1

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

{ X }  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] - FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993

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:           (214) 233-1700  

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS                                   WHICH REGISTERED    
-------------------                               ------------------------

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

None.

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K.  { X }

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.  YES  X   NO
-----   -----

AS OF FEBRUARY 28, 1994, 114,973,814 SHARES OF COMMON STOCK WERE OUTSTANDING.
THE AGGREGATE MARKET VALUE OF THE 10.8 MILLION SHARES OF VOTING STOCK HELD BY
NONAFFILIATES OF VALHI, INC. AS OF SUCH DATE APPROXIMATED $65 MILLION.

DOCUMENTS INCORPORATED BY REFERENCE

THE INFORMATION REQUIRED BY PART III IS INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE COMMISSION
PURSUANT TO REGULATION 14A NOT LATER THAN 120 DAYS AFTER THE END OF THE FISCAL
YEAR COVERED BY THIS REPORT.

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PART I

ITEM 1.   BUSINESS

GENERAL:

Valhi, Inc., based in Dallas, Texas, is a diversified industrial
management company.  Information regarding Valhi's consolidated business
segments and unconsolidated affiliates which Valhi may be deemed to control,
and the companies conducting such operations, is set forth below.  Business and
geographic segment financial information is included in Note 2 to the Company's
Consolidated Financial Statements, which information is incorporated herein by
reference.

CONSOLIDATED OPERATIONS (100%-OWNED)

Refined Sugar                                         Amalgamated is the second-largest U.S. refiner and
The Amalgamated Sugar Company                       processor of sugarbeets, with annual production of
approximately 1 1/2 billion pounds of sugar.

Forest Products                                       Medite is the world's second-largest producer of medium
Medite Corporation                                  density fiberboard ("MDF"), an environmentally efficient
engineered wood product serving as an effective
alternative to products traditionally produced from the
declining supply of timber from environmentally
sensitive forests.  Medite also owns 167,000 acres of
timberland in Oregon.

Fast Food                                             Sybra is the second-largest franchisee of Arby's
Sybra, Inc.                                         restaurants with approximately 160 restaurants clustered
in four regions.

Hardware Products                                     National Cabinet Lock manufactures low and medium
National Cabinet Lock, Inc.                         security locks, computer keyboard support arms and
drawer slides for furniture and other markets.

UNCONSOLIDATED AFFILIATES

Chemicals                                             NL is the world's fourth-largest producer of titanium
NL Industries, Inc.                                 dioxide pigments, which are used in paints, plastics,
(49%-owned by Valhi)                               paper, fibers and other "quality-of-life" products, and
is also a producer of rheological additives.

Titanium Metals                                       Titanium Metals Corporation, a 75%-owned Tremont
Tremont Corporation                                 subsidiary, is the largest integrated U.S. producer of titanium 
(48%-owned by Valhi)                               metal products for aerospace and industrial markets.  Tremont
also holds 18% of NL's outstanding common stock.

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Valhi, a Delaware corporation, is the successor of the 1987 merger of
The Amalgamated Sugar Company and LLC Corporation.  Contran Corporation holds,
directly or through subsidiaries, approximately 90% of Valhi's outstanding
common stock.  All of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is the sole trustee.  Mr. Simmons is Chairman of
the Board and Chief Executive Officer of Contran, Valhi and Valcor, Chairman of
the Board of NL and a director of Tremont, and may be deemed to control each of
such companies.

A summary corporate organization chart for the Company is set forth
below.  Valcor, Inc. is an intermediate parent company formed in 1993 to
segregate certain subsidiaries and enable the Company to obtain lower-cost,
long-term debt.

{Summary corporate organization chart showing Valhi's 100% ownership of Valcor
and Amalgamated, Valcor's 100% ownership of Medite, Sybra and National Cabinet
Lock, Medite's 100% ownership of Medite of Europe (Ireland) and National
Cabinet Lock's 100% ownership of Waterloo Furniture Components (Canada).  Chart
also shows Valhi's ownership of NL (49%) and Tremont (48%) along with Tremont's
18% ownership of NL.  Footnote to the chart discloses Valhi's 3% ownership of
Dresser Industries, Inc. common stock.}

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REFINED SUGAR:

Products and operations.  Amalgamated, headquartered in Ogden, Utah,
is the second-largest U.S. beet sugar producer with approximately 10% of United
States annual sugar production.  Refined sugar accounts for approximately 90%
of Amalgamated's annual sales.  Animal feed in the forms of beet pulp and
molasses, by-products of sugarbeet processing, accounts for most of its
remaining sales.  Each spring, Amalgamated contracts with approximately 1,700
individual farmers to plant a specified number of acres of sugarbeets and to
deliver the sugarbeets to Amalgamated upon harvest in the fall.  Amalgamated's
sugarbeet processing, which consists of extracting sugar from the sugarbeets
and refining the sugar, begins upon harvest and usually lasts until February.
Approximately one-fourth of the sugarbeet crop is initially processed into a
thick syrup, which is stored in Amalgamated's facilities and subsequently
processed into refined sugar.  Refined sugar is sold throughout the year while
by-products are sold primarily in the first and fourth calendar quarters.
Amalgamated's profitability is determined primarily by the quantity and quality
of the sugarbeets processed, Amalgamated's efficiency in extracting and
refining sugar, and the sales price of refined sugar.

Amalgamated's four factories operate at approximately full capacity
during the annual sugarbeet processing campaigns, and sugar production from the
past five crops has averaged over 1.4 billion pounds per year.  Due principally
to record-high sugar content of the beets, sugar production from the crop
harvested in the fall of 1993 is expected to establish a new record for the
fourth consecutive year.  The price paid to growers for sugarbeets is a
function of Amalgamated's average sales price for refined sugar during the
contract settlement year, which runs from October through September, and of the
sugar content of the sugarbeets.

The cost of transporting sugarbeets to Amalgamated's factories
generally limits the geographic area from which sugarbeets are purchased.  The
anticipated price of sugar and the price of competing crops influence the
number of acres of sugarbeets planted.  The available sugarbeet acreage in
Amalgamated's geographic area of operations exceeds Amalgamated's processing
capacity.

Amalgamated sells sugar primarily in the North Central and
Intermountain Northwest regions of the United States.  Approximately 80% of
sugar sales are to industrial sugar users and approximately 20% are to
wholesalers or retailers in consumer-sized packages.  As is customary in the
sugar industry, Amalgamated sells sugar to its customers under contract for
future delivery, generally within one to six months.  Amalgamated does not
otherwise engage in the purchase or sale of sugar futures contracts.

Beet pulp and molasses, by-products of the sugar extraction process,
constitute approximately 10% of Amalgamated's sales and are sold primarily to
animal feeders in the U.S. Intermountain Northwest region and Japan.  The
quantity of by-products available for sale is determined principally by the
size of the sugarbeet crop.  By-product sales prices are influenced by the
prices of competing animal feeds and have no direct relation to refined sugar
prices.

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Strategy.  Amalgamated's primary strategic focus is to improve its
efficiency in extracting and refining sugar in order to increase sugar
production, to reduce unit production costs and to maintain market share. 
Amalgamated's recent capital investments, and those planned for the next
several years, have emphasized extraction and other productivity improvement
projects.

Competitors and competition.  Sugar production in the United States
has increased slightly in recent years, and the U.S. sugar industry currently
produces over 80% of the country's sugar needs from domestically-grown
sugarbeets and sugarcane.  The remainder of the country's sugar supply is
imported, principally as raw sugar that is processed into refined sugar by
coastal refiners.  There is no difference between domestically-produced sugar,
either from sugarbeets or sugarcane, and that produced from imported raw sugar.
Amalgamated competes with virtually all processors of either domestically-grown
sugar crops or imported raw sugar.  Major competitors in Amalgamated's
geographic sales area include the C&H, Domino, Imperial Holly, Savannah Foods,
Spreckels, United Sugar and Western sugar companies.  Because refined sugar is
a commodity product, Amalgamated has little ability to independently establish
selling prices.

Total domestic sugar consumption has increased slightly during the
past few years after declining during the early 1980's as a result of increased
consumption of high fructose corn syrup and non-caloric sweeteners such as
aspartame.  According to published sources, the percentage of total United
States caloric sweetener use attributable to refined sugar has averaged about
45% during the last five years and per capita consumption of refined sugar in
1993 is estimated at 65 pounds, as compared to actual consumption of 64.5
pounds in 1990, 63.4 pounds in 1985 and 83.6 pounds in 1980.

Amalgamated does not believe it is dependent upon one or a few
customers; however, major food processors are substantial customers and
represent an important portion of sales.  Amalgamated's ten largest customers
accounted for slightly more than one-third of its sales in each of the past
three years, with the largest customer accounting for 5% to 8% of sales in each
year.

Governmental sugar price support program.  The Food, Agriculture,
Conservation and Trade Act of 1990 (the "1990 Farm Bill"), as amended by the
Omnibus Budget Reconciliation Act of 1993, continues, through the 1997 crop
year ending in September 1998, the sugar price support program for
domestically-grown sugarcane and sugarbeets established by the Agriculture and
Food Act of 1981.  Under such program, Amalgamated is able to obtain, from the
federal government, nonrecourse loans on its refined sugar inventories at loan
rates based upon a raw sugar support price of no less than 18 cents per pound. 
The effective net government loan rate applicable to Amalgamated's 1993 crop
sugar is 20.75 cents per pound.  The 1990 Farm Bill also implemented marketing
assessments on domestically-produced refined beet sugar and
domestically-produced raw cane sugar.  The marketing assessment cost is shared
by the processors and the growers, and results in a net cost to Amalgamated of
about 0.077 cents per pound, or approximately $1 million per year.

The 1990 Farm Bill continues the provision that the sugar price
support loan program is to be operated at no cost to the federal government,
which requires the government to take actions to maintain the market prices of
raw and refined sugar above the price support loan levels in order to prevent
defaults on the

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nonrecourse loans extended under the program.  Currently, the government
imposes quotas and duties on imported sugar to restrict supply and to help
maintain domestic market prices.  The 1990 Farm Bill guarantees a minimum
annual import quota of 1.25 million short tons (1.1 million metric tons) of raw
sugar.  In addition, the United States Department of Agriculture can impose
marketing allotments on domestic sugarcane and sugarbeet processors to limit
the amount of raw and refined sugar which each domestic processor may market.
For the first time in over 20 years, marketing allotments were imposed
effective June 30, 1993 for the crop year ended September 30, 1993.
Amalgamated's allotment equated to approximately 95% of its production from
that crop.  See also Item 7 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Research and development.  Amalgamated maintains research and
development programs emphasizing processing technology and its annual research
and development expense has been slightly under $600,000 in each of the past
three years.  Amalgamated has developed various proprietary technologies
related to sugar processing and employs these process improvements to reduce
its operating costs.  Some of these techniques apply to fructose and cane
refinery operations as well as sugarbeet operations.

Amalgamated presently holds nine domestic patents on certain of its
proprietary technology, which patents have an average remaining term of
approximately four years.  The loss of any of such patents would not have a
material adverse effect on Amalgamated.

Employees.  Amalgamated employs approximately 2,200 persons at the
height of the production season, of which approximately 1,400 are year-round
employees.  Amalgamated's three-year labor agreement with the American
Federation of Grain Millers, which represents production employees through
local unions, expires July 1996.  Amalgamated believes its labor relations are
satisfactory.

Energy.  Amalgamated's primary fuel is coal, but it can utilize other
fuels.  The supply of coal is provided under a long-term contract expiring
February 1998, subject to extension at Amalgamated's option for three five-year
periods.  Energy is an important element in the processing of sugarbeets, and
the use of coal has historically resulted in lower production costs than if
oil, natural gas or electricity were Amalgamated's primary energy source.

Properties.  Amalgamated owns four sugar processing factories, located
in Paul, Twin Falls and Nampa, Idaho and Nyssa, Oregon, and also owns its
general office facilities in Ogden, Utah, four distribution terminals in four
states, and six storage facilities in two states.

Environmental matters.  Amalgamated believes that it is currently in
substantial compliance with existing permits relating to its facilities;
however, federal and state environmental compliance requirements are becoming
more stringent in certain respects and are expected to result in expenditures
in excess of the relatively nominal amounts spent in recent years.
Amalgamated's capital budget for 1994 includes over $5 million in the area of
environmental protection and improvement, principally related to air and water
treatment facilities at certain of its factories.

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FOREST PRODUCTS:

Products, operations and properties.  Medite, headquartered in
Medford, Oregon, produces MDF (an engineered wood product) at three plants in
the United States and Republic or Ireland.  Medite owns 167,000 acres of
timberland in Oregon and also produces solid wood products, including logs,
lumber, veneer and wood chips.  MDF is a reconstituted wood panel product that
serves as a lower-cost alternative to solid wood in a variety of applications,
including furniture, cabinetry and joinery and architectural applications.
Lumber is used in residential and commercial construction, veneer is used in
the production of plywood and laminated veneer lumber ("LVL"), and wood chips
are a basic raw material for the paper and MDF industries.  Certain sizes and
species of logs harvested by Medite that are not used in its manufacturing
operations are sold to other mills in Southern Oregon.

Medite, with annual MDF production capacity of 490,000 cubic meters,
is the world's second-largest producer of MDF.  Medite's MDF production was
about 95% of its aggregate capacity in each of 1993 and 1992, up from about 90%
in 1991.  Medite has commenced an expansion of its Irish MDF production
facilities which will increase its Irish production capacity by about 75% and
its worldwide capacity by about 25%.

Medite sells MDF principally under the trademarks of Medite and Medex.
Development of new products focused on meeting customer needs has expanded the
Company's MDF product line to include the following items:

PRODUCT                   APPLICATION
- -------                   -----------

Medite                    Basic MDF panel product

Medex                     Moisture resistant - exterior grade

Medite 313                Moisture resistant - interior grade

Medite FR                 Class 1 fire retardant panel product

Medite II                 Formaldehyde free - sensitive interior applications

The Company believes Medite is the world's best known trademark for
MDF, that Medex is the world's only current exterior grade MDF, and that Medite
is the leading producer of Class 1 flame retardant MDF.  Medex is designed
primarily for outdoor applications that take a heavy environmental toll on
standard wood products; Medite 313 is designed for use in high-humidity
interior environments such as kitchens; Medite FR was developed specifically
for use where a Class 1 flame retardant board is required under building
regulations; and Medite II is used in areas with zero formaldehyde tolerance,
such as hospitals and schools.  Medite owns and operates MDF plants in Medford,
Oregon and Las Vegas, New Mexico; its MDF plant in Clonmel, Republic of
Ireland, is owned and operated by Medite of Europe Limited, a wholly-owned
subsidiary of Medite.

Medite's access to adequate and reliable wood fiber raw material
supplies is a key aspect of its MDF operations.  Medite/Europe has a long-term
timber contract with the Irish State Forestry Company that provides for
sufficient logs to supply the wood fiber needs of the Clonmel MDF plant,
although Medite/Europe

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also currently utilizes lower-cost sawmill residues from local Irish suppliers
for a portion of its fiber requirements.  Wood chips, shavings and sawdust used
as raw materials in the Oregon MDF plant have been provided principally by
Medite's solid wood plants but are also generally available from other sources.
Wood chips for the New Mexico MDF plant have historically been available from
several sources within a 150-mile radius of the plant, although, due to
decreased production by certain suppliers, Medite has continued to expand its
supplier base to encompass a wider area.  Other raw materials for MDF,
principally resins and glues, are available from a variety of suppliers.

Medite conducts substantial logging operations and owns approximately
167,000 acres of timberland, including 77,000 acres added since Medite was
acquired by Valhi in 1984.  Medite's timberlands contain approximately 645
million board feet ("MMBF") of generally second-growth merchantable timber,
with the dominant species being Douglas Fir.  The average annual timber growth
rate is approximately 4%.  Medite's timber holdings are within close proximity
to its Oregon production facilities and are in relatively accessible terrain.
Based on reported U.S.  Government sales of comparable timber, the Company
believes that Medite's timber and timberlands have a fair market value
substantially in excess of their December 31, 1993 carrying value of $52
million.

In June 1992, a fire destroyed Medite's veneer and chipping plant in
Rogue River, Oregon.  Replacement chipping operations resumed in July 1993 and
replacement veneer operations resumed in January 1994.  The new Rogue River
facilities are designed to process the smaller second-growth timber expected to
be available from company-owned timberlands on a longer-term basis.  Veneer
from this plant will serve the LVL industry as well as traditional plywood
customers.  Medite also owns and operates a stud lumber mill in White City,
Oregon, which primarily produces 2x4 studs.  As a result of the closure of its
plywood operations in January 1993, Medite has a 105 acre site in Medford,
Oregon which is held for sale.

Strategy.  Medite's primary strategic focus is to continue expansion
in the growing market for MDF with particular emphasis on higher margin
specialty products and to increase its presence in Europe and Mexico.  Expanded
MDF production capabilities will generally be directed to those regions
providing attractive long-term availability of wood fiber.  As discussed above,
Medite has commenced an expansion of its Irish MDF plant.  Medite also is
placing emphasis on greater penetration of the growing market for MDF in
Mexico, which readily can be served by Medite's plant in Las Vegas, New Mexico.
In the U.S., where Medite anticipates further escalation of the cost of
traditional sources of wood fiber, Medite is introducing alternative sources
such as hardwoods and recycled wood products.

Medite actively manages its fee timberlands in Oregon, which are a
valuable resource as the shortage of Pacific Northwest public timber available
for harvest is expected to continue for the foreseeable future.  In this
regard, Medite has adjusted its solid wood manufacturing operations to more
closely parallel the timber available from company-owned lands on a longer-term
basis, has increased its emphasis on the sale of logs, closed marginal
manufacturing operations and has adopted a more sustained yield approach to
harvesting timber from company-owned lands.

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Distribution and sale of products.  MDF produced in Ireland by
Medite/Europe is sold primarily to wholesalers and distributors of building
products in European Union ("EU") countries, with the largest market being the
United Kingdom.  U.S.-produced products are sold primarily to wholesalers of
building materials and are concentrated primarily in western states, with U.S.
exports principally to Pacific Rim countries and Mexico.  Logs are sold
primarily to other Oregon mills.  Medite's operations are not dependent upon
one or a few customers, the loss of which would have a material adverse effect
on this business segment.  Medite's ten largest customers accounted for about
one-fourth of its sales in each of the past three years.  In 1993, the ten
largest customers included eight companies in the U.S., one in Europe and one
in the Far East.  Five of the ten largest customers in 1993 were primarily MDF
customers.  Logging operations are seasonal due to inclement weather conditions
during winter and spring months, however the production and sale of products is
not particularly seasonal in nature.

Markets for engineered wood products such as MDF are broader, more
varied and less cyclical than those for traditional solid wood forest products.
Sales of traditional forest products in the U.S. are largely dependent upon the
strength of the housing industry, which historically has been cyclical in
nature.

Competition.  The forest products industry is highly competitive, with
price being a principal competitive factor.  Transportation costs are also
significant and generally limit the geographic market in which products are
sold.

Medite's MDF operations compete in the U.S. principally with a number
of producers of MDF and other composite board products, and in the Pacific Rim
with Australian, New Zealand and other U.S. manufacturers.  Principal MDF
competitors in the U.S. include Plum Creek, Sierra Pine, Louisiana Pacific
Corp. and Wilamette Industries.  In Europe, Medite competes principally with
other EU producers, including the world's largest MDF producer, the Glunz
Group.  The cost of shipping products is significant and Medite may operate at
a competitive disadvantage to certain other producers who are located closer to
certain key Northern European markets.  In addition, some of Medite's
competitors may possess greater financial resources, including in some cases
the financial support of the governments of the countries in which such
competitors are located.  Due to periodic declines in the value of the U.S.
dollar relative to other currencies, Medite's Irish operations have also
experienced periodic increases in competition from U.S. producers.

According to industry sources, demand for MDF has increased at an
average annual rate of about 15% over the last five years, with estimated
worldwide consumption in 1993 double that of 1988.  Medite believes demand will
continue to grow at slightly lower rates in the foreseeable future and that
demand for specialty MDF products will grow at a faster rate than for standard
MDF products.  Medite continues to emphasize marketing of its higher margin
specialty MDF products, which accounted for approximately 20% of Medite's MDF
sales dollars in 1993.

Medite's solid wood operations compete primarily with numerous other
producers in the Pacific Northwest.  The Pacific Northwest forest products
industry experiences competition from Canadian imports and, to a lesser extent,
from producers in southern states.

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Environmental matters.  Medite conducts an extensive forest management
program with respect to company-owned timberlands, including selective harvest,
reforestation and fertilization activities.  Medite believes that its
operations are in substantial compliance with existing permits relating to its
facilities and does not anticipate spending significant amounts for
facilities-related environmental matters in the near future.

Trademarks and patents.  Patents held for MDF products and production
processes are believed to be important to Medite's MDF business activities. The
Company's major MDF trademarks, Medite and Medex, are protected by registration
in the United States and certain other countries with respect to the
manufacture and sale of its products.  Medite also has a non-exclusive
world-wide license relating to application of resins in the manufacture of
Medex.

Employees.  As of December 31, 1993, Medite employed approximately 670
persons, including 490 in the U.S. and 180 in Europe.  Approximately one-fourth
of U.S. employees and two-thirds of non-U.S. employees are represented by
various labor unions.  Employees of Medite's Oregon MDF plant are covered by a
five-year collective bargaining agreement through September 1997, and
employees at the Rogue River facility are covered under a three-year agreement
through May 1996.  Employees of Medite's Irish plant are covered by a
collective bargaining agreement through March 1994.  Negotiations are underway
for a new three-year agreement and Medite believes it will be able to enter
into a satisfactory new labor agreement with the union at the Irish plant.
Medite believes that its labor relations are satisfactory.

Governmental regulation.  Medite's timber operations are subject to a
variety of Oregon and, in some cases, federal laws and regulations dealing with
timber harvesting, reforestation, endangered species, and air and water
quality.  These regulations generally require Medite to obtain operating
permits and, in some cases, to file timber harvesting plans that must be
approved by the Oregon Department of Forestry prior to the harvesting of
timber.  Medite does not expect that compliance with such existing laws and
regulations will have a material adverse effect on Medite's timber harvesting
practices.  The U.S. Fish and Wildlife Service has designated the Northern
Spotted Owl as a threatened species under the Endangered Species Act ("ESA").
Generally, habitat for Northern Spotted Owls is found in old-growth timber
stands, compared to Medite's generally second-growth timber.  Consequently,
Medite believes the designation of the Northern Spotted Owl under the ESA will
not have a material adverse effect on its timber harvesting practices.  There
can be no assurance, however, that future legislation, governmental regulations
or judicial or administrative decisions will not adversely affect Medite or its
ability to harvest and sell logs or timber in the manner currently
contemplated.

The Federal Timber Contract Payment Modification Act of 1986 contains
certain restrictions on the volume of timber that may be offered for sale
pursuant to government contracts, and the volume of timber being offered for
competitive bidding in Medite's area of operations has been significantly
limited due to current government forest management plans, including the effect
of court-imposed restrictions resulting from application of the ESA and
litigation initiated by environmental groups.

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Risk of loss from fire or other casualties.  Medite assumes
substantially all risks of loss from fire and other casualties on its
timberlands, as do the owners of most other timber tracts in the United States.
Medite is a participant with state agencies and other timberland owners in
cooperative fire fighting and aerial fire surveillance programs.  The extensive
roads on Medite's acreage also serve as fire breaks and facilitate
implementation of fire control techniques and utilization of fire fighting
equipment.  Medite's various timber tracts are also somewhat geographically
dispersed, which also reduces the possibility of significant fire damage.  The
only forest fire on Medite's timberlands of any significance during the past
five years occurred in July 1992 and resulted in damage to approximately 1,200
acres, which were salvaged with minimal loss.  Consistent with the past
practices of Medite and the owners of most other timber tracts in the United
States, Medite does not intend to maintain  fire insurance in respect of
standing timber.

FAST FOOD:

Products and operations.  Sybra, based in Atlanta, Georgia, operates
approximately 160 Arby's restaurants clustered in four regions pursuant to
licenses with Arby's, Inc.  According to information provided by Arby's, Sybra
is the second-largest franchisee in the Arby's restaurant system based upon the
number of restaurants operated and gross sales.  Arby's is a well-established
fast food restaurant chain and features a menu that highlights roast beef
sandwiches along with a variety of chicken and deli sandwiches, potato products
and soft drinks.  Arby's represents a niche segment of the fast food restaurant
industry.  Arby's recent national advertising campaign slogans include "Arby's
is Different(C)" and "Different is Good(C)".  New product development is
important to the continued success of a restaurant system, and Sybra has
introduced several new menu items in recent years including chicken, submarine
and alternative roast beef sandwiches, curly fried potatoes and ice cream
desserts.  Total sandwich category items accounted for over 60% of Sybra's
total sales during the past few years, and roast beef sandwiches currently
account for approximately two-thirds of Sybra's sandwich sales.

