determination under New York law. On remand from the Court of Appeals, the trial
court in April 1996  granted  NL's motion for  summary  judgment,  finding  that
Commercial Union had a duty to defend NL in the four lead paint cases which were
the subject of NL's second  amended  complaint.  The court also issued a partial
ruling on  Commercial  Union's  motion for  summary  judgment in which it sought
allocation of defense  costs and  contribution  from NL and two other  insurance
carriers  in  connection  with three  lead paint  actions on which the court had
granted NL summary  judgment in 1991. The court ruled that  Commercial  Union is
entitled to receive  contribution  from NL and the two  carriers,  but  reserved
ruling  with  respect to the  relative  contributions  to be made by each of the
parties,  including  contributions  by NL that may be required  with  respect to
periods in which NL was  self-insured and  contributions  from one carrier which
were reinsured by a former  subsidiary of NL, the reinsurance  costs of which NL
may  ultimately  be required to bear.  In June 1997,  NL reached a settlement in
principle  with its insurers  regarding  allocation of defense costs in the lead
pigment cases in which  reimbursement  of defense  costs had been sought.  Other
than  granting  motions for  summary  judgment  brought by two excess  liability
insurance carriers,  which contended their policies contained absolute pollution
exclusion  language,  and certain  summary  judgment  motions  regarding  policy
periods,  the Court has not made any final rulings on defense costs or indemnity
coverage  with respect to NL's  pending  environmental  litigation.  Nor has the
Court  made  any  final  rulings  on  indemnity  coverage  in the  lead  pigment
litigation.  No trial dates have been set.  Other than ruling to date, the issue
of whether  insurance  coverage  for defense  costs or indemnity or both will be
found to exist depends upon a variety of factors,  and there can be no assurance
that such  insurance  coverage will exist in other cases.  NL has not considered
any potential insurance recoveries for lead pigment or environmental  litigation
in determining related accruals.

         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, 1999,  NL had accrued $112 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
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 $150 million. 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 respecting 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 February 1992, the court entered a case  management  order  directing
that the remedy issues be tried before the liability  aspects are presented.  In
September  1995, the U.S. EPA released its amended  decision  selecting  cleanup
remedies for the Granite City site. NL is presently challenging certain portions
of the U.S.  EPA's  selection  of the remedy.  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.

         At the  Pedricktown,  New Jersey lead smelter formerly owned by NL, the
U.S.  EPA has  divided  the site  into two  operable  units.  Operable  unit one
addresses  contaminated ground water, surface water, soils and stream sediments.
In July 1994,  the U.S. EPA issued the Record of Decision for operable unit one.
The U.S. EPA estimates the cost to complete the remediation of operable unit one
is $18.7  million.  In May  1996,  certain  PRPs,  but not NL,  entered  into an
administrative  consent order with the U.S. EPA to perform the remedial phase of
operable unit one. In June 1998, NL entered into a consent  decree with the U.S.
EPA and other PRPs to perform the remedial action phase of operable unit one. In
addition,  in March 1999 NL executed an agreement in principle with certain PRPs
with  respect  to NL's  liability  at this  site to  settle  the  matter  within
previously-accrued  amounts.  The U.S.  EPA  issued  an order  with  respect  to
operable  unit two in March  1992 to NL and 30 other  PRPs  directing  immediate
removal  activities  including the cleanup of waste,  surface water and building
surfaces.  NL has complied with the order, and the work with respect to operable
unit two is completed. NL has paid approximately 50% of operable unit two costs,
or $2.5 million.

         Having completed the RIFS at NL's former Portland,  Oregon lead smelter
site, NL conducted  predesign studies to explore the viability of the U.S. EPA's
selected  remedy  pursuant to a June 1989 consent  decree  captioned  U.S. v. NL
Industries, Inc., Civ. No. 89-408, United States District Court for the District
of  Oregon.  In May 1997,  the U.S.  EPA issued an  Amended  Record of  Decision
("ARD") for the soils  operable  unit  changing  portions of the cleanup  remedy
selected.  The ARD  requires  construction  of an  onsite  containment  facility
estimated to cost between $11.5  million and $13.5  million,  including  capital
costs and  operating  and  maintenance  costs.  NL and  certain  other PRPs have
entered  into a consent  decree to perform  the  remedial  action in the ARD. In
November  1991,  Gould,  Inc.,  the current owner of the site,  filed an action,
Gould Inc. v. NL Industries, Inc., No. 91-1091, United States District Court for
the District of Oregon,  against NL for damages for alleged fraud in the sale of
the  smelter,  rescission  of  the  sale,  past  CERCLA  response  costs  and  a
declaratory  judgment  allocating future response costs and punitive damages. In
February  1998, NL and the other  defendants  reached an agreement  settling the
litigation by NL agreeing to pay a portion of future costs,  which are estimated
to be  within  previously-accrued  amounts.  The  capital  construction  for the
remediation is expected to be completed in 2000.

         In 1999, NL and other PRPs entered into an administrative consent order
with the  U.S.  EPA  requiring  the  performance  of a RIFS at two  subsites  in
Cherokee  County,  Kansas,  where NL and others  formerly mined lead and zinc. A
former  NL  subsidiary  mined at the  Baxter  Springs  subsite,  where it is the
largest  viable PRP. In August 1997,  the U.S. EPA issued the record of decision
for the Baxter  Springs and Treece  subsites.  The U.S.  EPA has  estimated  the
selected  remedy will cost an aggregate of  approximately  $7.1 million for both
subsites ($5.4 million for the Baxter Springs subsite). In 1999, NL entered into
a consent decree with the U.S. EPA resolving its liability at the Baxter Springs
subsite,  and NL has  reached an  agreement  in  principle  with other PRPs with
respect to allocation of this subsite's  costs. NL and other PRPs are performing
an investigation of four additional subsites in Cherokee County.

         In 1996,  the U.S.  EPA  ordered  NL to  perform a removal  action at a
facility in Chicago,  Illinois  formerly  owned by NL. NL is complying  with the
order and has completed the on-site work at the facility.  Offsite contamination
is being investigated.

         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.  NL answered  the  complaint,  denying
liability.  In  December  1994,  the jury  returned  a  verdict  in favor of NL.
Plaintiffs  appealed,  and in September 1996 the Superior Court of  Pennsylvania
affirmed  the  judgment in favor of NL. In  December  1996,  plaintiffs  filed a
petition  for  allowance  of appeal to the  Pennsylvania  Supreme  Court,  which
petition was declined.  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.

         At a municipal and industrial waste disposal site in Batavia, New York,
NL and  approximately  75 others have been  identified as PRPs. The U.S. EPA has
divided the site into two operable units. Pursuant to an administrative  consent
order entered into with the U.S. EPA, NL conducted a RIFS for operable unit one,
the closure of the industrial waste disposal section of the landfill.  NL's RIFS
costs were  approximately  $2  million.  In June 1995,  the U.S.  EPA issued the
record of decision for operable unit one,  which is estimated by the U.S. EPA to
cost  approximately  $17.3 million.  In September 1995, the U.S. EPA and certain
PRPs (including  NL),  entered into an  administrative  order on consent for the
remedial  design phase of the remedy for operable  unit one and the design phase
is  proceeding.  NL  and  other  PRPs  entered  into  an  interim  cost  sharing
arrangement for this phase of the work. NL and the other PRPs have completed the
work comprising operable unit two (the extension of the municipal water supply),
with the exception of annual operation and maintenance.  The U.S. EPA alleges it
has incurred  approximately $4 million in past costs. NL and the other PRPs have
concluded a nonbinding  allocation process, as a result of which NL was assigned
a 30%  share  of  future  site  costs.  NL and  the  other  PRPs  are  currently
negotiating a consent decree based on this allocation.

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

         In 1993, Tremont entered into a settlement  agreement with the Arkansas
Division of Pollution  Control and Ecology in  connection  with certain  alleged
water  discharge  permit  violations at one of several  abandoned  barite mining
sites in  Arkansas.  The  settlement  agreement,  in addition to  requiring  the
payment  in  1993  of  a  $20,000  penalty,  required  Tremont  to  undertake  a
remediation/reclamation  program,  which  program has been  completed at a total
cost of  approximately  $2  million.  This site is now  subject  only to ongoing
monitoring and maintenance obligations. Another of these abandoned barite mining
sites is currently being evaluated by the Arkansas  Department of  Environmental
Quality  ("ADEQ").  Tremont,  along with two other identified PRPs, have entered
into  discussions  with the ADEQ  that are  expected  to  result  in one or more
voluntary settlement agreements pertaining to investigation and remedial actions
to be  undertaken at this site.  Tremont  believes that to the extent it has any
additional liability for remediation at this site, it is only one of a number of
PRPs that would  ultimately  share in any such costs.  As of December  31, 1999,
Tremont had accrued $6 million related to these matters.

         In the early 1990s,  TIMET and certain other  companies  that currently
have or formerly had  operations  within the BMI Complex  (the "BMI  Companies")
began  environmental  assessments  of the BMI Complex and each of the individual
company  sites  located  within the BMI Complex  pursuant to a series of consent
agreements  entered into with the Nevada  Division of  Environmental  Protection
("NDEP"). Most of this assessment work has now been completed,  although some of
the assessment  work with respect to TIMET's  property is  continuing.  In 1999,
TIMET entered into a series of agreements with BMI and, in certain cases,  other
BMI  Companies,  pursuant to which,  among other things:  (i) BMI, TIMET and the
other BMI Companies  each agreed to contribute  to the cost of  remediating  any
soils  contamination  within the BMI Complex  (excluding the  individual  active
plant sites),  certain lands surrounding the BMI Complex and certain lands owned
by TIMET  adjacent  to its plant site (the  "TIMET  Pond  Property"),  and TIMET
contributed  $2.8  million to the cost of this  remediation  (which  payment was
charged against TIMET's accrued  liabilities),  (ii) BMI assumed  responsibility
for the conduct of soils  remediation  activities on the  properties  described,
including,  subject to final NDEP approval,  the  responsibility to complete all
outstanding  requirements under the consent agreements with NDEP insofar as they
relate  to the  investigation  and  remediation  of  soils  conditions  on  such
properties,  (iii) BMI  indemnified  TIMET and the other BMI  Companies  against
certain  future  liabilities  associated  with any soils  contamination  on such
properties  and (iv) TIMET agreed to convey to BMI, at no additional  cost,  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.  With respect to the TIMET Pond Property project, BMI will pay 100% of
the first $15.9 million cost for this project,  and TIMET will contribute 50% of
the cost, if any, in excess of $15.9 million,  up to a maximum  payment by TIMET
of $2 million.  TIMET does not currently  expect to incur any cost in connection
with  this  project.  TIMET,  BMI and the  other BMI  Companies  are  continuing
investigation  with respect to certain  additional  issues  associated  with the
properties described above,  including possible groundwater issues. In addition,
TIMET is continuing assessment work with respect to its own active plant site.

         In April 1998, the U. S. EPA filed a 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) in connection
with an  earlier  notice of  violation  alleging  that  TIMET  violated  several
provisions of the Clean Air Act in connection with the start-up and operation of
certain  environmental  equipment at TIMET's Nevada facility during the early to
mid-1990s.  The action seeks civil  penalties in an unspecified  total amount at
the  statutory  rate of up to $25,000 per day of violation  ($27,500 per day for
violations after January 30, 1997).  TIMET and the EPA have agreed to settle the
matter for a cash payment by TIMET aggregating  $400,000 from 2000 through 2002,
and TIMET  agreed to  undertake  certain  additional  monitoring  and  emissions
controls at an estimated  capital cost of $1.5 million.  The settlement has been
approved by the court.

         At December 31, 1999,  TIMET had accrued an aggregate of  approximately
$1 million for these environmental matters discussed above.

         In  addition  to  amounts   accrued  by  NL,   Tremont  and  TIMET  for
environmental  matters, at December 31, 1999, the Company also had approximately
$4 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 non-NL 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.

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, 1999.


                                     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 29, 2000, there were approximately
2,700  holders of record of Valhi common stock.  The following  table sets forth
the high and low closing  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 29, 2000 the closing price of
Valhi common stock according to the NYSE Composite Tape was $11.13.



                                                                            Dividends
                                            High              Low              paid

Year ended December 31, 1998

                                                                       
First Quarter ..................         $ 10 3/16         $ 9 3/8 $            .05
Second Quarter .................            10 1/2            9 1/16            .05
Third Quarter ..................           14 1/16            11 1/8            .05
Fourth Quarter .................            13 3/8                11            .05

Year ended December 31, 1999

First Quarter .....................         $ 12 3/4         $   11         $   .05
Second Quarter ....................         12 1/8           10 3/4             .05
Third Quarter .....................               14         10 7/8             .05
Fourth Quarter ....................         11 3/8           10 1/4             .05




         Valhi's  regular  quarterly  dividend  is  currently  $.05  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.  Certain  covenants
contained  in Valhi's  revolving  bank  credit  facility  generally  limit Valhi
quarterly dividends to $.05 per share.











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,
                                                 1995          1996         1997         1998         1999
                                                 ----          ----         ----         ----         ----
                                                           (In millions, except per share data)

STATEMENTS OF OPERATIONS DATA:
  Net sales:
                                                                                   
    Chemicals .............................   $ 1,023.9    $   986.1    $   984.4    $   907.3    $   908.4
    Component products ....................        80.2         88.7        108.7        152.1        225.9
    Waste management (1) ..................        --           --           --           --           10.9
                                              ---------    ---------    ---------    ---------    ---------

                                              $ 1,104.1    $ 1,074.8    $ 1,093.1    $ 1,059.4    $ 1,145.2
                                              =========    =========    =========    =========    =========

  Operating income:
    Chemicals .............................   $   178.5    $    92.0    $   106.7    $   154.6    $   126.2
    Component products ....................        19.9         22.1         28.3         31.9         40.2
    Waste management (1) ..................        --           --           --           --           (1.8)
                                              ---------    ---------    ---------    ---------    ---------

                                              $   198.4    $   114.1    $   135.0    $   186.5    $   164.6
                                              =========    =========    =========    =========    =========


  Prior to consolidation:
    Equity in Waste Control Specialists (1)   $     (.5)   $    (6.4)   $   (12.7)   $   (15.5)   $    (8.5)
    Equity in Tremont Corporation (2) .....                                                7.4        (48.7)


  Equity in Amalgamated Sugar Company (3) .   $     8.9    $    10.0
                                              =========    =========


  Income from continuing operations .......   $    54.9    $    --      $    27.1    $   225.8    $    47.4
  Discontinued operations .................        13.6         42.0         33.6         --            2.0
  Extraordinary item ......................        --           --           (4.3)        (6.2)        --
                                              ---------    ---------    ---------    ---------    ---------

      Net income ..........................   $    68.5    $    42.0    $    56.4    $   219.6    $    49.4
                                              =========    =========    =========    =========    =========


DILUTED EARNINGS PER SHARE DATA:
  Income from continuing operations .......   $     .48    $    --      $     .24    $    1.94    $     .41

  Net income ..............................   $     .60    $     .37    $     .49    $    1.89    $     .43

  Cash dividends ..........................   $     .12    $     .20    $     .20    $     .20    $     .20

  Weighted average common shares
   outstanding ............................       115.3        115.1        115.9        116.1        116.2

BALANCE SHEET DATA (at year end):
  Total assets ............................   $ 2,572.2    $ 2,145.0    $ 2,178.1    $ 2,242.2    $ 2,235.2
  Long-term debt ..........................     1,084.3        844.5      1,008.1        630.6        613.2
  Stockholders' equity ....................       274.3        303.9        384.9        578.5        589.4



(1)      Consolidated effective June 30, 1999.

(2)      Commenced  recognizing  equity  in  earnings  effective  July 1,  1998;
         consolidated effective December 31, 1999.

(3)      Ceased recognizing equity in earnings effective December 31, 1996.





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  $47.4
million,  or $.41 per  diluted  share,  in 1999  compared  to  income  of $225.8
million,  or $1.94 per  diluted  share,  in 1998.  Excluding  the  effect of the
non-recurring  items  discussed in the next  paragraph,  the Company  would have
reported income from continuing operations in 1999 of $27.6 million, or $.24 per
diluted share,  compared to income of $46.1 million,  or $.39 per diluted share,
in 1998.

         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
Industries 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.  The 1998 results  include  gains  aggregating  $196
million,  or $1.69 per diluted share, net of income taxes and minority interest,
related  to the sale of NL  Industries'  specialty  chemicals  business  and the
initial  public  offering of CompX  International  common stock, a charge of $32
million ($21 million, or $.18 per diluted share, net of income taxes) related to
the  settlement  of two lawsuits  and an $8 million tax benefit ($5 million,  or
$.04 per diluted  share,  net of minority  interest)  resulting  from refunds of
prior-year German withholding taxes received by NL.

         As  discussed  above,  the net  impact to the  Company  in 1999 of NL's
non-cash  income tax  benefit  and the other than  temporary  impairment  charge
related to TIMET is a net credit of $20 million,  or $.17 per diluted share, net
of income taxes and minority interest.  Excluding the effect of these two items,
the Company  currently  believes its income from  continuing  operations in 2000
will be higher  compared to 1999 due  primarily to expected  improved  operating
results in all three of the Company's consolidated business segments (chemicals,
component products and waste management).

Chemicals

         As discussed  above,  selling prices for TiO2, NL's principal  product,
were  generally  increasing  during  most  of  1997  and  1998,  were  generally
decreasing  during the first  three  quarters of 1999 and  increased  during the
fourth quarter of 1999. NL's TiO2 operations are conducted  through Kronos while
its specialty  chemicals  operations were conducted  through Rheox. As discussed
above, in January 1998 NL completed the  disposition of its specialty  chemicals
business unit.

         Chemicals  operating  income,  as  presented  below,  is stated  net of
amortization of Valhi's purchase accounting adjustments made in conjunction with
the  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 million in 1999 as compared
to amounts separately reported by NL. As discussed in Note 3 to the Consolidated
Financial Statements,  the Company will commence consolidating Tremont's results
of operations effective January 1, 2000. Tremont owns 20% 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.
Beginning in 2000,  amortization of such Tremont purchase accounting adjustments
will further reduce chemicals  operating income, as reported by Valhi,  compared
to amounts separately reported by NL by approximately $5 million annually.









                                    Years ended December 31,      % Change
                                    -----------------------     --------------
                                    1997     1998      1999   1997-98    1998-99
                                    ----     ----      ----   -------    -------
(In millions)Net sales:
                                                            
  Kronos (Ti02)                    $837.2   $894.6    $908.4    + 7%       +2%
  Rheox                             147.2     12.7      -
                                   ------   ------     ----

                                   $984.4   $907.3    $908.4    - 8%       +0
                                   ======   ======    ======

Operating income:
  Kronos (Ti02)                    $ 63.7   $151.9    $126.2  + 138%      -18%
  Rheox                              43.0      2.7      -
                                   ------   ------     ----

                                   $106.7   $154.6    $126.2   +45%       -18%
                                   ======   ======    ======
Kronos operating income
 margin                                8%      17%       14%

TiO2 data:
  Sales volumes (thousands
   of metric tons)                   427      408       427    - 4%         +5%
  Average price index
   (1983=100)                        133      153       152   + 15%        - 1%


         Kronos'  TiO2 sales  increased  slightly  in 1999  compared to 1998 due
primarily to higher TiO2 sales volumes,  partially  offset by lower average TiO2
selling prices.  Despite the slightly higher TiO2 sales,  Kronos' TiO2 operating
income in 1999 decreased compared to 1998 due primarily to lower TiO2 production
volumes. 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.  Kronos'
average  TiO2  selling  prices in 1999 were 1% lower than in 1998,  with  higher
North American  prices offset by lower prices in Europe and export  markets.  At
the end of 1999, average European TiO2 selling prices (expressed in U.S. dollars
at year-end  exchange rates) were 9% lower than U.S. average selling prices as a
result of the strong U.S.  dollar  against major  European  currencies.  Kronos'
average TiO2 selling prices in the fourth quarter of 1999 were 3% lower than the
fourth  quarter of 1998,  but were 1% higher than average  selling prices in the
third quarter of 1999 as NL and other Ti02 producers began to implement  certain
price  increases.  Kronos'  average TiO2 selling prices at the end of the fourth
quarter of 1999 were 1% higher than the average for the quarter.

         Kronos'  TiO2  sales  volumes in 1999 were 5% higher  than  1998,  with
growth in all major  regions.  Industry-wide  demand for Ti02 increased in 1999,
with  second-half 1999 demand higher than first-half 1999 demand as a result of,
among other things,  customers  buying in advance of announced price  increases.
TiO2 demand was particularly  strong in the fourth quarter of 1999, as NL's TiO2
sales  volumes  were 21% higher than the fourth  quarter of 1998.  Approximately
one-half of Kronos' TiO2 sales volumes in 1999 were  attributable  to markets in
Europe,  with 37%  attributable  to North  America  and the  balance  to  export
markets.

         Due  primarily to Kronos'  decision to manage its  inventory  levels by
curtailing  production  in the first  quarter of 1999,  Kronos' TiO2  production
volumes of  411,000  metric  tons in 1999 were 5% lower than its record  434,000
metric  tons  produced  in  1998.  Kronos'  average  TiO2  production   capacity
utilization in 1999 was 93% compared to full capacity utilization in 1998.





         Kronos' TiO2 sales and operating  income  increased in 1998 compared to
1997 due primarily to higher average TiO2 selling  prices,  partially  offset by
lower sales volumes. Kronos' average TiO2 selling prices in 1998 were 16% higher
than 1997.  TiO2 selling  prices at the end of 1998 were 10% higher than the end
of 1997.  Kronos' average TiO2 selling prices in the fourth quarter of 1998 were
11% higher  than the fourth  quarter of 1997 and even with the third  quarter of
1998.  Kronos' TiO2 sales  volumes of 408,000  metric tons in 1998 were 4% below
its previous-record level of 1997 primarily reflecting lower volumes in Asia and
Latin America. Kronos' operating income in 1997 includes income of $12.9 million
related to refunds of German  franchise taxes related to prior years,  including
interest.

         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 152 in 1999
was 1% lower than the 1998 index of 153 (1998 was 16% higher than the 1997 index
of 133). In comparison, the 1999 index was 13% below the 1990 price index of 175
and 20% 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.

         As discussed  above,  NL  experienced  strong  demand for TiO2 in 1999,
especially in the second half of the year.  NL expects TiO2  industry  demand in
2000 will be relatively  unchanged  from 1999,  depending  primarily upon global
economic conditions.  NL expects its TiO2 sales volumes in 2000 will approximate
its sales volumes in 1999.  NL is  continuing  to phase-in  previously-announced
price  increases  during the first  quarter of 2000.  In  addition,  NL recently
announced a price increase in Europe that is expected to become effective at the
beginning of the second  quarter of 2000. If demand remains  strong,  NL expects
additional  price  increases  could be announced  later in 2000.  The successful
implementation  of any such  price  increase  will  depend on market  conditions
discussed  above.  As a result of anticipated  higher average  selling prices in
2000  and  continued  focus on  controlling  costs,  NL  expects  its  chemicals
operating income in 2000 will be higher than 1999. The extent of the improvement
will be  determined  by, among other  things,  the  magnitude of realized  price
increases.

         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 (61% in 1999),  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, and exchange rate fluctuations do not impact the reported amount of such
net sales. 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.
Fluctuations  in the  value  of the U.S.  dollar  relative  to other  currencies
decreased  1999 sales by $15 million  compared to 1998, and decreased 1998 sales
by $24 million  compared to 1997.  Fluctuations  in the value of the U.S. dollar
relative    to   other    currencies    similarly    impacted    NL's    foreign
currency-denominated operating expenses, and the net impact of currency exchange
rate  fluctuations  on NL's operating  income  comparisons,  other than the $5.3
million  foreign  currency  transaction  gain  discussed  above,  has  not  been
significant during the past three years.

