SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter ended   September 30, 2001       Commission file number 1-5467
----------------------                            ------

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

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

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

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

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  
---        -

Number of shares of common stock outstanding on October 31, 2001: 114,766,417.

VALHI, INC. AND SUBSIDIARIES

INDEX

Page
number

Part I.          FINANCIAL INFORMATION

Item 1.        Financial Statements.

Consolidated Balance Sheets - December 31, 2000
and September 30, 2001                             3

Consolidated Statements of Income -
Three months and nine months ended
September 30, 2000 and 2001                        5

Consolidated Statements of Comprehensive Income -
Nine months ended September 30, 2000 and 2001      6

Consolidated Statements of Cash Flows -
Nine months ended September 30, 2000 and 2001      7

Consolidated Statement of Stockholders' Equity -
Nine months ended September 30, 2001               9

Notes to Consolidated Financial Statements          10

Item 2.        Management's Discussion and Analysis of Financial
Condition and Results of Operations.               21

Part II.         OTHER INFORMATION

Item 1.        Legal Proceedings.                                  40

Item 6.        Exhibits and Reports on Form 8-K.                   40

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands)

ASSETS                                 December 31,      September 30,
2000              2001
------            ------

Current assets:

Cash and cash equivalents ..................       $  135,017       $  121,938
Restricted cash equivalents ................           69,242           80,198
Marketable securities ......................             --             11,609
Accounts and other receivables .............          182,991          186,268
Refundable income taxes ....................           14,470            1,913
Receivable from affiliates .................              885           20,889
Inventories ................................          242,994          222,792
Prepaid expenses ...........................            7,272           16,254
Deferred income taxes ......................           14,236           13,049
----------       ----------

Total current assets ...................          667,107          674,910
----------       ----------

Other assets:
Marketable securities ......................          268,006          184,691
Investment in affiliates ...................          235,791          244,467
Loans and other receivables ................          100,540          104,512
Mining properties ..........................           13,971           12,096
Prepaid pension costs ......................           22,789           22,516
Goodwill ...................................          359,420          349,632
Deferred income taxes ......................            2,046            1,930
Other ......................................           49,604           43,815
----------       ----------

Total other assets .....................        1,052,167          963,659
----------       ----------

Property and equipment:
Land .......................................           29,644           29,893
Buildings ..................................          167,653          166,099
Equipment ..................................          543,915          543,169
Construction in progress ...................           14,865           38,870
----------       ----------
756,077          778,031
Less accumulated depreciation ..............          218,530          249,808
----------       ----------

Net property and equipment .............          537,547          528,223
----------       ----------

$2,256,821       $2,166,792
==========       ==========

See accompanying notes to consolidated financial statements.

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands)

LIABILITIES AND STOCKHOLDERS' EQUITY            December 31,      September 30,
2000              2001
-----------       ----------

Current liabilities:

Notes payable ..............................     $    70,039      $    47,435

Current maturities of long-term debt .......          34,284            1,551
Accounts payable ...........................          81,572           70,489
Accrued liabilities ........................         162,431          177,350
Payable to affiliates ......................          32,042           45,438
Income taxes ...............................          15,693           15,627
Deferred income taxes ......................           1,922            3,419
-----------      -----------

Total current liabilities ..............         397,983          361,309
-----------      -----------

Noncurrent liabilities:
Long-term debt .............................         595,354          555,455
Accrued OPEB costs .........................          50,624           50,185
Accrued pension costs ......................          26,697           22,581
Accrued environmental costs ................          66,224           50,790
Deferred income taxes ......................         294,371          281,838
Other ......................................          41,055           35,852
-----------      -----------

Total noncurrent liabilities ...........       1,074,325          996,701
-----------      -----------

Minority interest ............................         156,278          161,133
-----------      -----------

Stockholders' equity:
Common stock ...............................           1,257            1,258
Additional paid-in capital .................          44,345           44,946
Retained earnings ..........................         591,030          659,706
Accumulated other comprehensive income:
Marketable securities ....................         132,580           90,665
Currency translation .....................         (60,811)         (68,428)
Pension liabilities ......................          (4,517)          (4,849)
Treasury stock .............................         (75,649)         (75,649)
-----------      -----------

Total stockholders' equity .............         628,235          647,649
-----------      -----------

$ 2,256,821      $ 2,166,792
===========      ===========

Commitments and contingencies (Note 1)

See accompanying notes to consolidated financial statements.

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

Three months ended            Nine months ended
September 30,                 September 30,
-------------------            ----------------
2000           2001           2000         2001
----           ----           ----         ----

Revenues and other income:

Net sales ...........................   $ 308,122    $   262,488    $   929,794    $827,593
Other, net ..........................      12,649         16,011         90,530     123,742
---------    -----------    -----------    --------

320,771        278,499      1,020,324     951,335
---------    -----------    -----------    --------
Costs and expenses:
Cost of sales .......................     212,155        193,252        643,195     595,953
Selling, general and administrative .      49,627         46,236        152,840     144,186
Interest ............................      17,443         14,910         52,464      47,686
---------    -----------    -----------    --------

279,225        254,398        848,499     787,825
---------    -----------    -----------    --------

41,546         24,101        171,825     163,510
Equity in earnings (losses) of:
Titanium Metals Corporation ("TIMET")      (1,486)         3,170         (7,997)     16,172
Other ...............................         554            (76)           823         446
---------    -----------    -----------    --------

Income before income taxes ........      40,614         27,195        164,651     180,128

Provision for income taxes ............      17,634         11,246         72,698      66,921

Minority interest in after-tax earnings       9,963          5,639         33,481      23,668
---------    -----------    -----------    --------

Net income ........................   $  13,017    $    10,310    $    58,472    $ 89,539
=========    ===========    ===========    ========

Earnings per share:
Basic ...............................   $     .11    $       .09    $       .51    $    .78
=========    ===========    ===========    ========

Diluted .............................   $     .11    $       .09    $       .50    $    .77
=========    ===========    ===========    ========

Cash dividends per share ..............   $     .05    $       .06    $       .15    $    .18
=========    ===========    ===========    ========

Shares used in the calculation
of per share amounts:
Basic earnings per common share .....     115,159        115,201        115,122     115,177
Dilutive impact of outstanding
stock options ......................       1,199            934          1,143         903
---------    -----------    -----------    --------

Diluted earnings per share ..........     116,358        116,135        116,265     116,080
=========    ===========    ===========    ========

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Nine months ended September 30, 2000 and 2001

(In thousands)

2000              2001
----              ----

Net income .........................................     $ 58,472      $ 89,539
--------      --------

Other comprehensive income (loss),
net of tax:
Marketable securities adjustment:
Unrealized gains (losses) arising during
the period ....................................        3,407        (8,028)

Less reclassification for gains
included in net income ........................         (136)      (33,887)
--------      --------

3,271       (41,915)

Currency translation adjustment ..................      (26,744)       (7,617)

Pension liabilities adjustment ...................          941          (332)
--------      --------

Total other comprehensive
income (loss), net ............................      (22,532)      (49,864)
--------      --------

Comprehensive income .........................     $ 35,940      $ 39,675
========      ========

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine months ended September 30, 2000 and 2001

(In thousands)

2000           2001
----           ----

Cash flows from operating activities:

Net income .........................................   $  58,472    $  89,539
Depreciation, depletion and amortization ...........      53,609       56,054
Legal settlement gains, net ........................     (43,000)     (10,307)
Insurance gain .....................................        --         (4,551)
Securities transactions ............................      (5,763)     (51,874)
Noncash interest expense ...........................       6,998        4,893
Deferred income taxes ..............................      38,780       16,257
Minority interest ..................................      33,481       23,668
Other, net .........................................     (11,119)      (1,380)
Equity in:
TIMET ............................................       7,997      (16,172)
Other ............................................        (823)        (446)
Distributions from:
Manufacturing joint venture ......................       7,550        5,513
Other ............................................          81        1,300
---------    ---------

146,263      112,494

Change in assets and liabilities:
Accounts and other receivables ...................     (40,455)     (10,181)
Inventories ......................................      23,091       15,985
Accounts payable and accrued liabilities .........      10,262       (8,970)
Accounts with affiliates .........................       8,758       11,012
Income taxes .....................................       7,979       12,241
Other, net .......................................      (8,343)     (13,768)
---------    ---------

Net cash provided by operating activities ....     147,555      118,813
---------    ---------

Cash flows from investing activities:
Capital expenditures ...............................     (39,571)     (45,248)
Purchases of:
Business unit ....................................      (9,497)        --   
Tremont common stock .............................     (37,482)        (198)
NL common stock ..................................     (29,180)      (9,853)
CompX common stock ...............................        --         (2,650)
Loans to affiliates:
Loans ............................................     (21,969)     (20,000)
Collections ......................................      21,969         --
Property damaged by fire:
Insurance proceeds ...............................        --         10,500
Other, net .......................................        --         (2,100)
Proceeds from disposal of marketable securities ....         158       16,802
Change in restricted cash equivalents, net .........        (377)         838
Other, net .........................................       2,176         (239)
---------    ---------

Net cash used by investing activities ........    (113,773)     (52,148)
---------    ---------

See accompanying notes to consolidated financial statements.

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Nine months ended September 30, 2000 and 2001

(In thousands)

2000         2001
----         ----

Cash flows from financing activities:
Indebtedness:

Borrowings .......................................   $  37,797    $  46,356
Principal payments ...............................     (49,294)    (101,671)
Loans from affiliate:
Loans ............................................       6,000       76,666
Repayments .......................................      (8,082)     (73,731)
Valhi dividends paid ...............................     (17,376)     (20,863)
Distributions to minority interest .................      (7,318)      (7,950)
Other, net .........................................       3,571        1,217
---------    ---------

Net cash used by financing activities ..........     (34,702)     (79,976)
---------    ---------

Cash and cash equivalents - net change from:
Operating, investing and financing activities ......        (920)     (13,311)
Currency translation ...............................      (3,976)         232
Cash and equivalents at beginning of period ..........     152,707      135,017
---------    ---------

Cash and equivalents at end of period ................   $ 147,811    $ 121,938
=========    =========

Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized .............   $  37,805    $  36,770
Income taxes, net ................................      16,950       26,880

Business unit acquired - net assets consolidated:
Cash and cash equivalents ........................   $    --      $    --   
Goodwill and other intangible assets .............       2,561         --
Other noncash assets .............................       8,458         --
Liabilities ......................................      (1,522)        --
---------    ---------

Cash paid ........................................   $   9,497    $    --
=========    =========

See accompanying notes to consolidated financial statements.

VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Nine months ended September 30, 2001

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

Net income ....................     --        --        89,539         --          --         --          --         89,539

Dividends .....................     --        --       (20,863)        --          --         --          --        (20,863)

Other comprehensive income, net     --        --          --        (41,915)     (7,617)      (332)       --        (49,864)

Other, net ....................        1       601        --           --          --         --          --            602
------   -------   ---------    ---------    --------    -------    --------    ---------

Balance at September 30, 2001 .   $1,258   $44,946   $ 659,706    $  90,665    $(68,428)   $(4,849)   $(75,649)   $ 647,649
======   =======   =========    =========    ========    =======    ========    =========

VALHI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Basis of presentation:

The   consolidated   balance   sheet  of  Valhi,   Inc.  and   Subsidiaries
(collectively,  the  "Company") at December 31, 2000 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated   balance  sheet  at  September  30,  2001,  and  the  consolidated
statements of income,  comprehensive income, stockholders' equity and cash flows
for the interim periods ended September 30, 2000 and 2001, have been prepared by
the Company,  without  audit.  In the opinion of  management,  all  adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
consolidated financial position,  results of operations and cash flows have been
made.  The results of  operations  for the interim  periods are not  necessarily
indicative  of the  operating  results for a full year or of future  operations.
Certain  information  normally  included  in  financial  statements  prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") has been condensed or omitted.  The  accompanying  consolidated
financial  statements  should be read in conjunction  with the Company's  Annual
Report on Form 10-K for the year  ended  December  31,  2000 (the  "2000  Annual
Report").