During the past three years, substantially all of the new restaurants
opened were free-standing stores as will be all of the new stores planned for
1994.  Sybra also continuously evaluates its individual stores and closes
unprofitable stores when considered appropriate.

Sybra's 160 Arby's restaurants at the end of 1993 represent a net
increase of 101 stores from the 59 Arby's restaurants Sybra operated when it
was acquired in 1979 by a predecessor of Valhi.  Sybra has also remodeled over
40 stores during the past five years.  Sybra currently expects a net increase
in restaurants operated of two to five stores in 1994, as it plans to open six
to ten new restaurants within its existing regions and to close four or five
stores.  The first new restaurant in 1994 opened in late February, and four
existing stores were closed in January.

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Strategy.  Given the extremely competitive environment in which Sybra
operates, Sybra will (i) continue its strong emphasis on operational details;
(ii) routinely review the profit contribution of each restaurant with a view
toward closing those stores which do not meet expectations; and, (iii) continue
to follow its "clustering" concept in opening new stores in order to capitalize
on the economies of scale realized in management and advertising as a result of
geographic proximity.  Sybra's exclusive Arby's development rights in the
Dallas/Ft.  Worth, Texas and Tampa, Florida areas, discussed below, provide
future growth opportunities consistent with Sybra's store clustering concept.
New stores are likely to be free-standing restaurants of Sybra's smaller
design, which the Company has found generally to yield a greater rate of
return.  Sybra also plans to continue to increase market share in the fast food
industry in its geographic markets through periodic promotions including the
introduction of innovative menu items to complement its main product offerings.

Properties.  The following table summarizes by region the number of
Arby's restaurants  operated by Sybra at the end of the last three years.

DECEMBER 31,   
------------------------
1991      1992      1993
----      ----      ----

Southwestern Region - Texas                                                          57        58        56
Northern Region:
Michigan                                                                           49        49        49
Illinois/Wisconsin                                                                  3         3         3
Eastern Region:
Pennsylvania                                                                       22        22        23
Maryland/Virginia                                                                  10         9         9
Southeastern Region - Florida                                                        17        19        20
---       ---       ---

158       160       160
===       ===       ===

Of the 160 stores operated at the end of 1993, 115 were free-standing
stores and the remaining 45 are located within regional shopping malls or strip
shopping centers.  Sybra leases 116 locations and owns the remainder.  Lease
terms vary with most leases being on a long-term basis and providing for
contingent rents based on sales in addition to base monthly rents.  At the end
of 1993, the remaining term of individual store leases averaged six years and
ranged up to 16 years. Approximately 90% of the leases of free-standing
locations contain purchase and/or various renewal options at fair market
values.  Approximately 90% of the mall locations operate under leases which
expire in the next five years and do not provide for renewal options.  In most
cases, Sybra expects that in the normal course of business leases can be
renewed or replaced by other leases. The four stores closed in January 1994
were leased mall units.  Contingent rentals based upon various percentages of
gross sales of individual restaurants were less than 10% of Sybra's total rent
expense in each of the past three years.  Sybra also leases corporate and
regional office space in five states.

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13
Sybra has a Consolidated Development Agreement ("CDA") with Arby's,
Inc., which replaced several prior Area Development Agreements.  Under the CDA,
Sybra has exclusive development rights within certain counties in the
Dallas/Fort Worth and Tampa areas and is required to open an aggregate of 31
stores in its existing markets during the five year term (1993 - 1997) of the
CDA.  At December 31, 1993, Sybra had opened three stores pursuant to the CDA.
Sybra currently anticipates that its expansion program will enable it to retain
its exclusive Dallas/Ft.  Worth and Tampa development rights over the term of
the CDA.  Sybra does not have any other territorial or development agreements
which would prohibit others from operating an Arby's restaurant in the general
geographic markets in which Sybra now operates.

Food products and supplies.  Sybra and other Arby's franchisees are
members of ARCOP, Inc., a non-profit cooperative purchasing organization.
ARCOP facilitates negotiations of national contracts for food and distribution,
taking advantage of the larger purchasing requirements of the member
franchisees.  Since Arby's franchisees are not required to purchase any food
products or supplies from Arby's, Inc., ARCOP facilitates control over food and
supplies costs and avoids franchisor conflicts of interest.

License terms and royalty fees.  The 27-year relationship between
Sybra and Arby's, Inc. is governed principally by licenses relating to each
restaurant location.  Generally, such franchise agreements require that Sybra
comply with certain requirements as to business operations and facility
maintenance.  Currently, Sybra pays an initial franchise fee of $25,000 and a
royalty rate of 4% of sales for a standard 20-year license.  Because some of
Sybra's licenses were issued at times when license terms were perpetual and
lower royalty rates were in effect, 45% of Sybra's franchise agreements have no
fixed termination date and royalties for all locations aggregated 2.6% to 2.7%
of sales in each of the past three years.  Sybra's average royalty rate is
expected to increase over time as new stores are opened or existing 20-year
licenses are renewed at then-prevailing royalty rates.  The first of Sybra's
20-year licenses expires in 2003.

In 1993, an investment group purchased a controlling interest in
Triarc Company (formerly DWG Corporation), the parent company of Arby's, Inc.
Sybra believes that the change in ownership of Triarc is a positive development
for the Arby's system.

Advertising and marketing.  For the past several years, Sybra has
directed about 7 1/2% of its total restaurant sales toward marketing.  All
franchisees of Arby's, Inc. must belong to AFA Service Corporation ("AFA"), a
non-profit association of Arby's restaurant operators, and must contribute a
specified portion (up to 1.2%) of their gross revenues as dues to AFA.  In
return, AFA provides franchisees creative materials such as television and
radio commercials, ad mats for newspapers, point-of-purchase graphics and other
advertising materials.  Although Arby's, Inc., as an operator of Arby's
restaurants, is a member of AFA, the direction and management of AFA is
principally controlled by the member franchisees.  Sybra and other franchisees
currently contribute .7% of their gross revenues to AFA.  In addition to the
AFA contribution, Sybra devotes approximately 3% of its restaurant sales to
coupon sales promotions, including the direct cost of discounted food, and
newspaper and direct mail inserts, and approximately 3 1/2% of its restaurant
sales to local advertising, including outdoor advertising and electronic media.

- 12 -

14
Competition and seasonality.  The fast food industry is extremely
competitive and subject to pressures from major business cycles and competition
from many established and new restaurant concepts.  According to industry data,
there is a significant disparity in the revenues and number of restaurants
operated by the largest restaurant systems and the Arby's system.  As a result,
some organizations and franchised restaurant systems have significantly greater
resources for advertising and marketing than the Arby's restaurant system or
Sybra, which is an important competitive factor.  Sybra's response to these
competitive factors has been to cluster its stores in certain geographic areas
where it can achieve economies of scale in advertising and other activities.

Operating results of Sybra's restaurants have historically been
affected by both retail shopping patterns and weather conditions.  Accordingly,
Sybra historically has experienced its most favorable results during the fourth
calendar quarter (which includes the holiday shopping season) and its least
favorable results during the first calendar quarter (which includes winter
weather, which can be adverse in certain markets).

Employees.  As of December 31, 1993, Sybra had approximately 4,000
employees, of which 3,400 were part-time employees.  Approximately 3,900
employees work in Sybra's restaurants and the remainder work in its corporate
or regional offices.  Sybra's employees are not covered by collective
bargaining agreements, and Sybra believes that its relationship with its
employees is satisfactory.

Governmental regulation.  Various federal, state and local laws affect
Sybra's restaurant business, including laws and regulations relating to health,
sanitation, employment and safety standards and local zoning ordinances.  Sybra
has not experienced and does not anticipate unusual difficulties in complying
with these regulations.  Sybra does not expect that remedial costs, if any,
related to compliance with the Americans with Disabilities Act will be
material.  Sybra is subject to the Federal Fair Labor Standards Act, which
governs minimum wages, overtime and other working conditions.  A significant
portion of Sybra's restaurant employees work on a part-time basis and are paid
at rates related to the minimum wage rate.  Further increases in the minimum
wage rate (last increased in April 1991) and any mandatory medical insurance
benefits to part-time employees, both of which are favored by the Clinton
Administration, would increase Sybra's labor costs.  Although Sybra's
competitors would probably experience similar increases, there can be no
assurance that Sybra will be able to increase sales prices to offset future
increases, if any, in these costs.

HARDWARE PRODUCTS:

Products, operations and properties.  National Cabinet Lock,
headquartered in Mauldin, South Carolina, manufactures low and medium- security
locks, drawer slides, computer keyboard support arms and other components for
furniture and a variety of other applications.  Lock products accounted for
approximately 40% of National Cabinet Lock's sales in 1993 with the other
products constituting approximately 60%.  National Cabinet Lock believes its
products compete in relatively well-defined niche markets.  The Company also
believes that it is the second- largest U.S. cabinet lock producer, that it is
the largest Canadian producer of drawer slides and that it is the largest
supplier of computer keyboard support arms to the North American office
furniture manufacturing market.

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15
Locks are manufactured, assembled and packaged by National Cabinet
Lock in Mauldin, South Carolina, and by a subsidiary in Mississauga, Ontario,
Canada.  Waterloo Furniture Components Limited, another Canadian subsidiary,
produces drawer slides and computer keyboard support arms for distributor and
industrial markets at a plant located in Kitchener, Ontario, Canada.  The
Kitchener and Mauldin plants are owned, and the Mississauga facility is leased
through 1997.  National Cabinet Lock markets its products primarily through its
own sales organization as well as select manufacturers' representatives.

Purchased components, including zinc castings, are the principal raw
materials used in the manufacture of latching and security products.  Strip
steel is the major raw material used in the manufacture of hardware and stamped
metal products.  These raw materials are purchased from several suppliers and
are readily available.

Strategy.  National Cabinet Lock will seek to maintain its relatively
high margins through improved manufacturing efficiency and through development
of specialty, higher margin products engineered to customer specification and
to capitalize on future opportunities that may emerge to enter into longer-term
contracts with niche original equipment manufacturers.  National Cabinet Lock
will also seek to expand its established market positions by emphasizing
customer service, promoting its distribution programs and seeking greater
penetration of the replacement lock market.

Competition and customer base.  Competition in National Cabinet Lock's
markets is based on product features, customer service, quality, distribution
channels and  consumer brand preferences.  Approximately 30% of National
Cabinet Lock's lock sales are made through its STOCK LOCKS distribution
program, a program the Company believes offers a competitive advantage because
delivery generally is made within 72 hours.  Most of National Cabinet Lock's
remaining sales are to original equipment manufacturers' specifications.  The
Company's major competitors include Chicago Lock, Hudson Lock and Fort Lock
(locks), Accuride and Hettich/Grant (drawer slides) and Weber Knapp and Jacmorr
(computer keyboard support arms).  National Cabinet Lock also competes with a
large number of other manufacturers, and the variety of relatively small
competitors generally makes significant price increases difficult.  National
Cabinet Lock does not believe it is dependent upon one or a few customers,
however, select furniture manufacturers and a government agency lock purchaser
are important customers.  National Cabinet Lock's ten largest customers
accounted for about one-third of its sales in each of the past three years,
with the largest customer less than 10% in each year.  In 1993, seven of the
ten largest customers were located in the U.S. with three in Canada.  Of such
customers, nine were primarily purchasers of Canadian-produced products and one
was a U.S. lock customer.

Patents and trademarks.  National Cabinet Lock holds a number of
patents relating to its hardware products operations, none of which by itself
is considered significant, and owns a number of trademarks, including National
Cabinet Lock and STOCK LOCKS, which the Company believes are well recognized in
the hardware products industry.

- 14 -

16
Employees.  As of December 31, 1993, National Cabinet Lock employed
approximately 600 persons, of which 230 were in the United States and 370 were
in Canada.  Approximately 60% of Canadian employees are covered by a three-year
collective bargaining agreement expiring in February 1997.  National Cabinet
Lock believes that its labor relations are satisfactory.

Environmental matters.  National Cabinet Lock's operations are subject
to various federal, state, provincial and local provisions regulating the
discharge of materials into the environment and otherwise relating to the
protection of the environment.  National Cabinet Lock does not believe future
expenditures to comply with these regulations will be material.

OTHER:

Foreign operations.  The Company has substantial operations and assets
located outside the United States, primarily in Canada (National Cabinet Lock)
and Ireland (Medite).  Foreign operations are subject to, among other things,
currency exchange rate fluctuations and the Company's results of operations
have in the past been both favorably and unfavorably affected by fluctuations
in currency exchange rates.  Medite/Europe maintains a multi-currency revolving
credit agreement to mitigate exchange rate risk on receivables and has also
entered into certain forward contracts to mitigate exchange rate risk on
certain equipment purchase commitments related to the expansion of its MDF
plant.  See Note 20 to the Company's Consolidated Financial Statements.

The Company's unconsolidated affiliates also have substantial foreign
operations, as discussed elsewhere herein.

Environmental matters.  The Company has been subject to environmental
regulatory enforcement or litigation under various statues, including the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act ("CERCLA"), arising
out of past disposal practices.  In some cases the Company has voluntarily
undertaken cleanup activities at various sites, while in some cases the Company
has been named as a potentially responsible party ("PRP") pursuant to CERCLA or
state counterparts to CERCLA.  Typically these proceedings seek cleanup costs,
damages for personal injury or property damage, or both.  While the Company may
be jointly and severally liable for such costs, in most cases the Company is
only one of a number of PRPs who are also jointly and severally liable.  The
extent of CERCLA or other similar liability cannot be determined until a
remedial investigation and feasibility study is complete, the applicable
environmental authority issues a record of decision and costs are allocated
among PRPs.

The Company has been named as a PRP pursuant to CERCLA at one
Superfund site in Indiana and has also undertaken a voluntary cleanup program
approved by state authorities at another Indiana site, both of which involve
operations no longer conducted by the Company.  The total estimated cost for
cleanup and remediation at the Indiana Superfund site is $43.5 million, of
which the Company's share is currently estimated to be approximately $2
million.  The Company's estimated cost to complete the voluntary cleanup
program at the other Indiana site, which involves both surface and groundwater
remediation, is relatively nominal.  The Company believes it has adequately
provided accruals for reasonably estimable costs for CERCLA matters and other
environmental liabilities.  At December 31,

- 15 -

17
1993, the Company had accrued $2.3 million in respect of such matters, which
accrual does not reflect any amounts which the Company could recover from
insurers or other third parties and is near the Company's estimate of the upper
end of range of possible costs.  No assurance can be given that actual costs
will not exceed accrued amounts or the upper end of the range.  The imposition
of more stringent standards or requirements under environmental laws or
regulations, new developments or changes respecting site cleanup costs or
allocation of such costs among PRPs or a determination that the Company is
potentially responsible for the release of hazardous substances at other sites
could result in expenditures in excess of amounts currently estimated by the
Company to be required for such matters.  Furthermore, there can be no
assurance that additional environmental matters related to current or former
operations will not arise in the future.

Other environmental matters relating to the Company's consolidated
business segments and to its unconsolidated affiliates are discussed in the
respective business sections elsewhere herein.

Acquisition and restructuring activities.  The Company routinely
compares its liquidity requirements and alternative uses of capital against the
estimated future cash flows to be received from its subsidiaries and
unconsolidated affiliates, and the estimated sales value of those units.  As a
result of this process, the Company has in the past and may in the future seek
to raise additional capital, refinance or restructure indebtedness, modify its
dividend policy, consider the sale of interests in subsidiaries or
unconsolidated 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.  From time to
time, the Company also evaluates the restructuring of ownership interests among
its subsidiaries and related companies and expects to continue this activity in
the future.

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

Other.  Through June 1989, Valmont Insurance Company, a wholly-owned
captive insurance subsidiary of Valhi, reinsured workers' compensation and
employers' liability, auto liability, and comprehensive general liability risks
of Valhi and certain affiliates.  Through April 1989, Valmont assumed certain
third-party reinsurance business, primarily property, marine and casualty risks
from insurance subsidiaries of other industrial firms, and a small amount of
U.S. quota share property and casualty risks.  Valmont currently writes certain

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18
miscellaneous direct coverages of Valhi and affiliates.  All of Valmont's
third-party reinsurance risks are on a runoff basis.

The Company, through a general partnership, has an interest in certain
medical-related research and development activities pursuant to sponsored
research agreements.  See Note 19 to the Company's Consolidated Financial
Statements.

UNCONSOLIDATED AFFILIATES - NL INDUSTRIES, INC. AND TREMONT CORPORATION:

NL and Tremont file periodic reports with the Securities and Exchange
Commission (the "Commission") pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act").  The following information with respect to NL
(Commission file number 1-640) and Tremont (Commission file number 1-10126) has
been summarized from such reports, which contain more detailed information
concerning the respective businesses, results of operations and financial
condition of NL and Tremont.

At the end of 1993, the net carrying value of the Company's investment
in NL was $60 million ($2.43 per share) and in Tremont was $15 million ($4.17
per share).

NL INDUSTRIES

General.  NL, headquartered in Houston, Texas, is an international
producer and marketer of titanium dioxide pigments ("TiO2") through its
wholly-owned subsidiary, Kronos, Inc.  NL also produces specialty chemicals,
primarily rheological additives, through its wholly-owned subsidiary, Rheox,
Inc.  Kronos is the world's fourth-largest TiO2 producer, with an estimated 11%
share of the worldwide market.  Approximately one-half of Kronos' 1993 sales
volume was in Europe, where Kronos is the second-largest producer of TiO2.  In
1993, Kronos accounted for 87% of NL's sales and 58% of its operating income.

TiO2 products and operations.  Titanium dioxide pigments are chemical
products used for imparting whiteness, brightness and opacity to a wide range
of products, including paints, paper, plastics, fibers and ceramics.  TiO2 is
considered to be a "quality-of-life" product with demand affected by the gross
domestic product in various regions of the world.  Demand, supply and pricing
of TiO2 have historically been cyclical and the last cyclical peak for TiO2
prices occurred in early 1990.  While TiO2 prices are currently approximately
one-third below those of the last cyclical peak, NL believes the TiO2 industry
has significant long-term potential.  However, NL expects that the TiO2
industry will continue to operate at lower capacity utilization levels over the
next few years relative to the high utilization levels prevalent during the
late 1980's, primarily because of the slow recovery from the worldwide
recession and the impact of capacity additions since the late 1980's.  The
economic recovery has been particularly slow in Europe, where a significant
portion of Kronos' TiO2 manufacturing facilities are located.  Kronos has an
estimated 17% share of European TiO2 sales and an estimated 9% share of the
U.S. market.  Consumption per capita in the United States and Western Europe
far exceeds that in other areas of the world and these regions are expected to
continue to be the largest geographic markets for pigment consumption.
However, if the economies in Eastern Europe, the Far East and China continue to
develop, a significant market for TiO2

- 17 -

19
could emerge in those countries.  Kronos believes it is well positioned to
participate in the Eastern European market.

NL currently produces over 40 different TiO2 grades, sold under the
Kronos and Titanox trademarks, which provide a variety of performance
properties to meet customers' specific requirements.  Major TiO2 customers
include international paint, paper and plastics manufacturers.  NL believes
that there are no effective substitutes for TiO2.  However, extenders such as
kaolin clays, calcium carbonate and polymeric opacifiers are used in a number
of Kronos' markets.  Generally, extenders are used to reduce to some extent the
utilization of higher cost TiO2.  The use of extenders has not significantly
affected TiO2 consumption over the past decade because extenders generally
have, to date, failed to match the performance characteristics of TiO2.  NL
believes that the use of extenders will not materially alter the growth of the
TiO2 business in the foreseeable future.

Kronos and its predecessors have produced and marketed TiO2 in North
America and Europe for over 70 years.  As a result, Kronos believes that it has
developed considerable expertise and efficiency in the manufacture, sale,
shipment and service of its products in domestic and international markets.  By
volume, about one-half of Kronos' 1993 TiO2 sales were to Europe, with
approximately two-fifths to North America and the balance to export markets.
Kronos' international operations are conducted through Kronos International,
Inc. ("KII"), a German-based holding company NL formed in 1989 to manage and
coordinate NL's manufacturing operations in Europe and Canada and its sales and
marketing activities in over 100 countries.  NL believes the KII structure
allows it to capitalize on expertise and technology developed in Germany over a
60-year period.

Kronos is also engaged in the mining and sale of ilmenite ores (a raw
material used in the sulfate pigment production process), and the manufacture
and sale of iron-based water treatment chemicals (derived from co-products of
the pigment production processes). Water treatment chemicals are used as
treatment and conditioning agents for industrial effluents and municipal
wastewater and in the manufacture of iron pigments.

TiO2 manufacturing process, properties and raw materials.  TiO2 is
manufactured by Kronos using either the chloride and sulfate pigment production
processes.  Although most end-use applications can use pigments produced by
either process, chloride process pigments are generally preferred in certain
segments of the coatings and plastics applications, and sulfate process
pigments are generally preferred for paper, fibers and ceramics applications.
Due to environmental factors and customer considerations, the proportion of
TiO2 industry sales represented by the chloride process pigments has increased
relative to sulfate process pigments.  About two-thirds of Kronos' current
production capacity is based on an efficient chloride process technology.

Kronos currently has four TiO2 plants in Europe  (Leverkusen and
Nordenham, Germany; Langerbrugge, Belgium; and Fredrikstad, Norway), a plant in
Varennes, Quebec, Canada and, through the manufacturing joint venture discussed
below, a one-half interest in a plant in Lake Charles, Louisiana which
commenced production in 1992.  Prior to October 1993, Kronos owned all of the
Louisiana plant.  Kronos' principal German operating subsidiary leases the land
under its Leverkusen production facility pursuant to a lease expiring in 2050.
The Leverkusen plant, with approximately one-third of Kronos' current TiO2
production

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20
capacity, is located within the lessor's extensive manufacturing complex, and
Kronos is the only unrelated party so situated.  Under a separate supplies and
services agreement, which expired in 1991 and to which an extension through
2011 has been agreed to in principle, the lessor provides some raw materials,
auxiliary and operating materials and utilities services necessary to operate
the Leverkusen plant.  Both the lease and supplies and services agreement
restrict NL's ability to transfer ownership or use of the Leverkusen plant.
Kronos also has a governmental concession through 2007 to operate its ilmenite
mine in Norway.

Kronos produced approximately 352,000 metric tons of TiO2 in 1993,
compared to 358,000 metric tons in 1992 and 293,000 metric tons in 1991.  The
increase in production during 1992 was primarily at Kronos' chloride process
plants, including Lake Charles, and Kronos achieved record production levels of
chloride process pigments in 1992 through improved operational efficiencies.
In response to weakened demand, production rates were reduced in late 1992 and
during 1993 in order to reduce inventory levels.  Kronos believes its annual
attainable production capacity is approximately 380,000 metric tons, including
its one-half interest in the Louisiana plant.  NL believes such capacity is
sufficient to provide Kronos with the capability to meet current market
requirements and continue its worldwide presence in future years.

The primary raw materials used in the TiO2 chloride production process
are chlorine, coke and titanium-containing feedstock derived from beach sand
ilmenite and rutile.  Chlorine and coke are available from a number of
suppliers.  Titanium-containing feedstock suitable for use in the chloride
process is available from a limited number of suppliers around the world,
principally in Australia, Africa, India and the United States.  Kronos
purchases slag refined from beach sand ilmenite from Richards Bay Iron and
Titanium (Proprietary) Ltd. (South Africa), approximately 50% of which is owned
by Q.I.T. Fer et Titane Inc. ("QIT"), an indirect subsidiary of RTZ Corp.
Natural rutile ore is purchased from a number of sources.

The primary raw materials used in the TiO2 sulfate production process
are sulfuric acid and titanium-containing feedstock derived primarily from rock
and beach sand ilmenite.  Sulfuric acid is available from a number of
suppliers.  Titanium-containing feedstock suitable for use in the sulfate
process is available from a limited number of suppliers around the world.
Currently, the principal active sources are located in Norway, Canada,
Australia, India and South Africa.  As one of the few vertically-integrated
producers of sulfate process pigments, Kronos operates a rock ilmenite mine
near Hauge i Dalane, Norway, which provided all of Kronos' feedstock for its
European sulfate process pigment plants in 1993.  Kronos' mine is also a major
commercial source of rock ilmenite for other sulfate process producers in
Europe, and NL believes the mine supplies almost 40% of aggregate European
demand, including NL, for sulfate feedstock.  Kronos also purchases sulfate
grade ilmenite slag under contracts negotiated annually with QIT and Tinfos
Titanium and Iron K/S.

Kronos believes the availability of titanium-containing feedstock for
both the chloride and sulfate processes is adequate in the near- term; however
tightening supplies for the chlorine process may be encountered in the late
1990's.  Kronos does not anticipate experiencing any interruptions of its raw
material supplies.