Component products



                                       Years ended December 31,     % Change
                                        ---------------------      ------------
                                       1997      1998      1999   1997-98  1998-99
                                       ----      ----      ----   -------  -------
                                                     (In millions)

                                                              
Net sales .....................    $  108.7   $  152.1   $  225.9   +40%    +49%
Operating income ..............        28.3       31.9       40.2   +13%    +26%

Operating income margin .......          26%        21%        18%


         Component  products  sales  and  operating  income  increased  in  1999
compared to 1998 due primarily to the effect of the slide operations acquired in
January and November 1999 and the lock operations acquired in March and November
1998.  Component  products  operating  income in 1998  included  a $3.3  million
non-recurring  pre-tax  charge  related to certain stock awarded in  conjunction
with CompX's March 1998 initial public  offering.  Excluding the effect of these
acquisitions and the stock award charge,  sales increased 5% in 1999 compared to
1998 and operating  income  increased 4%, with increased sales in both slide and
ergonomic  products (up 5%) and security  products (up 3%).  Sales of slides and
ergonomic  products were impacted in the first half of 1999 by softening  demand
in the office furniture industry, however such sales improved in the second half
of 1999 as office furniture industry demand improved.

         Component  products  sales  and  operating  income  increased  in  1998
compared to 1997 due  primarily  to higher  volumes in all three  major  product
lines (ergonomic  computer  support  systems,  precision ball bearing slides and
security  products).  Combined  sales  of  precision  ball  bearing  slides  and
ergonomic  computer  support  systems in 1998 increased  $11.6 million,  or 14%,
compared to 1997, and security products sales increased $31.8 million,  or 113%.
The higher sales volumes of security products resulted  primarily from the March
and  November  1998  acquisitions  of two  lock  producers.  Component  products
operating  income in 1998 includes the $3.3 million  non-cash  charge  discussed
above.  Excluding such charge,  operating income increased in 1998 due primarily
to the higher sales  volumes and slightly  lower raw material  costs,  primarily
steel,  offset  in part by lower  margins  attributable  to  sales  from the two
business   units   acquired  in  1998   resulting   principally   from  goodwill
amortization.

        CompX has  substantial  operations and assets located outside the United
States  (principally Canada and, beginning in 1999, 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,  including the Canadian
dollar, the Dutch Guilder and the Euro. 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,  and exchange rate  fluctuations do not impact the reported
amount of such sales.  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.  Fluctuations in the value of the U.S.
dollar relative to the Canadian dollar increased  component  products  operating
income in 1998  (excluding  the effect of the stock award charge) by 3% compared
to 1997, and reduced net sales by approximately 1%. Fluctuations in the value of
the U.S.  dollar  against such other  currencies  did not  significantly  impact
component products sales or operating income in 1999 compared to 1998.

         Due in  part  to  expected  improved  demand  in the  office  furniture
industry,  CompX expects its sales and  operating  income in 2000 will be higher
compared to 1999.

Waste management

         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. Prior to  consolidation,  the Company reported its
interest  in Waste  Control  Specialists  by the equity  method.  Waste  Control
Specialists  reported net sales of $3.4 million in 1997,  $11.9  million in 1998
and $19.2 million in 1999.  During those same periods Waste Control  Specialists
reported operating losses (net losses before interest expense) of $11.3 million,
$13.8 million and $9.4 million,  respectively,  and reported net losses of $12.4
million, $15.1 million and $10.8 million,  respectively.  However, due primarily
to the favorable effect of certain cost control measures  implemented during the
second half of 1999, Waste Control Specialists reported an operating loss in the
second half of 1999 of $1.6 million compared to a $7.8 million operating loss in
the first half of the year.

         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.  During the latest Texas legislative session which ended in
May 1999,  Waste Control  Specialists  was supporting a proposed change in state
law which  would  allow the  regulatory  agency to issue a disposal  permit to a
private entity.  While the legislative session ended without any change in state
law, Waste Control Specialists has been pursuing other alternatives with respect
to the disposal of low-level and mixed radioactive  wastes,  including obtaining
certain  modifications  to its existing  permits that would allow Waste  Control
Specialists  to dispose  of certain  types of  low-level  and mixed  radioactive
wastes.  Waste Control Specialists has obtained additional authority that allows
Waste  Control  Specialists  to  dispose  of  certain  categories  of  low-level
radioactive  materials,  including NORM and exempt level materials  (radioactive
materials that do not exceed certain specified  radioactive  concentrations  and
are exempt from licensing). Although there are other categories of low-level and
mixed  radioactive  wastes that continue to be ineligible for disposal under the
increased  authority,  Waste Control  Specialists will continue to pursue permit
modifications  to further  expand its  treatment and disposal  capabilities  for
low-level and mixed radioactive  wastes. In addition,  Waste Control Specialists
currently  expects to continue  to support a change in state law,  as  discussed
above,  during the next Texas legislative  session which begins in January 2001.
Expenditures associated with any additional permit modifications  concerning the
disposal of low-level and mixed radioactive  wastes in the next few quarters are
expected to be  significantly  lower than those incurred in connection  with the
Texas  legislative  session  which ended in May 1999.  There can be no assurance
that Waste Control Specialists will be successful in obtaining any future permit
modifications.

         In June 1999,  Waste Control  Specialists was awarded a contract by the
Kansas  City  District  of the  Corps of  Engineers  for the  disposal  of NORM,
low-level  radioactive  materials and certain hazardous wastes, all of which are
eligible for treatment and disposal  under Waste  Control  Specialists'  permits
currently in place. The Corps of Engineers  oversees the Formerly Utilized Sites
Remedial  Action  Program   ("FUSRAP")  that  involves  the  remediation  of  46
government  sites in 14 states  throughout  the U.S. The  contract  provides for
disposal of FUSRAP wastes for a minimum  volume of $500,000 and a maximum volume
of $96 million  over a  five-year  period  ending  July 2004,  with an option to
extend the contract for an  additional  five years (the maximum  contract  value
remains $96 million).  Waste Control Specialists believes this contract provides
a convenient  vehicle for a variety of federal  facilities to directly  contract
with Waste  Control  Specialists  for disposal of such wastes at listed  prices.
Waste  Control  Specialists  began  receiving  orders under this contract in the
third quarter of 1999. Waste Control Specialists' ability to realize significant
future sales  pursuant to this  contract is dependent  upon a number of factors,
including the  availability of government  funding for the clean-up of specified
sites and Waste  Control  Specialists'  successful  marketing  efforts that will
focus on getting  managers and  operators of these sites to select this contract
vehicle for disposal of specified wastes.

         Waste  Control  Specialists  has  entered  into  an  agreement  with an
independent  contractor  pursuant to which the contractor  will operate  certain
indirect thermal desorption equipment owned by the contractor on behalf of Waste
Control  Specialists  at its West Texas  facility.  This  equipment  and related
technology is expected to allow Waste Control Specialists to process and dispose
of new hazardous waste streams (principally petroleum hydrocarbons) beginning in
the second quarter of 2000.

         The completion of the Texas legislative session in May 1999 resulted in
a significant reduction in the Company's  expenditures for permitting during the
last  half of 1999  compared  to the  first  half of this  year.  Waste  Control
Specialists'  program  to  improve  operating  efficiencies  at its  West  Texas
facility and to curtail  certain of its corporate and  administrative  costs has
also reduced operating costs in the last half of 1999 compared to the first half
of the  year.  Waste  Control  Specialists  is also  refocusing  its  sales  and
marketing efforts to (i) emphasize opportunities where Waste Control Specialists
believes it has unique permitting  capabilities for the treatment and storage of
mixed radioactive  wastes that currently provide Waste Control  Specialists with
certain  competitive  advantages  and  (ii)  capitalize  on  the  recent  permit
modifications  regarding  disposal  of certain  types of  low-level  radioactive
wastes.  Realizing  significant  sales volumes from these types of waste streams
may involve  lengthy  negotiations  and due  diligence  processes  necessary  to
satisfy  potential  customers  of the  adequacy  of Waste  Control  Specialists'
permitting  ability for its facility and compliance with regulatory  procedures.
The ability of Waste Control  Specialists to achieve  increased 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 with its current operating permits. However, there can be no assurance
that Waste Control  Specialists'  efforts will prove successful in improving its
cash  flows.  In the event such  efforts  are not  successful  or Waste  Control
Specialists  is not  successful  in  expanding  its  disposal  capabilities  for
low-level  radioactive  wastes,  it is possible that Valhi will  consider  other
strategic alternatives with respect to Waste Control Specialists.

Tremont Corporation and TIMET

         In June  1998,  the  Company  acquired  2.9  million  shares of Tremont
Corporation common stock held by Contran and certain of Contran's  subsidiaries.
Subsequently  in 1998 and  during  1999,  the  Company  purchased  in market and
private  transactions  additional  shares of Tremont common stock which, by late
December 1999, increased the Company's ownership of Tremont to 50.2%. See Note 3
to the Consolidated  Financial  Statements.  Accordingly,  the Company commenced
consolidating Tremont's balance sheet at December 31, 1999, and the Company will
commence consolidating  Tremont's results of operations and cash flows effective
January 1, 2000.  Prior to December  31,  1999,  the Company  accounted  for its
interest in Tremont by the equity method,  and the Company  commenced  reporting
equity in  Tremont's  earnings  beginning  in the  third  quarter  of 1998.  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  reduced  earnings  (or
increases  losses)  attributable to Tremont in 1998 and 1999, as reported by the
Company,  by approximately  $3 million per year,  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.

         For the six months ended  December 31, 1998,  Tremont  reported  income
before extraordinary items of $18.7 million,  comprised principally of equity in
earnings of TIMET ($4.3 million) and NL ($7.6 million) and an income tax benefit
of $6.1 million.  For the year ended December 31, 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 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's  effective  income tax rate in 1998  varies from the 35% U.S.
federal statutory income tax rate in 1998 primarily because of a deferred income
tax  benefit  recognized  by  Tremont  in the  fourth  quarter  of 1998 upon the
complete  reversal of its deferred  income tax asset  valuation  allowance  with
respect  to its  investment  in NL,  which  deferred  income  tax asset  Tremont
believed then met the "more-likely-than-not" recognition criteria.

         NL's  operating  results  are  discussed  above.  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.

         In 1999,  TIMET reported sales of $480.0 million,  an operating loss of
$31.4  million  and a net loss of $31.4  million  compared  to sales,  operating
income  and net  income of $707.7  million,  $82.7  million  and $45.8  million,
respectively,  in 1998.  For the six  months  ended  December  31,  1998,  TIMET
reported sales, operating income and income before extraordinary items of $329.8
million, $27.1 million and $13.6 million, respectively.  TIMET's results in 1999
were below those of 1998 principally due to a 23% decline in mill products sales
volumes   and  a  7%   decline  in  average   selling   prices   caused  by  the
previously-reported  lower demand in both its aerospace and industrial  markets.
TIMET's sales in the fourth quarter of 1999, the lowest  quarterly  sales amount
for TIMET in four  years,  was 6% lower than the third  quarter of this year due
primarily  to a 4% decline in mill  products  average  selling  prices and a 22%
decline in volume of ingot and slab products.  TIMET's results in 1999 were also
impacted by production difficulties and inefficiencies at TIMET's North American
operations,  as yield, rework and deviated material levels were higher and plant
operating rates were lower.  TIMET's results in 1999 also 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.  TIMET's results in the fourth
quarter of 1998 included an $18 million pre-tax  restructuring charge related to
TIMET's decision to close certain facilities and other cost reduction efforts.

         TIMET's  outlook for 2000 remains  weak,  and TIMET expects to report a
net  loss in 2000  greater  than  its 1999 net  loss.  Customers  and  end-users
continue to indicate  that a  substantial  inventory  overhang  exists.  TIMET's
backlog was  approximately  $195 million at December  31, 1999  compared to $350
million at December 31, 1998 and $530  million at the end of 1997.  Orders under
TIMET's  long-term  supply  contract with Boeing for 1999 are believed to be far
below  contractual  volume   requirements.   TIMET  has  received  virtually  no
Boeing-related  orders under the contract  for 2000.  Boeing has informed  TIMET
that they will either order the required  contractual  volume under the contract
in 2000 or pay the  liquidated  damages  provided for in the  agreement.  Beyond
2000,  Boeing is unwilling to commit to the contract.  On March 21, 2000,  TIMET
filed a lawsuit  against  Boeing in  Colorado  state court  seeking  damages for
Boeing's repudiation and breach of the Boeing contract.  TIMET's complaint seeks
damages  from Boeing  that TIMET  believes  are in excess of $600  million and a
declaration  from the court of TIMET's  rights under the contract.  All of these
factors lead TIMET to currently believe its sales in 2000 will be somewhat lower
than the fourth  quarter of 1999  annualized due to lower expected sales volumes
and selling  prices.  Industrial  demand for titanium is also expected to remain
soft during 2000. In light of the continuing weak market  conditions,  TIMET has
targeted further personnel  reductions of about 250 people, and TIMET expects to
report an additional  restructuring charge in the first quarter of 2000 of about
$10 million to primarily cover termination costs associated with this additional
headcount  reduction.  TIMET will focus additional  resources with the intent to
improve  the  quality of its  manufacturing,  customer  service  and  management
processes and to return to profitability.

         Tremont periodically  evaluates the net carrying value of its long-term
assets,  principally  its investments in NL and TIMET, to determine if there has
been any decline in value below their net  carrying  amounts  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 believes
to be all relevant  factors,  including,  among other things,  TIMET's operating
results,  financial  position,  estimated  asset values and  prospects,  Tremont
recorded a $60.8 million  pre-tax  non-cash charge to earnings to reduce the net
carrying  value  of  its  investment  in  TIMET  for  an  other  than  temporary
impairment. After the writedown discussed above, at December 31, 1999, Tremont's
net carrying  value of its investment in TIMET was $7 per share compared to NYSE
market price of $4.50 at that date. In determining  the amount of the impairment
charge,  Tremont considered,  among other things,  recent ranges of TIMET's NYSE
market price and current  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.

General corporate and other items

         Gains on disposal of business  unit and reduction in interest in CompX.
See  Note 3 to the  Consolidated  Financial  Statements.  The  pre-tax  gain  on
disposal of NL's  specialty  chemicals  business  unit  differs  from the amount
separately-reported  by NL due to the  write-off  of a portion of the  Company's
purchase  accounting  adjustments  related to the net assets sold,  including an
allocated  portion of goodwill  associated with the Company's  investment in NL.
See Note 1 to the Consolidated Financial Statements.

         General  corporate.  General  corporate  interest and  dividend  income
decreased  in 1999  compared  to 1998 due  primarily  to a lower  level of funds
available  for  investment,  partially  offset  by a higher  level  of  dividend
distributions received from The Amalgamated Sugar Company LLC. General corporate
interest and dividend income decreased in 1998 compared to 1997 due primarily to
a lower  level of LLC  distributions.  Dividend  distributions  from the LLC are
dependent in part upon the LLC's results of operations, and the Company received
$23.5 million of dividend  distributions  from the LLC in 1999 compared to $18.4
million  in  1998  and  $25.4  million  in  1997.  See  Notes  5 and  11 to  the
Consolidated  Financial  Statements.  Aggregate general  corporate  interest and
dividend  income is expected to be somewhat  lower in 2000  compared to 1999 due
primarily to a lower level of funds available for investment.

         Securities  transactions  in  each  of  the  past  three  years  relate
principally to the disposition of a portion of the shares of Halliburton Company
common stock (and its predecessor Dresser Industries,  Inc.) 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. See Notes 5 and 10 to
the  Consolidated  Financial  Statements.  Any  additional  exchanges in 2000 or
thereafter would similarly result in additional  securities  transaction  gains.
Absent  significant  additional  LYONs exchanges in 2000, the Company  currently
expects securities transactions in 2000 will be nominal.

         Net general corporate expenses in 1998 include an aggregate $32 million
pre-tax charge related to the settlements of two shareholder derivative lawsuits
in which Valhi was the defendant,  and in 1997 include NL's $30 million  pre-tax
charge related to adoption of a new accounting standard regarding  environmental
remediation  liabilities.  See Note 1 to the Consolidated  Financial Statements.
Net general  corporate  expenses in 1998 also include $3 million of nonrecurring
costs related to NL's  unsuccessful  attempt to acquire  certain TiO2 operations
and  production  facilities.  Such charges are included in selling,  general and
administrative  expenses.  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 ($3.7
million  recognized  in  1998  and $4  million  in  1999).  See  Note  11 to the
Consolidated  Financial  Statements.  Net general corporate expenses in 2000 are
currently expected to be higher compared to 1999 due to, among other things, the
effect of consolidating  Tremont's  results of operations  effective  January 1,
2000.

         Interest  expense.  Interest expense declined in 1999 and 1998 compared
to the  respective  prior  year  due  primarily  to a  lower  average  level  of
outstanding indebtedness.  Such lower average levels of outstanding indebtedness
reflects in part the repayment of indebtedness over the past three years using a
portion of the proceeds  generated from the disposal of discontinued  operations
and business units.  Assuming interest rates do not increase  significantly from
year-end 1999 levels and that there is not a significant reduction in the amount
of outstanding LYONs  indebtedness  from exchanges,  interest expense in 2000 is
not expected to be  significantly  different  from interest  expense in 1999 due
principally  to the net  effects  of (i) lower  expected  levels of  outstanding
indebtedness  and  interest  rates with  respect to NL,  (ii)  higher  levels of
outstanding  indebtedness  with respect to CompX and (iii) the  consolidation of
Tremont effective January 1, 2000.

         At  December  31,  1999,  approximately  $596  million of  consolidated
indebtedness,  principally  publicly-traded  debt and  Valhi's  loans from Snake
River Sugar Company,  bears interest at fixed  interest  rates  averaging  10.4%
(1998 - $582 million with a weighted average fixed interest rate of 10.4%;  1997
- - $761 million at 11%).  The weighted  average  interest  rate on $99 million of
outstanding  variable rate  borrowings at December 31, 1999 was 5.0% compared to
an average  interest rate on  outstanding  variable  rate  borrowings of 5.6% at
December 31, 1998 and 6.8% at December 31, 1997. The weighted  average  interest
rate on outstanding variable rate borrowings decreased from December 31, 1998 to
December  31, 1999 due  primarily  to the payoff in 1999 of NL's  variable  rate
DM-denominated  borrowings which was funded,  in part, by borrowings under other
NL non-U.S. short-term credit facilities which bear interest at rates lower than
the DM credit facility, offset in part by Valhi's $21 million of bank borrowings
during  1999  which  bear  interest  at an  interest  rate  higher  than  the DM
borrowings repaid during 1999. The weighted average interest rate on outstanding
variable rate  borrowings  decreased from December 31, 1997 to December 31, 1998
due primarily to the 1998 payoff of certain NL  indebtedness  (Rheox bank credit
facility  and joint  venture  term  loan).  Such  indebtedness  carried a higher
interest rate than NL's DM-denominated  borrowings,  which comprised most of the
remaining   variable  rate   borrowings  at  December  31,  1997  and  comprised
substantially  all of the  outstanding  variable rate borrowings at December 31,
1998.

         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  15 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.  Certain  subsidiaries,
including NL, Tremont and,  beginning in March 1998,  CompX,  are not members of
the  consolidated  U.S. tax group and the Company  provides  incremental  income
taxes on such earnings.

         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).  With respect to the favorable resolution of
the German tax contingency, the German government has conceded substantially all
of its income tax claims  against NL, and the  government  has  released a DM 94
million  ($50  million)  lien on one of NL's German TiO2 plants that secured the
government's  claim.  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  retroactively to
January 1, 1999 and resulted in an increase in NL's  current  income tax expense
during 1999.

         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.

         The  provision  for income taxes in 1998 includes (i) an $8 million tax
benefit resulting from a refund of prior-year German dividend  withholding taxes
received by NL and (ii) a $57 million benefit  resulting from NL's net reduction
of its  deferred  income  tax  valuation  allowance  primarily  as a  result  of
utilization  of certain  deductible tax attributes for which the benefit had not
been  previously   recognized  under  the   "more-likely-than-not"   recognition
criteria.  In 1997,  the geographic  mix of pre-tax  income  included  losses in
certain of NL's tax  jurisdictions for which no current refund was available and
for which  recognition of a deferred tax asset was not  considered  appropriate.
All of these factors also impacted the Company's overall effective tax rate.

         As discussed  above,  the Company expects to report equity in losses of
TIMET in 2000,  and the  Company  does not expect  that  recognizing  a deferred
income tax asset with respect to such equity in losses will be appropriate under
the "more-likely-than-not"  recognition criteria. Consequently, this will affect
the Company's consolidated effective tax rate in 2000.

         Minority interest,  discontinued operations and extraordinary item. See
Notes 12, 19 and 1,  respectively,  to the  Consolidated  Financial  Statements.
Minority  interest in NL's  subsidiaries  in 1999  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 will commence  consolidating  Tremont's
results of operations beginning in 2000. Consequently, the Company will commence
reporting  minority  interest in Tremont's  net earnings or losses  beginning in
2000.

Year 2000 Issue

         General.  As a result of certain computer  programs being written using
two digits  rather than four to define the  applicable  year,  certain  computer
programs that had date-sensitive  software may have recognized a date using "00"
as the year 1900 rather than the year 2000. This could have resulted in a system
failure or miscalculations causing disruptions of operations,  including,  among
other things, a temporary  inability to process  transactions,  send invoices or
engage in normal business activities.

         Over the past few years,  each of the  Company's  business  units spent
varying  amounts of time,  effort  and money in order to  address  the Year 2000
Issue in an attempt to ensure  that their  computer  systems,  both  information
technology ("IT") systems and non-IT systems involving embedded chip technology,
and software  applications would function properly after December 31, 1999. This
process  included,  among other things,  the  identification  of all systems and
applications  potentially  affected by the Year 2000 Issue, the determination of
which systems and applications  required  remediation and the completion thereof
and the testing of systems and applications  following remediation for Year 2000
compliance.  In addition,  each business unit requested  confirmation from their
major  software and hardware  vendors,  suppliers and  customers  that they were
developing and implementing plans to become, or that they had become,  Year 2000
compliant.  Contingency plans were also developed to address potential Year 2000
issues  related  to  business  interruption  in the  event  one or  more of each
business unit's internal systems or the systems of third parties upon which they
rely  ultimately  proved  not to be  Year  2000  compliant.  As  part  of  these
contingency  plans,  certain  units  (NL  and  TIMET)  temporarily  idled  their
manufacturing  facilities  shortly before the end of 1999 as an added  safeguard
against  unexpected  loss of utility  service;  all of such  facilities  resumed
production  shortly after  midnight of year-end  1999.  After all of the efforts
described  above,  each  business unit believed that their key systems were Year
2000 compliant prior to December 31, 1999.

         The extent to which each  business  unit spent  time,  effort and money
varied due to its  particular  circumstances.  For  example,  the  manufacturing
processes and facilities of NL and TIMET are more heavily  dependent upon non-IT
systems involving embedded chip technology than those of CompX and Waste Control
Specialists.  Accordingly,  NL and TIMET were required to spend  relatively more
time,  effort  and money  addressing  the Year 2000  Issue  than CompX and Waste
Control Specialists. As part of their normal business operations,  CompX, NL and
TIMET had, to varying degrees, already installed upgraded information systems at
certain of their locations  which  addressed the Year 2000 Issue.  Waste Control
Specialists did not encounter  significant  Year 2000 problems with its systems,
primarily  because  it had  only  commenced  operations  in 1997 and most of its
systems  were  Year  2000  compliant  at  installation  (or the  cost to  become
compliant was not significant).  Tremont and Valhi, as holding companies, do not
have numerous  applications  or systems,  and  therefore  very little effort was
required to ensure Year 2000 compliance for their systems. Excluding the cost of
the ongoing  system  upgrades,  the amount  spent by NL and TIMET to address the
Year 2000 Issue was as follows: NL - $2 million ($1 million in 1999) and TIMET -
$4 million  ($2  million  in 1999).  The amount  spent by CompX,  Waste  Control
Specialists, Tremont and Valhi was not significant.

         To date in 2000,  none of the Company's  manufacturing  facilities have
suffered any  downtime due to  non-compliant  systems,  nor has any  significant
problems  associated  with the Year 2000  Issue been  identified  in any of such
companies'  systems.  Each  business  unit will  continue  to monitor  its major
systems in order to ensure that such systems continue to be Year 2000 compliant.
However,  based  primarily  upon the length of time into 2000 which has  elapsed
without the identification of any significant  problems related to the Year 2000
Issue,  the Company does not currently expect to experience any significant Year
2000 Issue-related problems.