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.

Commitments and contingencies are discussed in "Management's Discussion and
Analysis of Financial  Condition and Results of Operations," "Legal Proceedings"
and the 2000 Annual Report.

Contran Corporation holds, directly or through subsidiaries,  approximately
94%  of  Valhi's  outstanding  common  stock.  Substantially  all  of  Contran's
outstanding  voting  stock is held by  trusts  established  for the  benefit  of
certain children and grandchildren of Harold C. Simmons, of which Mr. Simmons is
sole trustee. Mr. Simmons, the Chairman of the Board and Chief Executive Officer
of Valhi and Contran, may be deemed to control such companies.

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

Effective  July 1,  2001,  the  Company  adopted  SFAS  No.  141,  Business
Combinations,  for all business combinations initiated on or after July 1, 2001,
and all purchase business combinations (including step acquisitions). Under SFAS
No. 141, all business combinations will be accounted for by the purchase method,
and the pooling-of-interests method will be prohibited.

Note 2 - Business segment information:

% owned at  
Business                    Entity                September 30, 2001  

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

Tremont Group is a holding  company  which owns 80% of Tremont  Corporation
("Tremont")  at  September  30,  2001.  NL owns the other 20% of Tremont  Group.
Tremont is also a holding  company and owns an  additional  21% of NL and 39% of
Titanium Metals Corporation ("TIMET") at September 30, 2001.

Three months ended      Nine months ended
September 30,           September 30,
------------------      ----------------
2000       2001       2000       2001
----       ----       ----       ----
(In millions)

Net sales:

Chemicals ........................    $242.3     $207.0     $724.4     $653.2
Component products ...............      63.0       51.5      194.2      164.4
Waste management .................       2.8        4.0       11.2       10.0
------     ------     ------     ------

Total net sales ................    $308.1     $262.5     $929.8     $827.6
======     ======     ======     ======

Operating income:
Chemicals ........................    $ 51.2     $ 29.9     $147.5     $114.1
Component products ...............       9.2        4.7       31.6       17.0
Waste management .................      (3.0)      (3.1)      (6.0)     (10.7)
------     ------     ------     ------

Total operating income .........      57.4       31.5      173.1      120.4

General corporate items:
Legal settlement gains, net ......      --         --         43.0       30.7
Securities transactions ..........        .2        1.1        5.8       51.9
Interest and dividend income .....       9.7        9.3       30.0       29.0
Insurance gain ...................      --          3.8       --          4.5
Expenses, net ....................      (8.1)      (6.7)     (27.5)     (25.3)
Interest expense ...................     (17.5)     (14.9)     (52.5)     (47.7)
------     ------     ------     ------
41.7       24.1      171.9      163.5
Equity in:
TIMET ............................      (1.5)       3.2       (8.0)      16.2
Other ............................        .5        (.1)        .8         .4
------     ------     ------     ------

Income before income taxes .....    $ 40.7     $ 27.2     $164.7     $180.1
======     ======     ======     ======

During the first nine months of 2001, NL and CompX each purchased shares of
their common stocks in market  transactions for an aggregate of $9.9 million and
$2.6 million,  respectively,  and Valhi purchased shares of Tremont common stock
in market  transactions for an aggregate of $198,000.  The Company accounted for
such increases in its ownership of NL, CompX and Tremont by the purchase  method
(step acquisitions).

NL (NYSE: NL), CompX (NYSE: CIX), Tremont (NYSE: TRE) and TIMET (NYSE: TIE)
each file periodic reports  pursuant to the Securities  Exchange Act of 1934, as
amended.

Note 3 -       Marketable securities:

December 31,   September 30,
2000           2001
------         ------
(In thousands)

Current assets - Halliburton Company

common stock (trading) ..........................       $   --         $ 11,609
========       ========

Noncurrent assets (available-for-sale):
The Amalgamated Sugar Company LLC ..............       $170,000       $170,000
Halliburton Company common stock ...............         97,108         14,009
Other common stocks ............................            898            682
--------       --------

$268,006       $184,691
========       ========

At September 30, 2001, Valhi held 1.1 million shares of Halliburton  common
stock  (aggregate  cost of $9 million)  with a quoted market price of $22.55 per
share, or an aggregate market value of $26 million.  Of such Halliburton shares,
approximately  515,000  Halliburton  shares are  classified  as current  trading
securities   and  621,000  are   classified  as  noncurrent   available-for-sale
securities.  Valhi's LYONs debt obligation are  exchangeable at any time, at the
option of the LYON holder, for the shares of Halliburton common stock classified
as  available-for-sale,  and the carrying  value of such  Halliburton  shares is
limited to the accreted LYONs obligation.  The Halliburton  shares classified as
available-for-sale  are held in escrow  for the  benefit  of the  holders of the
LYONs.  Valhi receives the regular quarterly  dividend on all of the Halliburton
shares held,  including shares held in escrow.  The shares classified as trading
securities were reclassified from  available-for-sale in June and July 2001 when
they became  eligible to, and were,  released from the escrow for the benefit of
the holders of the LYONs.  During the first nine months of 2001,  certain  LYONs
holders exchanged their LYONs for 1.2 million Halliburton shares, and Valhi sold
an additional 390,000  Halliburton  shares in market  transactions for aggregate
proceeds of $16.8 million. See Notes 8 and 10.

See the 2000 Annual Report for a discussion of the Company's  investment in
The   Amalgamated   Sugar   Company   LLC.   The   aggregate   cost   of   other
available-for-sale common stocks is nominal at September 30, 2001. See Note 10.

Note 4 -       Inventories:

December 31,    September 30,
2000            2001
------          ------
(In thousands)

Raw materials:

Chemicals ..................................         $ 66,061         $ 40,160
Component products .........................           11,866           12,003
--------         --------
77,927           52,163
--------         --------
In process products:
Chemicals ..................................            7,117            7,321
Component products .........................           11,454           12,807
--------         --------
18,571           20,128
--------         --------
Finished products:
Chemicals ..................................          107,895          112,654
Component products .........................           12,811           10,275
--------         --------
120,706          122,929
--------         --------

Supplies (primarily chemicals) ...............           25,790           27,572
--------         --------

$242,994         $222,792
========         ========

Note 5 - Investment in affiliates:

December 31,    September 30,
2000            2001
------          ------
(In thousands)

TiO2 manufacturing joint venture ...............        $150,002        $144,228
TIMET ..........................................          72,655          87,958
Other ..........................................          13,134          12,281
--------        --------

$235,791        $244,467
========        ========

At  September  30, 2001,  Tremont held 12.3 million  shares of TIMET common
stock with a quoted  market  price of $3.20 per share,  or an  aggregate  of $39
million.

At September 30, 2001, TIMET reported total assets and stockholders' equity
of $756.5 million and $388.2 million, respectively. TIMET's total assets at such
date include current assets of $292.1 million,  property and equipment of $274.0
million and goodwill and other intangible assets of $56.7 million. TIMET's total
liabilities  at  such  date  include  current  liabilities  of  $106.2  million,
long-term  debt of $16.7  million,  accrued  OPEB  costs of  $17.2  million  and
convertible preferred securities of $201.2 million.

During the first nine months of 2001,  TIMET  reported  net sales of $370.5
million, operating income of $56.8 million and net income of $30.3 million (2000
first nine  months - net sales of $320.3  million,  an  operating  loss of $35.5
million and a net loss of $32.5 million).

Note 6 - Other assets:

December 31,    September 30,
2000            2001
------          ------
(In thousands)

Loans and other receivables:
Snake River Sugar Company:

Principal ................................         $ 80,000         $ 80,000
Interest .................................           17,526           21,420
Other ......................................            4,754            6,702
--------         --------
102,280          108,122

Less current portion .......................            1,740            3,610
--------         --------

Noncurrent portion .........................         $100,540         $104,512
========         ========

Other noncurrent assets:
Restricted cash investments ................         $ 22,897         $ 17,473
Intangible assets ..........................            5,945            5,222
Deferred financing costs ...................            2,527            1,590
Other ......................................           18,235           19,530
--------         --------

$ 49,604         $ 43,815
========         ========

Note 7 -       Accrued liabilities:

December 31,    September 30,
2000             2001
------           -----
(In thousands)

Current:

Employee benefits ..........................         $ 44,397         $ 37,554
Environmental costs ........................           56,323           66,780
Interest ...................................            6,172           12,274
Deferred income ............................            7,241           12,039
Other ......................................           48,298           48,703
--------         --------

$162,431         $177,350
========         ========

Noncurrent:
Insurance claims and expenses ..............         $ 22,424         $ 20,474
Employee benefits ..........................           11,893           10,185
Deferred income ............................            5,453            2,363
Other ......................................            1,285            2,830
--------         --------

$ 41,055         $ 35,852
========         ========

Note 8 - Notes payable and long-term debt:

December 31, September 30,
2000         2001
------       ------
(In thousands)

Notes payable -

Kronos - non-U.S. bank credit agreements ...........     $ 70,039     $ 47,435
========     ========

Long-term debt:
Valhi:
Snake River Sugar Company ........................     $250,000     $250,000
LYONs ............................................      100,333       24,900
Bank credit facility .............................       31,000       30,000
Other ............................................        2,880        2,880
--------     --------

384,213      307,780
--------     --------

Subsidiaries:
NL Senior Secured Notes ..........................      194,000      194,000
CompX bank credit facility .......................       39,000       49,000
Waste Control Specialists bank term loan .........        5,311         --   
Valcor Senior Notes ..............................        2,431        2,431
Other ............................................        4,683        3,795
--------     --------

245,425      249,226
--------     --------

629,638      557,006

Less current maturities ............................       34,284        1,551
--------     --------

$595,354     $555,455
========     ========

During the first nine months of 2001,  holders  representing  $92.2 million
principal amount at maturity exchanged their LYONs debt obligation for shares of
Halliburton common stock. Under the terms of the indenture  governing the LYONs,
the Company has the option to  deliver,  in whole or in part,  cash equal to the
market  value of the  Halliburton  shares  that  are  otherwise  required  to be
delivered to the LYONs holder in an  exchange,  and a portion of such  exchanges
during the first nine  months of 2001 was so  settled.  See Note 10. Also during
the first nine months of 2001,  $50.4  million  principal  amount at maturity of
LYONs were redeemed by the Company for cash at various  redemption  prices equal
to the accreted value of the LYONs on the respective redemption dates.

In February  2001,  a  wholly-owned  subsidiary  of Valhi  purchased  Waste
Control  Specialists' bank term loan from the lender at par value, and such debt
became payable to such Valhi subsidiary. Accordingly, such debt is eliminated in
Valhi's  consolidated  financial  statements  at September 30, 2001. In November
2001, the maturity date of Valhi's bank credit facility was extended one year to
November  2002,  and the size of the facility was  increased  $10 million to $55
million.