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TiO2 manufacturing joint venture.  In October 1993, Kronos formed a
manufacturing joint venture with Tioxide Group, Ltd., a wholly- owned
subsidiary of Imperial Chemicals Industries PLC.  The joint venture, which is
equally owned by subsidiaries of Kronos and Tioxide, owns and operates the
Louisiana chloride process TiO2 plant formerly owned by Kronos.  Under the
terms of the joint venture and related agreements, Kronos contributed the plant
to the joint venture, Tioxide paid an aggregate of approximately $205 million,
including its tranche of the joint venture debt, and Kronos and certain of its
subsidiaries exchanged proprietary chloride process and product technologies
with Tioxide and certain of its affiliates.  Production from the plant is being
shared equally by Kronos and Tioxide pursuant to separate offtake agreements.
The manufacturing joint venture is intended to be operated on a break-even
basis, and accordingly Kronos' transfer price for its share of the TiO2
produced is equal to its share of the joint venture's operating expenses (fixed
and variable costs of production and interest expense).  Kronos' share of the
fixed and variable production costs are reported as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the
joint venture's interest expense is reported as a component of NL's
consolidated interest expense.

A supervisory committee, composed of two members appointed by each
partner, directs the business and affairs of the joint venture, including
production and output decisions.  Two general managers, one appointed and
compensated by each partner, manage the day-to-day operations of the joint
venture acting under the direction of the supervisory committee.

Specialty chemicals operations.  Rheological additives produced by
Rheox control the flow and levelling characteristics of a variety of products,
including paints, inks, lubricants, sealants, adhesives and cosmetics.
Organoclay rheological additives are clays which have been chemically reacted
with organic chemicals and compounds.  Rheox produces rheological additives for
both solvent-based and water-based systems.  Rheox believes that it is the
world's largest producer of rheological additives for solvent-based systems,
supplying approximately 40% of the worldwide market, and is also a supplier for
rheological additives used in water-based systems.  Rheological additives for
solvent-based systems accounted for approximately 90% of Rheox's sales in 1993,
with the remainder principally rheological additives for water-based systems.
Rheox has introduced a number of new products during the past three years, many
of which are for water-based systems, which currently represent a larger
portion of the market than solvent-based systems and which Rheox believes, in
the long term, will account for an increasing portion of the market.  Rheox
also focused on product development for environmental applications with new
products introduced for de-inking recycled paper and soil stabilization at
contaminated sites.  Rheox's plants are in Charleston, West Virginia, Newberry
Springs, California, St. Louis, Missouri, Livingston, Scotland and Nordenham,
Germany.

The primary raw materials utilized in the production of rheological
additives are bentonite clays, hectorite clays, quaternary amines, polyethylene
waxes and castor oil derivatives.  Bentonite clays are currently purchased
under a three-year contract, renewable through 2004, with a subsidiary of
Dresser, which has significant bentonite reserves in Wyoming.  This contract
assures Rheox the right to purchase its anticipated requirements of bentonite
clays for the foreseeable future and Dresser's reserves are believed to be
sufficient for such purpose.  Hectorite clays are mined from company-owned
reserves in Newberry Springs, California, which NL believes are adequate to
supply its needs for the

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22
foreseeable future.  The Newberry Springs ore body contains the largest known
commercial deposit of hectorite clays in the world.  Quaternary amines are
purchased primarily from a joint venture company 50%-owned by Rheox and are
also generally available on the open market from a number of suppliers.  Castor
oil-based rheological additives are purchased from sources in the United States
and abroad.  Rheox has a supply contract with a manufacturer of these products,
which may not be terminated without 180 days notice by either party.

Competition.  The TiO2 industry is highly competitive.  During the
late 1980's worldwide demand approximated available supply and the major
producers, including Kronos, were operating at or near available capacity.  In
the past few years, supply has exceeded demand, in part due to new chloride
process capacity coming on-stream.  Relative supply/demand relationships, which
had a favorable impact on industry-wide prices during the late 1980's, have had
a negative impact since prices peaked in early 1990.  Worldwide capacity
additions in the TiO2 market are slow to develop because of the significant
capital expenditures and substantial lead time (typically three to five years
in NL's experience) for, among other things, planning, obtaining environmental
approvals and construction.

Kronos competes primarily on the basis of price, product quality and
technical service, and the availability of high performance pigment grades.
Although certain TiO2 grades are considered specialty pigments, the majority of
grades and substantially all of Kronos' production are considered commodity
pigments with price generally being a most significant competitive factor.
Kronos has an estimated worldwide TiO2 market share of 11% (17% in Europe and
9% in the U.S), and believes that it is the leading marketer of TiO2 in a
number of countries, including Germany and Canada.  Kronos' principal
competitors are E.I. du Pont de Nemours & Co.; Tioxide; Hanson PLC (SCM
Chemicals); Kemira Oy; Bayer AG and Ishihara Sangyo Kaisha, Ltd.  These six
competitors have estimated individual worldwide market shares ranging from 5%
to 21%, and an aggregate estimated 65% share.  Du Pont has over one-half of
total U.S. TiO2 production capacity and is Kronos' principal North American
competitor.

Kronos has substantially completed a major environmental protection
and improvement program commenced in the early 1980's to replace or modify its
European TiO2 production facilities for compliance with various environmental
laws by the respective effective dates.  All of Kronos' European plants now use
either the low-waste yielding chloride process, or the sulfate process with
reprocessing or neutralization of waste acid.  Kronos has commenced
construction of a $25 million waste acid neutralization/synthetic gypsum
manufacturing facility for its Canadian sulfate process TiO2 plant, which is
expected to be completed in mid-1994.  Although these upgrades increased
operating costs, they are expected to reduce future capital expenditures that
Kronos would otherwise need to incur as environmental standards are increased.
NL believes that certain competitors have not upgraded their facilities and are
expected to do so in the future or be forced to curtail production due to lack
of environmental compliance.

Competition in the specialty chemicals industry is generally
concentrated in the areas of product uniqueness, quality and availability,
technical service, knowledge of end-use applications and price.  Rheox's
principal competitors for rheological additives for solvent-based systems are
LaPorte PLC, Sud Chemie AG and Akzo NV.  Principal competitors for water-based
systems are Rohm and Haas

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23
Company, Hercules Incorporated, The Dow Chemical Company and Union Carbide
Corporation.

Research and development.  NL's annual expenditures for research and
development and technical support programs have averaged approximately $10
million during the past three years, with Kronos accounting for about
three-fourths of the annual totals.  Research and development activities
related to TiO2 are conducted principally at the Leverkusen, Germany facility.
Such activities are directed primarily towards improving both the chloride and
sulfate production processes, improving product quality and strengthening
Kronos' competitive position by developing new pigment applications.
Activities relating to rheological additives are conducted primarily in the
United States and directed towards the development of new products for
water-based systems, environmental applications and new end-use applications
for existing product lines.

Patents and trademarks.  Patents held for products and production
processes are believed to be important to NL and contribute to the continuing
business activities of Kronos and Rheox.  NL continually seeks patent
protection for its technical developments, principally in the United States,
Canada and Europe, and from time to time enters into licensing arrangements
with third parties.  In connection with the formation of the manufacturing
joint venture with Tioxide, Kronos and certain of its subsidiaries exchanged
proprietary chloride process and product technologies with Tioxide and certain
of its affiliates.  Use by each recipient of the other's technology in Europe
is restricted until October 1996.  NL's major trademarks, including Kronos,
Titanox and Rheox, are protected by registration in the United States and
elsewhere with respect to those products it manufactures and sells.

Foreign operations.  NL's chemical businesses have operated in
international markets since the 1920's.  Most of Kronos' current production
capacity is located in Europe and Canada and about one-third of Rheox's sales
in the past three years have been attributable to European production.
Approximately three-quarters of NL's 1993 consolidated sales were attributable
to non-U.S. customers, including over 10% attributable to customers in areas
other than Europe and Canada.

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

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

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24
influenced by the worldwide industrial protective coatings industry, where
second calendar quarter sales are generally the strongest.

Employees.  As of December 31, 1993, NL employed approximately 3,200
persons (excluding the joint venture employees), with 400 employees in the
United States and 2,800 at sites outside the United States.  Hourly employees
in production facilities worldwide are represented by a variety of labor
unions, with labor agreements having various expiration dates.  NL believes its
labor relations are satisfactory.

Regulatory and environmental matters.  Certain of NL's businesses are
and have been engaged in the handling, manufacture or use of substances or
compounds that may be considered toxic or hazardous within the meaning of
applicable environmental laws.  As with other companies engaged in similar
businesses, certain past and current operations and products of NL have the
potential to cause environmental or other damage.  NL has implemented and
continues to implement various policies and programs in an effort to minimize
these risks.  NL's policy is to achieve compliance with applicable
environmental laws and regulations at all of its facilities and to strive to
improve environmental performance.  It is possible that future developments,
such as stricter requirements of environmental laws and enforcement policies
thereunder, could affect NL's production, handling, use, storage,
transportation, sale or disposal of such substances.

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

NL's European and Canadian production facilities operate in an
environmental regulatory framework in which governmental authorities typically
are granted broad discretionary powers which allow them to issue operating
permits required for the plants to operate.  NL believes all of its European
plants are in substantial compliance with applicable environmental laws.

While the laws regulating operations of industrial facilities in
Europe vary from country to country, a common regulatory denominator is
provided by the EU. Germany, Belgium and the United Kingdom, members of the EU,
follow the initiatives of the EU; Norway, although not a member, generally
patterns its environmental regulatory actions after the EU.  Kronos believes it
is in substantial compliance with agreements reached with European
environmental authorities and with an EU directive to control the effluents
produced by TiO2 production facilities.  Rheox believes it is in substantial
compliance with environmental regulations in Germany and the United Kingdom.

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In order to reduce sulfur dioxide emissions into the atmosphere,
Kronos is installing off-gas desulfurization systems at its German plants at an
estimated cost of approximately $24 million.  The manufacturing joint venture
is installing an off-gas desulfurization system at its Louisiana plant at an
estimated cost of $15 million.  The German systems are expected to be completed
in 1996 and the Louisiana system is scheduled for completion in 1995.

Kronos' ilmenite mine near Hauge i Dalane had a permit for the
offshore disposal of tailings through February 1994.  In February 1994, Kronos
completed a $15 million onshore disposal system to replace the offshore
disposal of tailings.  Onshore disposal will result in a modest increase in the
mine's operating costs.

The Quebec provincial government is an environmental regulatory body
with authority over Kronos' Canadian TiO2 production facilities, which
currently consist of plants utilizing both the chloride and sulfate process
technologies. The provincial government regulates discharges into the St.
Lawrence River.  In May 1992, the Quebec provincial government extended Kronos'
right to discharge effluents from its Canadian sulfate process TiO2 plant into
the St. Lawrence River until June 1994, at which time Kronos' new $25 million
waste acid neutralization facility is expected to be completed.  In January
1993, the Quebec provincial government granted a permit to Kronos to construct
the facility and established the future permit parameters, which Kronos will be
required to meet upon completion of the facility.

Notwithstanding the above-described agreement, in March 1993 Kronos'
Canadian subsidiary and two of its directors were charged by the Canadian
federal government with five violations of the Canadian Fisheries Act relating
to discharges into the St. Lawrence River from the Varennes sulfate TiO2
production facility.  The penalty for these violations, if proven, could be up
to Canadian $15 million.  Additional charges, if brought, could involve
additional penalties.  NL has moved to dismiss the case on constitutional
grounds, and believes that this charge is inconsistent with the extension
granted by provincial authorities referred to above.

NL's future capital expenditures related to its ongoing environmental
protection and improvement programs, including those described above, are
currently expected to be approximately $75 million, including $30 million in
1994.

NL has been named as a defendant, PRP, or both, pursuant to CERCLA and
similar state laws in approximately 80 governmental enforcement and private
actions associated with waste disposal sites and facilities currently or
previously owned, operated or used by NL, many of which are on the U.S.
Environmental Protection Agency's Superfund National Priority List or similar
state lists.  These proceedings seek cleanup costs, damages for personal injury
or property damage, or both.  Certain of these proceedings involve claims for
substantial amounts.  Although NL may be jointly and severally liable for such
costs, in most cases, it is only one of a number of PRPs who are also jointly
and severally liable.  In addition to the matters noted above, certain current
and former facilities of NL, including several divested secondary lead smelter
and former mining locations, are the subject of environmental investigations or
litigation arising out of industrial waste disposal practices and mining
activities.

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The extent of NL's CERCLA liability cannot be determined until the
Remedial Investigation and Feasibility Study is complete, the U.S.  EPA issues
a record of decision and costs are allocated among PRPs.  The extent of
liability under analogous state cleanup statutes and for common law equivalents
are subject to similar uncertainties.  NL believes it has provided adequate
accruals for reasonably estimable costs of such matters.  At December 31, 1993,
NL had accrued $70 million in respect of those environmental matters which are
reasonably estimable.  NL determines the amount of accrual on a quarterly basis
by analyzing and estimating the range of possible costs to NL.  Such costs
include, among other things, remedial investigations, monitoring, studies,
clean-up, removal and remediation.  It is not possible to estimate the range of
costs for certain sites.  NL has estimated that the upper end of the range of
reasonably possible costs to NL for sites for which it is possible to estimate
costs is approximately $105 million.  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.  The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs or allocation of such costs among PRPs, or a determination that
NL is potentially responsible for the release of hazardous substances at other
sites could result in expenditures in excess of amounts currently estimated by
NL to be required for such matters.  Further, there can be no assurance that
additional environmental matters will not arise in the future.

NL was formerly involved in the manufacture of lead pigments for use
in paint and lead-based paint.  NL has been named as a defendant or third party
defendant in various legal proceedings alleging that NL and other manufacturers
are responsible for personal injury and property damage allegedly associated
with the use of lead pigments.  NL is vigorously defending such litigation.
Considering NL's previous involvement in the lead pigment and lead-based paint
business, there can be no assurance that additional similar litigation will not
be filed.  In addition, various legislation and administrative regulations
have, from time to time, been enacted or proposed at the state, local and
federal levels that seek to (i) impose various obligations on present and
former manufacturers of lead pigment and lead-based paint with respect to
asserted health concerns associated with the use of such products and (ii)
effectively overturn court decisions in which NL and other pigment
manufacturers have been successful.  One such bill that would subject lead
pigment manufacturers to civil liability for damages caused by lead- based
paint on the basis of market share, and extends certain statutes of
limitations, passed the Massachusetts House of Representatives in 1993.  The
same bill has been re-introduced in the Massachusetts legislature in 1994.  No
legislation or regulations have been enacted to date which are expected to have
a material adverse effect on NL's consolidated financial position, results of
operations or liquidity.  NL has not accrued any amounts for the pending lead
pigment litigation.  Although no assurance can be given that NL will not incur
future liability in respect of this litigation, based on, among other things,
the results of such litigation to date, NL believes that the pending lead
pigment litigation is without merit.  Any liability that may result is not
reasonably capable of estimation by NL.

NL has filed declaratory judgment actions against various insurance
carriers seeking costs of defense and indemnity coverage for certain of its
environmental and lead pigment litigation.  To date, one court has granted NL's
motion for

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27
summary judgment and ordered an insurance carrier to pay to NL the reasonable
costs of defending certain of NL's lead pigment cases.  The courts have not
made any rulings on defense costs or indemnity coverage with respect to NL's
pending environmental litigation or on indemnity coverage in the lead pigment
litigation.  No trial dates have been set.  Other than the rulings to date, the
issue of whether insurance coverage for defense costs or indemnity, or both,
will be found to exist depends upon a variety of factors, and there can be no
assurance that such insurance coverage will exist in other cases.  NL has not
included amounts in any accruals in anticipation of insurance coverage for lead
pigment or environmental litigation.

TREMONT CORPORATION

General.  Tremont, based in Denver, Colorado, conducts its titanium
metals operations through its 75%-owned subsidiary, Titanium Metals Corporation
("TIMET"), an integrated producer of titanium metal products.  TIMET is
presently one of the four major U.S producers of titanium metal products and
has an estimated one-third share of the U.S. market.  Tremont also holds 9.1
million NL shares, or 18% of NL's outstanding common stock, and reports its
interest in NL by the equity method.

Products, operations, and properties.  Titanium has a unique
combination of strength, light weight, stability at high temperatures and
resistance to corrosion, which makes it highly desirable for certain
applications.  The aerospace industry (including airframe and engine
construction) has historically accounted for approximately three-fourths of
U.S. titanium mill products consumption.  Consequently, the activity in the
highly cyclical aerospace industry has a significant effect on the overall
sales and profitability of the titanium industry.  The titanium metals business
continues to be significantly and adversely affected by, among other things,
weak demand within the military and commercial aerospace markets and excess
worldwide production capacity.  Adverse selling price pressures have been
exacerbated by the increasing availability of relatively inexpensive titanium
scrap, sponge and mill products principally from Russia and other countries of
the former Soviet Union (the Commonwealth of Independent States or "CIS").
Tremont expects that TIMET's and the industry's production levels and shipments
over the next few years will remain substantially lower than the peak levels of
the late 1980's and 1990.

TIMET's titanium products are used in a wide variety of commercial and
industrial applications, including commercial and military aircraft, chemical
processing equipment, power generation facilities, medical applications and
sports equipment.  Titanium sponge, so called because of its appearance, is the
elemental form of titanium metal used in processed titanium products and is
produced by TIMET at its Nevada plant, described below.  Titanium ingot results
from melting sponge and/or scrap, often with various other alloying elements,
while titanium wrought products are forged, rolled and/or extruded from ingot
and/or cast slab.  TIMET sends certain products to outside vendors for further
processing, including hot rolling of titanium strip.  Over 90% of TIMET's sales
in the past three years were generated from the sale of titanium ingot and
wrought products.

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TIMET owns and operates a 22 million pound (10,000 metric ton) annual
rated capacity vacuum distillation process ("VDP") titanium sponge production
facility in Henderson, Nevada.  The VDP plant commenced production in early
1993 and has received substantially all necessary aerospace qualifications.
TIMET expects to operate the VDP plant at approximately 60% of capacity during
1994.  In December 1993, Union Titanium Sponge Corporation ("UTSC"), a
consortium of Japanese companies that provided the advanced technology and a
majority of the financing for the VDP plant, converted its $75 million of TIMET
debentures into 25% of TIMET's outstanding voting common stock.  UTSC has the
right to acquire up to approximately 20% of TIMET's annual production capacity
of VDP sponge at agreed-upon and formula-determined prices.  TIMET also has a
32 million pound (14,500 metric ton) annual capacity titanium sponge plant at
its Henderson site which utilizes the older Kroll-leach production process.
TIMET expects to temporarily close this plant in 1994 and expects that it will
remain closed until market conditions significantly improve.

The titanium sponge produced at Henderson is used as the basic raw
material for a 28 million pound (12,700 metric ton) annual capacity ingot
facility also at the Nevada plant.  Titanium wrought products are produced at
TIMET's forging and rolling facility in Toronto, Ohio, which receives titanium
ingots from the Nevada plant and titanium slab from 50%-owned Titanium Hearth
Technologies ("THT").  Wrought products are also produced at TIMET's finishing
facility in Morristown, Tennessee.  TIMET has operated below production
capacity during the past three years in response to lower demand levels.  In
1993, the Nevada plant operated at about 50% of capacity, down from about 80%
of capacity in 1992, while the Ohio and Tennessee facilities operated at 70%
and 60%, respectively, of capacity in 1993, which approximated 1992 levels.

THT, a TIMET and Axel Johnson Metals, Inc. joint venture formed in
1992, owns and operates a 12 million pound (5,400 metric ton) annual capacity
cold hearth melting furnace formerly owned by Axel Johnson.  TIMET has
committed to have THT perform a substantial percentage of TIMET's requirements
for melting certain titanium products.  THT also provides melting services to
unrelated parties.

In March 1993, TIMET and Compagnie Europeenne du Zirconium ("CEZUS"),
a French company, executed a series of agreements by which, following a
transition period of approximately two years, TIMET expects to acquire CEZUS'
titanium business and CEZUS would become an exclusive TIMET subcontractor,
primarily for titanium melting and forging, pursuant to a long-term agreement.
Any such acquisition is subject to, among other things, approval of the French
Ministry of Finance.  As part of the agreements, TIMET will generally be
entitled to receive, or be obligated to pay (subject to certain limitations),
50% of the net income or loss of CEZUS's titanium business in 1994.

TIMET has three service centers in the U.S. and two in Europe which
maintain supplies of mill products for customer sales in their respective
regions. Most of these service centers are located near major customers and
have secondary shearing, cutting and machining capabilities to tailor mill
products to meet customers' specifications.  TIMET believes its service center
network provides a competitive advantage.

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Raw materials.  The primary raw materials used in the production of
titanium sponge are titanium-containing rutile ore, chlorine, magnesium and
coke.  Chlorine, magnesium and coke are generally available from a number of
suppliers.  Titanium-containing rutile ore is currently available from a
limited number of suppliers around the world, and substantially all of TIMET's
rutile ore is currently purchased from Australian suppliers.  While TIMET
believes the availability of titanium-containing rutile ore is adequate in the
near-term, tightening supplies may be encountered in the late 1990's.  TIMET
does not anticipate experiencing any interruptions of its raw material
supplies.  Various alloying elements used in the production of titanium ingot
are available from a number of suppliers.

Market and customer base.  A majority of TIMET's sales in 1993 were to
customers in the aerospace industry.  TIMET expects that a majority of its 1994
sales will be to this sector but that industrial markets will represent an
increasing portion of its sales over the next few years.  TIMET's long-term
goal is to transition from a dependence on aerospace markets to a closer
balance between aerospace and industrial markets, in part because TIMET does
not expect a return in government defense aerospace spending to prior levels
and does not expect commercial aerospace spending to increase substantially
over the next few years.  TIMET does, however, expect a long-term increase in
demand for new commercial aircraft, a significant portion of which is expected
to be met by wide-body aircraft which use more titanium than narrow-body
aircraft.  Sales to industrial markets of titanium plate, strip and tube, which
currently account for approximately 45% of TIMET's sales, are improving as the
utility, desalination, and certain other industries increase capital spending.
TIMET's five largest customers accounted for an aggregate of approximately 20%
to 25% of its sales in each of the past three years.

Competition.  The worldwide titanium metals industry is highly
competitive.  TIMET competes primarily on the basis of price, quality of
products, technical support and the availability of products to meet customers'
delivery schedules.  TIMET believes that the trademark TIMET, which is
protected by registration in the U.S. and other countries, is significant to
its business.

Over 70% of TIMET's sales in the past three years were to customers in
the U.S. where its principal competitors are Oregon Metallurgical Corporation
("Oremet"), RMI Titanium Company and Teledyne Allvac.  TIMET estimates its
share of U.S. sponge production capacity at the end of 1993 approximated 75%,
including 40% related to its older Kroll-leach process plant.  TIMET, Oremet,
RMI and Teledyne Allvac represent an estimated aggregate 80% of U.S. sales of
titanium mill products, and TIMET believes it has the largest share of these
producers.

TIMET competes with a number of non-integrated producers that produce
titanium products from sponge, ingot and slab purchased from outside vendors
(including TIMET and THT),  and to a lesser extent with foreign integrated
producers located primarily in Japan and Europe.  While the mill product
production of Japanese and European titanium producers is approximately
one-half that of the U.S. titanium producers, they are significant competitors
in international markets.  Until recently, imports of foreign titanium products
into the U.S. have not been significant, however, imports of titanium sponge
and scrap, principally from the CIS, increased during 1991 and 1992 and
substantially increased in 1993.  TIMET purchased a considerable volume of CIS
sponge in 1993 for use in producing certain industrial products.

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Historically, Russia and other members of the CIS have not been
significant competitors as their titanium products were largely consumed
internally.  However, TIMET believes these producers are likely to become more
significant competitors in the future.  Although accurate information regarding
the CIS's titanium industry is not readily available, TIMET believes the CIS's
sponge production capacity and actual 1993 production may be as much as
one-half of aggregate worldwide levels.  The CIS is also known to have
significant melting and wrought product production capacity.  Although imports
of CIS sponge have increased in recent years, TIMET believes the majority of
the sponge produced in the CIS continues to be consumed internally.

In September 1993, President Clinton issued an Executive Proclamation
granting to Russia the status of "beneficiary developing country" under the
U.S. trade laws.  This had the effect of eliminating or reducing the tariffs on
many products imported from Russia, including the elimination of tariffs on
most wrought titanium products (excluding titanium ingot, slab and billet).  A
petition filed by a group of U.S.  titanium producers (including TIMET) to
reverse this action is currently pending.  At present, there is no duty on
titanium scrap from Russia, while titanium sponge from Russia (as well as from
the other CIS sponge-exporting states, Ukraine and Kazakhstan) carries both
regular and antidumping duties.  TIMET understands the Ukraine sponge plant was
temporarily closed in late 1993.  The level of this antidumping duty is
currently under review by the Department of Commerce at the request of TIMET
and the other integrated U.S. titanium producer.

Entry as an integrated titanium producer would require significant
capital investment and substantial technical expertise.  However, producers of
other metal products, such as steel and aluminum, maintain forging, rolling and
finishing facilities which could be modified to produce titanium products.
Titanium mill products also compete with certain stainless steels and nickel
alloy mill products in industrial applications.