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 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  are  scheduled to remain legal tender as  denominations  of the euro
through  January 1, 2002,  although the exchange rates between the euro and such
currencies will remain fixed.

         NL. NL  conducts  substantial  operations  in  Europe,  principally  in
Germany,  Belgium, the Netherlands,  France and Norway. In addition, at December
31, 1999, 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. The functional currency of the German,
Belgian, Dutch and French operations will convert from their respective national
currencies  to the euro over a  two-year  period  that  began in 1999.  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 sales prices and
purchasing costs, and consequently favorably or unfavorably impact NL's reported
consolidated  results  of  operations,  financial  condition  or  liquidity.  At
December 31, 1999, NL had  substantial  net assets  denominated  in the Canadian
dollar and the Norwegian kroner, partially offset by net liabilities denominated
in the euro (or  currencies  whose  exchange rates are fixed with respect to the
euro).

         CompX. The functional  currency of CompX's Thomas Regout  operations in
the  Netherlands  will  convert to the euro from its  national  currency  (Dutch
guilders)  over a two-year  period that began in 1999.  The euro  conversion may
impact  CompX'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 results of
operations.  Because of the inherent  uncertainty of the ultimate  effect of the
euro  conversion,  CompX  cannot  accurately  predict  the  impact  of the  euro
conversion on its  consolidated  results of operations,  financial  condition or
liquidity.

         TIMET.  TIMET  also  has  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 major  European
currencies.  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 and may
affect the comparability of period-to-period operating results.






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.  In addition,
cash flows from operating  activities in 1997 and 1998 include the impact of the
payment of cash income taxes related to the disposal of discontinued  operations
and the sale of NL's specialty  chemicals business unit, even though the pre-tax
proceeds  from the  disposal of such assets are  reported as a component of cash
flows  from  investing   activities.   Noncash   interest  expense  consists  of
amortization of original issue discount on certain Valhi and NL indebtedness and
amortization of deferred financing costs.

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

         At December 31, 1999, the estimated cost to complete  capital  projects
in process  approximated $15 million,  of which $11 million relates to NL's Ti02
facilities and the remainder  relates to CompX's  facilities.  Aggregate capital
expenditures  for 2000 are expected to approximate  $67 million ($37 million for
NL, $25 million for CompX and $5 million for Waste Control Specialists). Capital
expenditures  in 2000 are expected to be financed  primarily from  operations or
existing cash resources and credit facilities.

         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.

         During  1998,  (i)  Valhi  purchased  3.1  million  shares  of  Tremont
Corporation  for an aggregate  cost of $173 million,  (ii) Valhi  contributed an
additional  $10  million  to Waste  Control  Specialists'  equity,  (iii)  Valhi
purchased  $14 million of additional  shares of NL common  stock,  $6 million of
additional  shares of CompX  common  stock and $4 million of certain  marketable
securities,  (iv) CompX  purchased  two lock  producers  for $42 million and (v)
Valhi loaned a net $6 million to Waste Control  Specialists  pursuant to its $10
million  revolving  facility.  In  addition,  NL sold  its  specialty  chemicals
business  unit  conducted by Rheox for $465 million cash  consideration  (before
fees and expenses),  including $20 million attributable to a five-year agreement
by NL not to compete in the rheological products business.

         During 1997, Valhi (i) loaned $180 million to Snake River Sugar Company
and $12.1 million to a subsidiary of Snake River,  (ii) collected $112.1 million
principal  amount on such loans,  (iii)  received an $11.5  million  pre-closing
dividend from Amalgamated, (iv) contributed $13 million in capital contributions
to Waste  Control  Specialists,  (v) loaned a net $4  million  to Waste  Control
Specialists and (vi) purchased $6 million of certain  marketable  securities and
$14 million of additional shares of NL common stock.

         Financing  activities.  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.

         Net repayments of  indebtedness in 1998 include (i) NL's prepayment and
termination  of the Rheox bank  credit  facility  ($118  million)  and the joint
venture  term  loan  ($42   million),   (ii)  NL's   open-market   purchases  of
approximately  $65 million  accreted value of its Senior Secured  Discount Notes
and approximately $6 million principal amount of its Senior Secured Notes, (iii)
NL's redemption of the remaining $121 million principal amount of Senior Secured
Discount Notes at a redemption  price of 106% of principal  amount and (iv) NL's
repayment of DM 81 million  ($44  million when paid) of the DM term loan,  using
funds on hand and a DM 35  million  ($19  million  when  borrowed)  increase  in
outstanding borrowings under NL's short-term non-U.S. credit facilities.

         Changes in  indebtedness  in 1997 include $250  million  borrowed  from
Snake River Sugar Company, the impact of NL's refinancing of its Rheox term loan
and prepayment of a portion of NL's DM credit facility, the impact of Valhi LYON
holders  exchanging their LYONs debt obligation for shares of Dresser Industries
common stock held by the Company and Valcor Senior Notes  purchased  pursuant to
tender offers completed in 1997.

         At December 31, 1999,  unused credit  available  under existing  credit
facilities  approximated  $127  million,  which  was  comprised  of $80  million
available to CompX under its revolving  senior credit facility  discussed below,
$19 million  available to NL under  non-U.S.  credit  facilities and $28 million
available to Valhi under its revolving bank credit facility.

         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, 1999, the Company had purchased approximately 383,000 shares for an
aggregate of $3.7 million pursuant to such  authorization.  The most recent such
purchase was in 1998.

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.

         In  January  1998,  NL  sold  its  specialty  chemicals  business  unit
conducted  by  Rheox  for  $465  million  cash  consideration  (before  fees and
expenses), including $20 million attributable to a five-year agreement by NL not
to compete in the rheological  products business. A majority of the $380 million
net-of-tax  proceeds  were  used  by  NL to  prepay  certain  indebtedness.  The
remaining  net proceeds  were  available  for NL's general  corporate  purposes,
subject  to  compliance   with  the  terms  of  the   indenture   governing  its
publicly-traded debt.

         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 and debt service.  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,  excluding
capital   expenditures  of  its  disposed  specialty  chemicals  business  unit,
aggregated  $86  million,  including  $22 million ($10 million in 1999) for NL's
ongoing  environmental  protection and compliance programs.  NL's estimated 2000
capital expenditures are $37 million (2001 - $35 million) and include $7 million
(2001 - $11 million) in the area of environmental protection and compliance.  NL
spent $7 million in 1997 in capital  expenditures  related to a  debottlenecking
project at its Leverkusen,  Germany chloride-process TiO2 facility, and NL spent
$6 million in 1999 with  respect to an  expansion  of a landfill for its Belgian
TiO2 facility.  The capital expenditures of the TiO2 manufacturing joint venture
are not included in NL's capital expenditures.

         At  December  31,  1999,  NL had cash and cash  equivalents,  including
restricted cash balances,  of $152 million, and NL had $19 million available for
borrowing  under its non-U.S.  credit  facilities.  At December 31, 1999, NL had
complied with all financial covenants governing its debt agreements.

         In November 1999, NL's board of directors  authorized NL 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 February 29, 2000, NL
had purchased 1.1 million of its shares  pursuant to such  authorization  for an
aggregate of $15.5 million, including $7.2 million purchased in 1999.

         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.  As discussed  above,  in 1999 certain  significant
German tax contingencies  aggregating an estimated DM 188 million ($100 million)
through 1998 were resolved in NL's favor.

         On April 1, 1999, the German government  enacted certain income tax law
changes that were retroactively  effective as of January 1, 1999. Based on these
changes,  NL's effective  current (cash) income tax rate in Germany increased in
1999.

         During  1997,  NL  received a tax  assessment  from the  Norwegian  tax
authorities proposing tax deficiencies of NOK 51 million ($6 million at December
31, 1999)  relating to 1994. NL appealed this  assessment,  and in February 2000
the Norwegian local court ruled in favor of the Norwegian tax authorities on the
primary issue, but asserted such tax  authorities'  assessment was overstated by
NOK 34 million  ($4  million).  The tax  authorities'  response  to the  court's
contention  is expected by the end of March 2000. NL is  considering  its appeal
options.  During 1998,  NL was informed by the Norwegian  tax  authorities  that
additional  tax  deficiencies  of NOK 39 million  ($5  million)  will  likely be
proposed  for 1996 on an issue  similar to the  aforementioned  1994  case.  The
outcome of the 1996 issue is  dependent  upon the  eventual  outcome of the 1994
case.  NL intends to vigorously  contest this issue and litigate,  if necessary.
Although NL believes that it will ultimately  prevail, NL has granted a lien for
the 1994 tax  assessment on its  Norwegian  Ti02 plant in favor of the Norwegian
tax  authorities  and will be required to grant security on the 1996  assessment
when received.

         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, 1999, NL had recorded net deferred tax  liabilities  of
$97  million.  NL,  which is not a member of the tax group of which  Contran and
Valhi are members,  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 $234 million
at December  31,  1999,  principally  related to Germany,  partially  offsetting
deferred   tax   assets   which  NL   believes   do  not   currently   meet  the
"more-likely-than-not" recognition criteria.

         In addition to the chemicals  businesses  conducted  through Kronos, NL
also has  certain  liabilities  relating  to certain  discontinued  or  divested
businesses. See Item 3 - "Legal Proceedings."

         NL has been named as a  defendant,  PRP, 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 as discussed  above.  NL believes it has provided  adequate  accruals
($112  million at December  31,  1999) 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  $150 million.  NL's
estimates of such  liabilities have not been discounted to present value, and NL
has not recognized any potential 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, property damage and government expenditures
allegedly  arising from the sale of lead pigments and lead-based  paints. 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 capital resources, 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.   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 consolidated
net assets, will fluctuate based upon changes in currency exchange rates.

Component products - CompX International

         In March 1998,  CompX completed an initial public offering of shares of
its common stock. The net proceeds to CompX were approximately $110 million. $75
million  of the net  proceeds  were used to  completely  repay  the  outstanding
balance of CompX's $100 million credit facility  discussed above. CompX believes
that the net proceeds to CompX from the offering,  after repayment of borrowings
under the credit  facility,  together with cash  generated  from  operations and
borrowing  availability under the new credit facility will be sufficient to meet
CompX's liquidity needs for working capital, capital expenditures,  debt service
and future acquisitions for the foreseeable future.

         In  1998,   CompX  acquired  two  lock  producers  for  aggregate  cash
consideration  of $42 million,  primarily using available cash on hand. 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 January 2000, CompX acquired another lock
producer for an aggregate of $9.2  million cash  consideration  using  primarily
borrowings under its bank credit facility.

         CompX's capital expenditures during the past three years aggregated $38
million.  Such  capital  expenditures  included  manufacturing   equipment  that
emphasizes improved production efficiency and increased production capacity.

         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 in light of its capital resources
and estimated  future  operating cash flows. As a result of this process,  CompX
may in the future seek to raise  additional  capital,  refinance or  restructure
indebtedness,  issue additional securities, modify its dividend policy 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,  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 $11 million.  Such capital  expenditures  were funded primarily
from Valhi's capital contributions as well as certain debt financing provided to
Waste Control Specialists by Valhi.





Tremont Corporation and Titanium Metals Corporation

         Tremont.  Tremont is primarily a holding company which, at December 31,
1999, owned  approximately 39% of TIMET and 20% of NL. At December 31, 1999, the
market value of the 12.3 million  shares of TIMET and the 10.2 million shares of
NL held by Tremont was approximately $55 million and $154 million, respectively.

         In 1998,  Tremont  entered  into a  revolving  advance  agreement  with
Contran.  Through  December  31,  1999,  Tremont had  borrowed  $13 million from
Contran under such facility,  primarily to fund Tremont's purchases of shares of
NL and TIMET  common  stock.  Tremont  expects  to begin to repay such loan from
Contran beginning in 2000 as the cash received from its dividends from NL, which
increased  its quarterly  dividend rate to $.15 per share  beginning in 2000, is
expected to exceed its other cash requirements (including its dividends).

         In 1997, Tremont's board of directors authorized Tremont 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,  1999,
Tremont had acquired 1.2 million shares under such authorization. No such shares
were acquired in 1999. To the extent Tremont acquires  additional  shares of its
common stock,  the Company's  ownership  interest in Tremont would increase as a
result of the fewer number of Tremont shares outstanding.

         Based upon certain technical  provisions of the Investment  Company Act
of 1940 (the "1940 Act"),  Tremont might arguably be deemed to be an "investment
company" under the 1940 Act,  despite the fact that Tremont does not now engage,
nor has it  engaged  or  intended  to  engage,  in the  business  of  investing,
reinvesting,  owning,  holding or trading of  securities.  Tremont has taken the
steps  necessary to give itself the benefits of a temporary  exemption under the
1940 Act and has sought an order from the  Securities  and  Exchange  Commission
that Tremont is primarily  engaged,  through  TIMET and NL, in a  non-investment
company business.  Tremont believes another exemption may be currently available
to it under the 1940 Act should the Commission deny Tremont's application for an
exemptive order.

         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
available cash, issuing equity securities or incurring indebtedness.

         TIMET. At December 31, 1999,  TIMET had net debt of  approximately  $96
million ($117  million of notes  payable and  long-term  debt and $21 million of
cash and  equivalents).  In February 2000, TIMET entered into a new $125 million
U.S.  revolving  credit  agreement  which  replaced  its  previous  U.S.  credit
facility.  Borrowings under the new facility are limited to a formula-determined
borrowing base derived from the value of accounts  receivable,  inventories  and
equipment.  The new facility limits additional  indebtedness of TIMET, prohibits
the payment of common stock dividend and contains other  covenants  customary in
lending  transactions  of this type.  In addition,  in February  2000 TIMET also
entered into a new U.K.  credit  facility  denominated  in Pound  Sterling which
replaced its prior U.K. credit facility. At closing, TIMET had about $95 million
of borrowing  availability under these new facilities.  TIMET believes these two
new credit  facilities  will provide TIMET with the liquidity  necessary for its
current market and operating conditions.

         At December  31,  1999,  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  periods 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. TIMET's new U.S. credit facility prohibits the payment
of dividends  on TIMET's  common  stock,  and the facility  also  prohibits  the
payment of dividends  on the  convertible  preferred  securities  under  certain
conditions.  TIMET's board of directors will continue to evaluate the payment of
dividends on the convertible preferred securities on a quarter-by-quarter  basis
based  upon,  among  other  things,  TIMET's  actual and  forecasted  results of
operations,   financial   condition,   cash  requirements  for  its  businesses,
contractual requirements and other factors deemed relevant.

         In October 1998, TIMET purchased for cash $80 million of Special Metals
Corporation 6.625% convertible  preferred stock (the "SMC Preferred Stock"),  in
conjunction with, and concurrent with, SMC's acquisition of a business unit from
Inco Limited.  Dividends on the SMC  Preferred  Stock are being accrued but have
not been paid due to limitations  imposed by SMC's bank credit  agreement.  As a
result,  at December 31, 1999 TIMET has classified its accrued  dividends on the
SMC preferred  securities as a non-current asset. TIMET understands that SMC has
sued Inco Limited  alleging  that it made various  misrepresentations  to SMC in
connection with the  acquisition.  TIMET is evaluating the position it will take
with  respect to SMC's  claims.  TIMET  currently  believes it will  realize the
carrying value of its investment in the SMC Preferred Stock.

         TIMET's capital  expenditures  during 2000 are currently expected to be
below $15 million,  which is less than expected  depreciation  and  amortization
expense of approximately $44 million.

         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 and related 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.






Other

         Condensed cash flow data related to discontinued operations (Medite and
Sybra)  for  1997  is  presented  in  Note  19  to  the  Consolidated  Financial
Statements. 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 fast food operations.

General corporate - Valhi

         Valhi's operations are conducted primarily through its subsidiaries (NL
Industries, 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, which paid dividends in the first three quarters of
1996,  suspended its dividend in the fourth quarter of 1996.  Suspension of NL's
dividend did not  materially  adversely  impact  Valhi's  financial  position or
liquidity.  Starting in the second quarter of 1998, NL resumed regular quarterly
dividends at a rate of $.03 per NL share. NL increased its quarterly dividend to
$.035 per share in the first quarter of 1999 and further  increased the dividend
in the first quarter of 2000 to $.15 per quarter.  At the current $.15 per share
quarterly  rate,  and  based  on the 30.1  million  NL  shares  held by Valhi at
December 31, 1999,  Valhi would receive  aggregate  annual  dividends from NL of
approximately $18.1 million.  Tremont's quarterly dividend is currently $.07 per
share.  At that rate,  and based upon the 3.2 million  Tremont  shares  owned by
Valhi at December 31, 1999, Valhi would receive  aggregate annual dividends from
Tremont of approximately  $.9 million.  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 Valcor,  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 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.  At December 31,
1999, Valhi had $3 million of parent level cash and cash equivalents,  including
a portion  held by  Valcor  which  could be  distributed  to Valhi,  and had $21
million of outstanding  borrowings under its revolving bank credit agreement and
had $2 million of short-term borrowings owed to Contran. In addition,  Valhi had
$28 million of borrowing availability under its bank credit facility.

         Valhi's LYONs do not require current cash debt service. At December 31,
1999,  Valhi held 2.7 million shares of Halliburton  common stock,  which shares
are held in escrow  for the  benefit  of  holders  of the  LYONs.  The LYONs are
exchangeable  at any time,  at the  option of the  holder,  for the  Halliburton
shares owned by Valhi.  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, 1999, assuming exchanges of all of the
outstanding  LYONs for  Halliburton  stock at such date, was  approximately  $27
million.  Valhi continues to receive  regular  quarterly  Halliburton  dividends
(currently  $.125 per share) on the escrowed  shares.  At December 31, 1999, the
LYONs had an accreted value equivalent to  approximately  $34.20 per Halliburton
share,  and the  market  price of the  Halliburton  common  stock was $40.25 per
share.

         Valhi  received  approximately  $73  million  cash in early 1997 at the
transfer  of  control of its  refined  sugar  operations  to Snake  River  Sugar
Company,  including  a net $11.5  million  pre-closing  dividend  received  from
Amalgamated. As part of the transaction, Snake River made certain loans to Valhi
aggregating $250 million in January 1997. Snake River's sources of funds for its
loans to Valhi, as well as for the $14 million it contributed to The Amalgamated
Sugar  Company LLC for its voting  interest in the LLC,  included  cash  capital
contributions  by the  grower  members of Snake  River and $192  million in debt
financing  provided  by  Valhi  in  January  1997,  of which  $100  million  was
subsequently  prepaid  in  1997  when  Snake  River  obtained  $100  million  of
third-party term loan financing. In addition,  another $12 million of loans from
Valhi were prepaid during 1997. After these prepayments,  $80 million of Valhi's
loans to Snake River Sugar Company remain outstanding.  See Notes 5 and 7 to the
Consolidated Financial Statements.

         Based on The Amalgamated Sugar Company LLC's current projections, Valhi
currently  expects that  distributions  received from the LLC in 2000, which are
dependent in part upon the future  operations of the LLC, will  approximate  its
debt service requirements under its $250 million loans from Snake River. Certain
covenants contained in Snake River Sugar Company's third-party senior debt limit
the amount of debt service  payments  (principal and interest) which Snake River
is  permitted  to remit to Valhi under  Valhi's $80 million loan to Snake River,
and such loan is subordinated to Snake River's  third-party  senior debt. Due to
these covenants, Snake River was limited in the amount of principal and interest
payments  it  could  make on the $80  million  loan in 1998  and  1999 to the $3
million of accrued and unpaid  interest  owed as of  December  31, 1997 (paid in
1998) and $7.2 million of accrued and unpaid  interest from 1998 (paid in 1999).
Additional collections of a portion of accrued and unpaid interest are currently
expected to be received in 2000.  The  Company  believes  both such  accrued and
unpaid  interest  as well as the $80 million  principal  amount  outstanding  at
December 31, 1999, will ultimately be collected.

         The Company 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.   Through  December  31,  1999,  the  Company's   cumulative
distributions  from the LLC had not fallen  below  such  specified  levels.  The
current  estimate of  distributions  to be  received  from the LLC in 2000 would
result in cumulative  distributions  still above the specified levels.  However,
distributions  from the LLC are dependent in part upon the future  operations of
the LLC. Currently, the refined sugar industry is experiencing downward pressure
on  selling   prices  due  to,  among  other  things,   relative   demand/supply
relationships.  There can be no assurance that  distributions  actually received
from  the LLC in 2000  or  beyond  will be  sufficient  to  maintain  cumulative
distributions  above the specified levels. If cumulative  distributions  were to
fall below the  specified  levels,  and if the  Company  exercised  its right to
temporarily  take  control of the LLC,  the Company  would be required to escrow
funds in  amounts up to the next three  years of debt  service on Snake  River's
third-party  term loan ($46 million at December 31, 1999) unless the Company and
Snake River's  third-party  lender  otherwise  mutually agree. See Note 5 to the
Consolidated Financial Statements.

         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, although the net 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,  such 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.


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 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, 1998 and 1999. See Notes 1 and 14 to the
Consolidated Financial Statements.

         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, 1999, the Company's  aggregate  indebtedness  was split
between 85% of fixed-rate  instruments and 15% of variable rate borrowings (1998
- - 80% fixed-rate and 20% variable-rate). 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,  by  contractual  maturity  dates,  for the  Company's
aggregate  outstanding  indebtedness at December 31, 1999. At December 31, 1999,
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  euro-denominated   indebtedness  is
presented in its U.S.  dollar  equivalent at December 31, 1999 using an exchange
rate of .99 euro  per U.S.  dollar.  All of such  euro-denominated  indebtedness
relates to NL.









                                                                                                 Fair
                                                      Contractual maturity date                  value
                                -----------------------------------------------------------
                                2000     2001     2002     2003     2004  Thereafter   Total    12/31/99
                                ----     ----     ----     ----     ----  ----------   -----    --------
                                                  (In $ millions, except interest rates)

Fixed rate debt
 (U.S. dollar-denominated):
                                                                       
  Principal amount ........   $   1.8  $   .9  $  91.8  $  246.4  $   4.3  $  250.0  $  595.2  $  619.1
  Weighted-average
   interest rate ..........       8.2%    7.0%     9.3%     11.7%    12.3%      9.4%     10.4%

Variable rate debt
 (U.S. dollar-denominated):
  Principal amount ........   $  21.0  $--     $--      $   20.0  $--      $ --      $   41.0  $   41.0
  Weighted-average
   interest rate ..........       7.7%                       6.2%                         7.0%

Variable rate debt
 (euro-denominated):
  Principal amount ........   $  57.1  $--     $--      $ --      $--      $ --      $   57.1  $   57.1
  Weighted-average
   interest rate ..........       3.6%                                                    3.6%

Variable rate debt
 (Total):
  Principal amount ........   $  78.1  $--     $--      $   20.0  $--      $ --      $   98.1  $   98.1
  Weighted-average
   interest rate ..........       4.7%                       6.2%                         5.1%



         At December 31, 1998 fixed rate indebtedness  aggregated $580.5 million
(fair value - $592.1  million) with a  weighted-average  interest rate of 10.4%;
variable  rate  indebtedness  at such  date  aggregated  $150.0  million,  which
approximates fair value, with a  weighted-average  interest rate of 5.6%. All of
such fixed rate  indebtedness was denominated in U.S.  dollars,  and all of such
variable rate indebtedness was denominated in Deutsche Marks and related to NL.

         The  Company has an $80  million  loan to Snake River Sugar  Company at
December 31, 1998 and 1999. Such loan bears interest at a fixed interest rate of
12.99% at December  31, 1999 (1998 - 10.99%),  and the  estimated  fair value of
such loan  aggregated  $88.8  million and $80.4 million at December 31, 1998 and
1999,  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 $4 million at December 31, 1999 (1998 - $5 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 German
Deutsche Mark,  Canadian  Dollar,  Belgian Franc,  Norwegian  Krone,  the United
Kingdom Pound Sterling and the euro.