Note 9 - Accounts with affiliates:

December 31,     September 30,
2000             2001
------           ------
(In thousands)

Receivables from affiliates:

Loan to Contran family trust .................         $  --           $20,000
TIMET ........................................             599             504
Other ........................................             286             385
-------         -------

$   885         $20,889
=======         =======

Payables to affiliates:
Demand loan from Contran:
Valhi ......................................         $ 8,000         $24,335
Tremont ....................................          13,403            --   
Income taxes payable to Contran ..............           1,666          13,222
Louisiana Pigment Company ....................           8,710           7,592
Other, net ...................................             263             289
-------         -------

$32,042         $45,438
=======         =======

In May 2001,  NL  Environmental  Management  Services,  Inc  ("EMS"),  NL's
majority-owned  environmental management subsidiary,  entered into a $25 million
revolving credit facility with one of the family trusts discussed in Note 1 ($20
million outstanding at September 30, 2001). The loan bears interest at prime, is
due on demand with 60 days  notice and is  collateralized  by certain  shares of
Contran's  Class A common stock and Class E cumulative  preferred  stock held by
the trust.

In February 2001,  Tremont entered into a $13.4 million reducing  revolving
credit  facility  with EMS and used the proceeds to repay its loan from Contran.
Such  intercompany  loan between EMS and Tremont,  collateralized  by 10 million
shares  of  NL  common  stock  owned  by  Tremont,   is  eliminated  in  Valhi's
consolidated financial statements at September 30, 2001.

Note 10 -      Other income:

Nine months ended
September 30,
2000              2001
----              ----
(In thousands)

Securities earnings:

Interest and dividends .....................         $ 29,978         $ 29,045
Securities transactions, net ...............            5,763           51,874
--------         --------

35,741           80,919
Legal settlement gains, net ..................           43,000           30,723
Noncompete agreement income ..................            3,000            3,000
Currency transactions, net ...................            4,227              543
Insurance gain ...............................             --              4,551
Other, net ...................................            4,562            4,006
--------         --------

$ 90,530         $123,742
========         ========

Net  securities  transactions  gains in the first  nine  months of 2001 are
comprised of (i) a $33.1 million gain related to LYONs  exchanges,  (ii) a $13.7
million gain related to the sale of 390,000 shares of  Halliburton  common stock
in  market   transactions,   (iii)  a  $14.2   million   gain   related  to  the
reclassification  of  515,000  Halliburton  shares  from  available-for-sale  to
trading  securities,  (iv) a $6.7 million net unrealized loss related to changes
in market value of the Halliburton  shares classified as trading  securities and
(v) a $2.3  million  impairment  charge for an other than  temporary  decline in
value of certain marketable securities held by the Company. See Notes 3 and 8.

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

In the first quarter of 2001, NL recognized $10.6 million of net gains from
legal  settlements,  substantially  all of  which  ($10.3  million)  relates  to
settlements  with  certain  of its  former  insurance  carriers.  The  insurance
settlement,  similar to legal  settlements  NL reached with certain other of its
former insurance  carriers during 2000,  resolved court  proceedings in which NL
sought  reimbursement  from the  carriers  for legal  defense  expenditures  and
indemnity  coverage for certain of its environmental  remediation  expenditures.
Proceeds from the first quarter 2001 insurance  settlement  were  transferred by
the carriers in April 2001 to a special  purpose trust formed to pay for certain
of NL's future remediation and other environmental expenditures.

The insurance gain is discussed in Note 13.

Note 11 - Provision for income taxes:

Nine months ended
September 30,
2000       2001
----       ----
(In millions)

Expected tax expense .....................................     $57.6      $63.0
Incremental U.S. tax and rate differences on
equity in earnings of non-tax group companies ...........      12.9        2.7
Non-U.S. tax rates .......................................      (4.3)      (4.8)
Change in NL's and Tremont's deferred income tax
valuation allowance, net ................................        .9       (2.1)
No tax benefit for goodwill amortization .................       4.0        4.4
U.S. state income taxes, net .............................       1.5        2.7
Other, net ...............................................        .1        1.0
-----      -----

$72.7      $66.9
=====      =====

Comprehensive provision for income taxes
(benefit) allocated to:
Net income .............................................     $72.7      $66.9
Other comprehensive income:
Marketable securities ................................       2.0      (22.5)
Currency translation .................................     (19.4)      (1.3)
Pension liabilities ..................................        .6        (.3)
-----      -----

$55.9      $42.8
=====      =====

Note 12 - Minority interest:

December 31,        September 30,
2000               2001
------             ------
(In thousands)

Minority interest in net assets:

NL Industries ............................           $ 66,761           $ 69,289
Tremont Corporation ......................             34,235             38,274
CompX International ......................             49,003             46,359
Subsidiaries of NL .......................              6,279              7,211
--------           --------

$156,278           $161,133
========           ========

Nine months ended
September 30,
2000              2001
----              ----
(In thousands)

Minority interest in net earnings (losses):

NL Industries ..............................          $ 23,500           $15,562
Tremont Corporation ........................             1,223             4,500
CompX International ........................             6,871             2,653
Subsidiaries of NL .........................             1,655               953
Subsidiaries of Tremont ....................               235              --
Subsidiaries of CompX ......................                (3)             --
--------           -------

$ 33,481           $23,668
========           =======

As  previously  reported,  all  of  Waste  Control  Specialists  aggregate,
inception-to-date net losses have accrued to the Company for financial reporting
purposes,  and all of Waste Control  Specialists future net income or net losses
will also accrue to the Company until Waste Control Specialists reports positive
equity  attributable to its other owner.  Accordingly,  no minority  interest in
Waste Control  Specialists'  net assets or net earnings  (losses) is reported at
September 30, 2001.

Note 13 - Leverkusen fire and insurance claim:

On March 20, 2001, NL suffered a fire at its Leverkusen,  Germany  titanium
dioxide   pigments   ("TiO2")    facility.    Production   at   the   facility's
chloride-process  plant  returned  to  full  capacity  on  April  8,  2001.  The
facility's   sulfate-process  plant  became  approximately  50%  operational  in
September 2001, and became fully  operational in late October 2001. In April the
undamaged section of the sulfate-process plant resumed limited production (5% to
20% of capacity) of an intermediate  form of TiO2, which was transported to NL's
Nordenham,  Germany  sulfate-process  TiO2  plant to be  further  processed  and
finished into certain grades of TiO2.  NL's ability to produce the  intermediate
form of TiO2 at its  Leverkusen  facility  was limited by the  available  excess
capacity at its Nordenham plant.

The damages to property and the business  interruption losses caused by the
fire were covered by insurance,  but the effect on the financial  results of the
Company on a  quarter-to-quarter  basis was impacted by the timing and amount of
insurance recoveries.  Chemicals operating income in the third quarter and first
nine  months of 2001  includes  $3  million  and $8  million,  respectively,  of
business  interruption  insurance proceeds as partial payments for losses caused
by the Leverkusen fire. Such business  interruption  proceeds were recorded as a
reduction of cost of sales to offset unallocated period costs that resulted from
lost  production.  NL also recognized  advance  payments of $5 million and $10.5
million,  respectively,  in the third  quarter and first nine months of 2001 for
property  damage and related  cleanup cost  insurance  recoveries,  resulting in
insurance gains of $3.8 million and $4.5 million,  respectively,  as the advance
payments  received  exceeded the carrying  value of the property  destroyed  and
cleanup costs incurred. See Note 10. In October 2001, NL reached an agreement in
principle  with its insurance  carriers to settle the coverage  claims caused by
the fire under which NL expects to receive additional  insurance proceeds of $25
million for business  interruption  losses and $13 million for  property  damage
costs. The Company expects to report a gain, net of certain expenses, related to
these amounts in the fourth quarter of 2001.

Note 14 - Accounting principles not yet adopted:

The Company will adopt SFAS No. 142, Goodwill and Other Intangible  Assets,
effective  January 1, 2002.  Under SFAS No. 142,  goodwill,  including  goodwill
arising from the difference  between the cost of an investment  accounted for by
the equity method and the amount of the underlying  equity in net assets of such
equity method  investee  ("equity  method  goodwill") will not be amortized on a
periodic basis.  Instead,  goodwill (other than equity method  goodwill) will be
subject to an impairment  test to be performed at least on an annual basis,  and
impairment  reviews  may  result  in  future  periodic  write-downs  charged  to
earnings. Equity method goodwill will not be tested for impairment in accordance
with SFAS No. 142;  rather,  the  overall  carrying  amount of an equity  method
investee will continue to be reviewed for impairment in accordance with existing
GAAP.  There is currently no equity method  goodwill  associated with any of the
Company's equity method investees.  Under the transition  provisions of SFAS No.
142,  all  goodwill  existing as of June 30, 2001 will cease to be  periodically
amortized as of January 1, 2002, but all goodwill arising in a purchase business
combination  (including  step  acquisitions)  completed on or after July 1, 2001
would  not be  periodically  amortized  from the date of such  combination.  The
Company will complete its initial  goodwill  impairment  analysis  under the new
standard  during  2002.  If any  goodwill  impairment  under the new standard is
determined to exist,  such impairment would be recognized as a cumulative effect
of a change in accounting principle no later than December 31, 2002, as provided
by the  transition  requirement of SFAS No. 142. The Company would have reported
net income of  approximately  $101 million,  or $.87 per diluted  share,  in the
first nine months of 2001 if the goodwill amortization included in the Company's
reported net income had not been recognized.

The  Company  will  adopt SFAS No.  143,  Accounting  for Asset  Retirement
Obligations,  no later than January 1, 2003.  Under SFAS No. 143, the fair value
of a liability  for an asset  retirement  obligation  covered under the scope of
SFAS No.  143  would be  recognized  in the  period in which  the  liability  is
incurred,  with an  offsetting  increase in the  carrying  amount of the related
long-lived  asset.  Over time,  the  liability  would be accreted to its present
value, and the capitalized cost would be depreciated over the useful life of the
related asset.  Upon settlement of the liability,  an entity would either settle
the obligation for its recorded amount or incur a gain or loss upon  settlement.
The Company is still  studying this  newly-issued  standard to determine,  among
other things,  whether it has any asset retirement obligations which are covered
under the scope of SFAS No.  143,  and the  effect,  if any,  to the  Company of
adopting SFAS No. 143 has not yet been determined.

The  Company  will adopt SFAS No. 144,  Accounting  for the  Impairment  or
Disposal  of  Long-Lived  Assets,  no later than  January 1, 2002.  SFAS No. 144
retains the fundamental  provisions of existing  generally  accepted  accounting
principles with respect to the  recognition and measurement of long-lived  asset
impairment  contained  in  SFAS  No.  121,  Accounting  for  the  Impairment  of
Long-Lived  Assets and for Lived-Lived  Assets to be Disposed Of. However,  SFAS
No.  144  provides  new  guidance   intended  to  address  certain   significant
implementation  issues associated with SFAS No. 121, including expanded guidance
with  respect  to  appropriate  cash  flows  to be  used  to  determine  whether
recognition of any long-lived asset impairment is required,  and if required how
to measure the amount of the impairment. SFAS No. 144 also requires that any net
assets to be disposed  of by sale to be reported at the lower of carrying  value
or fair value less cost to sell,  and  expands  the  reporting  of  discontinued
operations to include any component of an entity with  operations and cash flows
that can be clearly  distinguished  from the rest of the entity.  The Company is
still  studying  this  newly-issued  standard,  and the  effect,  if any, to the
Company of adopting SFAS No. 144 has not yet been determined.