Research and development.  TIMET's annual research and development
expenditures have averaged $2 million during the past three years and are
directed primarily towards improving process technology, developing new alloys,
enhancing the performance of TIMET's products in current applications and
searching for new uses of titanium products.

Employees.  At December 31, 1993, TIMET employed approximately 1,050
persons in the U.S. (down from 1,150 at the end of 1992) and 20 persons in
Europe.  Substantially all of TIMET's production and maintenance workers at its
facilities in Nevada and Ohio are represented by the United Steel Workers of
America.  A strike of approximately 400 union workers at the Nevada facility
commenced in October 1993 at the expiration of their contract.  TIMET has
unilaterally implemented its last contract proposal that includes modest wage
increases, enhanced profit sharing opportunities and pension improvements over
the life of the contract along with changes in TIMET's medical program and work
rules.  The union work stoppage has not materially impacted TIMET's production
activities, as production is continuing during the strike utilizing salaried
personnel and outside contract labor.  The Ohio union contract, as extended in
January 1994, expires in July 1994.  During this period TIMET and the union
will negotiate towards a new agreement and evaluate possible relocations of
certain work and/or equipment to other TIMET locations or outside vendors.

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Regulatory and environmental matters.  Tremont's operations conducted
through TIMET are governed by environmental and worker safety laws and
regulations.  TIMET maintains procedures designed to ensure compliance with
such laws, including those relating to raw material and product storage,
atmospheric emissions, effluent discharge, waste disposal and environmental
reporting and recordkeeping.  In the area of environmental protection and
compliance, TIMET's annual capital expenditures averaged over $1 million during
the past three years, and its 1994 capital budget provides for such capital
expenditures of less than $1 million.

TIMET is and has been engaged in the handling, manufacture or use of
substances or compounds that may be considered toxic or hazardous within the
meaning of environmental and worker safety laws and regulations.  In addition,
in connection with TIMET's operation in Nevada, it handles substantial
quantities of  a material regulated as an extremely hazardous substance under
the emergency planning and community right- to-know requirements of CERCLA.
Although TIMET's policy is to comply with all such applicable laws, some risk
of environmental and other damage is inherent in TIMET's operations and
products, as it is with other companies engaged in similar businesses.
Moreover, it is possible that future developments, such as implementation of
stricter requirements under the environmental laws, worker safety laws, and
enforcement policies thereunder, could bring into question the production,
handling, use, storage, transportation, sale or disposal of TIMET's products
and their by-products.  Such developments could result in additional, presently
unquantifiable, costs or liabilities to TIMET.

TIMET's foreign operations are similarly subject to foreign laws
respecting environmental and worker safety matters, which laws are generally
less stringent than their U.S. counterparts and which have not had, and are not
presently expected to have, a material adverse effect on TIMET.

TIMET holds 32% of the outstanding common stock of Basic Investments,
Inc. ("BII").  BII and its subsidiaries, including Basic Management, Inc.
("BMI"), provide utility services to, and owns property adjacent to, TIMET's
plant at Henderson, Nevada (the "BMI Complex").  The other principal owners of
BII, including Kerr McGee Chemical Corporation, Chemstar Lime Company and
Pioneer Chlor Alkali Company, Inc., also operate facilities in the BMI Complex.
Each of such companies, along with certain other companies that previously
operated facilities in the BMI Complex, have executed an agreement with the
Nevada Division of Environmental Protection ("NDEP") providing for a phased
assessment of the environmental condition of the BMI Complex and each of the
individual company sites.  Phase I reports have been submitted to the NDEP.
Negotiations between the NDEP and the BMI Complex companies over the scope of
any necessary sampling and analysis, and the allocation of the costs therefor,
are ongoing at this time.  TIMET has accrued anticipated expenses in connection
with the ongoing investigation.  While no determination has been made with
respect to the need for, or scope of, any environmental remediation at this
site, there can be no assurance that TIMET will not incur some liability for
any remediation costs which may result.

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In 1993, Tremont entered into a settlement agreement with the Arkansas
Division of Pollution Control and Ecology in connection with certain alleged
water discharge permit violations at an abandoned barite mining property in
Arkansas.  The settlement agreement, among other things, requires Tremont to
undertake a remediation/reclamation program during 1994 at an approximate cost
of $1 million.

In 1993, TIMET discovered an anomaly in certain alloyed titanium
material manufactured by TIMET for shipment to a jet engine manufacturer,
resulting from tungsten-contaminated master alloy sold to TIMET by a
third-party vendor and used as a alloying addition to its titanium material.
The engine manufacturer has taken the precaution of requiring the inspection,
and, in certain cases, the remelting, reprocessing and reinspection, of all
titanium material that might have been manufactured using potentially
contaminated master alloy from this vendor (which also includes titanium
produced by another major U.S. titanium manufacturer that purchased master
alloy from the same supplier).  TIMET has accrued its estimate of out-of-pocket
expenses in connection with this on-going investigation.  TIMET believes that
any liability for costs or damages incurred by TIMET and/or its customers in
this matter should ultimately rest with the supplier of the defective master
alloy.  TIMET maintains substantial general liability insurance coverage
against claims of this nature that it currently believes would cover most of
any such claims in the event it were unable to recover from the master alloy
supplier.

Other.  BII is actively engaged in efforts to develop for commercial,
industrial and residential purposes approximately 3,000 acres of land
surrounding the BMI Complex in Henderson, a suburb of Las Vegas.  Any such
development by BII would be in conjunction with TIMET and the other BII
stockholders who hold water rights necessary for any development of such lands.
The use of the water rights for this purpose is subject to governmental
approval, which approval Tremont understands BII expects to receive during the
first half of 1994.  TIMET is also pursuing the possible commercial development
of approximately 80 acres of unused land surrounding its Nevada plant, either
independently or as a part of BII's land development activities.

Indirect wholly-owned captive insurance subsidiaries of Tremont
(collectively, "TRE Insurance") reinsured certain comprehensive general
liability, auto liability, workers' compensation and employers' liability risks
of NL (which then included both Tremont and Baroid) through June 1988, and also
participated in various third party reinsurance treaties through December 1988.
TRE Insurance's reinsurance business is on a runoff basis.  NL, Baroid (now a
Dresser subsidiary) and TRE Insurance are parties to insurance sharing
agreements whereby NL and Baroid will reimburse TRE Insurance with respect to
certain loss payments and reserves established by TRE Insurance that (i) arise
out of claims against NL and Baroid and (ii) are subject to payment by TRE
Insurance under certain reinsurance contracts.  Also, TRE Insurance will credit
NL and Baroid with respect to certain underwriting profits or recoveries, if
any, that TRE Insurance receives from independent reinsurers that relate to NL
and Baroid.

- 31 -

33
ITEM 2.  PROPERTIES

Valhi leases approximately 34,000 square feet of office space for its
principal executive offices in a building located at 5430 LBJ Freeway, Dallas,
Texas, 75240-2697.

The principal properties used in the operations of the Company, NL and
Tremont are described in the applicable business sections of Item 1 -
"Business."  The Company, NL and Tremont believe that their facilities are
adequate and suitable for their respective uses.

ITEM 3.  LEGAL PROCEEDINGS

The Company, NL and Tremont are involved in various legal proceedings.
Information called for by this Item, except for information regarding certain
of NL's and Tremont's legal proceedings that has been summarized, is included
in Note 20 to the Company's Consolidated Financial Statements, which
information is incorporated herein by reference.

Information called for by this Item regarding NL's legal proceedings
that has been summarized in Note 20 to the Company's Consolidated Financial
Statements is included in Item 3 of NL's Annual Report on Form 10-K for the
year ended December 31, 1993 included as Exhibit 99.1 of this Annual Report on
Form 10-K, and is incorporated herein by reference.

Information called for by this Item regarding certain of Tremont's
legal proceedings that has been summarized in Note 20 to the Company's
Consolidated Financial Statements is included in Note 17 (Legal proceedings -
Tremont and consolidated subsidiaries) to Tremont's Consolidated Financial
Statements included in Item 8 of Tremont's Annual Report on Form 10-K for the
year ended December 31, 1993 included as Exhibit 99.2 of this Annual Report on
Form 10-K, and is incorporated herein by reference.

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

No matters were submitted to a vote of security holders during the
quarter ended December 31, 1993.

- 32 -

34
PART II

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

Valhi's common stock is listed and traded on the New York and Pacific
Stock Exchanges (symbol:  VHI).  As of February 28, 1994, there were
approximately 6,500 holders of record of Valhi common stock.  The following
table sets forth the high and low sales prices for Valhi common stock for the
years indicated, according to the New York Stock Exchange Composite Tape, and
dividends paid during such periods.  On February 28, 1994 the closing price of
Valhi common stock according to the NYSE Composite Tape was $6.

DIVIDENDS
HIGH          LOW            PAID  
------        ------       ---------

Year ended December 31, 1992

First Quarter                                                       $7            $5 3/8           $.05
Second Quarter                                                       7 1/8         5 1/8            .05
Third Quarter                                                        6 1/4         4 3/8            .05
Fourth Quarter                                                       5 3/8         4 1/4            .05

Year ended December 31, 1993

First Quarter                                                       $6 1/2        $4 7/8           $.05
Second Quarter                                                       5 1/4         3 3/4             -
Third Quarter                                                        5 3/4         4                 -
Fourth Quarter                                                       5 3/8         4 1/2             -

On March 10, 1994, the Company declared a cash dividend of $.02 per
common share, payable March 31, 1994 to holders of record on March 24, 1994,
and adopted a policy which provides for regular quarterly dividends of $.02 per
common share.  However, declaration and payment of dividends and the amount
thereof will be dependent upon the Company's results of operations, financial
condition, cash requirements for its businesses, contractual requirements and
restrictions and other factors deemed relevant by the Board of Directors.
There are currently no contractual restrictions on the ability of Valhi to
declare or pay dividends.

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35
ITEM 6.  SELECTED FINANCIAL DATA

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

YEARS ENDED DECEMBER 31,                   
--------------------------------------------------------------
1989          1990           1991          1992       1993
----          ----           ----          ----       ----
(IN MILLIONS, EXCEPT PER SHARE DATA)

STATEMENTS OF OPERATIONS DATA:
Net sales:
Refined sugar                              $  413.4      $  410.9       $  439.7      $  459.2   $  430.8
Forest products                               217.7         197.4          179.7         194.8      174.3
Fast food                                      93.5         103.6          101.5         103.8      111.6
Hardware products                              55.0          52.6           44.8          54.0       64.4
--------      --------       --------      --------   --------

$  779.6      $  764.5       $  765.7      $  811.8   $  781.1
========      ========       ========      ========   ========

Operating income:
Refined sugar                              $   37.6      $   48.0       $   42.0      $   37.8   $   37.5
Forest products                                34.5          22.8            8.0          22.0       26.3
Fast food                                      10.4           8.6            7.8           8.5        9.7
Hardware products                               7.1           9.0            7.9          10.7       17.5
--------      --------       --------      --------   --------

$   89.6      $   88.4       $   65.7      $   79.0   $   91.0
========      ========       ========      ========   ========

Equity in earnings (losses) of
affiliates:
NL Industries                              $  104.6      $   43.2       $  (19.3)     $  (32.1)  $  (44.7)
Tremont Corporation                              .4           9.7            (.4)        (16.6)     (15.1)
Provision for market value impairment          -             -              -            (22.0)     (84.0)
--------      --------       --------      --------   -------- 

$  105.0      $   52.9       $  (19.7)     $  (70.7)  $ (143.8)
========      ========       ========      ========   ======== 

Income (loss) before extraordinary items     $  102.3      $   73.7       $   20.0      $  (22.2)  $  (64.1)
Extraordinary items                               1.1            .9            4.8          (6.3)     (15.4)
Cumulative effect of changes in
accounting principles                           -             -              -            (69.8)        .4
--------      --------       --------      --------   --------

Net income (loss)                        $  103.4      $   74.6       $   24.8      $  (98.3)  $  (79.1)
========      ========       ========      ========   ======== 

PER SHARE DATA:
Income (loss) before extraordinary items     $    .90      $    .65       $    .18      $   (.19)  $   (.56)
Extraordinary items                               .01           .01            .04          (.06)      (.13)
Cumulative effect of changes in
accounting principles                           -             -              -             (.61)      -   
--------      --------       --------      --------   --------

Net income (loss)                        $    .91      $    .66       $    .22      $   (.86)  $   (.69)
========      ========       ========      ========   ======== 

Cash dividends declared                      $    .25      $    .20       $    .20      $    .20   $    .05
========      ========       ========      ========   ========

Weighted average common shares
outstanding                                    114.0         113.3          113.5         113.9      114.1

BALANCE SHEET DATA (at year end):
Current assets                               $  339.4      $  362.4       $  496.5      $  504.6   $  394.4
Investment in affiliates                        690.0         709.6          410.6         248.4       74.9
Total assets                                  1,300.5       1,344.8        1,177.1       1,077.0      903.9
Current liabilities                             361.8         421.2          378.1         489.0      364.8
Long-term debt                                  619.1         584.2          352.7         288.7      302.5
Stockholders' equity                            287.4         294.6          385.5         259.1      207.5

- 34 -

36
ITEM 7.  MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS:

GENERAL

The results of operations of the Company's consolidated business
segments, general corporate and other items, as well as the Company's equity in
losses of NL and Tremont, are discussed below.  Consolidated operating income
and margins increased in both 1992 and 1993, and interest expense declined in
each of the past two years as both average borrowing levels and interest rates
were reduced.  The following table expresses income of consolidated companies
before income taxes as a percentage of total sales.  Segment operating income
is expressed as a percentage of the respective segment's sales.

YEARS ENDED DECEMBER 31,
-------------------------------
1991         1992        1993
----         ----        ----

Net sales:
Refined sugar                                                                57.4%        56.6%       55.2%
Forest products                                                              23.5         24.0        22.3
Fast food                                                                    13.3         12.8        14.3
Hardware products                                                             5.8          6.6         8.2
-----        -----       -----

Total net sales                                                           100.0%       100.0%      100.0%
=====        =====       ===== 

Segment operating income:
Refined sugar                                                                 9.6%         8.2%        8.7%
Forest products                                                               4.5%        11.3%       15.1%
Fast food                                                                     7.7%         8.2%        8.6%
Hardware products                                                            17.6%        19.8%       27.2%

Total operating income                                                          8.6%         9.7%       11.6%
General corporate items:
Business unit dispositions, net                                               -             .4         -
Securities transactions                                                       8.2           .3          .1
Interest and dividend income                                                   .8          1.1          .7
General expenses                                                             (1.0)         (.9)       (1.1)
Other, net                                                                     .5          -           (.1)
Interest expense                                                               (9.4)        (6.3)       (4.9)
-----        -----       ----- 

Income of consolidated companies before
income taxes                                                               7.7%         4.3%        6.3%
=====        =====       ===== 

The Company's results for the past three years were also impacted by
significant nonoperating transactions.  The Company reported significant losses
attributable to NL and Tremont in each of the past three years, including
impairment charges for other than temporary declines in the market value of
Tremont stock ($22 million in 1992) and NL stock ($84 million in 1993).  In
1991, the Company reported a $64 million gain from securities transactions as a
result of its sale of Baroid common stock, and both 1992 and 1993 included
extraordinary losses related to prepayments of indebtedness.

- 35 -

37
Changes in accounting methods by the Company, NL and Tremont for
postretirement benefits other than pensions ("OPEB") and income taxes in 1992
resulted in a $70 million charge to earnings, of which about $64 million
related to NL and Tremont.   In 1993, a change in accounting for marketable
securities resulted in a $42 million increase in stockholders' equity,
substantially all of which related to the Company's remaining Baroid (now
Dresser) common stock, and which was recorded as a direct credit to equity.

The Company's business plan for 1994 reflects profitable operations
for its consolidated companies, and reflects continuing but reduced losses
attributable to its equity in NL and Tremont.

REFINED SUGAR
YEARS ENDED DECEMBER 31,                   % CHANGE     
---------------------------------       ----------------------
1991         1992          1993        1991-92        1992-93
----         ----          ----        -------        -------
(IN MILLIONS)

Net sales:
Refined sugar                             $397.6       $417.0        $396.6        + 5%            - 5%
By-products and other                       42.1         42.2          34.2        + 0%            -19%
------       ------        ------                            

$439.7       $459.2        $430.8        + 4%            - 6%
======       ======        ======                            

Operating income                            $ 42.0       $ 37.8        $ 37.5        -10%            - 1%
======       ======        ======                            

Operating income margin                        9.6%         8.2%          8.7%

Percentage change in:
Sugar sales volume                                                                 +10%            - 2%
Average sugar selling
price                                                                             - 5%            - 3%

During 1993, average refined sugar selling prices declined for the
third year in a row, principally as a result of an oversupply of sugar
resulting from increases in allowable imports and increases in domestic
production.  Sugar sales volume in 1993 was lower than in 1992 in large part as
a result of marketing allotments imposed by the United States Department of
Agriculture on domestic sugarcane and sugarbeet processors, which allotments
limited the amount of sugar which each processor could market for the crop year
ended September 30, 1993.  Amalgamated's allotment equated to approximately 95%
of its production from the 1992 crop and, accordingly, resulted in a larger
than normal carryover of refined sugar inventory into the new crop year.  The
marketing allotments, imposed in June, had a positive impact on prices in the
third quarter of 1993.  Prices weakened during the fourth quarter following
expiration of the allotments.  The Company believes that sugar import quota
levels are too high for current domestic production levels.  As a result,
absent import quota reductions or imposition of marketing allotments on
domestic producers, the pressure on selling prices will likely continue.

Due primarily to a projected record high sugar content of the beets,
Amalgamated's sugar production from the crop harvested in the fall of 1993 is
currently expected to establish a new record for the fourth consecutive year.
Refined sugar inventories were significantly higher at December 31, 1993 than
one year ago due to the carryover effects of the 1993 marketing allotments, as
well as the size of this year's crop.  Absent any marketing allotment
restrictions,

- 36 -

38
these combined factors are expected to result in an increase in 1994 refined
sugar sales volume over 1993 levels.  Amalgamated currently expects contracted
acreage for the 1994 crop will approximate that harvested in 1993.

Refined sugar historically represents approximately 90% of
Amalgamated's annual sales.  Fluctuations in the volume of by-products sold,
generally sold principally in the first and fourth calendar quarters,
approximate those of refined sugar.  The selling prices of by-products are
affected by the prices of competing animal feeds and are, therefore,
independent of the price of sugar.  Average selling prices of dried pulp, the
principal by-product, were 11% lower in 1993 than in 1992.

Sugarbeet purchase cost is the largest cost component of producing
refined sugar and the price Amalgamated pays for sugarbeets is, under the terms
of its contracts with sugarbeet growers, a function of the average selling
price of Amalgamated's refined sugar.  As a result, changes in sugar selling
prices impact sugarbeet purchase costs as well as revenues.  Processing costs
per hundredweight of refined sugar were higher in 1992 than in either 1991 or
1993 due in part to relatively adverse weather conditions during the sugarbeet
processing campaign.  Processing costs per hundredweight for the current crop
are expected to be slightly higher than last year in part due to a new
three-year labor contract which extends through July 1996.  This labor contract
provides for wage increases averaging approximately 3% per year and for
increased employee deductibles and co-payments for medical insurance.  The
largest component of Amalgamated's selling, general and administrative expenses
is the freight cost of sugar and by-products delivered to customers.
Consequently, such expenses vary significantly with the volume of refined sugar
and by-products sold.

Amalgamated's cost of sales is determined under the last-in, first-out
accounting method.  In periods of declining sugar prices, such as during much
of the past three years, LIFO operating income will be higher than on a FIFO
basis.  Supplemental information comparing refined sugar segment operating
income and margins computed on a LIFO basis and on a FIFO basis is presented
below.

YEARS ENDED DECEMBER 31,                 % CHANGE     
------------------------------       ----------------------
1991         1992        1993       1991-92        1992-93
----         ----        ----       -------        -------
(IN MILLIONS)

Operating income:
LIFO accounting method                       $42.0        $37.8       $37.5        -10%            -1%
FIFO accounting method                        39.8         32.2        31.9        -19%            -1%

Operating income margin:
LIFO accounting method                        9.6%         8.2%        8.7%
FIFO accounting method                        9.0%         7.0%        7.4%

- 37 -

39
FOREST PRODUCTS

Medite's operations are grouped into two components: MDF (an
engineered wood product) and solid wood (logs, lumber and other wood products).

YEARS ENDED DECEMBER 31,                  % CHANGE     
-------------------------------       ----------------------
1991         1992         1993        1991-92        1992-93
----         ----         ----        -------        -------
(IN MILLIONS)

Net sales:
Medium density fiberboard                   $ 98.0       $111.6      $112.1        + 14%           + 0%
Solid wood products                           85.5         85.4        63.7        -  0%           -25%
Eliminations                                  (3.8)        (2.2)       (1.5)
------       ------      ------ 

$179.7       $194.8      $174.3        +  8%           -11%
======       ======      ======                            

Operating income:
Medium density fiberboard                   $  1.6       $ 12.1      $ 13.9        +649%           +15%
Solid wood products                            6.4          9.9        12.4        + 56%           +26%
------       ------      ------                            

$  8.0       $ 22.0      $ 26.3        +176%           +20%
======       ======      ======                            

Operating income margins:
Medium density fiberboard                     1.6%        10.8%       12.4%
Solid wood products                           7.4%        11.6%       19.5%

Medium density fiberboard.  Medite's worldwide MDF sales volume
increased 3% in 1993, setting a new volume record for the second consecutive
year.  Volume in the second half of 1993 was stronger than in the first half of
the year while in 1992 the reverse was true.  The improvements in volume
reflect, in Medite's opinion, increased demand for engineered wood products.
Sales of specialty MDF products have continued to increase, with these
higher-margin sales representing 20% of MDF sales dollars (12% of MDF volume)
in 1993 compared to 14% and 7%, respectively, in 1992 and 12% and 6%,
respectively, in 1991.  Overall MDF average selling prices, in billing currency
terms, were favorably impacted in 1993 by product price increases and the
higher percentage of specialty product sales.  These increases were more than
offset by adverse effects of currency fluctuations and, in U.S. dollar terms,
worldwide average selling prices were 2% lower than in 1992.

The improvements in MDF sales and operating income in 1992 resulted
from an 8% increase in volume and higher average selling prices.  Fluctuations
in the value of the U.S. dollar relative to other currencies had a generally
positive impact on 1992 average selling prices, in U.S. dollar terms, although
a significant decline in the value of the pound sterling had a negative impact
late in the year.  Sales of higher- margin specialty grades of MDF increased,
as noted above.  Volume comparisons in 1992 were aided by the extremely low
volume in the first quarter of 1991, in part as a result of the Persian Gulf
War, and sales resulting from the reduction of inventories during 1992 which
were higher than normal in Europe at the end of 1991.  Medite had determined to
build inventories during the later part of 1991 in anticipation of improved
demand and pricing in 1992.  MDF operating income was also favorably impacted
in 1992 by increased production volume and improved operational efficiency at
the New Mexico MDF plant.

- 38 -

40
Medite is operating at a high rate of capacity and while its total MDF
volume is not expected to increase significantly prior to completion of the
Irish plant expansion in 1995, Medite plans to continue to pursue further
penetration of higher-margin specialty MDF markets in 1994.

Solid wood products.  Solid wood operations for the past three years
are not, in certain respects, directly comparable due to the closure of
Medite's plywood operations in January 1993 and the destruction by fire of its
Rogue River, Oregon chipping and veneer plant in June 1992, as discussed below.
Excluding plywood and veneer operations, solid wood sales increased 48% in 1993
compared to 1992.

Medite's solid wood products are principally commodity-type products
with selling prices significantly influenced by relative industry supply and
demand factors.  Average selling prices of solid wood products increased
significantly in 1993 over 1992 levels (lumber up 29%; logs up 46%) due
primarily to the combined effects of the continuing Pacific Northwest timber
shortage, closure of certain competitor operations and increased demand for
building products.  These factors also increased Medite's timber costs, as
discussed below.  The increase in average selling prices of logs in 1993, as
well as a significant increase in log volume, was also impacted by Medite's
decision to sell higher-quality logs rather than using such logs in plywood
manufacturing operations, which were closed in January 1993.  Solid wood sales
declined slightly in 1992 compared to 1991 due to the net effects of increases
in product line average selling prices of 12% to 19%, an 18% decrease in total
volume and changes in product mix, including lower wood chip sales.  The Rogue
River fire contributed to the volume decline and product mix changes in 1992.

The average unit cost of logs used in Medite's solid wood operations
increased about 25% in 1993 following a 28% increase in 1992.  These cost
increases were due primarily to increases in the cost of timber from government
and other sources, offset in part by the favorable impact of planned reductions
in LIFO log and other inventory levels, which were being reduced as a result of
the closure of the plywood operations.  The favorable impact on operating
income from the reduction of LIFO inventories was $.8 million in 1991, $1.9
million in 1992 and $.5 million in 1993.