         As described  above, at December 31, 1999, NL had the equivalent of $58
million  of  outstanding  euro-denominated  indebtedness  (1998  - $150  million
outstanding  denominated in Deutsche Marks).  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 $6 million (1998 - $15 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,  at December 31, 1999 CompX had
entered into a series of short-term  forward exchange contracts maturing through
March 2000 to exchange an  aggregate of $6 million for an  equivalent  amount of
Canadian dollars at exchange rates of  approximately  Cdn$ 1.49 per U.S. dollar.
No such contracts were outstanding at December 31, 1998.

         Solely  in  connection  with  CompX's  January  1999  acquisition  of a
precision ball bearing slide producer, on December 30, 1998 CompX entered into a
short-term  currency  forward  contract  to  purchase  NLG 75 million  for $40.1
million, which contract was executed on January 19, 1999. No such contracts were
outstanding at December 31, 1999.

         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, 1998
and 1999 was $265.6  million and $282.5  million,  respectively.  The  potential
change in the aggregate fair value of these  investments,  assuming a 10% change
in prices,  would be $26.6  million at December  31,  1998 and $28.3  million at
December 31, 1999.

         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 17 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, 1999.

                           October  28, 1999 - Reported  Items 5 and 7.  October
                           29, 1999 - Reported Items 5 and 7.

 (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, 1999
                           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     Form of  Intercorporate  Services  Agreement between the Registrant and
         Contran  Corporation - incorporated by reference to Exhibit 10.1 of the
         Registrant's  Annual Report on Form 10-K (File No. 1-5467) for the year
         ended December 31, 1992.

10.2     Intercorporate  Services  Agreement between Contran  Corporation and NL
         effective as of January 1, 1999 - incorporated  by reference to Exhibit
         10.2 to NL's  Quarterly  Report on Form 10-Q  (File No.  1-640) for the
         quarter ended March 31, 1999.

10.3     Intercorporate  Services  Agreement  between  Contran  Corporation  and
         Tremont  effective as of January 1, 1999 - incorporated by reference to
         Exhibit  10.7 to  Tremont's  Quarterly  Report on Form  10-Q  (File No.
         1-10126) for the quarter ended March 31, 1999.

10.4     Advance Agreement between Contran Corporation and Tremont dated October
         5, 1998 -  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, 1999.






10.5     Stock  Purchase  Agreement  dated June 19, 1998 by and between  Contran
         Corporation,  Valhi Group,  Inc. and National City Lines,  Inc., as the
         Sellers,  and  the  Registrant,  as the  Purchaser  -  incorporated  by
         reference to Exhibit 10.1 to the  Registrant's  Current  Report on Form
         8-K (File No. 1-5467) dated June 19, 1998.





Item No.                               Exhibit Item

10.6*    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.

10.7*    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.

10.8*    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).

10.9*    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.

10.10    Formation Agreement dated January 3, 1997 (to be effective December 31,
         1996)  between  Snake River Sugar  Company  and The  Amalgamated  Sugar
         Company  of  The  Amalgamated  Sugar  Company  LLC  -  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.

10.11    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.

10.12    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.

10.13    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.

10.14    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.






Item No.                               Exhibit Item

10.15    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.

10.16    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.

10.17    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.

10.18    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.

10.19    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.

10.20    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.

10.21    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.

10.22    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.






Item No.                               Exhibit Item


10.23    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.

10.24    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.

10.25    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.

10.26    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.

10.27    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.

10.28    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.

10.29    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.

10.30    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.






Item No.                               Exhibit Item


10.31    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.

10.32    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.

10.33    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.

10.34    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.

10.35    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.

10.36    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.

10.37    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.

10.38    Sponge Purchase Agreement,  dated May 30, 1990, between TIMET and Union
         Titanium  Sponge  Corporation and Amendments No. 1 and 2 - incorporated
         by reference to Exhibit  10.25 to Tremont's  Annual Report on Form 10-K
         (File No. 1-10126) for the year ended December 31, 1991.






Item No.                               Exhibit Item

10.39    Amendment No. 3 to the Sponge  Purchase  Agreement,  dated  December 3,
         1993,   between  TIMET  and  Union   Titanium   Sponge   Corporation  -
         incorporated  by reference to Exhibit 10.33 to Tremont's  Annual Report
         on Form 10-K (File No. 1-10126) for the year ended December 31, 1993.

10.40    Amendment No. 4 to the Sponge  Purchase  Agreement,  dated May 2, 1996,
         between TIMET and Union Titanium  Sponge  Corporation - 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, 1996.

10.41    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.

10.42    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.

10.43    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.

10.44    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.

10.45    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.

10.46    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.

10.47    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.





Item No.                               Exhibit Item

21.1     Subsidiaries of the Registrant.

23.1     Consent of PricewaterhouseCoopers LLP

27.1     Financial Data Schedule for the year ended December 31, 1999.

99.1     Complaint and Jury Demand filed by TIMET against The Boeing  Company in
         District Court, City and County of Denver, State of Colorado,  on March
         21,2000,  Case No.  00CV1402,  including  Exhibit A,  Purchase and Sale
         Agreement (for titanium  products)  dated as of November 5, 1997 by and
         between  The  Boeing  Company,  acting  through  its  division,  Boeing
         Commercial  Airplane  Group,  and TIMET - incorporated  by reference to
         Exhibit 99.2 to TIMET's  Current Report on Form 8-K (File No.  0-28538)
         dated March 22, 2000.

* 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 24, 2000
                                       (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 24, 2000           Steven L. Watson, March 24, 2000
(Chairman of the Board and                           President and Director
 Chief Executive Officer)



/s/ Norman S. Edelcup                         /s/ Glenn R. Simmons
- ---------------------------------------     ------------------------------------
Norman S. Edelcup, March 24, 2000           Glenn R. Simmons, March 24, 2000
(Director)                                  (Vice Chairman of the Board)



/s/ Edward J. Hardin                         /s/ Bobby D. O'Brien
- --------------------------------------      -----------------------------------
Edward J. Hardin, March 24, 2000            Bobby D. O'Brien, March 24, 2000
(Director)                                  (Vice President and Treasurer,
                                            Principal Financial Officer)



/s/ Kenneth R. Ferris                       /s/ Gregory M. Swalwell
- --------------------------------------      ------------------------------------
Kenneth R. Ferris, March 24, 2000           Gregory M. Swalwell, March 24, 2000
(Director)                                  (Vice President and Controller,
                                            Principal Accounting Officer)



/s/ J. Walter Tucker, Jr.
- --------------------------------------
J. Walter Tucker, Jr. March 24, 2000
(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, 1998 and 1999             F-3

  Consolidated Statements of Income -
   Years ended December 31, 1997, 1998 and 1999                        F-5

  Consolidated Statements of Comprehensive Income -
   Years ended December 31, 1997, 1998 and 1999                        F-7

  Consolidated Statements of Stockholders' Equity -
   Years ended December 31, 1997, 1998 and 1999                        F-8

  Consolidated Statements of Cash Flows -
   Years ended December 31, 1997, 1998 and 1999                        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-10


        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 of Valhi,
Inc.  and  Subsidiaries,  and the  related  consolidated  statements  of income,
comprehensive  income, cash flows and stockholders'  equity,  present fairly, in
all material  respects,  the consolidated  financial position of Valhi, Inc. and
Subsidiaries as of December 31, 1998 and 1999, and the  consolidated  results of
their  operations and their cash flows for each of the three years in the period
ended  December 31, 1999, in conformity  with  accounting  principles  generally
accepted in the United States. 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
consolidated   financial   statements  in  accordance  with  auditing  standards
generally  accepted in the United  States 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.

        As discussed in Note 1 to the consolidated financial statements, in 1997
the Company changed its method of accounting for environmental remediation costs
in accordance with Statement of Position No. 96-1.




                                                  PricewaterhouseCoopers LLP

Dallas, Texas
March 16, 2000







                          VALHI, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 1998 and 1999

                      (In thousands, except per share data)



              ASSETS
                                                           1998            1999
                                                           ----            ----

Current assets:
                                                                
  Cash and cash equivalents ......................     $  224,572     $  174,982
  Accounts and other receivables .................        167,660        202,200
  Refundable income taxes ........................         16,443          5,146
  Receivable from affiliates .....................         11,890         14,606
  Inventories ....................................        246,338        219,618
  Prepaid expenses ...............................          3,723          7,221
  Deferred income taxes ..........................          4,836         14,330
                                                       ----------     ----------

      Total current assets .......................        675,462        638,103
                                                       ----------     ----------

Other assets:
  Marketable securities ..........................        265,567        266,362
  Investment in and advances to affiliates .......        370,654        256,982
  Loans and notes receivable .....................         82,290         83,268
  Mining properties ..............................         15,581         20,120
  Prepaid pension costs ..........................         24,190         23,271
  Goodwill .......................................        259,336        356,523
  Deferred income taxes ..........................           --            2,672
  Other assets ...................................         21,737         22,467
                                                       ----------     ----------

      Total other assets .........................      1,039,355      1,031,665
                                                       ----------     ----------

Property and equipment:
  Land ...........................................         16,364         25,952
  Buildings ......................................        150,879        167,100
  Equipment ......................................        511,042        544,278
  Construction in progress .......................          7,918         13,843
                                                       ----------     ----------
                                                          686,203        751,173
  Less accumulated depreciation ..................        158,867        185,772
                                                       ----------     ----------

      Net property and equipment .................        527,336        565,401
                                                       ----------     ----------

                                                       $2,242,153     $2,235,169
                                                       ==========     ==========








           See accompanying notes to consolidated financial statements

                          VALHI, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                           December 31, 1998 and 1999

                      (In thousands, except per share data)



   LIABILITIES AND STOCKHOLDERS' EQUITY
                                                            1998            1999
                                                            ----            ----

Current liabilities:
                                                                
  Notes payable ....................................   $    36,391    $    57,076
  Current maturities of long-term debt .............        65,448         27,846
  Accounts payable .................................        67,592         70,971
  Accrued liabilities ..............................       148,838        163,556
  Payable to affiliates ............................        20,137         25,266
  Income taxes .....................................        12,943          7,203
  Deferred income taxes ............................         1,237            326
                                                       -----------    -----------

      Total current liabilities ....................       352,586        352,244
                                                       -----------    -----------

Noncurrent liabilities:
  Long-term debt ...................................       630,554        609,339
  Accrued OPEB costs ...............................        41,981         58,756
  Accrued pension costs ............................        44,929         39,612
  Accrued environmental costs ......................        83,922         73,062
  Deferred income taxes ............................       353,717        266,752
  Other ............................................        44,220         45,164
                                                       -----------    -----------

      Total noncurrent liabilities .................     1,199,323      1,092,685
                                                       -----------    -----------

Minority interest ..................................       111,722        200,826
                                                       -----------    -----------

Stockholders' equity:
  Preferred stock, $.01 par value; 5,000 shares
   authorized; none issued .........................          --             --
  Common stock, $.01 par value; 150,000 shares
   authorized; 125,521 and 125,611 shares issued ...         1,255          1,256
  Additional paid-in capital .......................        42,789         43,444
  Retained earnings ................................       512,468        538,744
  Accumulated other comprehensive income:
    Marketable securities ..........................       122,826        127,837
    Currency translation ...........................       (22,712)       (40,833)
    Pension liabilities ............................        (2,845)        (5,775)
  Treasury stock, at cost - 10,545 and 10,545 shares       (75,259)       (75,259)
                                                       -----------    -----------

      Total stockholders' equity ...................       578,522        589,414
                                                       -----------    -----------

                                                       $ 2,242,153    $ 2,235,169
                                                       ===========    ===========



Commitments and contingencies (Notes 5, 7, 15 and 18)





                          VALHI, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 1997, 1998 and 1999

                      (In thousands, except per share data)




                                                      1997           1998            1999
                                                      ----           ----            ----

Revenues and other income:
                                                                       
  Net sales ...................................   $ 1,093,091    $ 1,059,447    $ 1,145,222
  Gain on:
    Disposal of business unit .................          --          330,217           --
    Reduction in interest in CompX ............          --           67,902           --
  Other, net ..................................       124,825         80,739         68,456
                                                  -----------    -----------    -----------

                                                    1,217,916      1,538,305      1,213,678
                                                  -----------    -----------    -----------

Cost and expenses:
  Cost of sales ...............................       804,438        736,656        840,326
  Selling, general and administrative .........       227,108        212,122        189,036
  Interest ....................................       118,895         91,188         72,039
                                                  -----------    -----------    -----------

                                                    1,150,441      1,039,966      1,101,401
                                                  -----------    -----------    -----------

                                                       67,475        498,339        112,277
Equity in earnings (prior to consolidation) of:
  Tremont Corporation .........................          --            7,385        (48,652)
  Waste Control Specialists ...................       (12,700)       (15,518)        (8,496)
                                                  -----------    -----------    -----------

    Income before taxes .......................        54,775        490,206         55,129

Provision for income taxes (benefit) ..........        27,631        192,212        (71,285)

Minority interest in after-tax earnings .......            43         72,177         78,992
                                                  -----------    -----------    -----------

    Income from continuing operations .........        27,101        225,817         47,422

Discontinued operations .......................        33,550           --            2,000

Extraordinary item ............................        (4,291)        (6,195)          --
                                                  -----------    -----------    -----------

    Net income ................................   $    56,360    $   219,622    $    49,422
                                                  ===========    ===========    ===========










          See accompanying notes to consolidated financial statements.

                          VALHI, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  Years ended December 31, 1997, 1998 and 1999

                      (In thousands, except per share data)




                                                          1997           1998            1999
                                                          ----           ----            ----

Basic earnings per share:
                                                                            
  Continuing operations ............................   $       .24    $      1.96    $       .41
  Discontinued operations ..........................           .29           --              .02
  Extraordinary item ...............................          (.04)          (.05)          --
                                                       -----------    -----------    -----------

  Net income .......................................   $       .49    $      1.91    $       .43
                                                       ===========    ===========    ===========

Diluted earnings per share:
  Continuing operations ............................   $       .24    $      1.94    $       .41
  Discontinued operations ..........................           .29           --              .02
  Extraordinary item ...............................          (.04)          (.05)          --
                                                       -----------    -----------    -----------

  Net income .......................................   $       .49    $      1.89    $       .43
                                                       ===========    ===========    ===========


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


Shares used in the calculation of per share amounts:
  Basic earnings per share .........................       115,031        115,002        115,030
  Dilutive impact of stock options .................           850          1,124          1,164
                                                       -----------    -----------    -----------

  Diluted earnings per share .......................       115,881        116,126        116,194
                                                       ===========    ===========    ===========















                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)





                                                     1997        1998        1999
                                                     ----        ----        ----

Net income                                        $ 56,360     $219,622    $ 49,422
                                                  --------     --------    --------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment:
  Unrealized net gains arising during
                                                                     
   the period ................................      94,424          299       5,503
  Less reclassification for net gains
   included in net income ....................     (31,798)      (5,204)       (492)
                                                 ---------    ---------    --------
                                                    62,626       (4,905)      5,011

Currency translation adjustment ..............     (18,230)       1,728     (18,121)

Pension liabilities adjustment ...............         627         (312)     (2,930)
                                                 ---------    ---------    --------

  Total other comprehensive income (loss), net      45,023       (3,489)    (16,040)
                                                 ---------    ---------    --------

    Comprehensive income .....................   $ 101,383    $ 216,133    $ 33,382
                                                 =========    =========    ========









                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)





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


                                                                                                  
Balance at December 31, 1996 ..........   $1,248   $35,258   $ 282,766    $  65,105    $ (6,210)   $(3,160)   $(71,088)   $ 303,919

Net income ............................     --        --        56,360         --          --         --          --         56,360
Cash dividends ........................     --        --       (23,149)        --          --         --          --        (23,149)
Other comprehensive income (loss), net      --        --          --         62,626     (18,230)       627        --         45,023
Other, net ............................        5     3,097        --           --          --         --          (321)       2,781
                                          ------   -------   ---------    ---------    --------    -------    --------    ---------

Balance at December 31, 1997 ..........    1,253    38,355     315,977      127,731     (24,440)    (2,533)    (71,409)     384,934

Net income ............................     --        --       219,622         --          --         --          --        219,622
Cash dividends ........................     --        --       (23,131)        --          --         --          --        (23,131)
Other comprehensive income (loss), net      --        --          --         (4,905)      1,728       (312)       --         (3,489)
Common stock reacquired ...............     --        --          --           --          --         --        (3,692)      (3,692)
Other, net ............................        2     4,434        --           --          --         --          (158)       4,278
                                          ------   -------   ---------    ---------    --------    -------    --------    ---------

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
                                          ======   =======   =========    =========    ========    =======    ========    =========








                          VALHI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)



                                                1997         1998          1999
                                                ----         ----          ----

Cash flows from operating activities:
                                                             
Net income ..............................   $  56,360    $ 219,622    $  49,422
Depreciation, depletion and amortization       62,283       58,976       64,654
Gain on:
  Disposal of business unit .............        --       (330,217)        --
  Reduction in interest in CompX ........        --        (67,902)        --
Securities transaction gains ............     (48,920)      (8,006)        (757)
Noncash interest expense ................      36,077       26,117        9,788
Change in accounting principle ..........      30,000         --           --
Deferred income taxes ...................     (18,761)     143,134      (92,840)
Minority interest .......................          43       72,177       78,992
Other, net ..............................     (13,047)     (14,356)      (7,825)
Equity in:
  Tremont Corporation ...................        --         (7,385)      48,652
  Waste Control Specialists .............      12,700       15,518        8,496
  Discontinued operations ...............     (33,550)        --         (2,000)
  Extraordinary item ....................       4,291        6,195         --
Distributions from:
  Manufacturing joint venture ...........        --           --         13,650
  Tremont Corporation ...................        --            431          655
                                            ---------    ---------    ---------

                                               87,476      114,304      170,887

Discontinued operations, net ............     (43,132)        --           --
Change in assets and liabilities:
  Accounts and other receivables ........     (24,206)     (10,463)     (34,616)
  Inventories ...........................      20,269      (51,914)      18,671
  Accounts payable and accrued
   liabilities ..........................      12,626       (1,622)       1,080
  Income taxes ..........................      17,762      (14,336)       5,150
  Accounts with affiliates ..............      26,496      (27,800)      (7,055)
  Other, net ............................      (4,269)       8,858      (15,812)
                                            ---------    ---------    ---------

      Net cash provided by
       operating activities .............      93,022       17,027      138,305
                                            ---------    ---------    ---------








                          VALHI, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)




                                                1997         1998         1999
                                                ----         ----         ----

Cash flows from investing activities:
                                                             
  Capital expenditures ..................   $ (36,725)   $ (35,541)   $ (55,869)
  Purchases of:
    Business units ......................        --        (41,646)     (64,975)
    NL common stock .....................     (14,222)     (13,890)      (7,210)
    Tremont common stock ................        --       (172,918)      (1,945)
    CompX common stock ..................        --         (5,670)        (816)
    Marketable securities ...............      (6,000)      (3,766)        --
  Investment in Waste Control Specialists
   (prior to consolidation) .............     (13,000)     (10,000)     (10,000)
  Proceeds from disposal of:
    Marketable securities ...............       6,875        6,875        6,588
    Business unit .......................        --        435,080         --
  Loans to affiliates:
    Loans ...............................     (67,625)    (126,250)      (6,000)
    Collections .........................      63,625      120,250        6,000
  Other loans and notes receivable:
    Loans ...............................    (200,600)        --           --
    Collections .........................     119,100         --           --
  Pre-close dividend from Amalgamated
   Sugar Company ........................      11,518         --           --
  Discontinued operations, net ..........      91,819         --          2,000
  Other, net ............................      11,448          973        1,854
                                            ---------    ---------    ---------

      Net cash provided (used) by
       investing activities .............     (33,787)     153,497     (130,373)
                                            ---------    ---------    ---------

Cash flows from financing activities:
  Indebtedness:
    Borrowings ..........................     390,369      105,966      123,203
    Principal payments ..................    (333,101)    (496,445)    (157,310)
    Deferred financing costs ............      (4,643)        (200)        --
  Loans from affiliates:
    Loans ...............................        --         15,500       45,000
    Repayments ..........................      (7,244)      (6,000)     (52,218)
  Proceeds from issuance of CompX
   common stock .........................        --        110,378         --
  Valhi dividends paid ..................     (23,149)     (23,131)     (23,146)
  Valhi common stock reacquired .........        --         (3,692)        --
  Distributions to minority interest ....          (2)      (1,937)      (3,744)
  Discontinued operations, net ..........      22,380         --           --
  Other, net ............................       4,049        1,354          860
                                            ---------    ---------    ---------

    Net cash provided (used) by
     financing activities ...............      48,659     (298,207)     (67,355)
                                            ---------    ---------    ---------

Net increase (decrease) .................   $ 107,894    $(127,683)   $ (59,423)
                                            =========    =========    =========







          See accompanying notes to consolidated financial statements.

                          VALHI, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)



                                                          1997         1998          1999
                                                          ----         ----          ----

Cash and cash equivalents - net change from:
  Operating, investing and financing
                                                                        
   activities ......................................   $ 107,894    $(127,683)   $ (59,423)
  Currency translation .............................      (3,204)        (871)      (3,398)
  Business units acquired ..........................        --            387        4,785
  Consolidation of Waste Control
   Specialists and Tremont Corporation .............        --           --          8,446
  Business unit sold ...............................        --         (7,630)        --
                                                       ---------    ---------    ---------
                                                         104,690     (135,797)     (49,590)

  Balance at beginning of year .....................     255,679      360,369      224,572
                                                       ---------    ---------    ---------

  Balance at end of year ...........................   $ 360,369    $ 224,572    $ 174,982
                                                       =========    =========    =========


Supplemental disclosures - cash paid for:
  Interest, net of amounts capitalized .............   $  87,115    $  62,616    $  62,208
  Income taxes .....................................      51,264       85,471       16,296

  Business units acquired - net assets consolidated:
    Cash and cash equivalents ......................   $    --      $     387    $   4,785
    Goodwill and other intangible assets ...........        --         26,202       22,700
    Other non-cash assets ..........................        --         21,653       54,966
    Liabilities ....................................        --         (6,596)     (17,476)
                                                       ---------    ---------    ---------

    Cash paid ......................................   $    --      $  41,646    $  64,975
                                                       =========    =========    =========

  Waste Control Specialists and Tremont Corporation
   - net assets consolidated:
    Cash and cash equivalents ......................   $    --      $    --      $   8,446
    Investment in
      Titanium Metals Corporation ..................        --           --         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.  Valhi,  Inc.  (NYSE:  VHI) is a  subsidiary  of  Contran
Corporation which holds, directly or through subsidiaries,  approximately 93% of
Valhi's  outstanding  common stock.  Substantially all of Contran's  outstanding
voting  stock is held  either by trusts  established  for the benefit of certain
children and  grandchildren  of Harold C. Simmons,  of which Mr. Simmons is sole
trustee, or by Mr. Simmons directly.  Mr. Simmons, the Chairman of the Board and
Chief  Executive  Officer of Valhi and  Contran,  may be deemed to control  such
companies.

        Management's  estimates.  The  preparation  of financial  statements  in
conformity with generally accepted accounting  principles 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.  Ultimate  actual results may, in some  instances,
differ from previously estimated amounts.

         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. The
results of the Company's  former building  products and fast food operations are
presented as discontinued operations. See Note 19.

        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 or when services
are performed.

        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.

        Cash and cash equivalents.  Cash equivalents,  including restricted cash
balances,  include bank time deposits and government  and  commercial  notes and
bills with original  maturities of three months or less.  Restricted cash of $22
million  at  December  31,  1999  represents  amounts  restricted   pursuant  to
outstanding  letters  of  credit  (1998 - $12  million  restricted  pursuant  to
outstanding  letters  of  credit  or  cash  pledged  to  collateralize   certain
environmental remediation performance obligations).

        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.

        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.  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 $74 million credit at December 31,
1999,  relate  principally  to Titanium  Metals  Corporation  ("TIMET")  and are
charged or credited to income as the entities depreciate, amortize or dispose of
the related net assets.