--------------------------------------------------------------------------------
MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS:

The  Company  reported  net income of $10.3  million,  or $.09 per  diluted
share, in the third quarter of 2001 compared to net income of $13.0 million,  or
$.11 per diluted share,  in the third quarter of 2000.  Excluding the effects of
the  unusual  item  discussed  in the next  paragraph,  the  Company  would have
reported net income of $8.5 million in the third quarter of 2001.  For the first
nine months of 2001, the Company  reported net income of $89.5 million,  or $.77
per diluted share,  compared to net income of $58.5 million, or $.50 per diluted
share,  in the first nine months of 2000.  Excluding  the effects of the unusual
items  discussed  in the next  paragraph,  the Company  would have  reported net
income of $28.5  million in the first nine months of 2001 compared to net income
of $38.9 million in the first nine months of 2000.

The  Company's  results in the third  quarter and first nine months of 2001
include pre-tax insurance gains of $3.8 million and $4.5 million,  respectively,
($1.8 million and $2.0 million,  respectively,  or each $.02 per diluted  share,
net of income  taxes and  minority  interest)  related to  insurance  recoveries
received by NL resulting from the March 2001 fire at one of NL's facilities,  as
insurance  recoveries  received  exceeded  the  carrying  value of the  property
destroyed and cleanup costs incurred. The Company's year-to-date results in 2001
include   previously-reported   second  quarter  (i)  aggregate  net  securities
transactions  gains of $50.8 million ($33.2 million,  or $.29 per diluted share,
net  of  income  taxes  and  minority  interest)  related   principally  to  the
disposition of a portion of the shares of Halliburton  Company common stock held
by the Company,  including  dispositions  when certain  holders of the Company's
LYONs debt  obligation  exercised  their  right to  exchange  such debt for such
Halliburton  stock and (ii) equity in earnings of TIMET of $15.7  million  ($7.5
million,  or $.06 per diluted share, net of income taxes and minority  interest)
related to TIMET's  previously-reported  settlement  with Boeing.  The Company's
year-to-date results in 2001 also include the previously-reported  first quarter
pre-tax gains  aggregating  $30.7 million  ($18.4  million,  or $.16 per diluted
share,  net of  income  taxes  and  minority  interest)  related  to NL's  legal
settlements with certain of its former insurance  carriers and the settlement of
certain litigation to which Waste Control Specialists was a party. The Company's
year-to-date  results in 2000  include  previously-reported  second  quarter (i)
pre-tax gain of $43 million ($17.3  million,  or $.15 per diluted share,  net of
income  taxes and  minority  interest)  related to NL's legal  settlements  with
certain  other  of  its  former  insurance  carriers  and  (ii)  net  securities
transaction gains of $5.6 million ($2.3 million,  or $.02 per diluted share, net
of income  taxes and  minority  interest)  related  principally  to common stock
received by NL from the  demutualization  of an insurance  company from which NL
had  purchased  certain  policies.  See  Notes  10 and  13 to  the  Consolidated
Financial Statements.

Total operating  income in the third quarter of 2001 decreased 45% compared
to the third quarter of 2000, and decreased 30% in the first nine months of 2001
compared  to the same  period in 2000,  due to lower  chemicals  earnings at NL,
lower component  products  operating  income at CompX  International  and higher
waste management operating losses at Waste Control Specialists.

As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Quarterly  Report on Form 10-Q relating to matters that are not historical facts
are  forward-looking   statements  that  represent   management's   beliefs  and
assumptions based on currently available information. Forward-looking statements
can be  identified  by the use of words such as  "believes,"  "intends,"  "may,"
"should," "could," "anticipates,"  "expected" or comparable  terminology,  or by
discussions  of  strategies  or trends.  Although the Company  believes that the
expectations  reflected in such  forward-looking  statements are reasonable,  it
cannot give any  assurances  that these  expectations  will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could  significantly  impact expected  results,  and actual future results could
differ materially from those described in such forward-looking statements. While
it is not possible to identify all factors,  the Company  continues to face many
risks and  uncertainties.  Among the  factors  that could  cause  actual  future
results to differ materially are the risks and  uncertainties  discussed in this
Quarterly  Report and those  described from time to time in the Company's  other
filings with the Securities and Exchange Commission  including,  but not limited
to,  future  supply  and demand for the  Company's  products,  the extent of the
dependence of certain of the  Company's  businesses  on certain  market  sectors
(such as the  dependence of TIMET's  titanium  metals  business on the aerospace
industry),  the cyclicality of certain of the Company's businesses (such as NL's
TiO2 operations and TIMET's titanium metals  operations),  the impact of certain
long-term  contracts on certain of the Company's  businesses (such as the impact
of TIMET's long-term contracts with certain of its customers and such customers'
performance hereunder 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 (such as the extent to which NL's customers
may, from time to time,  accelerate  purchases of TiO2 in advance of anticipated
price  increases  or defer  purchases  of TiO2 in advance of  anticipated  price
decreases, or the relationship between inventory levels of TIMET's customers and
such  customer's   current  inventory   requirements  and  the  impact  of  such
relationship on their  purchases from TIMET),  changes in raw material and other
operating costs (such as energy costs),  the  possibility of labor  disruptions,
general global economic and political  conditions  (such as changes in the level
of gross domestic product in various regions of the world and the impact of such
changes on demand for,  among other  things,  TiO2),  competitive  products  and
substitute products,  customer and competitor strategies,  the impact of pricing
and production decisions,  competitive technology positions, the introduction of
trade barriers,  fluctuations in currency exchange rates (such as changes in the
exchange  rate  between  the U.S.  dollar and each of the Euro and the  Canadian
dollar), operating interruptions (including, but not limited to, labor disputes,
leaks, fires,  explosions,  unscheduled or unplanned downtime and transportation
interruptions), recoveries from insurance claims and the timing thereof (such as
NL's insurance  claims with respect to the fire it suffered at one of its German
TiO2 production  facilities),  potential  difficulties in integrating  completed
acquisitions,  uncertainties  associated with new product  development  (such as
TIMET's   ability  to  develop  new  end-uses   for  its   titanium   products),
environmental  matters (such as those requiring emission and discharge standards
for existing and new  facilities),  government laws and regulations and possible
changes  therein  (such as a change in Texas  state law  which  would  allow the
applicable  regulatory  agency to issue a permit for the  disposal of  low-level
radioactive  wastes to a private  entity such as Waste Control  Specialists,  or
changes in government  regulations  which might impose  various  obligations  on
present and former manufacturers of lead pigment and lead-based paint, including
NL, with respect to asserted  health  concerns  associated  with the use of such
products),  the ultimate  resolution  of pending  litigation  (such as NL's lead
pigment  litigation  and  litigation  surrounding  environmental  matters of NL,
Tremont and TIMET) and possible future  litigation.  Should one or more of these
risks materialize (or the consequences of such a development  worsen), or should
the  underlying  assumptions  prove  incorrect,   actual  results  could  differ
materially  from  those  forecasted  or  expected.  The  Company  disclaims  any
intention  or  obligation  to  update or revise  any  forward-looking  statement
whether as a result of new information, future events or otherwise.

Chemicals

NL's titanium dioxide pigments  ("TiO2")  operations are conducted  through
its wholly-owned subsidiary Kronos, Inc.

Three months ended         Nine months ended
September 30,        %    September 30,           %
----------------       -    -------------           -
2000     2001      Change  2000      2001       Change
----     ----      ------  ----      ----       ------
(In millions)              (In millions)

Net sales ..............    $242.3    $207.0      -15%  $724.4    $653.2      -10%
Operating income .......      51.2      29.9      -42%   147.5     114.1      -23%

Chemicals  sales and  operating  income  decreased in the third quarter and
first nine months of 2001  compared to the same periods in 2000 due primarily to
lower TiO2 sales and production  volumes and lower average TiO2 selling  prices.
Excluding the effect of fluctuations in the value of the U.S. dollar relative to
other  currencies,  NL's  average TiO2  selling  prices (in billing  currencies)
during the third quarter of 2001 were 6% lower  compared to the third quarter of
2000,  while they were  comparable  in the first nine months of 2001 compared to
the same period in 2000.

NL's TiO2 sales volumes in the third quarter of 2001 were 9% lower than the
near-record  third quarter of 2000,  with  moderately  higher  volumes in export
markets more than offset by lower  volumes in North America and Europe of 4% and
17%, respectively. NL's TiO2 sales volumes in the first nine months of 2001 were
10% lower than the first nine months of 2000.  NL's TiO2  production  volumes in
the third  quarter  of 2001 were 4% lower than the third  quarter of 2000,  with
operating  rates at 95% of  capacity in 2001  compared to near full  capacity in
2000. The lower  production  volumes related  primarily to lost  sulfate-process
production  resulting  from  the  previously-reported  fire at NL's  Leverkusen,
Germany facility.  NL's TiO2 production volumes were 4% lower for the first nine
months of 2001 compared to the same period in 2000,  with operating rates at 94%
of capacity  in 2001  compared to near full  capacity  in 2000.  The  Leverkusen
sulfate-process  plant became  approximately  50% operational in September 2001,
and returned to full operation in late October 2001.

The damages to property and the business  interruption losses caused by the
Leverkusen  fire were covered by insurance.  Chemicals  operating  income in the
third  quarter and first nine months of 2001 includes $3 million and $8 million,
respectively,  of business  interruption  insurance proceeds as partial payments
for losses  caused by the  Leverkusen  fire. NL also  recognized  payments of $5
million and $10.5  million,  respectively,  in the third  quarter and first nine
months of 2001 for property damage and related cleanup cost insurance recoveries
related to the fire,  resulting  in an  insurance  gain of $3.8 million and $4.5
million,  respectively,  as insurance  recoveries received exceeded the carrying
value of the property destroyed and cleanup costs incurred. Such insurance gains
are not reported as a component of chemicals  operating  income but are included
in general  corporate  items.  In October  2001,  NL  reached  an  agreement  in
principle  with its insurance  carriers to settle the coverage  claims caused by
the fire under which NL expects to receive additional  insurance proceeds of $25
million for business  interruption  losses and $13 million for  property  damage
costs. The Company expects to report a gain, net of certain expenses, related to
these amounts in the fourth quarter of 2001.

The  sustained  slowdown  in the  worldwide  economy  continues  to cause a
reduction  in demand for TiO2,  thereby  hampering  NL's efforts to improve TiO2
prices. Due to the global economic slowdown,  NL expects that TiO2 prices, which
have generally been trending downward during the first nine months of 2001, will
continue to trend  downward  through  the end of the year and  perhaps  into the
first  quarter of 2002.  Overall,  NL expects its TiO2  operating  income during
calendar 2001 will be significantly  lower than calendar 2000 primarily  because
of lower average TiO2 selling  prices,  lower sales and  production  volumes and
higher energy costs.