The current Pacific Northwest timber shortage, and the resulting high
cost of public and other purchased timber, is expected to continue for the
foreseeable future.  In response, Medite has reduced its longer-term need for
government timber by closing marginal production facilities (including its
plywood operations), increasing its emphasis on the direct sale of logs,
reducing the rate of harvest of its fee timber and adopting a more sustained
yield approach to harvesting timber from company-owned lands.  Medite believes
that, over the longer term, approximately 40% of the log requirements for its
solid wood operations will be obtained from its own lands.  The percentage of
logs obtained from company-owned lands in 1993 (20%), and expected in 1994
(10%), is unusually low due to the harvest of timber under government contracts
that expire in 1994.  The combined net effects of this relatively low
percentage of lower-cost fee timber and a substantial reduction in the volume
of logs sold is expected to negatively impact solid wood operating income
comparisons in 1994.

- 39 -

41
Medite's Rogue River veneer operations contributed about $19 million
to 1991 solid wood sales and $10 million to 1992 sales before the fire.
Replacement chipping operations resumed in July 1993 and new veneer operations
resumed in January 1994.  The new veneer operations are designed to process the
smaller, second-growth timber expected to be available from company-owned
timberlands on a longer-term sustainable basis.  Recognition of business
interruption insurance helped, to some extent, to offset the loss of Rogue
River earnings in late 1992 and part of 1993.  Business interruption insurance,
received in 1992 and recognized as a component of operating income from July
1992 through August 1993 ($3.7 million in 1992 and $1.9 million in 1993), was
allocated to each month that the various operations were originally expected to
be down based upon estimates of the expected operating profit of the Rogue
River operations during such periods.  Such estimates of lost operating
earnings were based upon selling prices in effect at the time they were
prepared in 1992 and the expected reconstruction schedule at that time.  Medite
believes that business interruption insurance did not fully compensate for the
aggregate dollar amount of operating earnings that Rogue River would have
generated had it been operating because industry price levels were higher than
those inherent in the insurance estimates and because operations did not resume
as soon as originally expected.  Inclusion of business interruption insurance
in the results of operations did, however, have a significant favorable,
non-recurring effect on the aggregate solid wood operating income margins
during the July 1992 - August 1993 period as this income had no associated
cost.

Medite closed its plywood operations principally as a result of
increased wood costs (the full effect of which could not be passed through in
increased selling prices) and the relative shortage of public timber to supply
the large diameter logs required to match the plywood plant's manufacturing
capabilities.  Plywood operations accounted for approximately $2 million of
solid wood sales in 1993 before the closure compared to $36 million in 1992 and
$31 million in 1991.  As a result of improvement in market conditions late in
the year, Medite's plywood operations were approximately break-even during 1992
after losing approximately $2 million in 1991.

Reductions in overhead and administrative costs due to the reduced
scale of manufacturing operations and overall cost containment programs also
favorably impacted 1993 solid wood operating income.  Costs in 1991 were, in
certain respects, not directly comparable to 1992 and 1993 as a result of
adopting SFAS Nos. 109 (income taxes) and 106 (OPEB), which increased costs due
primarily to additional depreciation and depletion resulting from adjustment of
assets acquired in prior business combinations originally recorded net-of-tax,
and an offsetting cost decrease in depletion resulting from lower depletion
rates on company-owned timber, as depletion rates were revised due to a change
in estimate of remaining standing timber based upon a cruise of Medite's timber
holdings.

- 40 -

42
FAST FOOD

YEARS ENDED DECEMBER 31,                   % CHANGE     
----------------------------------       ----------------------
1991          1992          1993        1991-92        1992-93
----          ----          ----        -------        -------
(IN MILLIONS)

Net sales                                  $101.5        $103.8        $111.6         +2%            + 7%
Operating income                              7.8           8.5           9.7         +9%            +13%

Operating income margin                       7.7%          8.2%          8.6%

Arby's units operated:
At end of year                              158           160           160         +1%            -
Average during the year                     155           158           159         +2%            + 1%

Sales in 1993 established a new record for Sybra, and operating income
was a near-record, as comparable store sales increased 6%.  Customer traffic
increased in part due to certain promotional sandwiches positioned as
limited-time only products in certain regions and marketed to price-driven
consumers with various levels of advertising support.  Improving general
economic conditions also contributed to the increase in comparable store sales
in 1993.

Extensive menu-price discounting caused by the continued high level of
competition in the fast food industry and weak economic conditions impacted
Sybra's results during much of 1991 and 1992.  As a result of a 4% increase in
comparable store sales during the fourth quarter, comparable store sales for
1992 were only nominally below 1991 levels.  Stable food product costs and
higher average transactions contributed to the improvement in operating income
in 1992.

As a result of the strengthening in sales beginning in September 1992,
and the resulting 16 consecutive months of increases in comparable store sales
through December 1993 following declines in 18 of the previous 20 months going
back to the beginning of 1991, comparative increases may not be as favorable
during 1994 as those of 1993.  In addition, winter weather in certain of
Sybra's markets during early 1994 was much more severe than in the comparable
period of 1993.  Sybra continues to seek opportunities to broaden its menu and
expand high volume service hours.

HARDWARE PRODUCTS

YEARS ENDED DECEMBER 31,                   % CHANGE     
---------------------------------       ----------------------
1991          1992          1993        1991-92        1992-93
----          ----          ----        -------        -------
(IN MILLIONS)

Net sales                                   $44.8         $54.0         $64.4        +21%            +19%
Operating income                              7.9          10.7          17.5        +36%            +63%

Operating income margin                      17.6%         19.8%         27.2%

Hardware products reported record sales and operating income in 1993.
Sales, operating income and margins improved in both 1993 and 1992 due
primarily to increased volumes in the three major product lines.  In 1993, lock
sales dollars were up 24%, drawer slides were up 10% and computer keyboard
support arms were up 38% following increases of 33%, 21% and 16%, respectively,
in 1992.  A

- 41 -

43
lock contract with a U.S. Government agency obtained in 1992 and extended
through much of 1993, along with a new contract with the same agency covering
May 1993 through 1994 at higher than prior contract volume levels, contributed
significantly to the lock volume increase.  The operations acquired in June
1992 from a Canadian competitor, which complemented the existing drawer slide
and lock product lines, also contributed to volume increases in both 1992 and
1993.

Almost two-thirds of National Cabinet Lock's sales are generated by
its Canadian operations.  About 60% of the Canadian-produced sales are
denominated in U.S. dollars while substantially all of the related costs are
incurred in Canadian dollars.  As a result, fluctuations in the value of the
U.S. dollar relative to the Canadian dollar favorably impacted operating
results in both 1993 and 1992 compared to the respective prior year.

National Cabinet Lock currently expects more modest growth in 1994
than in the prior two years in part due to production capacity considerations.
Capital spending in 1994 emphasizes capacity increases.

BUSINESS UNIT DISPOSITIONS

See Note 4 to the Company's Consolidated Financial Statements.

GENERAL CORPORATE

Securities transactions - Securities transactions in 1991 relate
principally to the sale of Baroid common stock and in 1992 and 1993 relate to
U.S. Treasury securities.  As described in Note 1 to the Company's Consolidated
Financial Statements, the Company adopted the accounting for certain marketable
debt and equity securities prescribed by SFAS No. 115 effective December 31,
1993.  Accordingly, timing of recognition of gains and losses related to
marketable securities beginning in 1994 will, in certain respects, be different
than in prior years.

Other general corporate income (expense)

YEARS ENDED DECEMBER 31,             INCREASE (DECREASE)
-------------------------------        ---------------------
1991         1992        1993         1991-92       1992-93
----         ----        ----         -------       -------
(IN MILLIONS)

Interest and dividend income                  $  6.0        $ 9.3       $ 5.2         $ 3.3         $(4.1)
General expenses                                (7.6)        (7.4)       (8.9)           .2          (1.5)
Other, net                                       4.2           .3        (1.1)         (3.9)         (1.4)
------        -----       -----         -----         ----- 

$  2.6        $ 2.2       $(4.8)        $ (.4)        $(7.0)
======        =====       =====         =====         ===== 

Interest and dividend income fluctuates based on levels of investments
and yields thereon.  The average balance of funds available for temporary
investment was higher in 1992 than in either 1991 or 1993 while yields
generally declined in both 1992 and 1993.  The increase in general corporate
expenses in 1993 resulted in large part from lower net charges to affiliates.
Other, net in 1991 includes $3.3 million of income related to the Company's
equity in undistributed earnings of Baroid prior to May 1991.  A $1.5 million
provision for additional environmental remediation expenses relating to certain
operations no longer conducted by the Company was a principal reason for the
increase in other expenses, net in 1993.

- 42 -

44
INTEREST EXPENSE

Interest expense declined $20.7 million (29%) in 1992 and further
declined $12.9 million (25%) in 1993 as a result of lower average indebtedness
levels and lower interest rates.  The lower average interest rates resulted in
part from the prepayment of Valhi 12 1/2% Senior Subordinated Notes from the
proceeds of lower-rate borrowings.

At December 31, 1993, about one-half of the Company's aggregate
long-term debt and credit facilities, including unused amounts, have variable
interest rates and the remainder (principally Valhi's 9.25% LYONs, Valcor's 9
5/8% Senior Notes and a portion of Medite's Timber Credit Agreement term loan)
have fixed rates.  No periodic interest payments are required on the deferred
coupon LYONs, resulting in cash interest payments lower than accrual basis
interest expense.

PROVISION FOR INCOME TAXES

The principal reasons for the difference between the Company's
effective income tax rates and the U.S. federal statutory income tax rates are
explained in Note 14 to the Company's Consolidated Financial Statements.

The Company's provision for income tax benefits in both 1992 and 1993
includes deferred tax benefits in excess of taxes currently payable.  At
December 31, 1993, the Company had net deferred tax assets of approximately $24
million resulting primarily from amounts related to the excess of tax basis
over book basis of investments in subsidiaries and affiliates that are not
members of the Company's consolidated tax group.  The Company has, among other
things, significant appreciated assets and the ability to generate significant
taxable capital gains should it need to offset any capital losses reported for
tax purposes.

EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES

See Notes 16 and 18, respectively, to the Company's Consolidated
Financial Statements.

- 43 -

45
UNCONSOLIDATED AFFILIATES - NL AND TREMONT

The Company's interests in NL and Tremont are reported by the equity
method.  The information included below related to the financial position,
results of operations and liquidity and capital resources of NL and Tremont has
been summarized from the reports filed with the Commission by NL and Tremont,
which reports contain more detailed information concerning such companies,
including complete financial statements prepared on their historical bases of
accounting.

Valhi's equity in earnings (losses) of NL and Tremont is different
than its percentage ownership in their separately-reported earnings due to
amortization of basis differences arising from purchase accounting adjustments
made by the Company in conjunction with the acquisition of its interests in NL
and Tremont.  Amortization of such basis differences generally reduces
earnings, or increases losses, attributable to affiliates, as reported by
Valhi.  In 1993, aggregate basis difference amortization expense was reduced by
approximately $7 million as a result of enacted changes in certain income tax
rates, principally a reduction in German rates.  Substantially all of such
favorable impact, which is not of a normal recurring nature, relates to NL.

The Company periodically evaluates the net carrying value of its
long-term assets, including its investments in NL and Tremont, to determine if
there has been any decline in value below their respective net carrying values
that is considered to be other than temporary and would, therefore, require a
write-down accounted for as a realized loss.  As a result of this process,
Valhi recorded a $22 million writedown of its investment in Tremont in 1992 and
each of Valhi and Tremont recorded writedowns of their respective investments
in NL in 1993, resulting in an $84 million pre-tax charge to Valhi.  While the
accounting rules may require an investment in a security accounted for by the
equity method to be written down if the market value of that security declines,
they do not permit a writeup if the market value subsequently recovers.  The
Company's per share net carrying value of NL at December 31, 1993 was $2.43,
compared to quoted market values of $4.50 at that date and $8.875 at February
28, 1994.  The Company's per share net carrying value of Tremont at December
31, 1993 was $4.17, compared to quoted market values of $6.875 at that date and
$7.875 at February 28, 1994.

- 44 -

46
NL Industries.  NL's chemical operations are conducted through its
wholly-owned subsidiaries Kronos, Inc. (TiO2) and Rheox, Inc.  (specialty
chemicals).  NL is highly leveraged and has reported significant losses in the
past three years.  The future profitability of NL is dependent upon, among
other things, improved pricing for TiO2, NL's principal product.  Selling
prices for TiO2 are significantly influenced by industry supply and demand.  In
the fourth quarter of 1993, TiO2 prices increased slightly in certain markets.
Based on, among other things, NL's current near-term outlook for its TiO2
business, NL expects its results for 1994, while improved from 1993, will still
result in a net loss for the year.  Accordingly, Valhi expects to report a loss
attributable to its equity in NL in 1994.

YEARS ENDED DECEMBER 31,                    CHANGE     
-----------------------------------       ----------------------
1991          1992          1993        1991-92        1992-93
----          ----          ----        -------        -------
(IN MILLIONS)

Net sales:
Kronos                                  $ 732.1       $ 784.6       $ 697.0        + 7%            -11%
Rheox                                     108.2         108.9         108.3        + 1%            - 1%
-------       -------       -------                            

$ 840.3       $ 893.5       $ 805.3        + 6%            -10%
=======       =======       =======                            

Operating income:
Kronos                                  $ 110.8       $  81.9       $  36.1        -26%            -56%
Rheox                                      28.2          28.8          26.3        + 2%            - 9%
-------       -------       -------                            
139.0         110.7          62.4        -20%            -44%
====            ====

General corporate items:
Interest and dividends                     40.5          14.2           4.1
Securities transactions                   (53.1)         (6.0)          4.4
Expenses, net                             (45.0)        (43.4)        (41.6)
Interest expense                           (100.4)       (118.5)        (99.1)
-------       -------       ------- 
(19.0)        (43.0)        (69.8)       $(24.0)         $(26.8)
Income taxes                                 (3.9)          (.5)        (12.7)
Minority interest                            (1.1)         (1.1)          (.7)
-------       -------       ------- 

Loss before extraordinary
items and cumulative
effect of changes in
accounting principles                    $ (24.0)      $ (44.6)      $ (83.2)       $(20.6)         $(38.6)
=======       =======       =======        ======          ====== 

Valhi's equity in NL's
losses, including
amortization of basis
differences (*)                          $ (19.3)      $ (32.1)      $ (44.7)       $(12.8)         $(12.6)
=======       =======       =======        ======          ====== 

(*)      Excludes Valhi's $84 million impairment provision for an other than
temporary decline in the market value of NL common stock in 1993.
Such impairment provision is separately disclosed in Note 2 to the
Company's Consolidated Financial Statements.

- 45 -

47
The worldwide TiO2 industry continues to be adversely affected by,
among other things, production capacity in excess of current demand.  Largely
as a result thereof, TiO2 selling prices continued to decline during most of
1993 and Kronos' operating income and margins significantly declined.
Recessionary economic conditions in Europe and changes in the relative values
of European currencies were principal additional factors influencing current
demand and pricing levels during 1993.  In billing currency terms, Kronos' 1993
average TiO2 selling prices were approximately 8% lower than in 1992 and were
6% lower in 1992 than in 1991.  A significant amount of sales are denominated
in currencies other than the U.S. dollar, and fluctuations in the value of the
U.S. dollar relative to other currencies further decreased 1993 sales by $45
million compared to 1992 and increased 1992 sales by $22 million compared to
1991.  Average TiO2 prices at the end of 1993 were approximately 5% below
year-end 1992 levels and approximately one-third below those of the last
cyclical peak in early 1990.  While TiO2 prices are significantly below prior
year levels, most of the 1993 decline occurred in the first half of the year as
average prices declined only slightly during the third quarter and increased
slightly during the fourth quarter.

TiO2 sales volume of 346,000 metric tons in 1993 increased 3% compared
to 1992, as increases in North American sales volume more than offset weakened
demand in Europe.  In response to weakened demand, and in order to reduce
inventories, Kronos made further reductions in its TiO2 production rates during
1993.  TiO2 sales volume increased 11% in 1992, primarily in U.S. and European
markets.  Approximately one-half of Kronos' 1993 TiO2 sales, by volume, were
attributable to markets in Europe with about two-fifths attributable to North
America and the balance to export markets.

As a result of continued cost reduction and containment efforts,
Kronos' raw material and production costs increased only slightly in 1993
compared to year-ago levels.  Start-up costs at the chloride process plant in
Lake Charles, Louisiana, which commenced production during the first half of
1992, unfavorably impacted operating income in 1992.  Kronos' 1992 operating
income was also impacted by slightly lower unit production costs resulting from
its continued emphasis on costs reduction efforts and increased production
volumes.  Kronos' water treatment chemicals business, which utilizes TiO2
co-products, contributed more to operating income in 1992 than in either 1991
or 1993.

Demand, supply and pricing of TiO2 have historically been cyclical
and, as noted above, the last cyclical peak for TiO2 prices occurred in early
1990.  Kronos believes that its operating income and margins for 1994 will be
higher than in 1993 due principally to slightly higher sales and production
volumes and the favorable effect of the joint venture with Tioxide, discussed
below.  However, NL expects that the TiO2 industry will continue to operate at
lower capacity utilization levels over the next few years relative to the high
utilization levels prevalent during the late 1980's, primarily because of the
slow recovery from worldwide recession and the impact of capacity additions
since the late 1980's.  The economic recovery has been particularly slow in
Europe, where a significant portion of Kronos' TiO2 manufacturing facilities
are located.

- 46 -

48
During the current period of depressed TiO2 prices, NL has operated
with a strategy to maintain its competitive position.  During the past three
years, Kronos has increased its estimated worldwide market share from 10% to
11%.  Kronos has implemented a cost reduction and control program which
favorably impacted Kronos' operating results, and Kronos has continued its
environmental improvement efforts.  In October 1993, NL formed a manufacturing
joint venture with Tioxide and refinanced certain debt which, among other
things, increased NL's liquidity, reduced its aggregate debt level and extended
its debt maturities.  See also "Liquidity and Capital Resources."

The manufacturing joint venture, which is equally owned by
subsidiaries of Kronos and Tioxide, owns and operates the Louisiana chloride
process TiO2 plant formerly owned by Kronos.  Under the terms of the joint
venture and related agreements, Kronos contributed the plant to the joint
venture, Tioxide paid an aggregate of approximately $205 million, including its
tranche of the joint venture debt, and Kronos and certain subsidiaries
exchanged proprietary chloride process and product technologies with Tioxide
and certain of its affiliates.  Of the total consideration paid by Tioxide, $30
million was attributable to the exchange of technologies and is being reported
as a component of operating income ratably over three years from October 1993.
Production from the plant is being shared equally by Kronos and Tioxide
pursuant to separate offtake agreements.  The formation of the joint venture
resulted in a 12% decrease in Kronos' total TiO2 production capacity, however
Kronos' remaining capacity is about 10% higher than Kronos' 1993 sales volume.

Rheox's aggregate operating results have been relatively consistent
during the past three years.  Changes in currency exchange rates had a negative
effect in 1993 and a positive effect in 1992 compared to the respective prior
year, and operating costs generally increased during both years.

NL has substantial operations and assets located outside the United
States.  Foreign operations are subject to currency exchange rate fluctuations
and NL's results of operations have in the past been both favorably and
unfavorably affected by the fluctuations in currency exchange rates.  To the
extent NL both manufactures and sells in a given country, the impact of
currency exchange rate fluctuations is to some extent mitigated.

NL's interest and dividend income fluctuates based upon the amount of
funds invested and yields thereon.  Amounts available for investment and the
yield thereon in 1993 were lower than in 1992 and 1991.

After unsuccessful attempts to gain representation on the board of
directors of Lockheed Corporation, NL disposed of its interest in Lockheed in
1991, and the significant loss from securities transactions in 1991 relates
principally to that disposition.  In February 1994, NL settled its lawsuit
against Lockheed and Lockheed's directors, and Lockheed made a cash payment to
NL.  See Note 20 to the Company's Consolidated Financial Statements.
Securities transactions in 1992 and 1993 relate principally to U.S. Treasury
securities.  NL does not anticipate acquiring marketable securities (other than
U.S. Treasury or similar securities) in the foreseeable future.

- 47 -

49
NL's corporate expenses, net have decreased slightly during each of
the past two years.  In 1992, reductions in certain proxy solicitation and
litigation settlement expenses of $5 million and $9 million, respectively,
compared to 1991 were partially offset by an $11 million increase in
environmental remediation costs.  Environmental remediation costs were $4
million higher in 1993 than in 1992.

Lower average levels of indebtedness in 1993 and lower DM interest
rates reduced NL's interest expense in 1993 compared to 1992.  In addition,
1992 interest expense reflected the benefit of $9 million of capitalized
interest related principally to the Louisiana plant completed in March 1992.
Interest expense increased from 1991 to 1992 due to the net effects of lower
average levels of indebtedness, a $17 million decline in capitalized interest
and a $9 million reduction in NL's accrual for income tax related interest in
1991.  Overall, NL expects its October 1993 reduction and refinancing of
certain indebtedness will result in a modest decrease in NL's interest expense.

NL's operations are conducted on a worldwide basis and the geographic
mix of income can significantly impact NL's effective income tax rate.  In both
1992 and 1993, the geographic mix, including losses in certain jurisdictions
for which no current refund was available and in which recognition of a
deferred tax asset is not currently considered appropriate, contributed
significantly to its effective tax rate varying from a normally expected rate.
In 1991, realization of the available capital loss carryback of NL's securities
transactions at a relatively low rate due to the alternative minimum tax rates
in prior years also significantly impacted NL's effective tax rate.

NL reported an extraordinary loss of approximately $28 million in 1993
related to the settlement of certain interest rate swaps in conjunction with
prepaying the existing Louisiana plant borrowings and from the write-off of
deferred financing costs related to prepayment of such Louisiana plant
indebtedness and a portion of Kronos' Deutsche mark denominated bank credit
facility.

- 48 -

50
Tremont Corporation -  Tremont's consolidated operations consist of
one industry segment, titanium metals operations conducted through its now
75%-owned TIMET subsidiary.  Tremont also holds approximately 18% of NL's
outstanding common stock and reports its interest in NL by the equity method.
Discontinued operations represent Tremont's former bentonite mining operations,
which were sold to Baroid in July 1993.

As discussed below, the titanium metals business has been adversely
affected by, among other things, excess worldwide production capacity and
changes in market conditions.  Tremont has reported significant losses during
the past two years and expects to report a net loss for 1994.  Accordingly,
Valhi expects to report a loss attributable to its equity in Tremont for 1994.

YEARS ENDED DECEMBER 31,                     CHANGE     
----------------------------------        ----------------------
1991          1992          1993         1991-92        1992-93
----          ----          ----         -------        -------
(IN MILLIONS)

Net sales                                  $155.7        $153.9        $151.2           - 1%           - 2%
======        ======        ======         ======         ======

Operating income (loss)                    $  4.8        $ (9.7)       $(16.7)        $(14.5)        $ (7.0)
General corporate items                      (1.0)        (11.9)          4.3
Interest expense                             (3.8)         (3.7)         (4.3)
------        ------        ------ 
-           (25.3)        (16.7)
------        ------        ------ 

Equity in loss of NL:
Equity in NL's loss                         (.3)        (10.9)        (15.7)
Provision for market
value impairment                           -             -           (29.0)
------        ------        ------ 
(.3)        (10.9)        (44.7)
------        ------        ------ 

Loss before income taxes                      (.3)        (36.2)        (61.4)

Income tax benefit
(expense)                                   (1.1)          2.1           1.3
------        ------        ------
(1.4)        (34.1)        (60.1)
Discontinued operations                       (.1)           .4           7.5
------        ------        ------

Loss before extraordinary
items and cumulative
effect of changes in
accounting principles.                  $ (1.5)       $(33.7)       $(52.6)        $(32.2)        $(18.9)
======        ======        ======         ======         ====== 

Valhi's equity in Tremont's
losses, including
amortization of basis
differences (*)                           $  (.4)       $(16.6)       $(15.1)        $(16.2)        $  1.5
======        ======        ======         ======         ======

(*)      Excludes (i) Valhi's $22 million impairment provision for an other
than temporary decline in the market value of Tremont common stock in
1992 and (ii) Valhi's $14 million share of Tremont's 1993 impairment
provision for an other than temporary decline in the market value of
NL common stock, which equity is included as a component of Valhi's
impairment charge related to NL.  Such impairment provisions are
separately disclosed in Note 2 to the Company's Consolidated Financial
Statements.

- 49 -

51
TIMET's 1993 operating results reflect an 14% decrease in pounds
shipped compared to 1992, partially offset by changes in product mix.  The
volume decline occurred in the last half of 1993 (TIMET reported comparative
volume increases for the first half of the year), and reflected several
significant customer order cancellations and delays.  Start-up costs related to
TIMET's new VDP titanium sponge facility and other production variances also
adversely impacted operating income comparisons.  TIMET's 1993 operating loss
included a $4.7 million restructuring charge related to cost reduction
measures, including closing certain service centers in 1993 and severance costs
associated with workforce reductions expected to occur principally in 1994.