         Goodwill,   other  intangible   assets  and   amortization.   Goodwill,
representing  the  excess of cost  over  fair  value of  individual  net  assets
acquired in business  combinations  accounted  for by the  purchase  method,  is
amortized  by the  straight-line  method  over not more than 40 years  (weighted
average  remaining life of 25.5 years at December 31, 1999) and is stated net of
accumulated  amortization  of $45.0  million at December  31, 1999 (1998 - $33.2
million).  At December 31, 1999,  approximately  87% of the aggregate  amount of
unamortized  goodwill  represents  enterprise level goodwill  generated from the
Company's various step acquisitions of its interest in NL Industries during 1986
through  1999,  and  substantially  all of  the  remainder  represents  goodwill
generated from CompX  International's  acquisitions of certain businesses during
1998 and 1999.  At December 31,  1999,  the quoted  market  prices for NL common
stock  ($15.06  per share) and CompX  common  stock  ($18.38  per share) were in
excess of the Company's  aggregate  net  investment in NL ($14.76 per share) and
CompX ($9.57 per share) at that date.

         Other intangible assets are amortized by the straight-line  method over
the  periods  expected  to be  benefited  (up to 20 years) and are stated net of
accumulated  amortization  of $11.4  million at December  31, 1999 (1998 - $10.6
million).

         When events or changes in circumstances indicate that goodwill or other
intangible assets may be impaired, an evaluation is performed to determine if an
impairment exists. Such events or circumstances include, 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  is 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 are considered in determining
whether  impairment  exists.  If an impairment is determined to exist,  goodwill
and, if  appropriate,  the  underlying  long-lived  assets  associated  with the
goodwill, are written down to reflect the estimated future discounted cash flows
expected to be generated by the underlying business.

        Generally,  enterprise  level  goodwill is not considered to be disposed
unless the company to which it relates is disposed in total. However, if a large
business  unit or other  separable  group of assets of such company is sold,  an
allocated portion of the unamortized balance of goodwill will be included in the
cost of the assets  sold.  In this  regard,  the Company  included an  allocated
portion of the enterprise level goodwill related to its investment in NL as part
of the  cost of the  assets  sold in  conjunction  with  NL's  1998  sale of its
specialty chemicals business unit. See Note 3.

        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. Expenditures for maintenance, repairs and
minor  renewals  are  expensed;   expenditures   for  major   improvements   are
capitalized.  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.  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  and  comprising  continuing  operations  were $2 million  in 1997,  $1
million in 1998 and nil in 1999.

        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.  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  may also be 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.

        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.  Capital lease  obligations are
stated net of imputed interest.

         Interest  rate  swaps and  contracts.  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. Any cost associated with a swap or contract
designated  as a hedge of an asset or liability is deferred and  amortized  over
the term of the agreement as an adjustment to interest income or expense. If the
swap or contract  is  terminated,  the  resulting  gain or loss is deferred  and
amortized over the remaining life of the underlying  asset or liability.  If the
hedged  instrument  is disposed of, the swap or contract  agreement is marked to
market with any  resulting  gain or loss included with the gain or loss from the
disposition.  The Company was not a party to any such  contract at December  31,
1998 or 1999.

         Currency forward contracts. 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.  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.  At December 31, 1999, the Company held contracts  designated as a
hedge against such  receivables  to exchange an aggregate of U.S. $6 million for
an equivalent amount of Canadian dollars at an exchange rate of Cdn. $1.49. Such
contracts  mature  through  March 2000.  The Company was not a party to any such
contract at December 31, 1998.

         The Company also will  periodically use currency  forward  contracts to
hedge specific foreign currency commitments.  Gains and losses on such contracts
are  deferred  and  included in the basis of the hedged  transaction  when it is
consummated.  In  connection  with CompX's  acquisition  of a slide  producer in
January 1999 (see Note 3), on December 30, 1998 CompX  entered into a short-term
currency  forward  contract to purchase NLG 75 million for $40.1 million,  which
contract was  executed on January 19,  1999.  The Company was not a party to any
such contract at December 31, 1999.

        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.  NL, Tremont and CompX  (beginning in March 1998) are
separate  U.S.  taxpayers  and are not members 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 not included in the
Contran Tax Group.  The Company  periodically  evaluates its deferred tax assets
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 which were excluded from the  calculation of diluted  earnings per
share because their impact would have been antidilutive aggregated approximately
707,000 in 1997, 173,000 in 1998 and 313,000 in 1999.

        Deferred  income.  Deferred income 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 not less than the  market  price on the
grant date.  Compensation cost recognized by the Company in accordance with APBO
No. 25 has not been significant in any of the past three years.

         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, 1998 and 1999, no assets for
recoveries   have  been   recognized.   The  Company   adopted  the  recognition
requirements   of  Statement  of  Position   ("SOP")  No.  96-1,   Environmental
Remediation Liabilities, in 1997. The new rule, among other things, expanded the
type of costs that must be considered in determining  environmental  remediation
accruals.  As a result of adopting the new SOP, in 1997 the Company recognized a
noncash  pre-tax  charge  of $30  million  ($19.5  million,  or $.17 per  share,
net-of-tax) in 1997 related to environmental matters at NL.

         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  ($506,000  accrued at
December 31, 1999). 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.  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 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  at
December 31, 1999 are not expected to begin until 2004 at the earliest.

         Extraordinary  item. The extraordinary  losses in 1997 and 1998, stated
net of  allocable  income  tax  benefit  and  minority  interest,  relate to the
write-off  of  unamortized   deferred  financing  costs  and  premiums  paid  in
connection  with the  early  retirement  of  Valcor's  Senior  Notes in 1997 and
certain NL Industries indebtedness in 1998. See Note 10.

        Other.  Advertising costs related to the Company's consolidated business
segments and charged to continuing operations,  expensed as incurred, aggregated
$2.4 million in 1997,  $1.4  million in 1998 and $2.0 million in 1999.  Research
and development  costs related to the Company's  consolidated  business segments
and charged to continuing operations,  expensed as incurred, were $10 million in
1997 and $8 million in each of 1998 and 1999.

         New  accounting  principle  not yet  adopted.  The  Company  will adopt
Statement of Financial  Accounting  Standards  ("SFAS") No. 133,  Accounting for
Derivative  Instruments and Hedging  Activities,  as amended,  no later than the
first quarter of 2001. Under SFAS No. 133, all derivatives will be recognized as
either assets or  liabilities  and measured at fair value.  The  accounting  for
changes in fair value of  derivatives  will depend upon the  intended use of the
derivative.  The impact on the Company of adopting SFAS No. 133, if any, has not
yet been  determined  but will be dependent upon the extent to which the Company
is a party to derivative contracts or hedging activities covered by SFAS No. 133
at the time of adoption,  including  derivatives embedded in non-derivative host
contracts.





Note 2 -       Business and geographic segments:

                                                                 % owned at
 Business segment                 Entity                     December 31, 1999

  Chemicals             NL Industries, Inc.                         58.8%*
  Component products    CompX International Inc.                    64.2%
  Waste management      Waste Control Specialists                   68.8%
  Titanium metals       Tremont Corporation                         50.2%*

* Tremont is a holding company which owns an additional 19.9% of NL and 39.1% of
  Titanium Metals Corporation. See Note 3.

         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")  internationally  through its subsidiary Kronos,  Inc. Prior to January
1998, NL also  manufactured and sold specialty  chemicals through its subsidiary
Rheox, Inc. See Note 3. CompX produces and sells component  products  (ergonomic
computer support systems,  precision ball bearing slides and security products),
primarily in North  America and Europe.  Waste  Control  Specialists  operates a
facility in West Texas for the  processing,  treatment,  storage and disposal of
hazardous  and toxic  wastes,  and for the  treatment  and  storage  of  certain
low-level and mixed radioactive wastes.

         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 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. Interest  income included in the calculation
of segment  operating  income is not  material  in 1997,  1998 or 1999.  Capital
expenditures  include  additions to property and equipment and mining properties
but  exclude  amounts  attributable  to  business  units  acquired  in  business
combinations  accounted  for by the  purchase  method.  See Note 3. There are no
intersegment sales or any other significant intersegment transactions.

         Segment  assets  are  comprised  of all  assets  attributable  to  each
reportable operating segment. The Company's investment in the TiO2 manufacturing
joint venture (see Note 8) is included in the chemicals business segment assets.
Corporate  assets are not  attributable  to any  operating  segment  and consist
principally of cash, cash equivalents,  marketable securities and loans to third
parties. At December 31, 1999, approximately 15% and 3% of corporate assets were
held by NL and Tremont,  respectively (1998 - 26% and 5%, respectively,  held by
NL and CompX). 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, 1999, the net assets of
non-U.S.  subsidiaries  included in consolidated  net assets  approximated  $670
million.



                                                   Years ended December 31,
                                                  1997        1998        1999
                                                  ----        ----        ----
                                                         (In millions)
Net sales:
                                                              
  Chemicals ................................   $  984.4    $  907.3    $  908.4
  Component products .......................      108.7       152.1       225.9
  Waste management (after consolidation) ...       --          --          10.9
                                               --------    --------    --------

    Total net sales ........................   $1,093.1    $1,059.4    $1,145.2
                                               ========    ========    ========

Operating income:
  Chemicals ................................   $  106.7    $  154.6    $  126.2
  Component products .......................       28.3        31.9        40.2
  Waste management (after consolidation) ...       --          --          (1.8)
                                               --------    --------    --------

    Total operating income .................      135.0       186.5       164.6

Gain on:
  Disposal of business unit ................       --         330.2        --
  Reduction in interest in CompX ...........       --          67.9        --
General corporate items:
  Securities transactions ..................       48.9         8.0          .8
  Interest and dividend income .............       60.2        54.9        43.0
  General expenses, net ....................      (57.8)      (58.0)      (24.1)
Interest expense ...........................     (118.9)      (91.2)      (72.0)
                                               --------    --------    --------
                                                   67.4       498.3       112.3
Equity in (prior to consolidation):
  Tremont Corporation ......................       --           7.4       (48.7)
  Waste Control Specialists ................      (12.7)      (15.5)       (8.5)
                                               --------    --------    --------

    Income from continuing
     operations before income taxes ........   $   54.7    $  490.2    $   55.1
                                               ========    ========    ========


Net sales - point of origin:
  United States ............................   $  388.3    $  353.6    $  399.5
  Germany ..................................      465.6       453.3       459.4
  Belgium ..................................      122.8       159.6       138.7
  Norway ...................................       96.4        91.1        88.3
  Netherlands ..............................       --          --          36.8
  Other Europe .............................      141.6       103.2        92.8
  Canada ...................................      225.8       251.2       259.7
  Other ....................................       --          --            .7
  Eliminations .............................     (347.4)     (352.6)     (330.7)
                                               --------    --------    --------

                                               $1,093.1    $1,059.4    $1,145.2
                                               ========    ========    ========

Net sales - point of destination:
  United States ............................   $  359.0    $  356.4    $  412.7
  Europe ...................................      496.0       501.7       520.1
  Canada ...................................       99.3       107.7       104.4
  Asia .....................................       61.3        23.9        45.0
  Other ....................................       77.5        69.7        63.0
                                               --------    --------    --------

                                               $1,093.1    $1,059.4    $1,145.2
                                               ========    ========    ========









                                                       Years ended December 31,
                                                     1997        1998       1999
                                                     ----        ----       ----
                                                             (In millions)
Depreciation, depletion and amortization:
                                                                  
  Chemicals ...................................      $58.9      $53.8      $52.5
  Component products ..........................        2.8        4.6        9.6
  Waste management (after consolidation) ......       --         --          1.5
  Corporate ...................................         .6         .6        1.1
                                                     -----      -----      -----

                                                     $62.3      $59.0      $64.7
                                                     =====      =====      =====

Capital expenditures:
  Chemicals ...................................      $30.5      $22.3      $32.7
  Component products ..........................        5.5       12.9       19.7
  Waste management (after consolidation) ......       --         --           .3
  Corporate ...................................         .7         .3        3.2
                                                     -----      -----      -----

                                                     $36.7      $35.5      $55.9
                                                     =====      =====      =====






                                                         December 31,
                                                1997         1998          1999
                                                ----         ----          ----
                                                        (In millions)
Total assets:
  Operating segments:
                                                               
    Chemicals ...........................     $1,447.0     $1,349.2     $1,413.8
    Component products ..................         63.8        124.7        205.4
    Waste management ....................         --           --           33.9
  Investment in and advances to:
    Titanium Metals Corporation .........         --           --           85.8
    Other joint ventures ................         --           --           13.7
    Prior to consolidation:
      Tremont Corporation ...............         --          179.5         --
      Waste Control Specialists .........         19.5         20.0         --
  Corporate and eliminations ............        647.8        568.8        482.6
                                              --------     --------     --------

                                              $2,178.1     $2,242.2     $2,235.2
                                              ========     ========     ========

Net property and equipment
 and mining properties:
  United States .........................     $   47.8     $   27.8     $   67.3
  Germany ...............................        301.8        306.6        278.5
  Belgium ...............................         59.1         59.9         57.5
  Norway ................................         68.4         63.0         64.1
  Netherlands ...........................         --           --           17.6
  Other Europe ..........................          8.8          1.4          1.3
  Canada ................................         86.1         84.2         94.3
  Other .................................         --           --            4.9
                                              --------     --------     --------

                                              $  572.0     $  542.9     $  585.5
                                              ========     ========     ========









Note 3 -  Business combinations and disposals:

         NL Industries,  Inc. (NYSE:  NL). At the beginning of 1997,  Valhi held
56% of NL's  outstanding  common  stock.  During  1997,  1998  and  1999,  Valhi
purchased additional NL shares, and NL purchased shares of its own common stock,
in market and private  transactions  for an aggregate of $35.3 million,  and the
Company's  ownership of NL  increased to 59% at December 31, 1999.  See Note 17.
The Company  accounted for such  increases in its interest in NL by the purchase
method (step acquisition).

         In  January  1998,  NL  sold  its  specialty  chemicals  business  unit
conducted by its  subsidiary  Rheox,  Inc.  for $465 million cash  consideration
(before fees and expenses),  including $20 million  attributable  to a five-year
agreement by NL not to compete in the rheological  products  business.  See Note
11. The Company  reported a $330.2 million  pre-tax gain on the disposal of this
business unit in 1998. The Company's  results of operations in 1997 included net
sales of $147.2  million and operating  income of $43.0 million  related to this
business  unit  (1998  prior  to the  sale - $12.7  million  and  $2.7  million,
respectively).

       CompX.  Prior to March  1998,  CompX  was a  wholly-owned  subsidiary  of
Valcor, Inc., a wholly-owned subsidiary of Valhi. In March 1998, CompX completed
an initial  public  offering of shares of its common  stock for net  proceeds to
CompX of  approximately  $110.4  million.  CompX  used $75  million  of such net
proceeds to repay  outstanding  borrowings  under its bank credit  facility,  of
which $50  million was  incurred in  connection  with the  repayment  of certain
intercompany  indebtedness  owed by CompX to Valcor  and $25  million  which was
incurred in connection  with CompX's March 1998  acquisition  of a lock producer
discussed  below.  As a result of the public  offering of shares of CompX common
stock and CompX's award of certain shares of its common stock in connection with
the offering,  the Company's ownership interest in CompX was reduced to 62% from
100%.  The  Company  reported  a $67.9  million  pre-tax  gain on the  Company's
reduction in interest in CompX in 1998.  Deferred  income taxes were provided on
this gain on reduction in interest in CompX.

       Subsequently  in 1998 and during 1999,  Valhi  purchased  shares of CompX
common stock in market  transactions  for an aggregate of $6.5 million,  thereby
increasing the Company's ownership interest of CompX from 62% to 64% at December
31, 1999.  The Company  accounted for such increases in its interest in CompX by
the purchase method (step acquisition).

         In 1998,  CompX  acquired two lock  producers for an aggregate of $41.6
million cash  consideration.  In 1999, CompX acquired two slide producers for an
aggregate of $65 million cash  consideration.  Such  acquisitions were accounted
for by the  purchase  method.  In January  2000,  CompX  acquired  another  lock
producer for an aggregate of $9 million cash consideration.

         Waste Control  Specialists  LLC. In 1995, Valhi acquired a 50% interest
in newly-formed Waste Control Specialists LLC. See Note 8. Valhi contributed $25
million  to Waste  Control  Specialists  at  various  dates  through  early 1997
(including  $3  million  in 1997) for its 50%  interest.  Valhi  contributed  an
additional  $10 million to Waste  Control  Specialists'  equity in each of 1997,
1998 and 1999,  thereby  increasing its  membership  interest from 50% to 69% at
December 31, 1999. 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. Valhi also holds an option
to make an additional $20 million equity contribution which, if exercised, would
increase its membership interest in Waste Control Specialists to 90%.

         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 the 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.

         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' 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 12.

         Tremont.  In June 1998,  Valhi  purchased 2.9 million shares of Tremont
Corporation common stock from Contran and certain of Contran's  subsidiaries for
an aggregate of $165.4 million cash consideration,  including fees and expenses.
Subsequently in 1998 and during 1999, Valhi also purchased in market and private
transactions  additional  shares of Tremont  for an  aggregate  of $9.5  million
which,  by late December 1999,  increased the Company's  ownership of Tremont to
50.2%. See Note 17. Accordingly,  the Company commenced  consolidating Tremont's
balance sheet at December 31, 1999, and the Company will commence  consolidating
Tremont's  results of operations and cash flows effective January 1, 2000. Prior
to December 31, 1999,  Valhi accounted for its interest in Tremont by the equity
method, and the Company commenced  reporting equity in Tremont's earnings in the
third quarter of 1998. See Note 8. Tremont is primarily a holding  company which
owns  39.1% of the  outstanding  common  stock of  Titanium  Metals  Corporation
("TIMET")  and 19.9% of NL's  common  stock at  December  31,  1999.  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.

         Other.  Each of NL (NYSE: NL), CompX (NYSE:  CIX),  Tremont (NYSE: TRE)
and TIMET (NYSE: TIE) file periodic reports pursuant to the Securities  Exchange
Act of 1934,  as  amended.  The  aggregate  pro  forma  impact of  CompX's  1999
acquisition of two slide producers,  assuming such acquisitions  occurred at the
beginning of 1998, is not  material.  Discontinued  operations  are discussed in
Note 19.





Note 4 -       Accounts and other receivables:




                                                             December 31,
                                                        1998             1999
                                                        ----             ----
                                                            (In thousands)

                                                                
Accounts receivable ..........................       $ 157,248        $ 192,233
Notes receivable .............................           3,622            3,991
Accrued interest .............................           9,477           12,189
Allowance for doubtful accounts ..............          (2,687)          (6,213)
                                                     ---------        ---------

                                                     $ 167,660        $ 202,200
                                                     =========        =========


Note 5 -       Marketable securities:



                                                            December 31,
                                                          1998            1999
                                                          ----            ----
                                                             (In thousands)

Noncurrent assets (available-for-sale):
                                                                  
The Amalgamated Sugar Company LLC ..............        $170,000        $170,000
Halliburton Company common stock ...............          79,710          91,825
Other securities ...............................          15,857           4,537
                                                        --------        --------

                                                        $265,567        $266,362
                                                        ========        ========



         Amalgamated. On January 3, 1997, 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 to the LLC was approximately $34 million.

         As part of the  transaction,  in  January  1997 (i)  Snake  River  made
certain  loans to Valhi  aggregating  $250 million and (ii) Valhi  provided $180
million of loans to Snake  River,  of which $100  million was repaid in May 1997
when Snake River  obtained an equal amount of third-party  term loan  financing.
Valhi's  $250  million  in loans  from  Snake  River are  collateralized  by the
Company's interest in the LLC. See Notes 7 and 10.

         The Company and Snake River share in  distributions  from the LLC up to
an aggregate of $26.7  million per year,  with a  preferential  95% going to the
Company. Under certain conditions, the Company is entitled to receive additional
cash  distributions  from the LLC. In addition,  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 unless the Company and Snake River's  third-party
lender  otherwise  mutually  agree.  Through  December 31, 1999,  the  Company's
cumulative  distributions  from  the LLC had not  fallen  below  such  specified
levels.

         Because the Company surrendered  control of the operations  contributed
to the  LLC,  the  Company  ceased  consolidating  the net  assets,  results  of
operations  and  cash  flows  of such  business  effective  December  31,  1996.
Beginning  in 1997,  the  Company  commenced  reporting  the cash  distributions
received from the LLC  (approximately  $25.4  million in 1997,  $18.4 million in
1998 and $23.5  million in 1999) as dividend  income.  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  has   classified   its   investment   in  the  LLC  as  an
available-for-sale  marketable  security  carried at  estimated  fair value.  In
determining  the estimated 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, 1999,  Valhi held 2.7 million  shares of
Halliburton  common stock  (aggregate  cost of $22 million) with a quoted market
price of $40.25 per share,  or an aggregate  market value of $108 million (1998:
2.7 million shares at a cost of $22 million with a quoted market price of $29.63
per share,  or an aggregate  market  value of $80  million).  Valhi's  LYONs are
exchangeable at any time, at the option of the LYON holder, for such Halliburton
shares,  and the  carrying  value of the  Halliburton  stock is  limited  to the
accreted  LYONs  obligation.  See Note 10.  The  Halliburton  shares are held in
escrow for the  benefit of holders of the  LYONs.  Valhi  receives  the  regular
quarterly  Halliburton dividend on the escrowed Halliburton shares. Prior to the
September 1998 merger of Halliburton and Dresser Industries, Inc., in which each
share of Dresser common stock was exchanged for one share of Halliburton  common
stock,  Valhi held  Dresser  shares.  During 1997,  1998 and 1999,  certain LYON
holders   exchanged   their   LYONs   for  2.4   million,   385,000   and  7,000
Halliburton/Dresser  shares,  respectively.  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 Securities and Exchange
Commission.

        Other.  The  aggregate  cost  of  other  available-for-sale   securities
(primarily  common  stocks) is  approximately  $8 million at  December  31, 1999
(December 31, 1998 - $14 million).






Note 6 -       Inventories:



                                                              December 31,
                                                          1998             1999
                                                          ----             ----
                                                             (In thousands)

Raw materials:
                                                                  
  Chemicals ..................................         $ 46,114         $ 54,861
  Component products .........................            6,520            9,038
                                                       --------         --------
                                                         52,634           63,899
                                                       --------         --------

In process products:
  Chemicals ..................................           11,530            8,065
  Component products .........................            5,748            8,669
                                                       --------         --------
                                                         17,278           16,734
                                                       --------         --------

Finished products:
  Chemicals ..................................          137,000          100,973
  Component products .........................            4,634            9,898
                                                       --------         --------
                                                        141,634          110,871
                                                       --------         --------

Supplies (primarily chemicals) ...............           34,792           28,114
                                                       --------         --------

                                                       $246,338         $219,618
                                                       ========         ========


Note 7 -       Other noncurrent assets:



                                                               December 31,
                                                         1998             1999
                                                         ----             ----
                                                             (In thousands)
Loans and notes receivable:
                                                                   
  Snake River Sugar Company ..................          $80,000          $80,000
  Other ......................................            5,912            7,259
                                                        -------          -------
                                                         85,912           87,259
  Less current portion .......................            3,622            3,991
                                                        -------          -------

  Noncurrent portion .........................          $82,290          $83,268
                                                        =======          =======

Other assets:
  Intangible assets ..........................          $ 4,923          $ 6,979
  Deferred financing costs ...................            5,674            3,668
  Other ......................................           11,140           11,820
                                                        -------          -------

                                                        $21,737          $22,467
                                                        =======          =======


        Valhi's  loan to  Snake  River is  unsecured,  is  subordinate  to Snake
River's  third-party  term loan and  bears  interest  at a fixed  rate of 12.99%
(10.99%  during  1997 and  1998),  with all  amounts  due no  later  than  2010.
Covenants  contained in Snake River's  third-party  term loan allow Snake River,
under certain conditions,  to pay periodic  installments for debt service on the
$80  million  loan.  Under  certain  conditions,  Valhi is required to pledge $5
million in cash  equivalents  or marketable  securities to  collateralize  Snake
River's  third-party 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.