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,  primarily the euro,  other major European  currencies and
the Canadian  dollar.  In addition,  a portion of NL's sales  generated from its
non-U.S.  operations are denominated in the U.S. dollar.  Certain raw materials,
primarily  titanium-containing  feedstocks, are purchased in U.S. dollars, while
labor and other production costs are denominated  primarily in local currencies.
Consequently,  the  translated  U.S.  dollar  value of NL's  foreign  sales  and
operating results are subject to currency  exchange rate fluctuations  which may
favorably or adversely impact reported earnings and may affect the comparability
of period-to-period  operating results.  Including the effect of fluctuations in
the value of the U.S.  dollar  relative to other  currencies,  NL's average TiO2
selling  prices  (in  billing  currencies)  in the  first  nine  months  of 2001
decreased 4% compared to the first nine months of 2000. Overall, fluctuations in
the value of the U.S. dollar relative to other  currencies,  primarily the euro,
decreased  TiO2  sales in the first  nine  months  of 2001 by a net $24  million
compared to the first nine months of 2000. Fluctuations in the value of the U.S.
dollar   relative  to  other   currencies   similarly   impacted   NL's  foreign
currency-denominated  operating  expenses.  NL's operating expenses that are not
denominated in the U.S. dollar,  when translated into U.S.  dollars,  were lower
during the first nine months of 2001  compared to the first nine months of 2000.
Overall, the net impact of currency exchange rate fluctuations on NL's operating
income comparisons was not significant in the first nine months of 2001 compared
to the first nine months of 2000.

Chemicals   operating   income,  as  presented  above,  is  stated  net  of
amortization  of  the  Company's   purchase   accounting   adjustments  made  in
conjunction with its acquisitions of its interest in NL. Such adjustments result
in additional  depreciation,  depletion and amortization  expense beyond amounts
separately  reported by NL. Such additional  non-cash expenses reduced chemicals
operating income, as reported by Valhi, by approximately $18.9 million and $19.2
million in the first nine months of 2000 and 2001, respectively,  as compared to
amounts separately reported by NL.

Component Products

Three months ended         Nine months ended
September 30,      %      September 30,          %
------------       -      -------------          -
2000    2001     Change   2000      2001      Change
----    ----     ------   ----      ----      ------
(In millions)            (In millions)

Net sales ................    $ 63.0   $ 51.5     -18%  $194.2    $164.4      -15%
Operating income .........       9.2      4.7     -49%    31.6      17.0      -46%

Component  products  sales  and  operating  income  decreased  in the third
quarter and first nine months of 2001  compared to the same  periods in 2000 due
primarily to continued weak economic  conditions in the manufacturing  sector in
North America,  Europe and Asia.  During the first nine months of 2001, sales of
slide  products  decreased  25%  compared to the first nine months of 2000,  and
sales  of  security  products  and  ergonomic  products  decreased  11% and 13%,
respectively.  CompX's efforts to reduce manufacturing and other costs partially
offset  the  effect of the  decline  in  sales,  although  CompX  was  unable to
sufficiently  reduce  fixed  costs to fully  compensate  for the lower  level of
sales.  Operating  income and margins  were also  adversely  impacted in 2001 by
unfavorable  changes in product mix and  pricing  pressures  from  foreign-based
manufacturers.

CompX remains  concerned and uncertain  regarding the duration and severity
of the current weak  economic  environment  and its impact on CompX's  business.
CompX  continues to see downward  pressure on its sales as its customers and the
overall industry  respond to the continuing  contracting  economic  environment,
indicating that CompX's results of operations in the fourth quarter of 2001 will
be lower than  CompX's  previous  expectations.  CompX  continues  to  implement
various cost control  initiatives,  including ongoing headcount  rationalization
efforts and operational  cost  improvements.  These cost reduction  measures are
designed  to  minimize  the  adverse  affect of lower  sales and more  favorably
position CompX to meet demand when the economy recovers.

CompX has  substantial  operations  and assets  located  outside the United
States (principally in Canada, The Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar,  principally the Canadian dollar,  the Dutch guilder,  the
euro and the New  Taiwan  dollar.  In  addition,  a  portion  of  CompX's  sales
generated from its non-U.S.  operations  (principally in Canada) are denominated
in the U.S.  dollar.  Most raw materials,  labor and other  production costs for
such  non-U.S.   operations  are  denominated  primarily  in  local  currencies.
Consequently,  the  translated  U.S.  dollar value of CompX's  foreign sales and
operating results are subject to currency  exchange rate fluctuations  which may
favorably or unfavorably  impact reported earnings and may affect  comparability
of  period-to-period  operating  results.  During the first nine months of 2001,
currency  exchange  rate  fluctuations  of the Canadian  dollar,  the New Taiwan
dollar and the euro negatively impacted component products sales compared to the
first  nine  months  of 2000  (principally  with  respect  to  slide  products),
decreasing  component  products sales by 2%. Currency exchange rate fluctuations
with respect to the Canadian dollar positively affected CompX's operating income
comparisons in the first nine months of 2001,  while exchange rate  fluctuations
with respect to the euro and other  currencies did not  materially  impact these
operating income comparisons. Excluding the effect of currency, operating income
decreased 45% in the first nine months of 2001 as compared to the same period in
2000.

Waste Management

Three months ended      Nine months ended
September 30,           September 30,
----------------       ------------------
2000        2001       2000          2001
----        ----       ----          ----
(In millions)

Net sales ....................       $ 2.8       $ 4.0       $11.2        $10.0
Operating loss ...............        (3.0)       (3.1)       (6.0)       (10.7)

Waste management  operating losses increased in the third quarter and first
nine months of 2001  compared to the same  periods in 2000 due  primarily to the
effect of continued weak demand for Waste Control  Specialists' waste management
services,  higher expenses  associated with its permitting  efforts and expenses
associated  with the start-up of certain new waste disposal  process  equipment.
Waste Control  Specialists  currently has permits which allow it to treat, store
and dispose of a broad range of  hazardous  and toxic  wastes,  and to treat and
store a broad range of low-level  and mixed  radioactive  wastes.  The hazardous
waste industry (other than low-level and mixed radioactive  waste) currently has
excess  industry  capacity  caused by a number of factors,  including a relative
decline in the number of environmental remediation projects generating hazardous
wastes  and  efforts  on the part of  generators  to reduce  the volume of waste
and/or  manage  wastes  onsite at their  facilities.  These  factors have led to
reduced demand and increased price pressure for non-radioactive  hazardous waste
management services. While Waste Control Specialists believes its broad range of
permits for the treatment and storage of low-level and mixed  radioactive  waste
streams provides certain competitive advantages,  a key element of Waste Control
Specialists'  long-term  strategy to provide "one-stop  shopping" for hazardous,
low-level and mixed radioactive wastes includes obtaining additional  regulatory
authorizations for the disposal of low-level and mixed radioactive wastes.

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

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

TIMET

Three months ended      Nine months ended
September 30,          September 30,
-----------------       ----------------
2000         2001       2000        2001
----         ----       ----        ----
(In millions)
TIMET historical:

Net sales ......................     $106.8      $126.5     $320.3      $370.5
Operating income (loss) ........       (7.6)       10.0      (35.5)       56.8
Net income (loss) ..............       (7.9)        4.4      (32.5)       30.3

Equity in earnings (losses) ......     $ (1.5)     $  3.2     $ (8.0)     $ 16.2

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

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

During the third  quarter of 2001,  TIMET's  mill  products  sales  volumes
increased  6% compared to the third  quarter of 2000,  and sales  volumes of its
melted products  (ingot and slab) increased 42%.  TIMET's average selling prices
(in billing  currencies) for its mill products increased 5% in the third quarter
of 2001 compared to the third quarter of 2000, and melted product selling prices
increased 13%. During the first nine months of 2001, TIMET's mill products sales
volumes  increased  10%  compared  to the first nine  months of 2000,  and sales
volumes of its melted products increased 40%. TIMET's average selling prices (in
billing  currencies) for its mill products increased 1% in the first nine months
of 2001 compared to the same period in 2000, and melted  product  selling prices
increased 6%.  Operating  income  comparisons  were also  favorably  impacted by
higher  operating rates at certain plants and lower energy costs. In addition to
the Boeing  settlement  discussed above,  TIMET's operating results in 2001 also
include a $10.8 million second quarter pre-tax asset  impairment  charge related
to certain manufacturing assets and a $3.8 million pre-tax charge ($1 million in
the first  quarter and $2.8  million in the second  quarter)  related to TIMET's
previously-reported  tungsten matter, further discussed below. TIMET's operating
results  in the  first  nine  months  of 2000  include  a net  $8.3  million  of
previously-reported special charges.

In March 2001,  TIMET was notified by one of its  customers  that a product
manufactured  from standard grade titanium  produced by TIMET contained what has
been  confirmed to be a tungsten  inclusion.  TIMET  believes that the source of
this tungsten was contaminated silicon purchased from an outside vendor in 1998.
The  silicon was used as an  alloying  addition  to the  titanium at the melting
stage.  TIMET is currently  investigating  the possible  scope of this  problem,
including  identification  of the customers who received  material  manufactured
using this silicon and the  applications  to which such material has been placed
by such  customers.  At the present  time,  TIMET is aware of only six  standard
grade  ingots  that have  been  demonstrated  to  contain  tungsten  inclusions;
however,  further  investigation  may  identify  other  material  that  has been
similarly  affected.  Until this investigation is completed,  TIMET is unable to
determine  the ultimate  liability  TIMET may incur with respect to this matter.
TIMET  currently  believes that it is unlikely that its insurance  policies will
provide coverage for any costs that may be associated with this matter. TIMET is
continuing  to work with its affected  customers to  determine  the  appropriate
remedial steps required to satisfy their claims. The $3.8 million amount accrued
through  September 30, 2001 represents  TIMET's best estimate of the most likely
amount of loss it will incur. However, it may not represent the maximum possible
loss, which TIMET is not presently able to estimate,  and the amount accrued may
be  periodically  revised in the future as more facts  become  known.  TIMET has
filed suit seeking full  recovery  from the silicon  supplier for any  liability
TIMET might incur in this matter, although no assurances can be given that TIMET
will ultimately be able to recover all or any portion of such amounts. TIMET has
not recorded any recoveries related to this matter at September 30, 2001.

The commercial  aerospace  industry has  significant  influence on titanium
companies, particularly mill product producers such as TIMET. Industry shipments
of mill products to the  commercial  aerospace  industry in 2001 are expected to
account for  approximately  40% of the estimated 54,000 metric tons of aggregate
titanium mill product demand,  and this market has been the principal  driver of
increased  industry  shipments  over the last  year.  TIMET's  business  is more
dependent  on  commercial  aerospace  demand as  shipments  to this  market  are
presently estimated to represent  approximately 80% of TIMET's sales revenues in
2001.  TIMET's  recently-improved  financial  performance has  principally  been
driven by heightened sales volumes and increased selling prices on both mill and
melted products destined for commercial aerospace.

The economic  slowdown in the U.S. and other regions of the world  recently
began to negatively  affect the commercial  aerospace  industry as evidenced by,
among other things, a decline in airline passenger  traffic,  reported operating
losses by a number of airlines and a reduction in forecasted deliveries of large
commercial  aircraft  from both  Boeing  and  Airbus.  The  September  11,  2001
terrorist attacks  exacerbated these trends and had a significant adverse impact
on the global economy and the commercial  aerospace  industry.  Since that time,
airline passenger traffic has declined  substantially and airlines are reporting
significant  losses. In response to the current business climate,  airlines have
announced a number of actions to reduce both costs and  capacity,  including the
early  retirement  of  airplanes,  the deferral of scheduled  deliveries  of new
aircraft,  and allowing  aircraft  purchase  options to expire.  Both Boeing and
Airbus have indicated that deliveries of large commercial aircraft over the next
two years are now expected to be lower than previously anticipated.