Sales volume in 1992 increased approximately 32% compared to pounds
shipped in 1991 reflecting, in part, an increase in TIMET's market share.
TIMET's average selling prices in 1992 were approximately 15% lower than in
1991 and changes in product mix also adversely affected operating income.

The titanium metals industry continues to be adversely affected by,
among other things, weak demand within the military and commercial aerospace
markets and excess worldwide production capacity.  Selling price pressures are
being exacerbated by the increasing availability of relatively inexpensive
titanium scrap, sponge and other mill products principally from Russia and
other CIS countries.  Sales of titanium for industrial markets, which currently
account for approximately 45% of TIMET's sales, are improving as the utility,
desalination, and certain other industries increase capital spending.

Tremont expects that TIMET's and the industry's production levels and
shipments over the next few years will remain substantially lower than the peak
levels of the late 1980's and 1990.  TIMET also expects industry conditions
will continue to result in adverse selling price pressures.  TIMET's efforts to
return to profitability are focused on improving manufacturing processes,
reducing overall costs and developing new markets for titanium products.  TIMET
expects its new VDP titanium sponge facility in Nevada to operate at
approximately 60% of capacity during 1994.  TIMET also expects to temporarily
close its older Kroll-leach titanium sponge production plant in 1994 until
market conditions substantially improve.

Union workers at TIMET's Nevada facility commenced a work stoppage in
October following expiration of their contract.  TIMET has unilaterally
implemented its last contract proposal, which includes modest wage increases,
enhanced profit sharing opportunities and pension improvements over the life of
the contract along with changes in TIMET's medical program and work rules.  The
union work stoppage has not materially impacted TIMET's production activities
as production is continuing during the strike utilizing salaried personnel and
outside contract labor.  The Ohio union contract, as extended in January 1994,
expires in July 1994.  During this period, TIMET and the union will negotiate
towards a new agreement and evaluate possible relocation of certain operations
to other TIMET locations or outside vendors.

UTSC converted its $75 million of debentures into a 25% equity
interest in TIMET in December 1993.  In addition to its minority interest in
TIMET, UTSC has the right to acquire up to approximately 20% of TIMET's annual
production capacity of VDP sponge at agreed-upon and formula-determined prices.

- 50 -

52
General corporate items, net include (i) a $5.5 million gain in 1993
from the sale of Tremont's 50% interest in a gold mining venture and (ii)
losses aggregating $3.4 million in 1991 and $5.9 million in 1992 resulting from
changes in estimated net realizable value of certain properties and other
assets held for sale.

Average outstanding borrowings increased in each of the past three
years.  Capitalized interest, related primarily to the VDP sponge facility, was
$1.5 million in 1991, $4.9 million in 1992 and $3.1 million in 1993.  Interest
expense in 1994 is expected to be slightly higher than in 1993.

Valhi may be deemed to control each of NL and Tremont and,
accordingly, Tremont reports its 18% interest in NL by the equity method.
Similarly to Valhi, Tremont's amortization of basis differences generally
reduces earnings, or increases losses, attributable to NL, as reported by
Tremont compared to the amount that would be expected by applying its ownership
interest to NL's separately-reported earnings.

Tremont's income tax benefit in both 1992 and 1993 varies from a
normally expected rate due primarily to losses, including losses related to NL,
resulting in temporary differences between book and taxable income for which
recognition of a deferred tax asset is not currently considered appropriate.
In 1991, Tremont's equity in losses of affiliates for which no tax benefit was
provided also impacted its effective tax rate.

- 51 -

53
LIQUIDITY AND CAPITAL RESOURCES:

CONSOLIDATED CASH FLOWS

YEARS ENDED DECEMBER 31, 
---------------------------------
1991        1992          1993
----        ----          ----
(IN MILLIONS)

Net cash provided (used) by:
Operating activities:
Net income (loss)                                                      $  24.8      $(98.3)      $ (79.1)
Depreciation, depletion and amortization                                  29.4        27.6          25.6
Noncash interest expense                                                   2.2         3.1          10.3
Noncash OPEB expense                                                       -           1.0            .6
Deferred income taxes (benefit)                                            2.7       (27.3)        (52.9)
Equity in losses of NL and Tremont                                        14.6        70.7         159.7
Dividends from NL and Tremont                                             24.4        10.7           -
Change in assets and liabilities, net                                    (29.1)       (4.2)        (36.4)
Other, net                                                               (64.8)        5.7           5.4
Cumulative effect of changes in accounting
principles                                                                -          69.8           (.4)
-------      ------       ------- 

4.2        58.8          32.8
-------      ------       -------

Investing activities:
Capital expenditures                                                     (26.8)      (28.0)        (39.1)
Sale (purchase) of securities, net                                       261.8       (13.6)         99.6
Business unit dispositions, net                                            6.1         9.7           (.9)
Other, net                                                                22.0        (7.5)          4.3
-------      ------       -------

263.1       (39.4)         63.9
-------      ------       -------

Financing activities:
Net borrowings (repayments)                                             (259.9)       36.8        (113.1)
Dividends                                                                (22.7)      (22.8)         (5.7)
Other, net                                                                 (.1)         .1           -  
-------      ------       -------

(282.7)       14.1        (118.8)
-------      ------       ------- 

Net cash provided (used) by operating,
investing and financing activities                                  $ (15.4)     $ 33.5       $ (22.1)
=======      ======       ======= 

Operating activities.  Depreciation, depletion and amortization for
each business segment is presented in Note 2 to the Company's Consolidated
Financial Statements.  The lower volume of fee timber harvested by Medite was a
principal reason for the declines in depreciation, depletion and amortization.
Noncash interest expense consists principally of amortization of original issue
discount ("OID") on Valhi's 12 1/2% Notes and, beginning in the fourth quarter
of 1992, on Valhi's LYONs.  The net deferred tax benefits in 1992 and 1993
relate principally to equity in losses of NL and Tremont.  Both NL and Tremont
suspended payment of dividends in 1992.

- 52 -

54
Changes in assets and liabilities relate to the relative timing of
sales, production and purchases, including, among other things, significant
seasonal fluctuations related to refined sugar operations.  Other, net includes
items, such as the gain on selling Baroid stock in 1991 and losses related to
prepaying 12 1/2% Notes in 1992 and 1993, that are included in the
determination of net income but are excluded from the determination of cash
flow from operating activities.

Cash provided by operating activities is summarized below.
Approximately 80% of the aggregate net change in assets and liabilities during
the last three years relates to Amalgamated as year-to-year fluctuations in the
size of the sugarbeet crop can have a material impact on working capital
levels.

YEARS ENDED DECEMBER 31, 
--------------------------------
1991         1992         1993
----         ----         ----
(IN MILLIONS)

Before changes in assets and liabilities:
Amalgamated                                                               $ 28.9       $ 27.7      $  26.6
Medite                                                                      16.2         25.7         25.6
Sybra                                                                        9.4         10.0         10.3
National Cabinet Lock                                                        5.9          9.0         11.2
Valhi/Valcor corporate and eliminations, net                               (27.1)        (9.4)        (4.5)
------       ------      ------- 
33.3         63.0         69.2
Changes in assets and liabilities, net                                       (29.1)        (4.2)       (36.4)
------       ------      ------- 

$  4.2       $ 58.8      $  32.8
======       ======      =======

Investing activities.  Capital expenditures during the past three
years for each business segment are presented in Note 2 to the Company's
Consolidated Financial Statements and discussed in the individual segment
sections below.

At December 31, 1993, the estimated cost to complete capital projects
in process approximated $36 million ($26 million in firm purchase commitments),
most of which relates to the expansion of Medite's Irish MDF production
facility discussed below.  The Company's total capital expenditures for 1994
are estimated at approximately $70 million, including $22 million related to
the Irish expansion and $6 million related to environmental protection and
improvement programs, principally air and water facilities at certain of
Amalgamated's factories.  Capital expenditures in 1994 are expected to be
financed primarily from the respective unit's operations or existing credit
facilities.

Net sales of securities in 1993 include sales of U.S. Treasury
securities made in conjunction with the redemptions of 12 1/2% Notes.  On a net
basis, cash was used to purchase Treasury securities in both 1991 and 1992.
The purchase of such securities in 1991 was more than offset from the proceeds
of Baroid stock sold, the sale of NL shares pursuant to NL's "Dutch Auction"
self-tender offer and the sale of NL shares to Tremont, which transactions are
described in Note 3 to the Company's Consolidated Financial Statements.

Net cash used from business unit dispositions in 1993 relates to
Medite's plywood plant.  Net cash provided in 1992 includes $11 million of
insurance proceeds related to the fire at Medite's Rogue River plant, and in
1991 relates to a Medite unit sold in 1990.

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55
Financing activities.  Net repayments of indebtedness in 1993 relate
principally to (i) Valhi's redemptions of $235 million principal amount of 12
1/2% Notes, (ii) Valcor's issuance of $100 million of 9 5/8% Senior Notes Due
2003, and (iii) net new borrowings of approximately $39 million under Medite's
Timber Credit Agreement.  Net borrowings in 1992 include $94 million of net
proceeds from the issuance of the LYONs and $59 million expended to repurchase
12 1/2% Notes in market transactions.  Net borrowing transactions in 1991
include Valhi's repayment of $252 million of parent company bank debt,
principally from the proceeds of Baroid and NL stock sold.

At December 31, 1993, the Company had aggregate unused borrowing
availability of $93 million under subsidiary credit facilities.  See Note 11 to
the Company's Consolidated Financial Statements.

REFINED SUGAR

Amalgamated's cash requirements are seasonal in that a major portion
of the total payments for sugarbeets is made, and the costs of processing the
sugarbeets are incurred, in the fall and winter of each year.  Accordingly,
Amalgamated's operating activities provide significant cash flow in the second
and third calendar quarters and use significant amounts of cash in the first
and fourth calendar quarters of each year.  To meet its  seasonal cash needs,
Amalgamated obtains short-term borrowings, primarily pursuant to the
Government's sugar price support loan program and bank credit facilities.
Amalgamated expects to meet its seasonal cash needs for the remainder of the
1993 crop year and for the 1994 crop through borrowings from such sources and
from internally-generated funds.

The effective net Government loan rate available to Amalgamated for
refined sugar from the 1993 crop is approximately 20.7 cents per pound, up from
20.47 cents per pound for the 1992 crop.  Borrowings under the Government loan
program are secured by refined sugar inventory and are otherwise nonrecourse to
Amalgamated.  At December 31, 1993, approximately 3.6 million hundredweight of
refined sugar inventory with a LIFO carrying value of approximately $67 million
(18.42 cents per pound) was the sole collateral for nonrecourse Government
loans of $76 million.

Amalgamated's capital expenditures in the past three years, which
emphasized equipment to improve productivity, aggregated $38 million and were
financed principally from operations and $18 million of term loan borrowings.
Estimated 1994 capital expenditures approximate $25 million, including $15
million for sugar extraction enhancing equipment and $5 million for
environmental protection and improvement programs, principally air and water
treatment facilities.  Capital expenditures in 1995 are also currently expected
to exceed the averages of the past few years and aggregate over $20 million.
In view of, among other things, the level of capital expenditures expected
during the next few years, Amalgamated is exploring additional financing
alternatives.

At December 31, 1993, Amalgamated had $24 million of borrowing
availability under the government loan program and bank credit facilities.

The Company believes the recently enacted North American Free Trade
Agreement will not adversely impact the U.S. sugar industry, and that the new
General Agreement on Tariffs and Trade, finalized in late 1993 but not yet
enacted by Congress, can be supported by the industry.

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56
FOREST PRODUCTS

Medite's primary strategic focus is to continue its expansion in the
growing market for MDF with particular emphasis on higher-margin specialty
products and to increase its presence in Europe and Mexico.  Medite's present
access to adequate and reliable wood fiber raw materials represents a
significant aspect of its MDF operations, and expanded MDF production
capabilities will generally be directed to those regions providing attractive
long-term availability of wood fiber.  Medite also actively manages its fee
timberlands, which are a valuable resource as the existing shortage of Pacific
Northwest public timber available for harvest is expected to continue for the
foreseeable future.  In this regard, and as a result of the uncertain supply
and increased cost of government timber, Medite has closed marginal production
facilities, reduced the rate of harvest of its fee timber and adopted a more
sustained yield approach to managing its fee timber holdings.

Medite has commenced an expansion of its Clonmel, Republic of Ireland
MDF plant, which will increase its Irish MDF production capacity by
approximately 75% and increase its worldwide MDF capacity by approximately 25%.
This expansion is expected to be completed in 1995, cost approximately $33
million and will be financed in part by a $26 million multi-currency bank term
loan. In connection with the expansion, Medite obtained approximately $4
million of grants from the Irish government, approximately $2 million of which
will reduce bank borrowings.

Medite's fee timberlands in Southern Oregon contain approximately 645
MMBF of generally second-growth merchantable timber.  The average annual timber
growth rate is approximately 4%.  Medite's new Rogue River chipping facility
began operations in July 1993 and its new veneer operations resumed in January
1994.  These facilities, as well as Medite's Oregon stud lumber mill, are
designed to process the smaller, second-growth timber expected to be available
from company-owned timberlands on a longer-term basis.

At December 31, 1993, Medite had contracts to acquire approximately 20
MMBF of timber from Government sources in 1994.  The Federal Timber Contract
Payment Modification Act of 1986 contains certain restrictions on the volume of
Government timber that may be offered for sale, and Medite does not anticipate
acquiring any significant amount of new Government timber contracts in the
foreseeable future.  As discussed above, Medite has adjusted its manufacturing
operations in response to the expected timber supply and expects to meet its
longer-term timber needs from its own lands and other private sources.

Medite's capital expenditures in the past three years totaled $35
million and included an aggregate of $11 million in 1992 and 1993 related to
the replacement of the Rogue River facilities, $6 million in 1993 related to
the Irish expansion and over $4 million during the three-year period for
additions to timber and timberland and reforestation activities.  Capital
expenditures in 1994 are estimated at $32 million, including $22 million
related to the Irish MDF plant expansion.

At December 31, 1993, amounts available for borrowing under Medite's
existing U.S. and non-U.S. bank credit agreements were $29 million and $26
million, respectively.

As a result of the closure of its plywood operations, Medite has a 105
acre site in Medford, Oregon which is believed to have alternative development
possibilities and is held for sale.

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57
FAST FOOD

Sybra, like most restaurant businesses, is able to operate with
nominal working capital because sales are for cash, inventory turnover is
rapid, and payments to trade suppliers are generally not due for 30 days.

During the past three years, Sybra has opened 14 new Arby's
restaurants.  Sybra currently plans to open six to ten new Arby's restaurants
during 1994, and the first new store opened in late February.  Sybra's 1994
capital expenditures are estimated at $11 million, approximately 75% of which
are for new restaurants, and the remainder for Sybra's continuing program to
remodel and update existing stores.  Approximately 40% of Sybra's capital
expenditures in the past three years related to remodeling older stores.

Sybra continually evaluates the profitability of its individual
restaurants and intends to continue to close unprofitable stores when
appropriate.  In this regard, Sybra closed eight stores during the past three
years, closed another four stores in January 1994 and may close one or two
additional stores later in 1994.

Sybra's Consolidated Development Agreement with Arby's, Inc. requires
it to open 31 new stores during 1993-1997 in its existing markets, of which
three units had been opened through December 31, 1993.  The aggregate cost of
this expansion during the remaining four years of the CDA is estimated at
approximately $23 million, including $8 million in 1994, and is expected to be
financed with a combination of new mortgage and capital lease financing and
internally generated funds.  Sybra currently anticipates that its planned
expansion program will enable it to retain its exclusive Dallas/Fort Worth and
Tampa development rights over the term of the CDA.

At December 31, 1993, Sybra had $8 million of borrowing availability
under its existing unsecured revolving credit agreements.

HARDWARE PRODUCTS

In early 1993, National Cabinet Lock completed the relocation of the
Canadian manufacturing operations acquired in June 1992, certain of which
operations were integrated into existing facilities.  In late 1993, National
Cabinet Lock completed an expansion of its South Carolina lock facility and
terminated certain low-margin furniture component product lines previously
manufactured in Canada.  Capital expenditures for 1994 are estimated at $4
million and are directed principally at capacity-related projects.

At December 31, 1993, National Cabinet Lock's Canadian subsidiary had
$6 million of borrowing availability under its existing revolving credit
agreements.

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58
GENERAL CORPORATE

Valhi's operations are conducted through its wholly-owned subsidiaries
(Amalgamated and Valcor) and through NL and Tremont, publicly- held affiliates
which Valhi may be deemed to control.  Valcor is an intermediate parent company
with its operations conducted through wholly- owned subsidiaries (Medite, Sybra
and National Cabinet Lock).  Accordingly, Valhi's and Valcor's long-term
ability to meet their respective parent company level obligations is dependent
in large measure on the receipt of dividends or other distributions from their
respective subsidiaries, the realization of their investments through the sale
of interests in such entities and investment income.  Various credit agreements
to which subsidiaries 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 the Company's ability to service
parent company level obligations.  Valhi has not guaranteed any indebtedness of
its direct and indirect wholly-owned subsidiaries or of NL or Tremont.

Valcor.  Valcor was formed in 1993 to hold three of the Company's core
operating businesses and enable the Company to obtain lower cost borrowings
than could have been obtained through a similar-sized issue of Valhi notes.  In
the fourth quarter of 1993, Valcor issued $100 million of 9 5/8% Senior Notes
Due 2003 and dividended $75 million of the proceeds to Valhi.  The Company
believes that distributions from Valcor's operating subsidiaries (Medite, Sybra
and National Cabinet Lock) will be sufficient to enable Valcor to meet its
obligations, which consist principally of the 9 5/8% Notes.  In addition, a
portion of the net proceeds from the Valcor Note issue were retained within the
Valcor group for general corporate purposes, including maintenance of a
liquidity cushion and temporary reduction of subsidiary revolving borrowings.
Valcor has not guaranteed any indebtedness of its subsidiaries.  Future Valcor
dividends to Valhi are generally limited to 50% of Valcor's consolidated net
income, as defined, after 1993.

Valhi.  At December 31, 1993, Valhi's parent company debt consists
solely of the LYONs, which do not require current cash debt service.  The
Company believes that distributions from Amalgamated and Valcor will be more
than sufficient to enable Valhi to satisfy its net parent level expenses.  In
addition, Valhi had cash, cash equivalents and trading securities of $39
million at year-end 1993.

Valhi owns 5.5 million shares of Dresser common stock, which shares
are held in escrow for the benefit of holders of the LYONs.  The LYONs are
exchangeable, at the option of the holder, for the Dresser shares owned by
Valhi.  Prior to the January 1994 merger of Dresser and Baroid, the LYONs were
exchangeable for Baroid common stock held by the Company.  Exchanges of LYONs
for Dresser stock would result in the Company reporting income related to the
disposition of the Dresser stock for both financial reporting and income tax
purposes, although no cash proceeds would be generated by such exchanges.  As
of February 28, 1994, the market value of the Dresser stock held by Valhi was
$124 million, or approximately $14 million in excess of the LYONs obligation at
that date and equal to the accreted value of the LYONs through June 1995.
Valhi continues to receive regular quarterly Dresser dividends (recently
increased to $.17 per quarter) on the escrowed shares.  At such rate, dividends
from Dresser in 1994 would be 36% higher than those received from Baroid in
1993.

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59
The Company routinely compares its liquidity requirements and
alternative uses of capital against the estimated future cash flows to be
received from its subsidiaries and unconsolidated affiliates, and the estimated
sales value of those units.  As a result of this process, the Company has in
the past and may in the future seek to raise additional capital, refinance or
restructure indebtedness, modify its dividend policy, consider the sale of
interests in subsidiaries or unconsolidated 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.  From time to time, the Company also evaluates the
restructuring of ownership interests among its subsidiaries and related
companies.  The Company routinely evaluates 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.

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60
UNCONSOLIDATED AFFILIATES - NL AND TREMONT

Summarized historical balance sheet and cash flow information of NL
and Tremont is presented below.

NL INDUSTRIES              TREMONT CORPORATION
-----------------------         -------------------
DECEMBER 31,                  DECEMBER 31,   
-----------------------         -------------------
1992           1993            1992        1993
----           ----            ----        ----
(IN MILLIONS)

Cash, equivalents and securities                         $  187.9       $  147.6         $ 14.7      $ 20.3
Other current assets                                        447.9          319.9           99.9        93.7
Noncurrent securities                                        23.6           18.4            8.8         7.7
Investment in NL                                             -              -              76.5        22.3
Investment in joint ventures                                  2.4          190.8           11.0        13.6
Other noncurrent assets                                      64.3          151.2           47.9        18.3
Property and equipment                                      746.0          378.6          139.5       147.3
--------       --------         ------      ------

$1,472.1       $1,206.5         $398.3      $323.2
========       ========         ======      ======

Current liabilities                                      $  248.8       $  232.5         $ 52.4      $ 66.0
Long-term debt                                              992.0          835.2          124.0        43.5
Accrued OPEB costs                                           71.8           68.3           51.5        51.7
Deferred income taxes                                       145.7          139.0            -           -
Other noncurrent liabilities                                157.8          193.9           21.1        16.4
Minority interest                                             2.3            2.4           -           27.2
Stockholders' equity (deficit):
Capital and retained earnings                             (33.6)        (143.4)         153.5       126.7
Adjustments, principally foreign
currency translation                                    (112.7)        (121.4)          (4.2)       (8.3)
--------       --------         ------      ------ 

(146.3)        (264.8)         149.3       118.4
--------       --------         ------      ------

$1,472.1       $1,206.5         $398.3      $323.2
========       ========         ======      ======

YEARS ENDED DECEMBER 31,                 
-----------------------------------------------------------
NL INDUSTRIES                     TREMONT          
----------------------------    ---------------------------
1991       1992       1993       1991      1992      1993
----       ----       ----       ----      ----      ----
(IN MILLIONS)

Net cash provided (used) by:
Operating activities                          $  58.1    $ (44.7)   $  (7.3)   $  24.8    $ (3.7)   $  1.5
Investing activities:
Capital expenditures                         (195.1)     (85.2)     (48.0)     (30.3)    (67.7)    (16.3)
Other, net                                     85.7      320.1      229.9     (113.0)      5.5      19.5
Financing activities:
Net borrowings (repayments)                    (5.7)    (201.4)    (154.7)      18.9      55.1      (5.3)
Capital transactions, net                    (202.5)      (3.6)       -         (3.0)       .2       -
Dividends and other, net                      (35.6)     (18.1)       (.6)      (3.8)     (5.3)      (.3)
-------    -------    -------    -------    ------    ------ 

$(295.1)   $ (32.9)   $  19.3    $(106.4)   $(15.9)   $  (.9)
=======    =======    =======    =======    ======    ====== 

Cash paid for:
Interest, net of amount capitalized           $ 107.6    $ 138.0    $  91.6    $   3.9    $  1.6    $  1.0
Income taxes (refund)                            54.6       31.4       11.9       (3.6)     (1.8)     (3.4)

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61
NL Industries.  During 1993, NL's operations continued to use
significant amounts of cash.  TiO2 production rates were reduced in late 1992
and during 1993 in order to reduce inventory levels.  The $30 million received
from Tioxide in October 1993 related to the exchange of technologies, which is
being recognized as a component of operating income over three years, favorably
impacted 1993 cash flow from operating activities.  Other relative changes in
working capital items, which result principally from the timing of purchases,
production and sales, also contributed to the comparative decrease in NL's cash
used by operating activities in 1993.  The significant deterioration in NL's
cash flow from operating activities from 1991 to 1992 resulted primarily from
the decline in earnings and the relative change in NL's receivables,
inventories and payables.

Cash provided by investing activities relates primarily to net sales
of marketable securities in each period to fund debt repayments, capital
expenditures and operations, and in 1993 includes $161 million net cash
generated related to the formation of the Tioxide manufacturing joint venture.

NL's capital expenditures during the past three years include an
aggregate of $204 million related to the completion of the Louisiana chloride
process TiO2 plant and an aggregate of $57 million ($30 million in 1993) for
NL's ongoing environmental protection and compliance programs, including a
Canadian waste acid neutralization facility, a Norwegian onshore tailings
disposal system and off-gas desulfurization systems at various operating
facilities.  NL's estimated 1994 capital expenditures are $44 million and
include $30 million in the area of environmental protection and compliance,
primarily related to the Canadian waste acid neutralization facility and the
German off-gas desulfurization systems.