Note 8 -       Investment in and advances to affiliates:



                                                                December 31,
                                                            1998            1999
                                                            ----            ----
                                                               (In thousands)

Investments in:
                                                                  
  Ti02 manufacturing joint venture ...................     $171,202     $157,552
  Titanium Metals Corporation ........................         --         85,772
  Other joint ventures ...............................         --         13,658
  Prior to consolidation:
    Tremont Corporation ..............................      179,452         --
    Waste Control Specialists LLC ....................       10,000         --
                                                           --------     --------
                                                            360,654      256,982

Loan to Waste Control Specialists LLC (prior to
 consolidation) ......................................       10,000         --
                                                           --------     --------

                                                           $370,654     $256,982
                                                           ========     ========


         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 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  $162.7 million,  $180.3 million and $171.6
million in 1997,  1998 and 1999,  respectively,  of which $82.2  million,  $90.4
million and $85.3  million,  respectively,  represented  sales to Kronos and the
remainder  represented  sales to LPC's other owner.  Over 95% of LPC's operating
costs during the past three years represented costs of sales, with the remainder
comprised  principally of interest  expense.  At December 31, 1999, LPC reported
total  assets  and  partners'  equity  of $335.6  million  and  $317.3  million,
respectively (1998 - $355.6 million and $344.6 million, respectively).  Over 80%
of LPC's  assets at December  31, 1998 and 1999 are  comprised  of property  and
equipment;   the  remainder  of  LPC's  assets  is  comprised   principally   of
inventories,  receivables from its partners and cash and cash equivalents. LPC's
liabilities  at December  31,  1998 and 1999 are  comprised  primarily  of trade
payables and accruals.

         Titanium  Metals  Corporation.  At December 31, 1999, the investment in
TIMET  represents 12.3 million shares of TIMET common stock with a quoted market
price of $4.50 per share,  or an  aggregate  market value of $55.3  million.  At
December 31, 1999,  TIMET  reported  total  assets and  stockholders'  equity of
$883.1 million and $408.1  million,  respectively.  TIMET's total assets at such
date include current assets of $342.6 million,  property and equipment of $333.4
million and goodwill and other intangible assets of $71.1 million. TIMET's total
liabilities  at  such  date  include  current  liabilities  of  $194.4  million,
long-term  debt of $22.4  million,  accrued  OPEB  costs of  $20.0  million  and
convertible preferred securities of $201.3 million.

         Tremont Corporation. The Company commenced reporting equity in earnings
of Tremont in the third  quarter  of 1998.  Effective  December  31,  1999,  the
Company  commenced  consolidating  Tremont's balance sheet, and the Company will
commence consolidating  Tremont's results of operations and cash flows effective
January 1, 2000. See Note 3. For the six months ended December 31, 1998, Tremont
reported  income  before   extraordinary  items  of  $18.7  million,   comprised
principally  of equity in earnings of TIMET ($4.3 million) and NL ($7.6 million)
and an income tax benefit of $6.1 million. For the year ended December 31, 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 benefit of $18.9 million. The Company's equity in losses of Tremont in
1999 includes a $50.0 million  impairment  provision for an other than temporary
decline in the value of TIMET.  At December 31,  1998,  Tremont  reported  total
assets  and   stockholders'   equity  of  $288.6  million  and  $198.3  million,
respectively.  Tremont's  total  assets  at  December  31,  1998  are  comprised
principally by its investments in NL ($95.0 million), TIMET ($145.2 million) and
other  joint  ventures  ($13.1  million)  and  $3.1  million  in cash  and  cash
equivalents. At December 31, 1998, Tremont's total liabilities included a demand
loan to Contran  ($5.9  million),  accrued OPEB costs ($21.9  million),  accrued
insurance  claims  and  claim  expenses  related  to  its  wholly-owned  captive
insurance subsidiary ($15.8 million) and deferred income taxes ($32.9 million).

         Waste  Control  Specialists  LLC. 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. For periods prior to consolidation, Waste Control Specialists reported net
losses of $12.7 million in 1997, $15.5 million in 1998 and $8.5 million in 1999,
all of which accrued to Valhi for financial  reporting  purposes.  Its net sales
during the same  periods were $3.4  million in 1997,  $11.9  million in 1998 and
$8.3  million  in  1999.  See  Note 3.  At  December  31,  1998,  Waste  Control
Specialists'  total assets were $34.7 million and total Members' equity was $7.5
million.  Waste  Control  Specialists'  assets at December  31,  1998  consisted
principally  of property and  equipment  related to the West Texas  facility and
trade  accounts   receivable,   and  its  liabilities   consist  principally  of
indebtedness,  including $10 million of  intercompany  indebtedness  owed to the
Company, and trade payables and accruals.

         Other. At December 31, 1999, other joint ventures,  held by a 75%-owned
subsidiary of Tremont, are principally comprised of (i) a 32% equity interest in
Basic Investments, 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.  (formerly  Victory  Valley Land Company,
L.P.),  which is actively  engaged in efforts to develop  certain  real  estate.
Basic Investments owns an additional 50% interest in Landwell.

Note 9 -       Accrued liabilities:



                                                               December 31,
                                                          1998             1999
                                                          ----             ----
                                                             (In thousands)
Current:
                                                                  
  Employee benefits ..........................         $ 42,665         $ 45,674
  Environmental costs ........................           46,059           48,891
  Interest ...................................            7,397            7,210
  Deferred income ............................            4,353            7,924
  Other ......................................           48,364           53,857
                                                       --------         --------

                                                       $148,838         $163,556
                                                       ========         ========

Noncurrent:
  Insurance claims and expenses ..............         $ 15,321         $ 21,690
  Employee benefits ..........................           12,523           11,403
  Deferred income ............................           13,693            9,573
  Other ......................................            2,683            2,498
                                                       --------         --------

                                                       $ 44,220         $ 45,164
                                                       ========         ========






Note 10 - Notes payable and long-term debt:



                                                                December 31,
                                                             1998          1999
                                                             ----          ----
                                                               (In thousands)

                                                                  
Notes payable - Kronos - bank credit agreements ......     $ 36,391     $ 57,076
                                                           ========     ========

Long-term debt:
  Valhi:
    Snake River Sugar Company ........................     $250,000     $250,000
    Liquid Yield Option Notes (LYONs) ................       84,104       91,825
    Bank credit facility .............................         --         21,000
                                                           --------     --------

                                                            334,104      362,825
                                                           --------     --------
  NL Industries:
    Senior Secured Notes .............................      244,000      244,000
    Deutsche mark bank credit facility ...............      112,674         --
    Other ............................................          955          478
                                                           --------     --------

                                                            357,629      244,478
                                                           --------     --------
  Other subsidiaries:
    CompX bank credit facility .......................         --         20,000
    Waste Control Specialists bank term loan .........         --          4,304
    Valcor Senior Notes ..............................        2,431        2,431
    Other ............................................        1,838        3,147
                                                           --------     --------

                                                              4,269       29,882
                                                           --------     --------

                                                            696,002      637,185

  Less current maturities ............................       65,448       27,846
                                                           --------     --------

                                                           $630,554     $609,339
                                                           ========     ========


         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.
Under certain conditions, up to $37.5 million principal amount of such loans may
become recourse to Valhi. Under certain conditions,  Snake River has the ability
to accelerate the maturity of these loans. See Note 5.

        The zero coupon Senior  Secured  LYONs due October 2007 ($185.9  million
principal amount at maturity outstanding at December 31, 1999), 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, for 14.4308  shares of Halliburton  common stock
held by Valhi. The LYONs are secured by such  Halliburton  shares held by Valhi.
See Note 5. During 1997,  1998 and 1999,  holders  representing  $165.3 million,
$26.7 million and $483,000 principal amount at maturity,  respectively, of LYONs
exchanged  such  LYONs  for  Halliburton  shares or  Halliburton's  predecessor,
Dresser. 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  date).  Such  redemptions  may  be  paid,  at  Valhi's  option,  in  cash,
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, 1998 and 1999,  the net carrying
value of the LYONs per $1,000  principal  amount at  maturity  was $451 and $494
respectively,  and the  quoted  market  price of the  LYONs  was $464 and  $573,
respectively.

         Valhi has a $50 million revolving bank credit/letter of credit facility
which  matures in  November  2000,  bears  interest  at LIBOR plus 1.5% (7.7% at
December 31, 1999) and is collateralized by 30 million shares of NL common stock
held by Valhi. The agreement limits quarterly Valhi dividends  generally to $.05
per share, limits additional indebtedness of Valhi and contains other provisions
customary in lending  transactions  of this type.  At December  31, 1999,  $28.5
million was available for borrowing under this facility.

        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
and a second  priority lien on the stock of another  wholly-owned NL subsidiary.
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,  unconditional and joint and several
guarantee by Kronos and the other NL  subsidiary.  The Senior  Secured Notes are
redeemable,  at NL's option,  starting in October 2000 at a redemption  price of
101.5% of principal  amount,  declining to 100% after October 2001. In the event
of an NL change of control, as defined, NL would be required to make an offer to
purchase the Senior  Secured Notes at 101% of the principal  amount.  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.  The quoted  market price of the Senior  Secured Notes per
$1,000 principal amount was $1,037 at each of December 31, 1998 and 1999.

         During 1998, NL purchased (i) $6 million principal amount of its Senior
Secured   Notes   at   par   value   and   (ii)   the   entire   issue   of  its
previously-outstanding   13%  Senior  Secured  Discount  Notes  ($187.5  million
principal  amount at maturity)  with  premiums  ranging  between 1.25% and 6% in
market  transactions or pursuant to a tender offer. NL's DM bank credit facility
was prepaid and terminated in 1999.

        At  December  31,  1999,   notes  payable  consists  of  57  million  of
euro-denominated  short-term  borrowings  which  mature  during  2000  and  bear
interest at rates  ranging from 3.0% to 4.3% (1998 - DM 61 million of short-term
borrowings at rates ranging from 3.7% to 4.6%). At December 31, 1999, NL had $19
million available for borrowing under non-U.S. credit facilities.

        Other. CompX has a $100 million unsecured revolving bank credit facility
which  matures in 2003.  Borrowings  bear interest at the  Eurodollar  Rate plus
between 17.5 and 90 basis points  depending upon certain CompX financial  ratios
(6.2% at December 31, 1999). At December 31, 1999, $80 million was available for
borrowing under this facility.  Waste Control Specialists' bank term loan is due
in April 2000,  bears interest at the greater of 12% or prime plus 3.75% (12.25%
at  December  31,  1999) and is  collateralized  by  substantially  all of Waste
Control Specialists' assets. Waste Control Specialists expects to refinance such
bank term loan in 2000. Valcor's unsecured 9 5/8% Senior Notes due November 2003
are  redeemable  at the Company's  option at 102.406% of principal  amount (100%
after November  2000). At December 31, 1998 and 1999, the quoted market price of
the  Valcor   Notes  was  $1,011  and  $1,005  per  $1,000   principal   amount,
respectively.  In 1997,  Valcor purchased $97.6 million  principal amount of its
Senior Notes in market  transactions  or tender offers,  including $66.2 million
principal amount purchased with a premium of 5.75% of principal amount.

        In addition to the NL Senior Secured Notes discussed above, other 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,  1999,  the  restricted  net assets of  consolidated  subsidiaries
approximated $460 million.

        Aggregate maturities of long-term debt at December 31, 1999

Years ending December 31,                                   Amount
                                                         (In thousands)

  2000                                                     $ 27,846
  2001                                                          539
  2002                                                      118,555
  2003                                                      266,529
  2004                                                           73
  2005 and thereafter                                       250,131
                                                           --------
                                                            663,673
Less unamortized OID on Valhi LYONs                          26,488
                                                           --------

                                                           $637,185
                                                           ========

        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 $118.3 million  ($636.27 per $1,000  principal
amount at maturity in October 2007).

Note 11 -      Other income, net:



                                                 Years ended December 31,
                                                1997         1998         1999
                                                ----         ----         ----
                                                       (In thousands)

Securities earnings:
                                                              
  Dividends and interest .................    $ 60,206    $ 54,960     $ 43,040
  Securities transactions ................      48,920       8,006          757
                                              --------    --------     --------
                                               109,126      62,966       43,797
Currency transactions, net ...............       5,726       4,669        9,865
Noncompete agreement income ..............        --         3,667        4,000
Disposal of property and equipment .......       1,546        (570)        (635)
Other, net ...............................       8,427      10,007       11,429
                                              --------    --------     --------

                                              $124,825    $ 80,739     $ 68,456
                                              ========    ========     ========


        Interest  and  dividend  income in 1997,  1998 and 1999  includes  $25.4
million,  $18.4  million  and  $23.5  million,  respectively,  of  distributions
received  from  The  Amalgamated  Sugar  Company  LLC.  See  Note 5.  Securities
transactions in each of the past three years relate  principally to dispositions
of a portion of the shares of  Halliburton  common  stock (and its  predecessor,
Dresser) held by the Company when certain  holders of the  Company's  LYONs debt
obligation  exercised  their right to exchange their LYONs for such shares.  See
Notes 5 and 10.  Noncompete  agreement  income  relates to NL's agreement not to
compete  discussed  in Note 3 and is  recognized  in  income  ratably  over  the
five-year noncompete period.






Note 12 - Minority interest:



                                                            December 31,
                                                         1998             1999
                                                         ----             ----
                                                            (In thousands)
Minority interest in net assets:
                                                                  
NL Industries ..............................          $ 64,268          $ 57,723
CompX International ........................            46,817            53,487
Tremont Corporation ........................              --              81,451
Subsidiaries of NL .........................               633             3,903
Subsidiaries of CompX ......................                 4               103
Subsidiaries of Tremont ....................              --               4,159
                                                      --------          --------

                                                      $111,722          $200,826
                                                      ========          ========




                                                 Years ended December 31,
                                           1997            1998           1999
                                           ----            ----           ----
                                                      (In thousands)
Minority interest in net earnings (losses) -
 continuing operations:
                                                              
NL Industries ...................             $-       $ 64,900        $ 66,760
CompX International .............           --            7,402           9,013
Subsidiaries of NL ..............             43             40           3,322
Subsidiaries of CompX ...........           --             (165)           (103)
                                        --------       --------        --------

                                        $     43       $ 72,177        $ 78,992
                                        ========       ========        ========


         NL  Industries.   During  1997,  NL's  separate  financial   statements
reflected  a  stockholders'  deficit.  Until such time as NL  reported  positive
stockholders'  equity, all undistributed  income or loss and other undistributed
changes  in NL's  reported  stockholders'  equity  accrued  to the  Company  for
financial  reporting  purposes.  Accordingly,  no minority  interest in NL's net
earnings was reported in 1997.  Beginning in 1998, NL resumed reporting positive
stockholders'  equity,  and consequently the Company resumed reporting  minority
interest in NL's net earnings and net assets in 1998.

         CompX  International.  In March 1998, CompX completed an initial public
offering  of  shares  of its  common  stock.  Prior to that  date,  CompX  was a
wholly-owned  subsidiary  of  Valcor.  See  Note  3.  Following  CompX's  public
offering,  the  Company  commenced  reporting  minority  interest in CompX's net
earnings and net assets.

         Tremont  Corporation.  The Company  commenced  consolidating  Tremont's
balance sheet effective  December 31, 1999, and will commence  consolidating its
results  of  operations  effective  January 1, 2000.  Accordingly,  the  Company
commenced  reporting  minority  interest in Tremont's net assets at December 31,
1999, and the Company will commence 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 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.
Accordingly,  no minority  interest in Waste Control  Specialists' net assets or
net losses is reported at December 31, 1999.

Note 13 - Stockholders' equity:



                                                  Shares of common stock
                                             Issued      Treasury    Outstanding
                                                      (In thousands)

                                                               
Balance at December 31, 1996 .........      124,768      (10,126)       114,642

Issued ...............................          565         --              565
Other ................................         --             (4)            (4)
                                            -------      -------       --------

Balance at December 31, 1997 .........      125,333      (10,130)       115,203

Issued ...............................          188         --              188
Reacquired ...........................         --           (383)          (383)
Other ................................         --            (32)           (32)
                                            -------      -------       --------

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
                                            =======      =======       ========



        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, 1999, the Company had purchased approximately 383,000 shares for an
aggregate of $3.7 million pursuant to such authorization.

        Valhi options and restricted stock.  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, 1999 represent  approximately 2.6%
of Valhi's  outstanding  shares at that date and expire at various dates through
2009, with a  weighted-average  remaining term of 6 years. At December 31, 1999,
options to purchase 1.9 million Valhi shares were  exercisable at prices ranging
from $4.76 to $12.16 per share, or an aggregate  amount payable upon exercise of
$11.3 million.  Substantially all of such exercisable options are exercisable at
various dates through 2008 at prices lower than the Company's  December 31, 1999
market  price of $10.50 per share.  At December  31,  1999,  options to purchase
365,000 shares are scheduled to become  exercisable in 2000, and an aggregate of
4.3 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, 1996                                      5,328           $ 4.76-$14.66      $ 38,070

Granted                                                                 885                    6.38         5,646
Exercised                                                              (565)            4.76-  8.16        (3,027)
Canceled                                                             (2,937)            4.76- 14.66       (23,035)
                                                                     ------           -------------      --------

Outstanding at December 31, 1997                                      2,711             4.76- 14.66        17,654

Granted                                                                 380                    9.50         3,610
Exercised                                                              (188)            4.76-  8.00        (1,196)
Canceled                                                                 (2)                   4.76            (9)
                                                                     ------               ---------      --------

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
                                                                     ======           =============      ========



         Stock  option  plans of  subsidiaries  and  affiliates.  NL,  CompX and
Tremont 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, 1999 are summarized below.



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

                                                     
NL Industries              2,437          $ 5.00-$24.19       $34,943
CompX                        658           15.88- 20.00        12,784
Tremont                      148            8.00- 56.50         1,883
TIMET                      1,738            7.38- 35.31        37,059


         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 1997, 1998 and 1999 were $2.73, $4.49 and
$5.96 per share,  respectively.  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 40% to 43%,  risk-free
rates  of  return  of 5.9% to 6.4%,  dividend  yields  of 1.7% to  3.1%,  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 $1.6  million,  $2.9  million  and  $3.6  million  in 1997,  1998  and  1999,
respectively, or $.01, $.03 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 14 - Financial instruments:



                                                          December 31,
                                                      1998              1999
                                              -------------------    ------------
                                               Carrying    Fair   Carrying     Fair
                                                amount    value    amount     value
                                                         (In millions)

                                                              
Cash and cash equivalents ..................   $  224.6 $  224.6 $  175.0 $  175.0

Marketable securities (available-for-sale) .   $  265.6 $  265.6 $  266.4 $  282.5

Loan to Snake River Sugar Company ..........   $   80.0 $   88.8 $   80.0 $   80.4


Notes payable and long-term debt
 (excluding capitalized leases):
  Publicly-traded fixed rate debt:
    Valhi LYONs ........................       $   84.1 $   86.5 $   91.8 $  106.5
    NL Senior Secured Notes ............          244.0    253.1    244.0    253.2
    Valcor Senior Notes ................            2.4      2.5      2.4      2.4
  Snake River Sugar Company loans ......          250.0    250.0    250.0    250.0
  Other fixed-rate debt ................           --       --        7.0      7.0
  Variable rate debt ...................          150.0    150.0     98.6     98.6


Minority interest in:
  NL common stock ......................       $   64.3 $  312.0$   57.7  $  164.5
  CompX common stock ...................           46.8    153.3    53.5     106.1
  Tremont common stock .................           --       --      81.5      47.7


Valhi common stockholders' equity ......       $  578.5 $1,307.9$  589.4  $1,208.2


         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  loans 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 10.

         The  estimated  fair values of CompX's  currency  forward  contracts at
December 31, 1998 and 1999 are insignificant. See Note 1.





Note 15 - Income taxes:



                                                         Years ended December 31,
                                                        1997     1998       1999
                                                        ----     ----       ----
                                                            (In millions)
Components of pre-tax income:
  United States:
                                                                 
    Contran Tax Group .............................   $ 49.5    $ 25.7    $(14.2)
    NL tax group ..................................     16.8     400.2      22.9
    CompX tax group ...............................     --         8.9      14.0
    Equity in Tremont .............................     --         7.4     (48.7)
                                                      ------    ------    ------
                                                        66.3     442.2     (26.0)
  Non-U.S. subsidiaries ...........................    (11.6)     48.0      81.1
                                                      ------    ------    ------

                                                      $ 54.7    $490.2    $ 55.1
                                                      ======    ======    ======

Expected tax expense, at U.S. federal
 statutory income tax rate of 35% .................   $ 19.2    $171.6    $ 19.3
Incremental U.S. tax and rate differences
 on equity in earnings of non-tax group
 companies ........................................     (5.1)     79.3      15.7
Change in NL's deferred income
 tax valuation allowance ..........................      8.7     (57.3)    (93.4)
Resolution of German income tax audits ............     --        --       (36.5)
Change in German income tax law ...................     --        --        24.1
U.S. state income taxes, net ......................      2.8       7.7       (.9)
No tax benefit for goodwill amortization ..........      3.2      12.6       4.1
Excess of tax basis over book basis of the
 common stock of foreign subsidiaries sold ........     --       (14.5)     --
Refund of prior-year dividend withholding taxes ...     --        (8.2)     --
Non-U.S. tax rates ................................      (.8)       .4       (.6)
Other, net ........................................      (.4)       .6      (3.1)
                                                      ------    ------    ------

                                                      $ 27.6    $192.2    $(71.3)
                                                      ======    ======    ======

Components of income tax expense (benefit):
  Currently payable (refundable):
    U.S. federal and state ........................   $ 21.2    $ 25.7    $(11.1)
    Non-U.S .......................................     25.2      23.4      32.6
                                                      ------    ------    ------
                                                        46.4      49.1      21.5
                                                      ------    ------    ------
  Deferred income taxes (benefit):
    U.S. federal and state ........................     (7.5)    149.8     (48.7)
    Non-U.S .......................................    (11.3)     (6.7)    (44.1)
                                                      ------    ------    ------
                                                       (18.8)    143.1     (92.8)
                                                      ------    ------    ------

                                                      $ 27.6    $192.2    $(71.3)
                                                      ======    ======    ======

Comprehensive provision for income
 taxes (benefit) allocable to:
  Continuing operations ...........................   $ 27.6    $192.2    $(71.3)
  Discontinued operations .........................     14.2      --        --
  Extraordinary item ..............................     (2.3)     (6.4)     --
  Other comprehensive income:
    Marketable securities .........................     43.0      (3.0)      2.0
    Currency translation ..........................     (9.8)       .6     (10.7)
    Pension liabilities ...........................       .3       (.1)     (1.9)
                                                      ------    ------    ------

                                                      $ 73.0    $183.3    $(81.9)
                                                      ======    ======    ======






         The  components  of the net deferred tax liability at December 31, 1998
and 1999, and changes in the deferred income tax valuation  allowance during the
past three years, are summarized in the following  tables. At December 31, 1999,
94% of the deferred tax  valuation  allowance  relates to NL tax  jurisdictions,
principally Germany, and substantially all of the remainder relates to Tremont's
U.S. tax jurisdictions (1998: 100% related to NL's tax jurisdictions).




                                                                     December 31,
                                                              1998               1999
                                                       -------------------    -------------
                                                       Assets  Liabilities  Assets Liabilities
                                                                    (In millions)
Tax effect of temporary differences related to:
                                                                         
  Inventories ......................................   $  3.4    $ (3.9)   $  4.2    $ (2.7)
  Marketable securities ............................     --       (80.8)     --       (93.4)
  Mining properties ................................     --        (1.5)     --        (1.8)
  Property and equipment ...........................     --      (157.5)     96.8    (106.2)
  Accrued OPEB costs ...............................     16.6      --        22.7      --
  Accrued environmental liabilities and
   other deductible differences ....................     72.1      --        81.4      --
  Other taxable differences ........................     --      (160.5)     --      (134.3)
  Investments in subsidiaries and affiliates not
   members of the Contran Tax Group ................      6.6     (48.3)     26.6     (48.3)
  Tax loss and tax credit carryforwards ............    138.2      --       152.9      --
Valuation allowance ................................   (134.5)     --      (248.0)     --
                                                       ------    ------    ------    ------
    Adjusted gross deferred tax assets (liabilities)    102.4    (452.5)    136.6    (386.7)
Netting of items by tax jurisdiction ...............    (97.6)     97.6    (119.6)    119.6
                                                       ------    ------    ------    ------
                                                          4.8    (354.9)     17.0    (267.1)
Less net current deferred tax asset (liability) ....      4.8      (1.2)     14.3       (.3)
                                                       ------    ------    ------    ------

    Net noncurrent deferred tax asset (liability) ..   $ --      $(353.7)  $  2.7    $(266.8)
                                                       ======    ======    ======    ======





                                                       Years ended December 31,
                                                       1997     1998       1999
                                                       ----     ----       ----
                                                            (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 .............................   $ 19.8   $  7.0    $  1.6
Recognition of certain deductible tax
 attributes for which the benefit had not
 previously been recognized under the
 "more-likely-than-not" recognition criteria ......    (11.1)   (64.3)    (95.0)
Change in German tax law ..........................     --       --        24.1
Foreign currency translation ......................    (12.3)     6.9     (14.7)
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 .......................................    (14.9)    (3.7)    183.1
Consolidation of Tremont Corporation ..............     --       --        13.6
Other .............................................     --       --          .8
                                                      ------   ------    ------

                                                      $(18.5)  $(54.1)   $113.5
                                                      ======   ======    ======


        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.  The Company
believes that it has adequately  provided  accruals for additional  income taxes
and related interest expense which may ultimately  result from such examinations
and believes that the ultimate  disposition of all such examinations  should not
have a material adverse effect on its consolidated  financial position,  results
of operations or liquidity.