The commercial  aerospace  supply chain is  decentralized  and  fragmented.
Aircraft and jet engine manufacturers,  as well as other companies in the supply
chain,  are  still  assessing  the  impact  these  events  will  have  on  their
businesses.  Although  they will  clearly  have a negative  effect on  suppliers
throughout  this sector,  including  TIMET,  the  magnitude and duration of that
impact is still  very  uncertain.  While  TIMET is  regularly  talking  with its
customers,  most of their  views are only  speculative  at this  time  given the
limited information currently available.

The Airline Monitor,  a leading aerospace  publication,  recently published
its revised forecast of large commercial  aircraft  deliveries which attempts to
take into  consideration the events of September 11, 2001. The Airline Monitor's
current forecast of large commercial  aircraft  deliveries is for 820 deliveries
in 2001,  660  deliveries in 2002 and 505  deliveries  in 2003.  Compared to The
Airline  Monitor's  previous forecast  (pre-September  11) for the same periods,
these delivery rates  represent  declines of 8%, 26% and 34%,  respectively.  As
compared  to  pre-September  11  estimated  2001  deliveries  of  890  aircraft,
deliveries   in  2002  and  2003  are  expected  to  decline  by  26%  and  43%,
respectively.

TIMET presently believes commercial  aerospace demand for titanium products
over the next year could decline by 30% to 40% from 2001 levels,  resulting from
a combination of reduced  aircraft  production  rates and excess inventory being
created throughout the supply chain.  Although  quantitative  information is not
readily available,  TIMET believes that no significant amount of excess titanium
inventory  existed  prior to September  11, 2001.  However,  a sharp  decline in
demand could potentially cause a significant  amount of inventory  accumulation.
This would  likely lead to order  demand for  titanium  products  falling  below
actual  consumption.   The  demand  for  titanium  generally  precedes  aircraft
deliveries  by about one year,  although  this varies  considerably  by titanium
product. Since TIMET will begin producing products in 2002 destined for aircraft
to be delivered in 2003,  it expects to see a decline in its 2002  business that
is similar to aircraft delivery reductions relative to 2003.

TIMET's order backlog at the end of September 2001 was  approximately  $315
million  compared to $245 million at December 31, 2000.  However,  TIMET's order
backlog may not be a reliable indicator of future business  activity.  TIMET has
recently  experienced a number of customer requests to defer or cancel scheduled
orders.  TIMET  believes such  requests will continue and may  accelerate in the
near-term.  As aircraft  and jet engine  manufacturers  settle upon a production
schedule for next year,  information  should be communicated  through the supply
chain providing TIMET a better understanding of its business outlook.

TIMET is  preparing  for the  anticipated  downturn  by  taking a number of
actions,  including,  but not limited to, (i) reducing plant operating rates and
employment  levels as business  declines,  (ii) negotiating  improved pricing at
lower volume commitments for certain raw materials, (iii) reducing discretionary
spending and (iv) negotiating  various other concessions from both suppliers and
service  providers.  For the longer term,  TIMET is evaluating  product line and
facilities  consolidations  that may permit it to  meaningfully  reduce its cost
structure while maintaining and even increasing its market share.

In October 2001,  TIMET announced that operating rates are being reduced at
both its Henderson,  Nevada and Morgantown,  Pennsylvania facilities. In Nevada,
TIMET is reducing  its vacuum arc melting  rates by about 40%. In  Pennsylvania,
TIMET intends to stop  production on one of its three  electron beam cold hearth
melting  operations  this year and is  reducing  the  operating  rate on another
furnace.  Production in  Pennsylvania  is expected to decline by about 20% after
these  decisions  are fully  implemented.  These  actions will result in TIMET's
employment   levels  declining  by   approximately  50  people,   however  TIMET
anticipates  further  reductions in operating rates and employment levels in the
future as demand for titanium products declines.

Current  business  conditions  make it  particularly  difficult  to predict
TIMET's future financial  results and,  therefore,  undue reliance should not be
placed on the following  comments as actual results may differ  materially  from
expectations. For the fourth quarter of 2001, TIMET believes its sales may range
between $90 million and $120 million,  reflecting  the net effects of changes in
sales  volumes,  selling  prices  and mix.  Excluding  the  effect of the Boeing
settlement and special charges, TIMET expects to be near break-even on operating
income and report a net loss for the full year of 2001.

For 2002,  TIMET  believes  it may  experience  a 30% to 40% decline in its
commercial  aerospace  sales volumes as compared to expected 2001 levels,  which
presently  represents  about 80% of  TIMET's  sales.  A change in demand of this
magnitude  will  likely  result  in  heightened  competitive  pricing  pressures
resulting in decreased selling prices. TIMET believes the net effects of changes
in sales volumes,  selling prices,  and customer and product mix could result in
sales ranging from $350 million to $400 million in calendar  2002.  TIMET's cost
of sales is affected by a number of factors  including,  among others,  customer
and product mix,  material  yields,  plant operating  rates, raw material costs,
labor costs and energy costs.  TIMET believes that costs for titanium sponge and
scrap will trend down over the next year while energy costs may remain volatile.
However,  as TIMET  reduces  production  volumes in  response  to reduced  order
demand,  certain manufacturing overhead costs are likely to decrease at a slower
rate and to a lesser extent than production volume changes,  resulting in higher
costs relative to production  levels.  TIMET's gross margin expectation for 2002
is uncertain at this time,  although TIMET  anticipates that the adverse effects
of  decreased  selling  prices  and lower  plant  operating  rates  will only be
partially  offset by lower raw  material  costs and other cost  control  actions
TIMET is presently  taking.  TIMET  believes gross  margins,  excluding  special
items, in 2002 may decline substantially as compared to 2001.

TIMET is currently assessing the longer-term impact of these changes to its
business  environment  noted above,  and is developing  plans to respond to such
changes. In this regard, TIMET is evaluating workforce reductions,  product line
and facility consolidations and other cost control measures. In addition,  TIMET
is  evaluating  whether  recognition  of  any  impairment  of its  tangible  and
intangible  assets is required,  and if so the amount  thereof.  Such  potential
charges,  if any,  are not yet  reasonably  estimable  due to the period of time
necessary for external  information to become  available to, and be analyzed and
assessed by,  TIMET.  Accordingly,  restructuring,  asset  impairment  and other
special  charges may impact  TIMET's  results in the fourth  quarter of 2001 and
next year as well.

General corporate and other items

General corporate. General corporate interest and dividend income decreased
slightly in the third quarter and first nine months of 2001 compared to the same
periods of 2000 as a slightly higher level of distributions from The Amalgamated
Sugar  Company LLC in 2001 was more than offset by a lower  interest rate on the
Company's $80 million loan to Snake River Sugar Company  (which rate was reduced
from  12.99%  to 6.49%  effective  April  1,  2000)  and a lower  level of funds
available for investment. General corporate interest and dividend income for all
of 2001 is expected to be somewhat lower than 2000.

The $30.7 million net legal  settlement  gains in the first quarter of 2001
relate  principally  to (i)  settlement  of certain  litigation  to which  Waste
Control  Specialists was a party ($20.1 million) and (ii) NL's  settlements with
certain  former  insurance  carriers  ($10.3  million).   See  Note  10  to  the
Consolidated  Financial Statements.  No further material settlements relating to
litigation concerning environmental remediation coverages are expected.

The insurance  gain is discussed in Note 13 to the  Consolidated  Financial
Statements.  In October  2001,  NL reached an agreement  in  principle  with its
insurance  carriers to settle the coverage  claims caused by the Leverkusen fire
under which NL expects to receive  additional  insurance proceeds of $25 million
for business  interruption losses and $13 million for property damage costs. The
Company  expects  to report a gain,  net of certain  expenses,  related to these
amounts in the fourth quarter of 2001.

Securities  transactions  gains in the first  nine  months  of 2001  relate
principally  to exchanges of LYONs.  Securities  transactions  in the first nine
months  of  2001  also  include  (i)  a  $14.2   million  gain  related  to  the
reclassification   of  certain   shares  of   Halliburton   common   stock  from
available-for-sale  to trading  securities,  (ii) a $6.7 million net  unrealized
loss related to changes in market value of the Halliburton  shares classified as
trading  securities  and (iii)  Valhi's  sale of 390,000  Halliburton  shares in
market transactions for aggregate proceeds of $16.8 million.  See Notes 3 and 10
to the Consolidated Financial Statements.

Net general  corporate  expenses  decreased in the third  quarter and first
nine months of 2001  compared to the same periods in 2000 due primarily to lower
environmental   and   legal   expenses   of  NL,   offset   in  part  by  higher
compensation-related  expenses for Tremont.  Net general  corporate  expenses in
calendar 2001 are currently  expected to be somewhat  lower compared to calendar
2000.

Interest expense.  Interest expense declined in the third quarter and first
nine months of 2001  compared to the same periods in 2000 due primarily to lower
interest  rates on  variable-rate  borrowings  and a lower level of  outstanding
indebtedness of NL and Valhi, offset in part by higher levels of indebtedness at
CompX.  Interest  expense  during the fourth  quarter of 2001 is  expected to be
lower than the same period in 2000.

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  11 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.

During the first nine months of 2001, NL and Tremont reduced their deferred
income tax  valuation  allowances  by $1.3 million and  $800,000,  respectively,
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.

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

Minority interest.  See Note 12 to the Consolidated  Financial  Statements.
Minority   interest   in  NL's   subsidiaries   relates   principally   to  NL's
majority-owned  environmental management subsidiary, NL Environmental Management
Services,  Inc.  ("EMS").  EMS was  established  in  1998,  at  which  time  EMS
contractually assumed certain of NL's environmental  liabilities.  EMS' earnings
are based, in part, upon its ability to favorably  resolve these  liabilities on
an aggregate  basis. The shareholders of EMS, other than NL, actively manage the
environmental  liabilities  and  share in 39% of EMS'  cumulative  earnings.  NL
continues to consolidate EMS and provides accruals for the reasonably  estimable
costs for the settlement of EMS' environmental liabilities, as discussed below.

In December 2000,  TRECO LLC, a 75%-owned  subsidiary of Tremont,  acquired
the 25% interest in TRECO previously held by the other owner of TRECO, and TRECO
became a wholly-owned subsidiary of Tremont.  Accordingly,  no minority interest
in the earnings of Tremont subsidiaries is reported beginning in 2001.

As previously  reported,  Waste Control Specialists was formed by Valhi and
another entity in 1995. 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.  Since its  inception in 1995,  Waste  Control
Specialists  has  reported  aggregate  net  losses.  Consequently,  all of Waste
Control Specialists aggregate,  inception-to-date net losses have accrued to the
Company for financial reporting  purposes,  and all of Waste Control Specialists
future net income or net losses  will also  accrue to the  Company  until  Waste
Control  Specialists  reports  positive equity  attributable to the other owner.
Accordingly,  no minority  interest in Waste Control  Specialists' net assets or
net earnings (losses) is reported during the first nine months of 2000 and 2001.