Net repayments of indebtedness in 1993 included payments on the DM
bank credit facility of DM 552 million ($342 million when paid), a $110 million
net reduction in indebtedness related to the Louisiana TiO2 plant and $350
million proceeds from NL's October 1993 public offering of debt, all as
discussed below.  Net repayments of indebtedness in 1992 included payments on
the DM term loan aggregating DM 350 million ($225 million when paid) and $61
million drawn under Kronos' Louisiana plant credit facilities.  Net borrowings
in 1991 included a $115 million Rheox term loan, a $52 million increase in the
Louisiana plant term construction loan and a DM 150 million ($87 million when
paid) reduction in the DM term loan.  NL and Kronos have agreed, under certain
conditions, to provide Kronos' principal international subsidiary with up to an
additional DM 125 million through January 1, 2001.

In October 1993, NL (i) completed the formation of the manufacturing
joint venture with Tioxide, including related refinancing of Louisiana plant
indebtedness, (ii) completed a public offering of $250 million of 11.75% Senior
Secured Notes Due 2003 and $100 million proceeds ($188 million principal amount
at maturity) of 13% Senior Secured Discount Notes Due 2005 (collectively, the
"NL Notes"), (iii) prepaid DM 552 million ($342 million when paid) of the DM
bank credit facility and amended the DM loan agreement, and (iv) redeemed the
remaining $10 million of NL's 7 1/2% sinking fund debentures.

The DM bank credit facility, as amended, consists of a DM 448 million
term loan and a DM 250 million revolving credit facility.  At December 31,
1993, DM 150 million was available for future borrowings under the revolving
facility.  The final maturities of the term and revolving portion of the DM
credit facility were extended to 1999 and 2000, respectively, with the first
payment of the term loan due in 1997.

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62
Upon formation, the joint venture obtained $216 million in new
financing consisting of two equal tranches, one attributable to each partner,
which is serviced through the purchase of the plant's TiO2 output in equal
quantities by the partners.  Each partner is required to make capital
contributions to the joint venture to pay principal on their respective portion
of the joint venture indebtedness.  Kronos' pro rata share of the joint venture
debt is reflected as outstanding consolidated indebtedness of NL because Kronos
has guaranteed the purchase obligation relative to the debt service of its
tranche.

Formation of the joint venture and related refinancing, issuance of
the NL Notes and prepayment of a portion of the DM bank credit facility
significantly improved NL's liquidity and financial flexibility by (i)
increasing cash and cash equivalents by approximately $75 million, (ii)
reducing total outstanding indebtedness by approximately $109 million, (iii)
providing for approximately DM 150 million of borrowing availability under the
revolving portion of the amended DM bank credit facility, (iv) eliminating the
near-term principal amortization requirements and extending the remaining
principal amortization schedule of the DM bank credit facility, and (v)
replacing approximately $100 million of outstanding debt with the Senior
Secured Discount Notes which do not require cash interest payments for five
years.  The NL Notes are intended to be serviced from the cash flow generated
by Kronos' international subsidiaries, principally through a series of
intercompany notes whose terms mirror those of the NL Notes.

Financing activities include treasury stock purchases, including $181
million expended in 1991 in connection with NL's "Dutch Auction" self-tender
offer.  Dividends paid were $35 million in 1991 and $18 million in 1992.  NL
suspended dividend payments in October 1992.

At December 31, 1993, approximately one-fourth of NL's cash, cash
equivalents and current securities were held by non-U.S.  subsidiaries.  NL's
subsidiaries had $14 million and $117 million available for borrowing at
December 31, 1993 under existing U.S and non-U.S.  credit facilities,
respectively.

NL has taken and continues to take measures to manage its near-term
and long-term liquidity requirements, including cost reduction and containment
efforts, tightening of controls over working capital, deferral and reduction of
capital expenditures, discontinuance of unrelated business acquisition
activities, suspension of dividends, formation of the manufacturing joint
venture and the refinancing discussed above.  NL currently expects to have
sufficient liquidity to meet its near-term obligations including operations,
capital expenditures and debt service.  A prolonged period of depressed TiO2
selling prices and continued use of cash by operations would, however, over the
long term, have an adverse effect on NL's liquidity and financial condition.

Certain of NL's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany, are being examined and tax authorities have
proposed or may propose tax deficiencies.  In June 1993, German tax authorities
issued assessment reports in connection with examinations of NL's German income
tax returns disallowing NL's claims for refunds, primarily for 1989 and 1990,
aggregating DM 160 million ($92 million at year-end exchange rates), and
proposing additional taxes of approximately DM 100 million ($58 million).  NL
has applied for administrative relief from collection procedures and may grant
a lien on certain German assets while NL contests the proposed adjustments.
Although NL believes that it will ultimately prevail, in June 1993 NL
reclassified the DM 160 million of refundable income tax claims disallowed by
the German tax authorities from current assets to noncurrent assets due to the
uncertain timing

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63
of a resolution.  NL believes that it has adequately provided accruals for
additional income taxes and related interest expense which may ultimately
result from all such examinations and believes that the ultimate disposition of
all such examinations should not have a material adverse effect on NL's
consolidated financial position, results of operations or liquidity.  Pursuant
to the amended DM bank credit facility, any receipt of the refundable German
income taxes will be applied ratably to prepay installments of the term portion
of the DM bank credit facility, with any remaining proceeds of the tax refund
used to permanently reduce the revolving credit portion.

At December 31, 1993, NL had recorded net deferred tax liabilities of
$139 million.  NL operates in several tax jurisdictions, in certain of which it
has temporary differences that net to deferred tax assets (before valuation
allowance).  NL has provided a deferred tax valuation allowance of $133
million, principally related to the U.S. and Germany, for deferred tax assets
which NL believes may not currently meet the "more likely than not" realization
criteria for asset recognition.

NL has been named as a defendant, PRP, or both, in a number of legal
proceedings associated with environmental matters, including waste disposal
sites currently or formerly owned, operated or used by NL, many of which
disposal sites or facilities are on the U.S. Environmental Protection Agency's
Superfund National Priorities List or similar state lists.  On a regular basis,
NL evaluates the potential range of its liability at sites where it has been
named as a PRP or a defendant.  NL believes it has provided adequate accruals
($70 million at December 31, 1993) 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.  NL is also a defendant in a number of legal proceedings
seeking damages for personal injury and property damage arising out of the sale
of lead pigments and lead-based paints.  NL has not accrued any amounts for the
pending lead pigment litigation.  Although no assurance can be given that NL
will not incur future liability in respect of this litigation, based on, among
other things, the results of such litigation to date, NL believes that the
pending lead pigment litigation is without merit.  Any liability that may
result is not reasonably capable of estimation by NL.  NL currently believes
the disposition of all claims and disputes, individually and in the aggregate,
should not have a material adverse effect on NL's 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, capital needs
and availability of resources in view of, among other things, its debt service
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 refinance or
restructure indebtedness, raise additional capital, restructure ownership
interests, sell interests in subsidiaries, marketable securities or other
assets, or take a combination of such steps or other steps to increase or
manage its liquidity and capital resources.  Such activities have in the past
and may in the future involve related companies.

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64
Tremont Corporation.  Tremont's cash flow from operations improved in
1993, despite higher operating losses, in large part as a result of relative
changes in operating assets and liabilities, including TIMET's restructuring
charge accrual.

TIMET's new VDP titanium sponge facility accounted for over two-thirds
of aggregate capital expenditures during the past three calendar years (90% in
1993).  Capital expenditures for 1994 are currently estimated at about $3
million, significantly lower than in recent years due principally to the
completion of the VDP plant.

Investing activities in 1993 included aggregate proceeds of
approximately $26 million from the sale of Tremont's interest in a gold mining
venture and the sale of its bentonite mining business, and included purchases
of NL common stock of $92 million in 1991 and $10 million in 1992.

Average outstanding borrowings increased in each of the past three
years due to relative operating needs and funding of TIMET's capital
expenditures.  Net borrowings in 1991 and 1992 included $61 million of TIMET
subordinated debentures issued to UTSC, which increased the debentures
outstanding to $75 million at the end of 1992.   Dividends paid were $4 million
in 1991 and $5 million in 1992.  Tremont suspended payment of dividends in
1992.

In December 1993, UTSC converted its $75 million of debentures into
25% of TIMET's outstanding voting common stock.  Such conversion (i) decreased
Tremont's ownership of TIMET to 75%, resulting in recognition of minority
interest of $27 million, (ii) eliminated $75 million of long-term debt from
Tremont's consolidated balance sheet, and (iii) increased Tremont's
consolidated stockholders' equity by about $31 million, net of related deferred
income taxes.

During the past several years, TIMET's combined operations, capital
expenditures and debt service have consumed significant amounts of cash.  TIMET
has taken and continues to take measures to manage its near-term and long-term
liquidity requirements including, among other things, continued cost reduction
efforts, deferral and reduction of capital expenditures, sale of certain
assets, deferral of certain payments and other efforts to reduce the level of
working capital, including reducing production rates and closing certain
facilities.  At December 31, 1993, TIMET had outstanding borrowings and letters
of credit of approximately $29 million under the $30 million revolving portion
of its bank credit agreement.  TIMET is pursuing additional sources of
liquidity.  UTSC has allowed TIMET to defer interest payments aggregating
approximately $6 million originally due prior to July 1993 until June 1994, and
TIMET is currently negotiating for a further deferral.  TIMET believes these
measures, if successful, will provide it with the liquidity to meet its
near-term obligations including operations, capital expenditures and debt
service.  However, the continued consumption of cash would have a further
adverse effect on TIMET's liquidity and financial condition.  Neither Tremont
or UTSC have guaranteed any indebtedness of TIMET nor are they obligated to
provide additional funds to TIMET.

Tremont, with its 75% equity interest in TIMET and 18% equity interest
in NL, is principally a holding company.  At December 31, 1993, Tremont had
parent level cash, equivalents and securities of approximately $13 million.
Tremont has suspended both its regular quarterly dividend and its unrelated
business acquisition activities.  Tremont believes it will have sufficient
liquidity to meet its existing near-term parent company level obligations.

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65
Tremont loaned $25 million to TIMET over the past two years, a portion
of which was contributed to TIMET's capital in 1993.  TIMET's repayment of the
remaining $19 million of such loans and related accrued interest, and the
payment of dividends by TIMET, is subject to TIMET achieving certain financial
targets under its bank credit agreement and are not currently permitted.

Approximately one-half of Tremont's consolidated accrued OPEB costs
relate to TIMET's plans, with substantially all of the remainder relating to
retirees of former units from periods prior to the 1990 separation of Tremont
and Baroid for which Tremont retained the obligation.

Tremont periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its debt
service requirements and estimated future operating cash flows.  As a result of
this process, Tremont may seek to raise additional capital, restructure
ownership interests, refinance or restructure indebtedness, sell interests in
subsidiaries, marketable securities or other assets, or take a combination of
such steps or other steps to increase or manage its liquidity and capital
resources.  Such activities have in the past and may in the future involve
related companies.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

None.

- 64 -

66
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

ITEM 11. EXECUTIVE COMPENSATION

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to
the Valhi Proxy Statement.  See also Note 19 to the Company's Consolidated
Financial Statements.

- 65 -

67
PART IV

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

(a) and (d)     Financial Statements and Schedules

The Registrant

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

50 percent-or-less owned persons

Consolidated financial statements of NL Industries,
Inc. (49%-owned), with independent auditors report
thereon, pages F-1 through F-38 inclusive of NL's
Annual Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 1-640)
included herein as Exhibit 99.1, are filed as part of
this Annual Report.

Consolidated financial statements of Tremont
Corporation (48%-owned), with independent auditors
report thereon, pages F-1 through F-33 inclusive of
Tremont's Annual Report on Form 10-K for the year
ended December 31, 1993 (Commission File No. 1-10126)
included herein as Exhibit 99.2, are filed as part of
this Annual Report.

(b)             Reports on Form 8-K

Reports on Form 8-K filed for the quarter ended
December 31, 1993 and the months of January and 
February 1994:

October 29, 1993  - Reported Items 5 and 7.
November 8, 1993  - Reported Items 5 and 7.
February 11, 1994 - Reported Items 5 and 7.

(c)             Exhibits

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

- 66 -

68

PAGE NUMBER:  
MANUALLY     
ITEM NO.          SIGNED COPY                       EXHIBIT INDEX
--------          -----------                       -------------

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

3.2                              By-Laws of the Registrant as amended - incorporated by reference to Exhibit
3.1 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1992.

4.1                              Form of Indenture between the Registrant and NationsBank of Georgia, N.A.,
as Trustee, governing Liquid Yield Option Notes due 2007 - incorporated by
reference to Exhibit 4.1 to a Registration Statement on Form S-2 (No. 33-
49866) filed by the Registrant.

4.2                              Indenture dated November 1, 1993 governing Valcor's 9 5/8% Senior Notes due
2003, including form of note - incorporated by reference to Exhibit 4.1 of
Valcor's Quarterly Report on Form 10-Q (File No. 33-63044) for the quarter
ended September 30, 1993.

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

4.4                              Indenture dated October 20, 1993 governing NL's 13% Senior Secured Discount
Notes due 2005, including form of note - incorporated by reference to
Exhibit 4.6 of NL's Quarterly Report on Form 10-Q (File No. 1-640) for the
quarter ended September 30, 1993.

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

10.2                              Stock Purchase Agreement dated October 30, 1991 between the Registrant and
Tremont Corporation - incorporated by reference to Exhibit 28.1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
30, 1991.

10.3                              Valhi, Inc. 1987 Incentive Stock Option - Stock Appreciation Rights Plan -
incorporated by reference to Exhibit 4.1 of a Registration Statement on Form
S-8 (No. 33-41507) filed by the Registrant.

- 67 -

69

10.4                              Valhi, Inc. 1990 Non-Employee Director Stock Option Plan - incorporated by
reference to Exhibit 4.1 of a Registration Statement on Form S-8 (No. 33-
41508) filed by the Registrant.

10.5                              Loan Agreement between Medite Corporation and United States National Bank of
Oregon dated July 16, 1993 - incorporated by reference to Exhibit 10.1 of
the Registrant's Quarterly Report on Form 10-Q (File No. 1-5467) for the
quarter ended June 30, 1993.

10.6                              Amended and Restated Loan Agreement dated October 15, 1993 among Kronos
International, Inc., the Banks set forth therein and Hypobank International
S.A., as Agent, and Banque Paribas, as Co-Agent - incorporated by reference
to Exhibit 10.17 of NL's Quarterly Report on Form 10-Q (File No. 1-640) for
the quarter ended September 30, 1993.

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

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

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

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

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

- 68 -

70

10.12                             Contract dated September 9, 1971, between Farbenfabrieken Bayer
Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung concerning
supplies and services (German language version and English translation
thereof) - incorporated by reference to Exhibit 10.15 of NL's Annual Report
on Form 10-K (File No. 1-640) for the year ended December 31, 1985.

10.13                             Agreement dated February 8, 1984 between Bayer AG and Kronos Titan GmbH
(German language version and English translation thereof) - incorporated by
reference to Exhibit 10.16 of NL's Annual Report on Form 10-K (File No. 1-
640) for the year ended December 31, 1985.

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

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

10.16                             Amendment No. 3 to the Sponge Purchase Agreement between Titanium Metals
Corporation and Union Titanium Sponge Corporation - incorporated by
reference to Exhibit 10.32 of Tremont's Annual Report on Form 10-K (File No.
1-10126) for the year ended December 31, 1993.

21.1                              Subsidiaries of the Registrant.

23.1                              Consent of Coopers & Lybrand.

23.2                              Consent of KPMG Peat Marwick.

23.3                              Consent of Arthur Andersen & Co.

99.1                              NL Industries, Inc. (File No. 1-640) Annual Report on Form 10-K for the year
ended December 31, 1993 - Item 3 - "Legal Proceedings" and Item 8 -
"Financial Statements and Supplementary Data" (pages F-1 to F-38).

99.2                              Tremont Corporation (File No. 1-0126) Annual Report on Form 10-K for the
year ended December 31, 1993 - Item 8 - "Financial Statements and
Supplementary Data" (pages F-1 to F-33).

- 69 -

71
SIGNATURES

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

VALHI, INC.
(Registrant)

By: /s/ MICHAEL A. SNETZER           
Michael A. Snetzer, March 10, 1994
(President)

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

/s/ ARTHUR H. BILGER                       /s/ HAROLD C. SIMMONS
Arthur H. Bilger, March 10, 1994           Harold C. Simmons, March 10, 1994
(Director)                                 (Chairman of the Board and Chief
Executive Officer)

/s/ NORMAN S. EDELCUP                      /s/ GLENN R. SIMMONS
Norman S. Edelcup, March 10, 1994          Glenn R. Simmons, March 10, 1994
(Director)                                 (Vice Chairman of the Board)

/s/ ROBERT J. FRAME                        /s/ MICHAEL A. SNETZER
Robert J. Frame, March 10, 1994            Michael A. Snetzer, March 10, 1994
(Director)                                 (Director and President)

/s/ J. WALTER TUCKER, JR.                  /s/ WILLIAM C. TIMM
J. Walter Tucker, Jr., March 10, 1994      William C. Timm, March 10, 1994
(Director)                                 (Vice President-Finance and
Administration, Treasurer and Chief
Financial Officer)

/s/ J. THOMAS MONTGOMERY, JR.       
J. Thomas Montgomery, Jr.,
March 10, 1994
(Vice President, Controller and Chief
Accounting Officer)

- 70 -

72
ANNUAL REPORT ON FORM 10-K

ITEMS 8, 14(A) AND 14(D)

INDEX OF FINANCIAL STATEMENTS AND SCHEDULES

PAGE
----

FINANCIAL STATEMENTS

Reports of Independent Accountants                                                            F-3/F-5

Consolidated Balance Sheets - December 31, 1992 and 1993                                      F-6/F-7

Consolidated Statements of Operations - Years ended
December 31, 1991, 1992 and 1993                                                             F-8/F-9

Consolidated Statements of Cash Flows - Years ended
December 31, 1991, 1992 and 1993                                                             F-10/F-12

Consolidated Statements of Stockholders' Equity - Years ended
December 31, 1991, 1992 and 1993                                                             F-13

Notes to Consolidated Financial Statements                                                    F-14/F-45

FINANCIAL STATEMENT SCHEDULES

Reports of Independent Accountants                                                            S-1/S-3

Schedule I    - Marketable securities                                                         S-4

Schedule II   - Amounts receivable from related parties and
underwriters, promoters, and employees other
than related parties                                                         S-5

Schedule III  - Condensed financial information of Registrant                                 S-6/S-15

Schedule V    - Property and equipment                                                        S-16/S-17

Schedule VI   - Accumulated depreciation of property and
equipment                                                                    S-18

Schedule VIII - Valuation and qualifying accounts                                             S-19

Schedule IX   - Short-term borrowings                                                         S-20

Schedule X    - Supplementary income statement information                                    S-21

All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.

F-1

73

{THIS PAGE INTENTIONALLY LEFT BLANK.}

F-2

74
REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Valhi,
Inc.  and Subsidiaries as of December 31, 1992 and 1993, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three years in the period ended December 31, 1993.  These financial
statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.  We did not audit the financial statements of the refined sugar
(The Amalgamated Sugar Company) and forest products (Medite Corporation)
subsidiaries constituting approximately 48% and 59% of consolidated assets as
of December 31, 1992 and 1993, respectively, and approximately 81%, 81% and 77%
of consolidated net sales for the years ended December 31, 1991, 1992 and 1993,
respectively.  These statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion, insofar as it relates to
amounts included for such subsidiaries, is based solely upon their reports.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Valhi, Inc. and Subsidiaries
as of December 31, 1992 and 1993, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.

As discussed in Notes 1 and 18 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for certain investments in
debt and equity securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115 and in 1992 changed its method of accounting for
postretirement benefits other than pensions and income taxes in accordance with
SFAS Nos. 106 and 109, respectively.

COOPERS & LYBRAND

Dallas, Texas
February 25, 1994

F-3

75
REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholder of The Amalgamated Sugar Company:

We have audited the consolidated balance sheets of The Amalgamated Sugar
Company as of December 31, 1992 and 1993, and the related consolidated
statements of income and shareholder's equity and cash flows for each of the
three years in the period ended December 31, 1993 (not presented separately
herein).  These consolidated financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements (not presented
separately herein) referred to above present fairly, in all material respects,
the consolidated financial position of The Amalgamated Sugar Company at
December 31, 1992 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.

As discussed in Note 10 to the consolidated financial statements (not
presented separately herein), in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with Statements of Financial Accounting Standards Nos. 106 and 109,
respectively.

KPMG PEAT MARWICK

Salt Lake City, Utah
January 28, 1994

F-4

76
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholder of Medite Corporation:

We have audited the consolidated balance sheets of Medite Corporation as
of December 31, 1992 and 1993, and the related consolidated statements of
income, stockholder's equity and cash flows for each of the three years in the
period ended December 31, 1993 (not presented separately herein).  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements (not presented
separately herein) referred to above present fairly, in all material respects,
the consolidated financial position of Medite Corporation as of December 31,
1992 and 1993, and the consolidated results of its operations and cash flows
for each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.

As discussed in Note 8 to the consolidated financial statements (not
presented separately herein), in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with Statements of Financial Accounting Standards Nos. 106 and 109,
respectively.

ARTHUR ANDERSEN & CO.

Portland, Oregon,
January 28, 1994

F-5

77
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1992 AND 1993

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1992             1993
----             ----

ASSETS

Current assets:
Cash and cash equivalents                                                      $   44,538         $ 22,189
Marketable securities                                                             127,459           28,518
Accounts and notes receivable                                                      56,864           61,135
Receivable from affiliates                                                            306              272
Inventories                                                                       265,262          276,125
Prepaid expenses                                                                    9,504            6,126
Deferred income taxes                                                                 638               75
----------         --------

Total current assets                                                          504,571          394,440
----------         --------

Other assets:
Marketable securities                                                              44,250          108,800
Investment in affiliates                                                          248,395           74,897
Timber and timberlands                                                             51,591           51,868
Deferred income taxes                                                                -              27,723
Other                                                                              39,872           42,887
----------         --------

Total other assets                                                            384,108          306,175
----------         --------

Property and equipment:
Land                                                                               18,181           18,822
Buildings                                                                          41,517           43,522
Equipment                                                                         321,720          341,868
Construction in progress                                                            4,081           17,344
----------         --------
385,499          421,556
Less accumulated depreciation                                                     197,184          218,300
----------         --------

Net property and equipment                                                    188,315          203,256
----------         --------

$1,076,994         $903,871
==========         ========

F-6

78
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31, 1992 AND 1993

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1992             1993
----             ----

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable                                                                  $  122,180         $117,753
Current maturities of long-term debt                                              110,279           16,086
Accounts payable and accrued liabilities                                          251,128          223,528
Payable to affiliates                                                               1,623               43
Income taxes                                                                        3,753            4,916
Deferred income taxes                                                                -               2,494
----------         --------

Total current liabilities                                                     488,963          364,820
----------         --------

Noncurrent liabilities:
Long-term debt                                                                    288,704          302,490
Deferred income taxes                                                              10,771            1,732
Other                                                                              29,432           27,328
----------         --------

Total noncurrent liabilities                                                  328,907          331,550
----------         --------

Stockholders' equity:
Preferred stock, $.01 par value; 5,000 shares
authorized; none issued                                                             -                -
Common stock, $.01 par value; 150,000 shares
authorized; 124,290 and 124,435 shares issued                                      1,243            1,244
Additional paid-in capital                                                         33,300           33,409
Retained earnings                                                                 307,599          222,810
Adjustments:
Currency translation                                                            (10,277)         (17,776)
Marketable securities                                                              (232)          41,075
Pension liabilities                                                                -              (1,619)
Common stock reacquired, at cost -  10,237 and
10,182 shares                                                                    (72,509)         (71,642)
----------         -------- 

Total stockholders' equity                                                    259,124          207,501
----------         --------

$1,076,994         $903,871
==========         ========

Commitments and contingencies (Note 20)

See accompanying notes to consolidated financial statements.

F-7

79
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1991               1992             1993
----               ----             ----

Revenues and other income:
Net sales                                                     $765,653           $811,821        $ 781,154
Securities transactions                                         63,201              2,113            1,167
Business unit dispositions, net                                   -                 3,490              500
Interest and other, net                                         14,696             17,938           11,191
--------           --------        ---------

843,550            835,362          794,012
--------           --------        ---------
Costs and expenses:
Cost of sales                                                  610,975            634,073          592,979
Selling, general and administrative                            101,093            114,500          113,107
Interest                                                        72,173             51,497           38,648
--------           --------        ---------

784,241            800,070          744,734
--------           --------        ---------
Income of consolidated companies
before income taxes                                          59,309             35,292           49,278

Equity in losses of affiliates                                   (19,667)           (70,700)        (143,819)
--------           --------        --------- 

Income (loss) before income taxes                             39,642            (35,408)         (94,541)

Income tax benefit (expense)                                     (19,632)            13,171           30,417
--------           --------        ---------

Income (loss) before extraordinary
items and cumulative effect of
changes in accounting principles                             20,010            (22,237)         (64,124)

Extraordinary items                                                4,752             (6,277)         (15,390)

Cumulative effect of changes in
accounting principles                                              -               (69,774)             429
--------           --------        ---------

Net income (loss)                                           $ 24,762           $(98,288)       $ (79,085)
========           ========        ========= 

F-8

80
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS, EXCEPT PER SHARE DATA)

1991               1992             1993
----               ----             ----

Income (loss) per common share:
Before extraordinary items                                        $.18              $(.19)           $(.56)
Extraordinary items                                                .04               (.06)            (.13)
Cumulative effect of changes in
accounting principles                                              -                (.61)             -  
-------            -------          -------

Net income (loss)                                               $.22              $(.86)           $(.69)
=======            =======          ======= 

Cash dividends per share                                            $.20              $ .20            $ .05
=======            =======          =======

Weighted average common shares
outstanding                                                     113,534            113,886          114,098
=======            =======          =======

See accompanying notes to consolidated financial statements.