         In 1999, certain significant NL German tax contingencies aggregating an
estimated  DM 188 million  ($100  million)  through  1998 were  resolved in NL's
favor. 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).  With respect to the favorable  resolution of the German
tax contingency,  the German  government has conceded  substantially  all of its
income tax claims  against NL, and the  government  has released a DM 94 million
($50  million)  lien  on one  of  NL's  German  TiO2  plants  that  secured  the
government's  claim.  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  retroactively to
January 1, 1999 and resulted in an increase in NL's  current  income tax expense
during 1999.

         During  1997,  NL  received a tax  assessment  from the  Norwegian  tax
authorities proposing tax deficiencies of NOK 51 million ($6 million at December
31, 1999)  relating to 1994. NL appealed this  assessment,  and in February 2000
the Norwegian local court ruled in favor of the Norwegian tax authorities on the
primary issue, but asserted such tax  authorities'  assessment was overstated by
NOK 34 million  ($4  million).  The tax  authorities'  response  to the  court's
assertion  is expected by the end of March 2000.  NL is  considering  its appeal
options.  During 1998,  NL was informed by the Norwegian  tax  authorities  that
additional  tax  deficiencies  of NOK 39 million  ($5  million)  will  likely be
proposed  for 1996 on an issue  similar to the  aforementioned  1994  case.  The
outcome of the 1996 issue is  dependent  upon the  eventual  outcome of the 1994
case.  NL intends to vigorously  contest this issue and litigate,  if necessary.
Although NL believes that it will ultimately  prevail, NL has granted a lien for
the 1994 tax  assessment on its  Norwegian  Ti02 plant in favor of the Norwegian
tax  authorities  and will be required to grant security on the 1996  assessment
when received. 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 adequately provided 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, 1999,  (i) NL had  approximately  $370 million of German
income  tax loss  carryforwards  with no  expiration  date,  (ii) CompX had $1.6
million of foreign tax credit  carryforwards which expire in 2002, (iii) Tremont
had $8.4 million of U.S. net operating loss  carryforwards  expiring in 2018 and
2019, (iv) Tremont had $700,000 of alternative minimum tax credit  carryforwards
with no  expiration  date and (v) CompX had $8.4 million of U.S.  net  operating
loss  carryforwards  expiring  in 2007  through  2018  which may only be used to
offset future taxable income of an acquired  subsidiary and which are limited in
utilization  to  approximately  $400,000 per year.  During 1999,  CompX utilized
$400,000 of such net  operating  loss  carryforwards  to reduce its current U.S.
taxable  income.  In  addition,  NL  utilized  $17 million of foreign tax credit
carryforwards and $20 million of U.S. net operating loss  carryforwards in 1997,
and  utilized $13 million of  alternative  minimum tax credit  carryforwards  in
1998, to reduce its current year U.S. federal income tax expense.

Note 16 - 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. The gain on disposal of NL's specialty  chemicals
business unit in 1998 includes a $1.5 million curtailment gain. See Note 3.



                                                         Years ended December 31,
                                                            1998          1999
                                                            ----          ----
                                                               (In thousands)

Change in projected benefit obligations ("PBO"):
                                                                
  Benefit obligations at beginning of the year .......   $ 278,231    $ 328,851
  Service cost .......................................       4,008        4,316
  Interest ...........................................      17,701       18,329
  Participant contributions ..........................       1,228          939
  Business unit acquired .............................        --          2,366
  Curtailment gain ...................................      (1,513)        --
  Actuarial losses (gains) ...........................      36,095      (18,640)
  Change in foreign exchange rates ...................      10,402      (26,578)
  Benefits paid ......................................     (17,301)     (17,897)
                                                         ---------    ---------

      Benefit obligations at end of the year .........   $ 328,851    $ 291,686
                                                         =========    =========

Change in plan assets:
  Fair value of plan assets at beginning of the year .   $ 225,167    $ 246,947
  Actual return on plan assets .......................      22,611       21,670
  Employer contributions .............................      10,797       11,375
  Participant contributions ..........................       1,228          997
  Business unit acquired .............................        --            977
  Change in foreign exchange rates ...................       4,445      (19,514)
  Benefits paid ......................................     (17,301)     (17,897)
                                                         ---------    ---------

      Fair value of plan assets at end of year .......   $ 246,947    $ 244,555
                                                         =========    =========

Funded status at year-end:
  Plan assets less than PBO ..........................   $ (81,904)   $ (47,131)
  Unrecognized actuarial loss ........................      53,975       28,410
  Unrecognized prior service cost ....................       3,637        2,412
  Unrecognized net transition obligations ............       1,220          518
                                                         ---------    ---------

                                                         $ (23,072)   $ (15,791)
                                                         =========    =========

Amounts recognized in the balance sheet:
  Prepaid pension costs ..............................   $  24,190    $  23,271
  Accrued pension costs:
    Current ..........................................      (8,011)      (9,079)
    Noncurrent .......................................     (44,929)     (39,612)
  Accumulated other comprehensive income .............       5,678        9,629
                                                         ---------    ---------

                                                         $ (23,072)   $ (15,791)
                                                         =========    =========










                                                 December 31,
                                    1997             1998               1999
                                    ----             ----               ----

                                                             
Discount rate                     6% - 8.5%        5.5% - 8.5%         4% - 7.5%
Rate of increase in future
 compensation levels                3% - 6%          2.5% - 6%        2.5% - 4.5%
Long-term rate of return on assets 6% - 10%         6%   - 10%          4% -  10%





                                                     Years ended December 31,
                                                  1997       1998          1999
                                                  ----       ----          ----
                                                         (In thousands)

Net periodic pension cost:
                                                              
Service cost benefits ......................   $  4,479    $  4,008    $  4,316
Interest cost on PBO .......................     16,695      15,941      16,548
Expected return on plan assets .............    (16,693)    (15,467)    (15,910)
Amortization of prior service cost (credit)      (1,693)        352         287
Amortization of net transition obligations .       (153)        225         580
Recognized actuarial losses (gains) ........      1,551         334       1,144
                                               --------    --------    --------

                                               $  4,186    $  5,393    $  6,965
                                               ========    ========    ========



         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 $225.7 million,
$194.7 million and $172 million, respectively, at December 31, 1999 (1998 - $260
million, $228.3 million and $171.5 million, respectively). At December 31, 1999,
approximately  65% of such unfunded amount relates to NL's non-U.S.  plans,  and
substantially all 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 and charged to continuing operations approximated
$2.4 million in 1997, $2.5 million in 1998 and $2.8 million in 1999.

        Postretirement  benefits  other  than  pensions.   Certain  subsidiaries
currently  provide certain health care and life insurance  benefits for eligible
retired employees.  At December 31, 1999, 64% of the Company's aggregate accrued
OPEB costs  relates to NL, and  substantially  all of the  remainder  relates to
Tremont  (1998:  substantially  all relates to NL). The gain on disposal of NL's
specialty  chemicals  business unit in 1998 includes a $3.2 million  curtailment
gain. See Note 3.

        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, 1999,  the expected rate of increase in future
health care costs is 9% in 2000,  declining to rates between 5.5% and 6% in 2016
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 $.1
million  (decreased by $.1 million) in 1999, and the actuarial  present value of
accumulated  OPEB  obligations at December 31, 1999 would have increased by $2.5
million (decreased by $2.3 million).








                                                               Years ended December 31,
                                                                  1998         1999
                                                                  ----         ----
                                                                   (In thousands)

Change in accumulated OPEB obligations:
                                                                      
  Obligations at beginning of the year ......................   $ 37,319    $ 34,137
  Service cost ..............................................         43          40
  Interest cost .............................................      2,393       2,069
  Curtailment gain ..........................................     (2,354)       --
  Actuarial losses ..........................................      2,117       5,714
  Change in foreign exchange rates ..........................       (115)        113
  Benefits paid .............................................     (5,266)     (4,394)
  Consolidation of Tremont ..................................       --        16,731
                                                                --------    --------

  Obligations at end of the year ............................   $ 34,137    $ 54,410
                                                                ========    ========

Change in plan assets:
  Fair value of plan assets at beginning of the year ........   $  6,527    $  6,365
  Actual return on plan assets ..............................        450         206
  Employer contributions ....................................      4,654       3,791
  Benefits paid .............................................     (5,266)     (4,394)
                                                                --------    --------

  Fair value of plan assets and end of the year .............   $  6,365    $  5,968
                                                                ========    ========

Funded status at year-end:
  Plan assets less than benefit obligations .................   $(27,772)   $(48,442)
  Unrecognized net actuarial gain ...........................     (7,444)     (2,055)
  Unrecognized prior service credit .........................    (12,008)    (14,583)
                                                                --------    --------

                                                                $(47,224)   $(65,080)
                                                                ========    ========

Amounts recognized in the balance sheet - accrued OPEB costs:
  Current ...................................................   $ (5,243)   $ (6,324)
  Noncurrent ................................................    (41,981)    (58,756)
                                                                --------    --------

                                                                $(47,224)   $(65,080)
                                                                ========    ========






                                                     Years ended December 31,
                                                  1997       1998           1999
                                                  ----       ----           ----
                                                           (In thousands)

Net periodic OPEB cost (credit):
                                                               
Service cost ...............................    $   105     $    43     $    40
Interest cost ..............................      3,166       2,393       2,069
Expected return on plan assets .............       (584)       (583)       (526)
Amortization of prior service credit .......     (2,075)     (2,075)     (2,075)
Recognized actuarial losses (gains) ........       (338)       (811)       (573)
                                                -------     -------     -------

                                                $   274     $(1,033)    $(1,065)
                                                =======     =======     =======





                                                         December 31,
                                               1997          1998          1999
                                               ----          ----          ----

                                                                   
Discount rate                                  7%           6.5%            7.5%
Rate of increase in future
 compensation levels                           6%             6%         nil - 6%
Long-term rate of return on assets             9%             9%         nil - 9%


Note 17 - 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,
                                                            1998           1999
                                                            ----           ----
                                                              (In thousands)

Receivables from affiliates:
                                                                   
  Income taxes receivable from Contran ...........       $ 11,719        $13,124
  TIMET ..........................................           --              907
  Other ..........................................            171            575
                                                         --------        -------

                                                         $ 11,890        $14,606
                                                         ========        =======

Payables to affiliates:
  Demand loan from Contran:
    Valhi ........................................       $  9,500        $ 2,282
    Tremont Corporation ..........................           --           13,743
  Tremont Corporation ............................          3,053           --
  Louisiana Pigment Company ......................          8,264          8,381
  Other, net .....................................           (680)           860
                                                         --------        -------

                                                         $ 20,137        $25,266
                                                         ========        =======


        Payables to Louisiana  Pigment Company are primarily for the purchase of
TiO2 (see Note 8), and the payable to Tremont  Corporation  at December 31, 1998
relates to NL's Insurance  Sharing  Agreement  discussed below.  NL's payable to
Tremont at December 31, 1999 has been eliminated in consolidation.  Purchases in
the ordinary course of business from the unconsolidated TiO2 manufacturing joint
venture are disclosed in Note 8.

        In February  1998,  Valhi entered into a $120 million  revolving  credit
facility  with   Contran.   Borrowings   by  Contran  were   collateralized   by
substantially  all of Contran's  assets and bore  interest at the prime rate. In
June 1998,  Contran repaid in full all  outstanding  borrowings and the facility
was canceled.

        Other loans are made between the Company and related parties,  including
Contran,  pursuant to term and demand  notes,  principally  for cash  management
purposes. Related party loans generally bear interest at rates related to credit
agreements with unrelated  parties.  Interest income on loans to related parties
was $1.4 million in 1997,  $3.3 million in 1998 and nil in 1999.  Related  party
interest  expense  was  nominal in 1997,  $.1 million in 1998 and $.5 million in
1999.

        Under the terms of  intercorporate  services  agreements  ("ISAs")  with
Contran,  Contran  provides  certain  management,  administrative  and  aircraft
maintenance   services  to  the  Company,   and  the  Company  provides  various
administrative  and other services to Contran,  on a fee basis. The net ISA fees
charged by  Contran  to the  Company  (including  amounts  charged to NL and the
Company's  proportional  share of amounts charged to Tremont  subsequent to June
30,  1998)  were  approximately  $500,000  in 1997,  $1 million in 1998 and $1.5
million in 1999. Such charges are principally pass-through in nature and, in the
Company's opinion,  are not materially different from those that would have been
incurred on a stand-alone  basis.  Certain  subsidiaries  and  affiliates of the
Company are also parties to similar ISA agreements among themselves.

        NL and a wholly-owned  insurance subsidiary of Tremont ("TRE Insurance")
are parties to an  Insurance  Sharing  Agreement  with  respect to certain  loss
payments and reserves  established by TRE Insurance that (i) arise out of claims
against  other  entities  for which NL is  responsible  and (ii) are  subject to
payment  by  NLI  Insurance  under  certain  reinsurance  contracts.  Also,  TRE
Insurance will credit NL with respect to certain  underwriting profits or credit
recoveries that TRE Insurance  receives from independent  reinsurers that relate
to retained  liabilities.  In 1999, NL collateralized  certain letters of credit
issued on behalf of TRE Insurance with $9.7 million of NL's cash.

        All of the Company's  insurance  coverages  that were reinsured in 1997,
1998 and 1999 were arranged for and brokered by EWI Re, Inc.  Parties related to
Contran own 90% of the  outstanding  common stock of EWI,  and a  son-in-law  of
Harold C. Simmons manages the operations of 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.

        During 1998,  Valhi purchased (i) 136,780 shares of NL common stock from
officers  of NL for an  aggregate  of $2.8  million  and (ii)  12,200  shares of
Tremont  common  stock  from a former  officer of Tremont  for an  aggregate  of
$610,000.  Such  purchases  were at  market  prices on the  respective  dates of
purchase.

        COAM Company is a partnership, formed prior to 1993, which has sponsored
research agreements with the University of Texas Southwestern  Medical Center at
Dallas  (the  "University")  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, 1999, 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 $3.6  million  over the next five years and the Cancer
Research Agreement,  as amended,  provides for funds of up to $12.8 million over
the next 11 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 1997 and 1999 and were $1.3 million in
1998.  The  Company  does  not  currently   expect  it  will  make  any  capital
contributions to COAM in 2000.

         Amalgamated Research,  Inc., a wholly-owned  subsidiary of the Company,
has agreed to provide certain research,  laboratory and quality control services
to The Amalgamated  Sugar Company LLC. The agreement also grants 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
$810,000 in 1997,  $824,000 in 1998 and $779,000 in 1999. The Amalgamated  Sugar
Company LLC has also agreed to provide  certain  administrative  services to the
subsidiary,  and the cost of such  services is netted  against  the  agreed-upon
research and development services fee.

Note 18 - 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  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; several 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 a potentially responsible party ("PRP") pursuant to
CERCLA in  approximately  75 governmental  and private  actions  associated with
hazardous waste sites and former mining locations, some of which are on the U.S.
EPA's  Superfund  National  Priorities  List.  These actions seek cleanup costs,
damages for  personal  injury or property  damage  and/or  damages for injury to
natural resources.  While 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.  In addition,  NL is a party to a number of lawsuits filed in
various jurisdictions alleging CERCLA or other environmental claims. At December
31, 1999, NL had accrued $112 million for those environmental  matters which are
reasonably  estimable.  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 it is possible to estimate costs is approximately $150 million.

         At December 31, 1999, Tremont had accrued  approximately $6 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,  1999,  TIMET had accrued  approximately  $1 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  $4 million at December 31,
1999 in respect of other environmental  cleanup matters,  principally 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  stayed,  and the
plaintiffs  have refiled  their case in Ohio. NL is a defendant in various other
asbestos cases pending in Ohio on behalf of approximately  2,000 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 have filed a  counterclaim
seeking to have Finnsugar's patent declared invalid and unenforceable. Discovery
on the liability  portion of both  plaintiff's and  defendants'  claims has been
completed.  Plaintiff and defendants  have each filed summary  judgment  motions
which are pending before the court.  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 1998, a complaint  was filed by a former  employee of Waste  Control
Specialists in the 295th Judicial  District Court for the State of Texas against
Waste Control Specialists  (Kenneth F. Jackson v. Waste Control Specialists LLC,
et al., No. 98-00364) seeking,  among other things,  damages not in excess of $3
million for the defendants' alleged breach of plaintiff's  employment  contract,
Waste Control Specialists  believed the complaint was without merit and answered
the  complaint,  denying  liability.  A trial was  held,  and in May 1999 a jury
awarded a judgment of approximately  $800,000 plus attorney fees in favor of the
plaintiff.  In October  1999,  Waste Control  Specialists  was denied a judgment
notwithstanding  the verdict,  and Waste Control  Specialists'  motion for a new
trial was denied.  In December  1999,  the parties  settled  this matter and the
judgment has been vacated by the court.

         In February  1999,  NL was served with a complaint in Cosey,  et al. v.
Bullard,  et al., No. 95-0069,  filed in the Circuit Court of Jefferson  County,
Mississippi,  on behalf of approximately 1,600 plaintiffs alleging injury due to
exposure to asbestos and silica and seeking  compensatory and punitive  damages.
NL has filed an answer denying the material allegations of the complaint.

       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 approximately
substantially all of NL's sales during the past three years. TiO2 is 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,  none of which individually represents a significant portion of
NL's sales. In each of the past three years, approximately one-half of NL's TiO2
sales volume were to Europe with about 37% attributable to North America.

        Component   products   are  sold   primarily   to   original   equipment
manufacturers  in North America and Europe.  In 1999, the ten largest  customers
accounted  for   approximately   33%  of  component   products   sales  (1997  -
approximately one-third; 1998 - approximately 40%).

         At December 31, 1999,  consolidated cash and cash equivalents  includes
$78 million  invested in U.S.  Treasury  securities  purchased under  short-term
agreements  to resell  (1998 - $136  million),  of which $58 million are held in
trust for the Company by a single U.S. bank (1998 - $126 million).  In addition,
at  December  31,  1998,   consolidated  cash  and  cash  equivalents   included
approximately $40 million invested in A1 or P1-grade  commercial paper issued by
various third parties having a maturity of three months or less.

        Capital  expenditures.  At  December  31,  1999  the  estimated  cost to
complete  capital  projects in process  approximated  $15 million,  of which $11
million  relates to NL's TiO2  facilities  and the remainder  relates to CompX's
facilities.

        Royalties.  Royalty expense,  which relates principally to the volume of
certain  Canadian-produced  component  products sold in the United  States,  was
$849,000 in 1997 and $1.1 million in each of 1998 and 1999.

        Long-term contracts.  NL has long-term supply contracts that provide for
NL's chloride-process  TiO2 feedstock  requirements through 2003. The agreements
require NL to purchase  certain  minimum  quantities  of feedstock  with average
minimum annual purchase commitments aggregating approximately $114 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  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,  TIMET
believes  its  orders  in  1999  were  significantly  below  contractual  volume
requirements.  TIMET has received  virtually no Boeing-related  orders under the
contract  for 2000.  Boeing has  informed  TIMET that they will either order the
required  contractual  volume under the contract for 2000 or pay the  liquidated
damages  provided  for in the  agreement.  Beyond  2000,  Boeing is unwilling to
commit to the contract at this time.  On March 21,  2000,  TIMET filed a lawsuit
against Boeing in Colorado state court seeking damages for Boeing's  repudiation
and breach of the Boeing contract.  TIMET's  complaint seeks damages from Boeing
that TIMET  believes  are in excess of $600 million and a  declaration  from the
court of TIMET's rights under the contract.

        TIMET also has  long-term  arrangements  with certain  suppliers for the
purchase  of certain  raw  materials,  including  titanium  sponge  and  various
alloying elements,  at fixed and/or formula  determined  prices.  TIMET believes
these arrangements will help stabilize the cost and supply of raw materials. The
sponge contract provides for annual purchases by TIMET of 6,000 to 10,000 metric
tons. The parties agreed to a reduced minimum for 1999 and 2000.

        Waste Control Specialists has agreed to pay two independent  consultants
up to an aggregate of $28.4 million for performing  certain specified  services.
Such fees are  based on  specified  percentages  of Waste  Control  Specialist's
qualifying  revenues.  One of the agreements provides for a security interest in
Waste Control Specialists' facility in West Texas to collateralize Waste Control
Specialists'   obligation  under  that  agreement.   Expense  related  to  these
agreements aggregated nil in each of 1997 and 1998 and $17,000 in 1999.

        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
charged to continuing operations approximated $13 million in 1997, $8 million in
1998 and $10 million in 1999.  At December 31,  1999,  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)

  2000                                                      $ 5,092
  2001                                                        4,112
  2002                                                        3,384
  2003                                                        2,723
  2004                                                        1,882
  2005 and thereafter                                        20,972
                                                            -------
                                                            $38,165
                                                            =======

Note 19 -      Discontinued operations:

        Discontinued operations  (representing  operations formerly conducted by
subsidiaries of Valcor) are comprised of the following:



                                                      Years ended December 31,
                                                     1997       1998       1999
                                                     ----       ----       ----
                                                           (In thousands)

                                                                 
Medite Corporation (building products) .......     $13,804     $ --       $ --
Sybra, Inc. (fast food) ......................      19,746       --        2,000
                                                   -------     ------     ------

                                                   $33,550     $ --       $2,000
                                                   =======     ======     ======


         In late 1996 and early 1997, Medite  Corporation sold substantially all
of its net assets for approximately  $215.5 million cash  consideration plus the
assumption of  approximately  $24.7 million of indebtedness.  Approximately  $53
million of the net  proceeds  were used to pay off and  terminate  certain  bank
credit facilities.  Accordingly,  the accompanying  financial statements present
the results of  operations of Medite's  building  products  business  segment as
discontinued operations for all periods presented.

         In 1997, the Company disposed of its fast food operations  conducted by
Sybra.   The  disposition  was   accomplished  in  two  separate,   simultaneous
transactions. The first transaction involved the sale of certain restaurant real
estate owned by Sybra for $45 million cash  consideration.  Substantially all of
the net-of-tax  proceeds from this transaction  were distributed to Valcor.  The
second  transaction  involved Valcor's sale of 100% of the common stock of Sybra
for $14 million  cash  consideration  plus the  repayment  by the  purchaser  of
approximately $23.8 million of Sybra's intercompany indebtedness owed to Valcor.
In 1999, the Company received an additional $2 million of consideration from the
purchaser of Sybra's  common  stock.  Accordingly,  the  accompanying  financial
statements  present the results of operations of Sybra's fast food operations as
discontinued operations for all periods presented.

         Condensed  income statement and cash flow data for Medite and Sybra for
1997 are presented below.  Interest expense included in discontinued  operations
represents interest on the respective indebtedness of Medite and Sybra and their
subsidiaries.  The gain on disposal of Sybra  includes  both Sybra's sale of its
restaurant real estate and Valcor's sale of Sybra's common stock.  The provision
for income taxes  applicable to the pre-tax gain on disposal of Sybra (including
the $2 million of  consideration  received in 1999)  varies from the 35% federal
statutory rate due principally to the excess of tax basis over book basis of the
common  stock of Sybra  sold  for  which no  deferred  income  tax  benefit  was
previously recognized.