Accounting  principles  not yet  adopted.  See Note 14 to the  Consolidated
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES:

Consolidated cash flows

Operating activities. Trends in cash flows from operating annual activities
(excluding the impact of significant asset  dispositions and relative changes in
assets  and  liabilities)  are  generally  similar  to trends  in the  Company's
earnings.  Changes in assets and liabilities generally result from the timing of
production, sales, purchases and income tax payments.

Certain items included in the determination of net income are non-cash, and
therefore  such items have no impact on cash  flows from  operating  activities.
Noncash items included in the determination of net income include  depreciation,
depletion and amortization expense, as well as noncash interest expense. Noncash
interest   expense  relates   principally  to  Valhi  and  NL  and  consists  of
amortization of original issue discount on certain indebtedness and amortization
of deferred  financing  costs.  In addition,  substantially  all of the proceeds
resulting  from NL's legal  settlements in 2000 and 2001 are shown as restricted
cash, and therefore  such  settlement had no impact on cash flows from operating
activities. See Note 10 to the Consolidated Financial Statements.

Investing  and  financing  activities.  Approximately  72% of the Company's
consolidated capital expenditures during the first nine months of 2001 relate to
NL, 21% relate to CompX and  substantially  all of the remainder relate to Waste
Control  Specialists.  Capital  expenditures  in the first  nine  months of 2001
include  an  aggregate  of  $11.7  million  related  to the  rebuilding  of NL's
Leverkusen  plant.  During  the first  nine  months of 2001,  NL and CompX  each
purchased shares of their respective common stocks in market transactions for an
aggregate of $9.9 million and $2.6 million,  respectively,  and Valhi  purchased
shares of  Tremont  common  stock in market  transactions  for an  aggregate  of
$198,000.  In  addition,  (i) EMS loaned a net $20  million to one of the family
trusts discussed in Note 1 to the  Consolidated  Financial  Statements,  (ii) NL
received $10.5 million of insurance  recoveries for property damage and clean-up
costs associated with the Leverkusen fire and (iii) Valhi sold 390,000 shares of
Halliburton common stock in market  transactions for aggregate proceeds of $16.8
million.

During the first  nine  months of 2001,  (i) Valhi  repaid a net $1 million
under its  revolving  bank credit  facility and borrowed a net $16 million under
short-term  demand  loans from  Contran,  (ii) CompX  borrowed a net $10 million
under its  revolving  bank credit  facility  and (iii) NL repaid euro 24 million
($21.4  million  when  repaid) of its  short-term  non-U.S.  notes  payable.  In
addition,  (i) a  wholly-owned  subsidiary  of  Valhi  purchased  Waste  Control
Specialists'  bank term loan from the lender at par value,  (ii) $142.6  million
principal  amount at maturity  ($79.9 million  accreted  value) of Valhi's LYONs
debt obligation  were retired either through  exchanges or redemptions and (iii)
EMS entered into a $13.4 million reducing revolving intercompany credit facility
with  Tremont,  the  proceeds  of which were used to repay  Tremont's  loan from
Contran. See Notes 8 and 9 to the Consolidated Financial Statements.

At September  30, 2001,  unused  credit  available  under  existing  credit
facilities  approximated  $90.5  million,  which was  comprised  of $51  million
available  to CompX under its  revolving  senior  credit  facility,  $25 million
available to NL under non-U.S.  credit facilities and $14.5 million available to
Valhi under its revolving bank credit facility.

Chemicals - NL Industries

At September  30, 2001, NL had cash and cash  equivalents  of $190 million,
including  restricted  cash  balances  of $93  million,  and NL had $25  million
available for borrowing under its non-U.S. credit facilities.

Certain of NL's U.S.  and non-U.S.  tax returns are being  examined and tax
authorities have or may propose tax deficiencies,  including  non-income related
items and  interest.  NL has received tax  assessments  from the  Norwegian  tax
authorities  proposing tax deficiencies,  including interest,  of NOK 39 million
pertaining to 1994 and 1996. NL was unsuccessful in appealing these assessments,
and in June 2001 NL paid $4.3 million to the Norwegian tax authorities to settle
this  matter.  NL had  previously  adequately  reserved  for  the  payment.  The
previously-reported  lien  filed  on its  Norwegian  TiO2  plant in favor of the
Norwegian tax  authorities has been released.  NL has also received  preliminary
tax  assessments  for the years 1991 to 1998 from the  Belgian  tax  authorities
proposing tax deficiencies,  including related interest, of approximately BEF 14
million  ($12.5  million at September  30, 2001).  NL has filed  protests to the
assessments  for the years 1991 to 1997 and  expects to file a protest for 1998.
NL is in  discussions  with the  Belgian tax  authorities  and  believes  that a
significant  portion of the  assessments is without  merit.  No assurance can be
given  that  these tax  matters  will be  resolved  in NL's favor in view of the
inherent  uncertainties  involved in court proceedings.  NL believes that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

NL has been named as a defendant,  potentially  responsible party, or both,
in  a  number  of  legal  proceedings  associated  with  environmental  matters,
including waste disposal  sites,  mining  locations and facilities  currently or
previously owned, operated or used by NL, certain of which are on the U.S. EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
NL evaluates  the  potential  range of its  liability at sites where it has been
named as a PRP or  defendant,  including  sites for which EMS has  contractually
assumed NL's  obligation.  NL believes it has provided  adequate  accruals ($106
million at September 30, 2001) for reasonably  estimable  costs of such matters,
but NL's ultimate  liability  may be affected by a number of factors,  including
changes in  remedial  alternatives  and costs and the  allocation  of such costs
among PRPs. It is not possible to estimate the range of costs for certain sites.
The  upper  end of the range of  reasonably  possible  costs to NL for sites for
which it is possible to  estimate  costs is  approximately  $170  million.  NL's
estimates of such  liabilities  have not been  discounted to present value,  and
other than certain  previously-reported  settlements  with respect to certain of
NL's former insurance carriers,  NL has not recognized any insurance recoveries.
No assurance can be given that actual costs will not exceed  accrued  amounts or
the upper end of the range for sites for which  estimates have been made, and no
assurance  can be given that costs will not be incurred with respect to sites as
to which no estimate  presently  can be made. NL is also a defendant in a number
of legal  proceedings  seeking  damages for personal  injury and property damage
allegedly  arising  from  the  sale  of lead  pigments  and  lead-based  paints,
including  cases in which  plaintiffs  purport  to  represent  a class and cases
brought on behalf of government entities. NL has not accrued any amounts for the
pending lead pigment and lead-based paint litigation. There is no assurance that
NL will not incur future liability in respect of this pending litigation in view
of the inherent  uncertainties involved in court and jury rulings in pending and
possible  future cases.  However,  based on, among other things,  the results of
such  litigation  to  date,  NL  believes  that the  pending  lead  pigment  and
lead-based paint litigation is without merit. Liability that may result, if any,
cannot   reasonably  be  estimated.   In  addition,   various   legislation  and
administrative  regulations  have,  from time to time,  been enacted or proposed
that seek to impose various  obligations on present and former  manufacturers of
lead  pigment and  lead-based  paint with  respect to asserted  health  concerns
associated  with the use of such  products  and to  effectively  overturn  court
decisions  in which NL and other  pigment  manufacturers  have been  successful.
Examples of such  proposed  legislation  include  bills which would permit civil
liability  for  damages  on the basis of market  share,  rather  than  requiring
plaintiffs to prove that the defendant's  product caused the alleged damage, and
bills which would revive actions currently barred by statutes of limitations. NL
currently  believes the disposition of all claims and disputes,  individually or
in the aggregate,  should not have a material adverse effect on its consolidated
financial  position,  results  of  operations  or  liquidity.  There  can  be no
assurance that additional matters of these types will not arise in the future.

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

Component products - CompX International

Certain  of  CompX's  sales  generated  by  its  Canadian   operations  are
denominated in U.S. dollars.  CompX periodically uses currency forward contracts
to manage a portion  of its  foreign  exchange  rate risk  associated  with such
receivables or similar  exchange rate risk associated  with future sales.  CompX
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.  To manage such  exchange  rate
risk, at December 31, 2000, CompX held contracts  maturing through March 2001 to
exchange an  aggregate of U.S. $9 million for an  equivalent  amount of Canadian
dollars at an exchange rate of Cdn.  $1.48 per U.S.  dollar.  CompX held no such
contracts at September 30, 2001.

CompX periodically evaluates its liquidity  requirements,  alternative uses
of  capital,  capital  needs and  available  resources  in view of,  among other
things, its capital  expenditure  requirements,  capital resources and estimated
future operating cash flows. As a result of this process,  CompX has in the past
and may in the future seek to raise additional capital, refinance or restructure
indebtedness,   issue  additional   securities,   modify  its  dividend  policy,
repurchase  shares of its common  stock or take a  combination  of such steps or
other steps to manage its liquidity and capital resources.  In the normal course
of business,  CompX may review  opportunities  for  acquisitions,  divestitures,
joint  ventures  or  other  business  combinations  in  the  component  products
industry.  In the  event of any  such  transaction,  CompX  may  consider  using
available  cash,   issuing   additional  equity  securities  or  increasing  the
indebtedness of CompX or its subsidiaries.

Waste management - Waste Control Specialists

At September 30, 2001,  Waste Control  Specialists'  indebtedness  consists
principally of (i) a $4.9 million term loan due in installments through November
2004 and (ii) $8.2 million of other  borrowings  under an $11 million  revolving
credit  facility  that matures in 2004.  All of such  indebtedness  is owed to a
wholly-owned  subsidiary of Valhi, and is therefore  eliminated in the Company's
consolidated financial statements.

Tremont Corporation and Titanium Metals Corporation

Tremont.  Tremont is primarily a holding  company  which,  at September 30,
2001, owned approximately 39% of TIMET and 21% of NL. At September 30, 2001, the
market value of the 12.3 million  shares of TIMET and the 10.2 million shares of
NL held by Tremont was approximately $39 million and $153 million, respectively.

In February 2001,  Tremont entered into a $13.4 million reducing  revolving
credit  facility  with  EMS  (NL's   majority-owned   environmental   management
subsidiary),  and Tremont repaid its loan from Contran.  Such  intercompany loan
between EMS and Tremont  ($12.9  million  outstanding  at September  30,  2001),
collateralized  by 10 million  shares of NL common  stock owned by  Tremont,  is
eliminated in Valhi's consolidated financial statements.

Tremont has received a tax assessment from the U.S. federal tax authorities
proposing tax  deficiencies  of $8.3 million.  Tremont has appealed the proposed
deficiencies  and believes they are  substantially  without merit. No assurances
can be given that these tax matters will be resolved in Tremont's  favor in view
of the inherent uncertainties  involved in tax proceedings.  Tremont believes it
has provided  adequate accruals for additional taxes which may ultimately result
from all such examinations,  and believes that the ultimate  disposition of such
examinations  should  not have a  material  adverse  effect on its  consolidated
financial  position,  results of operations or liquidity.  Tremont  periodically
evaluates  the  net  carrying  value  of its  long-term  assets,  including  its
investment  in TIMET,  to  determine if there has been ay 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
September 30, 2001,  Tremont's net carrying value of its investment in TIMET was
$7.16 per share  compared to TIMET's NYSE stock price of $3.20 per share at that
date.  However,  TIMET's  stock  price has been less  than  Tremont's  per share
carrying value of its investment in TIMET for only a relatively  short period of
time.  In this regard,  TIMET's stock price was trading over $10 per share prior
to September 11, 2001.  Tremont believes NYSE stock prices,  particularly in the
case of  companies  such  as  TIMET  which  have a  major  shareholder,  are not
necessarily  indicative of a company's  enterprise value or the value that could
be realized  if the  company  were sold.  Tremont  will  continue to monitor and
evaluate  the value of its  investment  in TIMET based on,  among other  things,
TIMET's  results of  operations,  financial  condition,  liquidity  and business
outlook.  In the event Tremont determines any decline in value of its investment
in TIMET  below  its net  carrying  value  has  occurred  which  is  other  than
temporary, Tremont would report an appropriate write-down at that time.