                                                          Medite           Sybra
                                                               (In millions)
Income statement data

Operations:
                                                                    
  Net sales ........................................        $24.1         $37.9
                                                            =====         =====

  Operating income .................................        $ 1.5         $ 1.7
  Interest expense and other, net ..................          (.4)          (.6)
                                                            -----         -----
    Pre-tax income .................................          1.1           1.1
  Income tax expense ...............................           .5            .5
                                                            -----         -----
                                                               .6            .6
                                                            -----         -----
Net gain on disposal:
  Pre-tax gain .....................................         22.3          23.2
  Income tax expense ...............................          9.1           4.1
                                                            -----         -----
                                                             13.2          19.1
                                                            -----         -----

                                                            $13.8         $19.7
                                                            =====         =====

Cash flow data

Cash flows from operating activities ...............        $(42.1)       $(1.1)
                                                            -----         -----

Cash flows from investing activities:
  Proceeds from disposal of assets .................         38.3          55.3
  Other, net .......................................          (.4)         (1.4)
                                                            -----         -----
                                                             37.9          53.9
                                                            -----         -----

Cash flows from financing activities -
 indebtedness, net .................................         --            22.4
                                                            -----         -----
                                                            $(4.2)        $75.2
                                                            =====         =====







Note 20 -      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, 1998
                                                            
  Net sales ........................   $ 267.4    $ 281.3    $ 260.2    $ 250.5
  Operating income .................      41.7       51.1       49.0       44.7

  Income (loss) from continuing
   operations ......................   $ 204.7    $  (2.1)   $  13.1    $  10.1
  Extraordinary item ...............      (1.3)      --         (1.4)      (3.5)
                                       -------    -------    -------    -------

      Net income (loss) ............   $ 203.4    $  (2.1)   $  11.7    $   6.6
                                       =======    =======    =======    =======

  Basic earnings per common share:
    Continuing operations ..........   $  1.78    $  (.02)   $   .11    $   .09
    Extraordinary item .............      (.01)      --         (.01)      (.03)
                                       -------    -------    -------    -------

      Net income (loss) ............   $  1.77    $  (.02)   $   .10    $   .06
                                       =======    =======    =======    =======

Year ended December 31, 1999
  Net sales ........................   $ 256.8    $ 287.5    $ 303.3    $ 297.6
  Operating income .................      35.5       48.9       38.3       41.9

  Income (loss) from continuing
   operations ......................   $   2.4    $  61.8    $   8.2    $ (25.0)
  Discontinued operations ..........      --          2.0       --         --
                                       -------    -------    -------    -------

      Net income (loss) ............   $   2.4    $  63.8    $   8.2    $ (25.0)
                                       =======    =======    =======    =======

  Basic earnings per common share:
    Continuing operations ..........   $   .02    $   .54    $   .07    $  (.22)
    Discontinued operations ........      --          .02       --         --
                                       -------    -------    -------    -------

      Net income (loss) ............   $   .02    $   .56    $   .07    $  (.22)
                                       =======    =======    =======    =======



        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.








                        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 of Valhi, Inc. and
Subsidiaries  referred to in our report  dated March 16, 2000  appearing in this
Annual  Report on Form 10-K also  included an audit of the  financial  statement
schedules listed in the index on page F-1 of this Annual Report on Form 10-K. In
our opinion, these financial statement schedules present fairly, in all material
respects,  the  information  required  to  be  included  therein  when  read  in
conjunction with the related consolidated financial statements.  As discussed in
Note 1 to the consolidated financial statements, in 1997 the Company changed its
method of accounting  for  environmental  remediation  costs in accordance  with
Statement of Position No. 96-1.







                                                      PricewaterhouseCoopers LLP


Dallas, Texas
March 16, 2000





                          VALHI, INC. AND SUBSIDIARIES

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            Condensed Balance Sheets

                           December 31, 1998 and 1999

                                 (In thousands)



                                                             1998           1999
                                                             ----           ----

Current assets:
                                                                
  Cash and cash equivalents ........................    $    5,957    $    2,944
  Accounts and notes receivable ....................        14,912        15,563
  Receivables from subsidiaries and affiliates:
    Income taxes, net ..............................        10,387        12,373
    Dividends ......................................          --           1,324
    Other ..........................................         3,195         1,735
  Deferred income taxes ............................         1,316           719
  Other ............................................            71           454
                                                        ----------    ----------

      Total current assets .........................        35,838        35,112
                                                        ----------    ----------

Other assets:
  Marketable securities ............................       261,480       263,762
  Investment in and advances to subsidiaries and
   affiliates ......................................       635,621       651,982
  Loans receivable .................................        80,000        81,808
  Other assets .....................................         2,459         1,992
  Property and equipment, net ......................         3,030         3,001
                                                        ----------    ----------

      Total other assets ...........................       982,590     1,002,545
                                                        ----------    ----------

                                                        $1,018,428    $1,037,657
                                                        ==========    ==========

Current liabilities:
  Current maturities of long-term debt .............    $     --      $   21,000
  Demand loan from affiliate .......................         9,500         2,282
  Other payables to subsidiaries and affiliates ....            12            10
  Accounts payable and accrued liabilities .........         5,561         5,005
  Income taxes .....................................         1,302         1,301
                                                        ----------    ----------

      Total current liabilities ....................        16,375        29,598
                                                        ----------    ----------

Noncurrent liabilities:
  Long-term debt ...................................       334,104       341,825
  Deferred income taxes ............................        78,867        67,727
  Other ............................................        10,560         9,093
                                                        ----------    ----------

      Total noncurrent liabilities .................       423,531       418,645
                                                        ----------    ----------

Stockholders' equity ...............................       578,522       589,414
                                                        ----------    ----------

                                                        $1,018,428    $1,037,657
                                                        ==========    ==========






                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                         Condensed Statements of Income

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)




                                                1997          1998        1999
                                                ----          ----        ----

Revenues and other income:
                                                              
  Interest and dividend income ............   $ 49,711    $  37,054    $ 36,671
  Securities transaction gains ............     46,263        8,006         757
  Other, net ..............................      2,062        5,689       7,804
                                              --------    ---------    --------
                                                98,036       50,749      45,232
                                              --------    ---------    --------

Costs and expenses:
  General and administrative ..............      9,115       45,195      14,942
  Interest ................................     36,057       31,457      33,097
  Other, net ..............................       (379)         274        --
                                              --------    ---------    --------
                                                44,793       76,926      48,039
                                              --------    ---------    --------

                                                53,243      (26,177)     (2,807)

Equity in earnings of subsidiaries and
 affiliates ...............................    (20,540)     308,922      32,870
                                              --------    ---------    --------

  Income before income taxes ..............     32,703      282,745      30,063

Provision for income taxes (benefit) ......      5,602       56,928     (17,359)
                                              --------    ---------    --------

  Income from continuing operations .......     27,101      225,817      47,422

Discontinued operations ...................     33,550         --         2,000

Extraordinary item ........................     (4,291)      (6,195)       --
                                              --------    ---------    --------

      Net income ..........................   $ 56,360    $ 219,622    $ 49,422
                                              ========    =========    ========








                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                       Condensed Statements of Cash Flows

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)



                                                1997          1998          1999
                                                ----          ----          ----

Cash flows from operating activities:
                                                              
  Net income .............................   $  56,360    $ 219,622    $ 49,422
  Securities transaction gains ...........     (46,263)      (8,006)       (757)
  Noncash interest expense ...............      12,407        7,710       8,058
  Deferred income taxes ..................      (6,818)      70,312      (4,182)
  Equity in earnings of subsidiaries
   and affiliates:
    Continuing operations ................      20,540     (308,922)    (32,870)
    Discontinued operations ..............     (33,550)        --        (2,000)
    Extraordinary item ...................       4,291        6,195        --
  Dividends from subsidiaries
   and affiliates ........................        --        158,130       3,819
  Other, net .............................         535       (5,715)        610
                                             ---------    ---------    --------
                                                 7,502      139,326      22,100
  Net change in assets and liabilities ...      13,792      (31,487)     (6,766)
                                             ---------    ---------    --------

      Net cash provided by
       operating activities ..............      21,294      107,839      15,334
                                             ---------    ---------    --------

Cash flows from investing activities:
  Purchase of:
    Tremont common stock .................        --       (172,918)     (1,945)
    NL common stock ......................     (14,222)     (13,890)       --
    CompX common stock ...................        --         (5,670)       (816)
    Marketable securities ................      (6,000)      (3,766)       --
  Investment in Waste Control Specialists      (13,000)     (10,000)    (10,000)
  Proceeds from disposal of marketable
   securities ............................        --           --         6,588
  Loans to subsidiaries and affiliates:
    Loans ................................     (67,625)    (129,250)    (11,833)
    Collections ..........................      63,625      120,250       8,717
  Other loans and notes receivable:
    Loans ................................    (200,600)        --          --
    Collections ..........................     119,100         --          --
  Pre-close dividend from Amalgamated ....      11,518         --          --
  Other, net .............................         455         (198)       (350)
                                             ---------    ---------    --------

      Net cash used by
       investing activities ..............    (106,749)    (215,442)     (9,639)
                                             ---------    ---------    --------







                          VALHI, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

                 Condensed Statements of Cash Flows (Continued)

                  Years ended December 31, 1997, 1998 and 1999

                                 (In thousands)




                                                1997          1998         1999
                                                ----          ----         ----

Cash flows from financing activities:
  Indebtedness:
                                                              
    Borrowings ...........................   $ 250,000    $    --      $ 21,000
    Principal payments ...................     (13,000)        --          --
  Loans from affiliates:
    Loans ................................        --         15,500      45,000
    Repayments ...........................      (7,244)      (6,000)    (52,218)
  Dividends ..............................     (23,149)     (23,131)    (23,146)
  Common stock reacquired ................        --         (3,692)       --
  Other, net .............................       3,024        1,197         656
                                             ---------    ---------    --------

      Net cash provided (used) by
       financing activities ..............     209,631      (16,126)     (8,708)
                                             ---------    ---------    --------

Cash and cash equivalents:
  Net increase (decrease) ................     124,176     (123,729)     (3,013)
  Balance at beginning of year ...........       5,510      129,686       5,957
                                             ---------    ---------    --------

  Balance at end of year .................   $ 129,686    $   5,957    $  2,944
                                             =========    =========    ========


Supplemental disclosures-cash paid for:
  Interest ...............................   $  23,650    $  23,747    $ 24,900
  Income taxes (received), net ...........      (6,532)      15,093     (11,191)









                          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,
                                                             1998          1999
                                                             ----          ----
                                                               (In thousands)

Noncurrent assets (available-for-sale):
                                                                  
The Amalgamated Sugar Company LLC ....................     $170,000     $170,000
Halliburton Company common stock (NYSE: HAL) .........       79,710       91,825
Other ................................................       11,770        1,937
                                                           --------     --------

                                                           $261,480     $263,762
                                                           ========     ========



Note 3 -       Investment in and advances to subsidiaries and affiliates:



                                                              December 31,
                                                         1998            1999
                                                         ----            ----
                                                             (In thousands)

Investment in:
                                                                  
NL Industries (NYSE: NL) .....................         $384,955         $435,621
Tremont Corporation (NYSE: TRE) ..............          179,452          128,426
Valcor and subsidiaries ......................           51,214           64,512
Waste Control Specialists LLC ................           10,000            8,811
                                                       --------         --------
                                                        625,621          637,370

Loan to Waste Control Specialists LLC ..............     10,000           14,612
                                                         ------           ------

                                                       $635,621         $651,982
                                                       ========         ========



         Tremont is a holding  company  whose  principal  assets at December 31,
1999 are a 39% interest in Titanium  Metals  Corporation  (NYSE:  TIE) and a 20%
interest  in  NL.   Valcor's   principal  asset  is  a  62%  interest  in  CompX
International,  Inc. (NYSE: CIX). Valhi owns an additional 2% of CompX directly,
and Valhi's direct  investment in CompX is considered  part of its investment in
Valcor.

Note 4 -       Equity in earnings of subsidiaries and affiliates:



                                                   Years ended December 31,
                                               1997         1998          1999
                                               ----         ----          ----
                                                       (In thousands)

Continuing operations:
                                                              
  NL Industries .......................    $ (25,726)    $ 260,715     $ 77,950
  Tremont Corporation .................         --           7,385      (48,652)
  Valcor ..............................       17,886        56,340       14,761
  Waste Control Specialists LLC .......      (12,700)      (15,518)     (11,189)
                                           ---------     ---------     --------

                                           $ (20,540)    $ 308,922     $ 32,870
                                           =========     =========     ========

Discontinued operations - Valcor ......    $  33,550     $    --       $  2,000
                                           =========     =========     ========

Extraordinary item:
  NL Industries .......................    $    --       $  (6,195)    $   --
  Valcor ..............................       (4,291)         --           --
                                           ---------     ---------     --------

                                           $  (4,291)    $  (6,195)    $   --
                                           =========     =========     ========


Note 5 -       Dividends from subsidiaries and affiliates:



                                                  Years ended December 31,
                                              1997           1998          1999
                                              ----           ----          ----
                                                       (In thousands)

Declared:
                                                               
  NL Industries .........................     $   --       $  2,699     $ 4,219
  Tremont Corporation ...................         --            431         877
  Valcor ................................         --        155,000          47
  Waste Control Specialists LLC .........         --           --          --
                                              --------     --------     -------

                                                  --        158,130       5,143

Net change in dividends receivable ......         --           --        (1,324)
                                              --------     --------     -------

Cash dividends received .................     $   --       $158,130     $ 3,819
                                              ========     ========     =======



Note 6 -       Loans receivable:

                                                               December 31,
                                                          1998            1999
                                                          ----            ----
                                                             (In thousands)

Snake River Sugar Company ....................          $80,000          $80,000
Other ........................................            1,500            1,808
                                                        -------          -------
                                                         81,500           81,808

Less current portion .........................            1,500             --
                                                        -------          -------

Noncurrent portion ...........................          $80,000          $81,808
                                                        =======          =======

Note 7 - Long-term debt:



                                                             December 31,
                                                        1998              1999
                                                        ----              ----
                                                            (In thousands)

                                                                  
Snake River Sugar Company ..................          $250,000          $250,000
LYONs ......................................            84,104            91,825
Bank credit facility .......................              --              21,000
                                                      --------          --------
                                                       334,104           362,825

Less current portion .......................              --              21,000
                                                      --------          --------

                                                      $334,104          $341,825
                                                      ========          ========



         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. Under certain conditions,
up to $37.5  million of such loans may become  recourse to Valhi.  Under certain
conditions,  Snake River has the  ability to  accelerate  the  maturity of these
loans.

        The zero coupon Senior Secured LYONs, $185.9 million principal amount at
maturity in October 2007  outstanding  at December  31,  1999,  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, for 14.4308  shares of Halliburton  common stock
held by Valhi. The LYONs are secured by such  Halliburton  shares held by Valhi,
which  shares are held in escrow for the benefit of holders of the LYONs.  Valhi
receives  the regular  quarterly  dividend on the escrowed  Halliburton  shares.
During 1997, 1998 and 1999, holders  representing $165.3 million,  $26.7 million
and $483,000 principal amount at maturity, respectively, of LYONs exchanged such
LYONs for Halliburton shares or Halliburton's  predecessor,  Dresser Industries,
Inc. 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  dates),  or an aggregate of $118.3 million based on the number of
LYONs outstanding at December 31, 1999. Such redemptions may be paid, at Valhi's
option, in cash,  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.

         Valhi has a $50 million revolving bank credit facility which matures in
November 2000, generally bears interest at LIBOR plus 1.5% (7.7% at December 31,
1999) and is  collateralized  by 30  million  shares of NL common  stock held by
Valhi. The agreement  limits dividends and additional  indebtedness of Valhi and
contains other  provisions  customary in lending  transactions  of this type. At
December  31,  1999,  $28.5  million  was  available  for  borrowing  under this
facility.

Note 8 -       Income taxes:



                                                     Years ended December 31,
                                                  1997        1998        1999
                                                  ----        ----        ----
                                                        (In thousands)

Income tax provision (benefit) attributable to continuing operations:
                                                              
  Currently payable (refundable) ...........   $ 12,420    $(13,384)   $(13,177)
  Deferred income taxes (benefit) ..........     (6,818)     70,312      (4,182)
                                               --------    --------    --------

                                               $  5,602    $ 56,928    $(17,359)
                                               ========    ========    ========

Cash paid (received) for income taxes, net:
  Paid to (received from) subsidiaries .....   $(42,467)   $ (1,933)   $  1,121
  Paid to (received from) Contran ..........     35,620      16,917     (12,395)
  Paid to tax authorities, net .............        315         109          83
                                               --------    --------    --------

                                               $ (6,532)   $ 15,093    $(11,191)
                                               ========    ========    ========



        NL, Tremont and CompX are separate U.S. taxpayers and are not 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.




                                                                Deferred tax
                                                              asset (liability)
                                                                December 31,
                                                             1998          1999
                                                             ----          ----
                                                               (In thousands)

Components of the net  deferred tax asset  (liability):
  Tax effect of temporary differences related to:
                                                                 
    Marketable securities ..............................   $(79,875)   $(92,247)
    Investment in subsidiaries and affiliates not
     members of the Contran Tax Group ..................      3,058      25,319
    Tax loss carryforwards .............................       --         1,000
    Accrued liabilities and other deductible differences      5,291       5,139
    Other taxable differences ..........................     (6,025)     (6,219)
                                                           --------    --------

                                                           $(77,551)   $(67,008)
                                                           ========    ========

Current deferred tax asset .............................   $  1,316    $    719
Noncurrent deferred tax liability ......................    (78,867)    (67,727)
                                                           --------    --------

                                                           $(77,551)   $(67,008)
                                                           ========    ========








                          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, 1997:
                                                                                                           
  Allowance for doubtful accounts .............      $ 4,087      $    547       $(1,281)      $   (214)      $   --         $ 3,139
                                                     =======      ========       =======       ========       ========       =======

  Amortization of intangibles:
    Goodwill ..................................      $18,131      $  9,226       $  --         $   --         $ (1,571)      $25,786
    Other .....................................       15,202         3,278          (153)          (829)        (9,390)        8,108
                                                     -------      --------       -------       --------       --------       -------

                                                     $33,333      $ 12,504       $  (153)      $   (829)      $(10,961)      $33,894
                                                     =======      ========       =======       ========       ========       =======

Year ended December 31, 1998:
  Allowance for doubtful accounts .............      $ 3,139      $    (99)      $  (566)      $    103       $    110       $ 2,687
                                                     =======      ========       =======       ========       ========       =======

  Amortization of intangibles:
    Goodwill ..................................      $25,786      $ 35,687       $  --         $   --         $(28,232)      $33,241
    Other .....................................        8,108         2,615          --              697           (819)       10,601
                                                     -------      --------       -------       --------       --------       -------

                                                     $33,894      $ 38,302       $  --         $    697       $(29,051)      $43,842
                                                     =======      ========       =======       ========       ========       =======








                          VALHI, INC. AND SUBSIDIARIES

           SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (CONTINUED)

                                 (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          2,445            (37)        (1,576)          --          11,433
                                                   -------       --------        -------        -------        -------       -------

                                                   $43,842       $ 14,198        $   (37)       $(1,576)       $  --         $56,427
                                                   =======       ========        =======        =======        =======       =======





 (a)    1997 - Elimination of amounts attributable to operations sold in 1997.
        1998 - Elimination of amounts attributable to operations sold in 1998.
       1999 -  Consolidation  of  Waste  Control  Specialists  LLC  and  Tremont
       Corporation.

EX-21.1

EXHIBIT 21.1     SUBSIDIARIES OF THE REGISTRANT


                                                                 % of Voting
                                                                  Securities
                                       Jurisdiction of        Held at December
                                       Incorporation or              31,
Name of Corporation                      Organization             1999 (1)
- -----------------------------------    ----------------         ----------

Amcorp, Inc.                            Delaware                    100%
     ASC Holdings, Inc.                 Utah                        100
     Amalgamated Research, Inc.         Idaho                       100

Andrews County Holdings, Inc.           Delaware                    100
     Waste Control Specialists LLC      Delaware                     69
       Greenhill Technologies LLC       Delaware                     50
       Tecsafe LLC                      Delaware                     50

NL Industries, Inc. (2)                 New Jersey                   59

Tremont Corporation (3)                 Delaware                     50

Valcor, Inc.                            Delaware                    100
     Medite Corporation                 Delaware                    100
     CompX International Inc. (4), (5)  Delaware                     62

Other wholly-owned
     Valmont Insurance Company          Vermont                     100
     Impex Realty Holding, Inc.         Delaware                    100



(1)      Held by the Registrant or the indicated subsidiary of the Registrant.

(2)      Subsidiaries  of NL are  incorporated  by  reference to Exhibit 21.1 of
         NL's Annual  Report on Form 10-K for the year ended  December  31, 1999
         (File No. 1-640).

(3)      Subsidiaries  of Tremont are  incorporated by reference to Exhibit 21.1
         of Tremont's Annual Report on Form 10-K for the year ended December 31,
         1999 (File No. 1-10126).

(4)      Subsidiaries of CompX are  incorporated by reference to Exhibit 21.1 of
         CompX's Annual Report on Form 10-K for the year ended December 31, 1999
         (File No. 1-13905).

(5)      Valhi owns an additional 2% of CompX directly.

EX-23.1

                                                               Exhibit 23.1


                       CONSENT OF INDEPENDENT ACCOUNTANTS


       We  consent  to the  incorporation  by  reference  in Valhi,  Inc.'s  (i)
Registration Statement (Form S-8 Nos. 33-53633, 33-48146, 33-41507 and 33-21758)
and related Prospectus pertaining to the Valhi, Inc. 1987 Incentive Stock Option
- - Stock Appreciation  Rights Plan and (ii) Registration  Statement (Form S-8 No.
333-48391) and related  Prospectus  pertaining to the Valhi, Inc. 1997 Long-Term
Incentive  Plan,  of our  reports  dated  March 16,  2000,  on our audits of the
consolidated  financial  statements and financial  statement schedules of Valhi,
Inc. and  Subsidiaries  included in this Annual Report on Form 10-K for the year
ended December 31, 1999.




                                                      PricewaterhouseCoopers LLP


Dallas, Texas
March 24, 2000

EX-27

 


<ARTICLE>                     5
<LEGEND>
         THE SCHEDULE  CONTAINS  SUMMARY  FINANCIAL  INFORMATION  EXTRACTED FROM
VALHI, INC.'S CONSOLIDATED  FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31,
1999,  AND IS  QUALIFIED  IN ITS  ENTIRTY  BY  REFERENCE  TO  SUCH  CONSOLIDATED
FINANCIAL STATEMENTS.

<MULTIPLIER>                                   1,000

                             
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                              DEC-31-1999
<PERIOD-START>                                 JAN-01-1999
<PERIOD-END>                                   DEC-31-1999
<CASH>                                         174,982
<SECURITIES>                                   0
<RECEIVABLES>                                  196,224
<ALLOWANCES>                                   6,213
<INVENTORY>                                    219,618
<CURRENT-ASSETS>                               638,103
<PP&E>                                         751,173
<DEPRECIATION>                                 185,772
<TOTAL-ASSETS>                                 2,235,169
<CURRENT-LIABILITIES>                          352,244
<BONDS>                                        609,339
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    0
<COMMON>                                       1,256
<OTHER-SE>                                     588,158
<TOTAL-LIABILITY-AND-EQUITY>                   2,235,169
<SALES>                                        1,145,222
<TOTAL-REVENUES>                               1,145,222
<CGS>                                          840,326
<TOTAL-COSTS>                                  840,326
<OTHER-EXPENSES>                               0
<LOSS-PROVISION>                               787
<INTEREST-EXPENSE>                             72,039
<INCOME-PRETAX>                                55,129
<INCOME-TAX>                                   (71,285)
<INCOME-CONTINUING>                            47,422
<DISCONTINUED>                                 2,000
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   49,422
<EPS-BASIC>                                    .41
<EPS-DILUTED>                                  .41