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

TIMET.  At September  30, 2001,  TIMET had net cash of  approximately  $5.4
million ($10.0 million of debt and $15.4 million of cash and equivalents). TIMET
expects to generate  positive cash flow from  operations in 2001 in the range of
$80 million and $90 million,  principally  due to the Boeing  settlement and the
related $28.5 million  advance  payment  applicable to 2002 purchases that TIMET
expects to receive in December 2001. For U.S. federal income tax purposes, TIMET
has net operating loss  carryforwards of approximately  $47 million at September
30,  2001  (after   considering  the  effect  of  the  Boeing  settlement)  and,
accordingly,  TIMET does not expect the Boeing  settlement will require TIMET to
make any material cash income tax payments.

TIMET's capital expenditures during 2001 are currently expected to be about
$15 million,  covering principally capacity  enhancements,  capital maintenance,
and safety and environmental  projects.  TIMET believes its cash, cash flow from
operations, and borrowing availability under its credit agreements ($152 million
available for borrowing at September 30, 2001) will satisfy its expected working
capital, capital expenditures and other requirements over the next year.

During June 2001,  TIMET  resumed  payment of dividends on its  outstanding
$201.3  million  of  6.625%  convertible  preferred  securities,  which had been
suspended in April 2000.  TIMET also paid the aggregate amount of dividends that
have been previously  deferred on such convertible  preferred  securities ($13.9
million) in June 2001. Prior to September 2001, TIMET was prohibited from paying
dividends on its common stock due to  restrictions  contained in its U.S. credit
agreement.  In September 2001, such U.S. credit  agreement was amended to permit
TIMET to pay  dividends on its common stock in amounts up to an aggregate of $10
million per year, provided certain specified conditions were met.

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

In October 1998,  TIMET  purchased  for cash $80 million of Special  Metals
Corporation  6.625%  convertible  preferred  stock (the "SMC Preferred  Stock").
Dividends  on the SMC  Preferred  Stock  for the  period  October  1998  through
December 1999 were deferred by Special  Metals.  In April 2000,  Special  Metals
resumed  current  dividend  payments  of  $1.3  million  each  quarter,  however
dividends in arrears  were not repaid.  At September  30,  2001,  the  aggregate
accrued and unpaid  dividends  on the SMC  Preferred  Stock ($8.8  million)  was
classified by TIMET as a noncurrent  asset.  TIMET understands that about 30% of
Special Metal's sales are to the commercial  aerospace  industry,  and therefore
Special  Metal's  business may be adversely  impacted by the events of September
11, 2001.  In this regard,  in October  2001 Special  Metals again  deferred the
payment of dividends effective with the dividend due in October 2001.

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

General corporate - Valhi

Valhi's  operations are conducted  primarily  through its subsidiaries (NL,
CompX, Tremont and Waste Control  Specialists).  Accordingly,  Valhi's long-term
ability to meet its parent company level  corporate  obligations is dependent in
large  measure  on the  receipt of  dividends  or other  distributions  from its
subsidiaries.  NL increased its quarterly  dividend from $.035 per share to $.15
per share in the first quarter of 2000,  and NL further  increased its quarterly
dividend to $.20 per share in the fourth  quarter of 2000.  At the current  $.20
per share  quarterly rate, and based on the 30.1 million NL shares held by Valhi
at September 30, 2001, Valhi would receive aggregate annual dividends from NL of
approximately   $24.1  million.   Tremont  Group,   Inc.  owns  80%  of  Tremont
Corporation.  Tremont  Group is  owned  80% by  Valhi  and 20% by NL.  Tremont's
quarterly dividend is currently $.07 per share. At that rate, and based upon the
5.1 million Tremont shares owned by Tremont Group at September 30, 2001, Tremont
Group would receive  aggregate  annual  dividends from Tremont of  approximately
$1.4 million.  Tremont Group intends to  pass-through  the dividends it receives
from Tremont to its shareholders  (Valhi and NL). Based on Valhi's 80% ownership
of Tremont  Group,  Valhi would  receive $1.2 million in annual  dividends  from
Tremont Group as a pass-through of Tremont Group's dividends from Tremont. CompX
commenced  quarterly dividends of $.125 per share in the fourth quarter of 1999.
At this current  rate and based on the 10.4  million  CompX shares held by Valhi
and its wholly-owned subsidiary Valcor at September 30, 2001, Valhi/Valcor would
receive annual dividends from CompX of $5.2 million.  Various credit  agreements
to which  certain  subsidiaries  or  affiliates  are parties  contain  customary
limitations on the payment of dividends, typically a percentage of net income or
cash flow;  however,  such restrictions 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 September 30,
2001, Valhi had $4.2 million of parent level cash and cash equivalents,  had $30
million of outstanding  borrowings under its revolving bank credit agreement and
had $24.3  million of short-term  demand loans payable to Contran.  In addition,
Valhi had $14.5 million of borrowing availability under its bank credit facility
and 515,000 shares of Halliburton common stock with an aggregate market value of
$11.6 million which have been released from the LYONs escrow and could therefore
be sold. In November 2001, the maturity date of Valhi's bank credit facility was
extended one year to November  2002,  and the size of the facility was increased
$10 million to $55 million.

Valhi's LYONs do not require  current cash debt service.  See Note 8 to the
Consolidated  Financial  Statements.  Exchanges of LYONs for  Halliburton  stock
result  in the  Company  reporting  income  related  to the  disposition  of the
Halliburton stock for both financial reporting and income tax purposes, although
no cash proceeds are generated by such exchanges.  Valhi's potential cash income
tax liability  that would have been  triggered at September  30, 2001,  assuming
exchanges of all of the outstanding  LYONs for  Halliburton  stock at such date,
was approximately $7 million.

At  September  30,  2001,  the LYONs had an accreted  value  equivalent  to
approximately  $40.10  per  Halliburton  share,  and  the  market  price  of the
Halliburton  common  stock was  $22.55 per share.  The  LYONs,  which  mature in
October  2007,  are  redeemable at the option of the LYON holder in October 2002
for an amount equal to $636.27 per $1,000  principal  amount at  maturity.  Such
October 2002 redemption price is equivalent to about $44 per Halliburton  share.
Assuming the market value of Halliburton  common stock equals or exceeds $44 per
share in October 2002, the Company does not expect a significant amount of LYONs
would be tendered to the Company for  redemption at that date. To the extent the
Company was required to redeem the LYONs in October 2002 for cash and the market
price of Halliburton was less than $44 per share,  the Company would likely sell
the Halliburton shares underlying the LYONs tendered in order to raise a portion
of the cash  redemption  price due to the LYON holder,  and the Company would be
required to use other resources to makeup the shortfall due to the LYONs holder.

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

Based on The Amalgamated Sugar Company LLC's current  projections for 2001,
Valhi currently  expects that  distributions  received from the LLC in 2001 will
approximate  its debt service  requirements  under its $250  million  loans from
Snake River.

Certain covenants  contained in Snake River's third-party senior debt allow
Snake River to pay periodic installments of debt service payments (principal and
interest) under Valhi's $80 million loan to Snake River prior to its maturity in
2010, and such loan is  subordinated to Snake River's  third-party  senior debt.
Such covenants allowed Snake River to pay interest debt service payment to Valhi
on the $80  million  loan of $2.9  million  in 1998,  $7.2  million  in 1999 and
$950,000 in 2000. At September 30, 2001, the accrued and unpaid  interest on the
$80 million  loan to Snake River  aggregated  $21.4  million.  Such  accrued and
unpaid  interest is classified as a noncurrent  asset at September 30, 2001. The
Company  currently  believes  it will  ultimately  realize  both the $80 million
principal  amount and the  accrued and unpaid  interest,  whether  through  cash
generated  from the future  operations  of Snake River and the LLC or  otherwise
(including any liquidation of Snake River/LLC).

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

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

The  Company  and  related  entities  routinely  evaluate  acquisitions  of
interests in, or combinations  with,  companies,  including  related  companies,
perceived by management to be undervalued in the  marketplace.  These  companies
may or may  not be  engaged  in  businesses  related  to the  Company's  current
businesses.  The Company intends to consider such acquisition  activities in the
future and, in connection with this activity,  may consider  issuing  additional
equity   securities  and  increasing  the  indebtedness  of  the  Company,   its
subsidiaries and related  companies.  From time to time, the Company and related
entities  also evaluate the  restructuring  of ownership  interests  among their
respective  subsidiaries and related  companies.  In this regard, the indentures
governing  the  publicly-traded  debt of NL contain  provisions  which limit the
ability of NL and its  subsidiaries  to incur  additional  indebtedness  or hold
noncontrolling interests in business units.

Part II. OTHER INFORMATION

Item 1.  Legal Proceedings.

Reference is made to the 2000 Annual Report and prior 2001 periodic reports
for descriptions of certain legal proceedings.

Jefferson  County School  District v. Lead Industries  Association,  et al.
(No.  2001-69).  In July  2001,  plaintiff  filed a motion to remand the case to
state court.

County of Santa Clara v. Atlantic Richfield Company, et al. (No. CV788657).
In September 2001, the trial judge dismissed  without leave to amend plaintiffs'
nuisance claim and their product  liabilities claims for properties not owned by
plaintiffs.

Sabater, et al. v. Lead Industries  Association,  et al. (No. 25533/98). In
September  2001,  the Federal  Court  dismissed  the Federal Home Loan  Mortgage
Corporation and remanded the case to state court.

City of Milwaukee v. NL Industries,  Inc. and Mautz Paint (No. 01CV003066).
In October  2001,  the trial court  denied  NL's  motion to dismiss  plaintiff's
conspiracy claim for lack of particularity.

Brenner, et al. v. American Cyanamid,  et al. (No.  12596-93).  In November
2001, the Fourth Department  intermediate  appellate court unanimously  affirmed
the dismissal of plaintiff's complaint by the trial court.

Since NL filed its Annual  Report on Form 10-K for the year ended  December
31,  2000,  NL has been  named  as a  defendant  in  asbestos  cases in  various
jurisdictions  on behalf  of  approximately  2,000  additional  personal  injury
claimants.

Item 6. Exhibits and Reports on Form 8-K.

(a)    Exhibits

None.

(b)    Reports on Form 8-K

Reports on Form 8-K for the quarter ended September 30, 2001.

None.

SIGNATURES

Pursuant  to the  requirements  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)

Date   November 12, 2001         By /s/ Bobby D. O'Brien          
---------------------          ------------------------------
Bobby D. O'Brien
(Vice President and Treasurer,
Principal Financial Officer)

Date   November 12, 2001         By /s/ Gregory M. Swalwell       
--------------------           ------------------------------
Gregory M. Swalwell
(Vice President and Controller,
Principal Accounting Officer)