F-9

81
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991           1992             1993
----           ----             ----

Cash flows from operating activities:
Net income (loss)                                                 $ 24,762       $(98,288)        $(79,085)
--------       --------         -------- 
Adjustments:
Depreciation, depletion and amortization                          29,403         27,616           25,569
Noncash interest expense (original issue
discount and deferred financing costs)                            2,192          3,097           10,267
Noncash OPEB expense                                                -             1,009              585
Deferred income taxes                                              2,711        (27,270)         (52,850)
Equity in losses of affiliates                                    14,566         70,700          159,747
Dividends from affiliates                                         24,414         10,740             -
Securities transactions                                          (63,201)        (2,113)          (1,167)
Business unit dispositions, net                                     -            (3,490)            (500)
Prepayments of senior subordinated notes                            -             9,511            7,749
Other, net                                                        (1,603)         1,728             (648)
Change in assets and liabilities:
Accounts and notes receivable                                       54         (3,591)          (4,257)
Inventories                                                    (14,063)        (1,274)         (10,863)
Accounts payable and accrued
liabilities                                                   (14,585)        (4,891)         (20,155)
Accounts with affiliates                                        (7,267)         2,269           (1,546)
Other, net                                                       6,824          3,286              355
Cumulative effect of changes in
accounting principles                                              -            69,774             (429)
--------       --------         -------- 

Total adjustments                                              (20,555)       157,101          111,857
--------       --------         --------

Net cash provided by operating
activities                                                    4,207         58,813           32,772
--------       --------         --------

F-10

82
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991           1992             1993
----           ----             ----

Cash flows from investing activities:
Capital expenditures                                           $   (26,779)     $ (27,954)       $ (39,086)
Business unit dispositions:
Insurance proceeds                                                  -            10,887             -
Sale proceeds and other, net                                       6,105         (1,231)            (924)
Proceeds from disposition of:
Marketable and other securities                                  463,596        280,486          381,395
Property and equipment                                               186            253             -
Purchases of:
Marketable securities                                           (201,820)      (294,105)        (281,795)
Stock of affiliates                                                 -            (4,853)            -
Business units                                                      -            (1,237)            -
Loans to affiliates:
Loans                                                            (49,675)       (66,953)         (11,800)
Collections                                                       67,825         66,953           11,800
Other, net                                                           3,667         (1,685)           4,287
-----------      ---------        ---------

Net cash provided (used) by
investing activities                                          263,105        (39,439)          63,877
-----------      ---------        ---------

Cash flows from financing activities:
Notes payable and long-term debt:

Additions                                                        861,998        972,141          681,487
Principal payments, including
retirement premiums                                          (1,121,922)      (931,462)        (790,308)
Deferred financing costs                                            -            (3,830)          (4,314)
Loans from affiliates:
Loans                                                            150,000           -               5,400
Repayments                                                      (150,000)          -              (5,400)
Dividends                                                          (22,725)       (22,753)          (5,704)
Other, net                                                             (86)            48               53
-----------      ---------        ---------

Net cash provided (used) by
financing activities                                         (282,735)        14,144         (118,786)
-----------      ---------        --------- 

Net increase (decrease) from operating,
investing and financing activities                              $   (15,423)     $  33,518        $ (22,137)
===========      =========        ========= 

F-11

83
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991           1992             1993
----           ----             ----

Cash and cash equivalents:
Net increase (decrease) from:
Operating,investing and financing
activities                                                     $(15,423)       $33,518         $(22,137)
Currency translation                                                  (3)          (309)            (212)
--------        -------         -------- 
(15,426)        33,209          (22,349)
Balance at beginning of year                                        26,755         11,329           44,538
--------        -------         --------

Balance at end of year                                            $ 11,329        $44,538         $ 22,189
========        =======         ========

Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized                              $ 76,545        $53,321         $ 37,028
Income taxes                                                        18,750         13,055           14,764

See accompanying notes to consolidated financial statements.

F-12

84
VALHI, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

ADJUSTMENTS                 
ADDITIONAL                -----------------------------------------   
COMMON      PAID-IN      RETAINED     CURRENCY      MARKETABLE       PENSION    
STOCK       CAPITAL      EARNINGS    TRANSLATION    SECURITIES     LIABILITIES  
--------    ----------    --------    -----------    ----------     -----------  

Balance at December 31, 1990               $1,239      $32,022      $426,603    $(12,345)       $(73,530)     $  -        

Net income                                   -            -           24,762        -               -            -        
Dividends                                    -            -          (22,725)       -               -            -        
Adjustments, net                             -            -             -          8,511          73,125         -        
Other, net                                      2          596          -           -               -            -        
------      -------      --------    --------        --------      -------     

Balance at December 31, 1991                1,241       32,618       428,640      (3,834)           (405)        -        

Net loss                                     -            -          (98,288)       -               -            -        
Dividends                                    -            -          (22,753)       -               -            -        
Adjustments, net                             -            -             -         (6,443)            173         -        
Other, net                                      2          682          -           -               -            -        
------      -------      --------    --------        --------      -------     

Balance at December 31, 1992                1,243       33,300       307,599     (10,277)           (232)        -        

Net loss                                     -            -          (79,085)       -               -            -        
Dividends                                    -            -           (5,704)       -               -            -        
Adjustments, net                             -            -             -         (7,499)           (221)      (1,619)    
Cumulative effect of change in                                                                                            
accounting principle                        -            -             -           -             41,528         -        
Other, net                                      1          109          -           -               -            -        
------      -------      --------    --------        --------      -------     

Balance at December 31, 1993               $1,244      $33,409      $222,810    $(17,776)       $ 41,075      $(1,619)    
======      =======      ========    ========        ========      =======     

COMMON           TOTAL
STOCK         STOCKHOLDERS'
REACQUIRED         EQUITY
----------      ------------

Balance at December 31, 1990              $(79,351)        $294,638

Net income                                    -              24,762
Dividends                                     -             (22,725)
Adjustments, net                              -              81,636
Other, net                                   6,607            7,205
--------         --------

Balance at December 31, 1991               (72,744)         385,516

Net loss                                      -             (98,288)
Dividends                                     -             (22,753)
Adjustments, net                              -              (6,270)
Other, net                                     235              919
--------         --------

Balance at December 31, 1992               (72,509)         259,124

Net loss                                      -             (79,085)
Dividends                                     -              (5,704)
Adjustments, net                              -              (9,339)
Cumulative effect of change in          
accounting principle                         -              41,528
Other, net                                     867              977
--------         --------

Balance at December 31, 1993              $(71,642)        $207,501
========         ========

See accompanying notes to consolidated financial statements.

F-13

85
VALHI, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization

Valhi, Inc. is a subsidiary of Contran Corporation which holds, directly
or through subsidiaries, approximately 90% of Valhi's outstanding common stock.
All of Contran's outstanding voting stock is held by trusts established for the
benefit of the 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 each of
Contran and Valhi.

Principles of consolidation

The accompanying consolidated financial statements include the accounts
of Valhi and its majority-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated.

Translation of foreign currencies

Assets and liabilities of subsidiaries whose functional currency is
deemed to be other than the U.S. dollar are translated at year-end rates of
exchange and revenues and expenses are translated at average exchange rates
prevailing during the year.  Resulting translation adjustments, and the
Company's equity in translation adjustments of less than majority-owned
affiliates, are accumulated in the currency translation adjustments component
of stockholders' equity, net of related deferred income taxes.  Currency
transaction gains and losses are recognized in income currently.

Cash and cash equivalents

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

Marketable securities and securities transactions

The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
effective December 31, 1993.  See Notes 5 and 18.

Under SFAS No. 115, the Company's portfolio of marketable debt and
equity securities is carried at market.  Unrealized gains and losses on trading
securities are recognized in income currently.  Unrealized gains and losses on
available-for-sale securities, and the Company's equity in unrealized gain and
loss adjustments of less than majority-owned affiliates, are accumulated in the
marketable securities adjustment component of stockholders' equity, net of
related deferred income taxes.  Realized gains and losses are based upon the
specific identification of the securities sold.

F-14

86
SFAS No. 115 superseded SFAS No. 12 under which marketable securities
were generally carried at the lower of aggregate market or amortized cost and
unrealized net gains were not recognized.

Net sales

Refined sugar, forest products and hardware products sales are recorded
when products are shipped.  Fast food sales are recorded at the time of retail
sale.

Inventories and cost of sales

Inventories are stated at the lower of cost or market.  The last-in,
first-out method is used to determine the cost of substantially all
inventories, except supplies.  Supplies and other inventory costs are generally
based on average cost.

Under the terms of its contracts with sugarbeet growers, the Company's
cost of sugarbeets is based on average sugar sales prices during the beet crop
purchase contract year, which begins in October and ends the following
September.  Any differences between the sugarbeet cost estimated at the end of
the fiscal year and the amount ultimately paid is an element of cost of sales
in the succeeding year.

Investment in affiliates

Investments in more than 20%-owned but less than majority-owned
companies are accounted for by the equity method.  Differences between the cost
of each investment and the Company's pro rata share of the affiliate's
separately-reported net assets are allocated among the assets and liabilities
of the affiliate based upon estimated relative fair values.  Such differences
are charged or credited to income as the affiliates depreciate, amortize or
dispose of the related net assets.  At December 31, 1993, the unamortized net
difference was $158 million, of which $80 million is goodwill being amortized
over 40 years with substantially all of the remainder attributable to the
affiliates' property and equipment.  The remaining unamortized net basis
difference is greater than the Company's $75 million aggregate net carrying
value of its investment in NL Industries, Inc. and Tremont Corporation because
NL reports a shareholders' deficit on its separate historical basis of
accounting.

Timber and timberlands and depletion

Timber and timberlands are stated at cost less accumulated depletion.
Depletion is computed by the unit-of-production method.

Intangible assets and amortization

Goodwill, representing the excess of cost over fair value of individual
net assets acquired in business combinations accounted for by the purchase
method, is amortized by the straight-line method over 40 years.  Fast food
restaurant franchise fees and other intangible assets are amortized by the
straight-line method over the periods (10 to 20 years) expected to be
benefitted.

F-15

87
Property, equipment and depreciation

Property and equipment are stated at cost.  Maintenance, repairs and
minor renewals are expensed; major improvements are capitalized.  Interest
costs related to major long-term capital projects capitalized as a component of
construction costs were $172,000 in 1991, $342,000 in 1992 and $420,000 in
1993.

Depreciation is computed principally by the straight-line and
unit-of-production methods over the estimated useful lives of eight to 40 years
for buildings and three to 20 years for equipment.

Long-term debt

Long-term debt is stated net of unamortized original issue discount
("OID").  OID and deferred financing costs are amortized over the life of the
applicable issue by the interest method.  Capital lease obligations are stated
net of imputed interest.

Employee benefit plans

Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 17.

Research and development

Research and development expense was $706,000 in 1991, $901,000 in 1992
and $854,000 in 1993.

Income taxes

Valhi and its qualifying subsidiaries are members of Contran's
consolidated United States federal income tax group (the "Contran Tax Group").
The policy for intercompany allocation of federal income taxes provides that
subsidiaries included in the Contran Tax Group compute the provision for income
taxes on a separate company basis.  Subsidiaries make payments to or receive
payments from Contran in the amounts they would have paid to or received from
the Internal Revenue Service had they not been members of the Contran Tax
Group.  The separate company provisions and payments are computed using the tax
elections made by Contran.  NL and Tremont are separate U.S. taxpayers and are
not members of the Contran Tax Group.  Payable to affiliates at December 31,
1992 includes income taxes payable to Contran of $1,612,000; receivable from
affiliates at December 31, 1993 includes income taxes receivable from Contran
of $44,000.

Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the income
tax and financial reporting carrying amounts of assets and liabilities,
including investments in subsidiaries and affiliates not included in the
Contran Tax Group.

Income (loss) per share of common stock

Income (loss) per share is based upon the weighted average number of
common shares outstanding.  Common stock equivalents are excluded from the
computation because the dilutive effect is either antidilutive or not material.

F-16

88
NOTE 2 - BUSINESS AND GEOGRAPHIC SEGMENTS:

BUSINESS SEGMENT                          PRINCIPAL ENTITIES            
- -------------------            ------------------------------------------

Consolidated business segments (100%-owned)                    
Refined sugar                The Amalgamated Sugar Company             
Valcor, Inc.:                             
Forest products                Medite Corporation                      
Fast food                      Sybra, Inc.                             
Hardware products              National Cabinet Lock, Inc.             

Unconsolidated affiliates                                      
Chemicals                    NL Industries, Inc. (49%-owned)*          
Titanium metals              Tremont Corporation (48%-owned)           

* Tremont holds an additional 18% of NL.

YEARS ENDED DECEMBER 31, 
------------------------------------
1991            1992          1993
----            ----          ----
(IN MILLIONS)

Net sales:
Refined sugar                                                         $439.7          $459.2       $ 430.8
Forest products                                                        179.7           194.8         174.3
Fast food                                                              101.5           103.8         111.6
Hardware products                                                       44.8            54.0          64.4
------          ------       -------

$765.7          $811.8       $ 781.1
======          ======       =======

Operating income:
Refined sugar                                                         $ 42.0          $ 37.8       $  37.5
Forest products                                                          8.0            22.0          26.3
Fast food                                                                7.8             8.5           9.7
Hardware products                                                        7.9            10.7          17.5
------          ------       -------
65.7            79.0          91.0
Business unit dispositions, net                                           -                3.5            .5
General corporate income (expense):
Securities transactions                                                 63.2             2.1           1.2
Interest and dividend income                                             6.0             9.3           5.2
General expenses                                                        (7.6)           (7.4)         (8.9)
Other, net                                                               4.2              .3          (1.1)
Interest expense                                                         (72.2)          (51.5)        (38.6)
------          ------       ------- 

Income of consolidated companies before
income taxes                                                         59.3            35.3          49.3
------          ------       -------

Equity in losses of affiliates:
NL Industries                                                          (19.3)          (32.1)        (44.7)
Tremont                                                                  (.4)          (16.6)        (15.1)
Provisions for market value impairment                                   -             (22.0)        (84.0)
------          ------       ------- 

(19.7)          (70.7)       (143.8)
------          ------       ------- 

Income (loss) before income taxes                                   $ 39.6          $(35.4)      $ (94.5)
======          ======       ======= 

F-17

89

YEARS ENDED DECEMBER 31, 
------------------------------------
1991            1992          1993
----            ----          ----
(IN MILLIONS)

Depreciation, depletion and amortization:
Refined sugar                                                         $  7.1          $  8.7        $  9.0
Forest products                                                         14.4            11.0           8.5
Fast food                                                                6.1             6.1           6.2
Hardware products                                                        1.5             1.7           1.7
Corporate                                                                 .3              .1            .2
------          ------        ------

$ 29.4          $ 27.6        $ 25.6
======          ======        ======

Capital expenditures:
Refined sugar                                                         $ 14.2          $ 12.7        $ 11.1
Forest products                                                          4.8             9.7          20.8
Fast food                                                                6.4             4.5           4.3
Hardware products                                                        1.3             1.0           2.7
Corporate                                                                 .1              .1            .2
------          ------        ------

$ 26.8          $ 28.0        $ 39.1
======          ======        ======

Geographic segments

Net sales - point of origin:
United States                                                       $691.0          $722.1        $692.3
Europe & Canada                                                       74.7            89.7          88.8
------          ------        ------

$765.7          $811.8        $781.1
======          ======        ======

Net sales - point of destination:
United States                                                       $669.8          $706.6        $686.8
Other North America                                                   16.0            18.2          22.0
Europe                                                                49.3            58.1          44.2
Far East and other                                                    30.6            28.9          28.1
------          ------        ------

$765.7          $811.8        $781.1
======          ======        ======

Operating income:
United States                                                       $ 56.8          $ 64.7        $ 74.0
Europe & Canada                                                        8.9            14.3          17.0
------          ------        ------

$ 65.7          $ 79.0        $ 91.0
======          ======        ======

F-18

90

DECEMBER 31,  
-------------------
1992        1993
----        ----
(IN MILLIONS)

Identifiable assets

Business segments:
Refined sugar                                                                       $  385.8      $369.0
Forest products                                                                        165.8       170.6
Fast food                                                                               66.9        65.1
Hardware products                                                                       23.5        31.3
Corporate                                                                              241.4       223.3
Investment in NL & Tremont                                                             248.4        74.9
Intercompany eliminations                                                              (54.8)      (30.3)
--------      ------ 

$1,077.0      $903.9
========      ======

Geographic segments:
United States                                                                       $  773.3      $771.6
Europe & Canada                                                                         55.3        57.4
Investment in NL & Tremont                                                             248.4        74.9
--------      ------

$1,077.0      $903.9
========      ======

Capital expenditures include additions to property and equipment and
timber and timberlands, excluding amounts attributable to business units
acquired in business combinations accounted for by the purchase method.

Corporate assets consist principally of cash, cash equivalents and
marketable securities.  Valhi has a wholly-owned captive insurance company
("Valmont") registered in Vermont.  Valmont's operations, which are not
significant, are included in general corporate expenses.

At December 31, 1993, the net assets of non-U.S. subsidiaries included
in consolidated net assets approximated $36.4 million.

NOTE 3 - BUSINESS COMBINATIONS AND RESTRUCTURINGS:

NL Industries, Inc.  At December 31, 1990, the Company held 68% of NL's
outstanding common stock.  Valhi's ownership of NL increased to 69% by July
1991 as a result of NL's purchases of its common stock in market transactions.
In September 1991, NL purchased 11.3 million shares of its common stock at a
price of $16 per share pursuant to a "Dutch Auction" self-tender offer.  Valhi
sold 10.9 million shares to NL pursuant to the offer and thereby reduced its
interest in NL to 63%.  In December 1991, to complete the Company's plan to
reduce its direct ownership of NL to less than 50% and thereby achieve certain
income tax savings, Valhi sold 7.8 million NL shares to Tremont at a price of
$11.75 per share in a privately-negotiated transaction and further reduced its
direct interest in NL to 48%.  The Company recognized a $.8 million pre-tax
loss on the aggregate reduction in its direct interest in NL from 69% to 48%.
During 1992, Valhi's direct interest in NL increased to 49% as a result of
additional NL purchases of its common stock in market transactions.  For
comparative purposes, Valhi's interest in NL is reported by the equity method
for all periods

F-19

91
presented.  Valhi may be deemed to control each of NL and Tremont and,
accordingly, Tremont reports its 18% interest in NL by the equity method.

Tremont Corporation.  At December 31, 1990, the Company held 44% of
Tremont's outstanding common stock and in 1992 purchased additional Tremont
shares for $4.9 million, increasing its interest in Tremont to 48%.

Baroid Corporation.  At December 31, 1990, the Company held 42% of
Baroid's outstanding common stock.  In May 1991, the Company sold 17.25 million
shares of Baroid common stock in an underwritten secondary offering at a price
to the public of $6.25 per share, which reduced the Company's interest in
Baroid to less than 20%.  As a result of this sale and the Company's intent to
hold its remaining interest in Baroid solely as an investment and not for the
purposes of directing the policies, management or control of Baroid, the
Company ceased accounting for Baroid by the equity method effective in May
1991.  The Company's $3.3 million equity in undistributed Baroid earnings in
1991, for the period prior to May, is included in other income.  In January
1994, Baroid merged with Dresser Industries, Inc. and the Company now holds
approximately 3% of Dresser's outstanding common stock.  See Note 5.

Other.  In June 1992, National Cabinet Lock purchased certain assets of
a competitor for $1.2 million.

NOTE 4 - BUSINESS UNIT DISPOSITIONS:

YEARS ENDED DECEMBER 31, 
----------------------------------
1991          1992         1993
----          ----         ----
(IN THOUSANDS)

Insurance gain on plant destroyed by fire                                 $  -          $ 8,490      $  -
Operations permanently closed                                                -           (5,000)         500
-------       -------      -------

$  -          $ 3,490      $   500
=======       =======      =======

The insurance gain relates to Medite's veneer and chipping plant in
Rogue River, Oregon, as insurance proceeds exceeded the net carrying value of
the assets destroyed and cleanup costs.  The aggregate insurance proceeds of
$16.5 million included $5.6 million attributable to business interruption
insurance which was recognized as a component of operating income through
August 1993.  The amount attributable to business interruption insurance was
based upon estimates, negotiated with the insurance carrier, of the expected
operating profit of the Rogue River operations during each month that the
various operations were originally expected to be down.  Medite deemed such
estimates to be reasonable based upon selling prices in effect at the time in
1992 when the estimates were made and the expected construction schedule at
that time.

In 1992, Medite accrued a loss on its plywood business and related
facilities permanently closed in January 1993, most of which related to the net
carrying value of property and equipment in excess of estimated net realizable
sales value.  In 1993, Medite changed its estimate of the aggregate loss
primarily because the auction sale proceeds of certain equipment exceeded the
previously estimated net realizable value.

F-20

92
NOTE 5 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:

DECEMBER 31,   
-----------------------
1992            1993
----            ----
(IN THOUSANDS)

Current assets - U.S. Treasury securities                                            $127,459       $ 28,518
========       ========

Noncurrent assets - Baroid common stock                                              $ 44,250       $108,800
========       ========

Upon adoption of SFAS No. 115 as of December 31, 1993, the Company
classified its portfolio of U.S. Treasury securities as trading securities and
its Baroid common stock as securities available-for-sale.  Cost of the treasury
securities at December 31, 1993 was approximately $28.6 million.

At December 31, 1993, Valhi held 13.7 million Baroid shares (cost -
$44.3 million) with a quoted market price of $8.25 per share, or an aggregate
of $112.8 million.  However, because the Baroid common stock is exchangeable
for the Company's LYONs at the option of the LYONs holder (see Note 11), the
carrying value of the Baroid stock is limited to the accreted LYONs obligation.
In January 1994, Baroid and Dresser merged and each share of Baroid common
stock was exchanged for .4 shares of Dresser common stock.  As a result, the
LYONs became exchangeable for the 5.5 million Dresser shares now held by the
Company.

At December 31, 1992, the treasury securities were carried at market
value, which was slightly less than their aggregate cost of $127.9 million.
Market value of the Baroid common stock was $76.9 million at December 31, 1992.

Net gains from securities transactions in 1991 include $63.7 million on
the sale of 19.5 million Baroid shares, of which $8.1 million related to 2.3
million shares sold to Contran at the current market price.

NOTE 6 - ACCOUNTS AND NOTES RECEIVABLE:

DECEMBER 31,   
----------------------
1992           1993
----           ----
(IN THOUSANDS)

Accounts receivable                                                                   $53,903        $58,834
Notes receivable                                                                        2,579          2,548
Accrued interest                                                                        1,705            592
Refundable income taxes                                                                  -               135
Allowance for doubtful accounts                                                        (1,323)          (974)
-------        ------- 

$56,864        $61,135
=======        =======

F-21

93
NOTE 7 - INVENTORIES:

DECEMBER 31,   
----------------------
1992           1993
----           ----
(IN THOUSANDS)

Raw materials:
Sugarbeets                                                                         $ 54,982       $ 51,689
Forest products                                                                      11,890         14,704
Fast food                                                                             1,310          1,329
Hardware products                                                                     1,110          1,034
--------       --------
69,292         68,756
--------       --------

In process products:
Refined sugar and by-products                                                        49,757         56,798
Forest products                                                                       3,961          1,450
Hardware products                                                                     2,557          3,179
--------       --------
56,275         61,427
--------       --------

Finished products:
Refined sugar and by-products                                                       101,320        107,158
Forest products                                                                       2,638          1,260
Hardware products                                                                     2,377          1,901
--------       --------
106,335        110,319
--------       --------

Supplies                                                                               33,360         35,623
--------       --------

$265,262       $276,125
========       ========

The current cost of LIFO inventories exceeded the net carrying value of
such inventories by approximately $45 million and $43 million at December 31,
1992 and 1993, respectively.  The effect of reductions in certain LIFO
inventory quantities increased consolidated operating income by $.8 million in
1991, $1.9 million in 1992 and $.5 million in 1993.

NOTE 8 - INVESTMENT IN AFFILIATES:

DECEMBER 31,   
-----------------------
1992            1993
----            ----
(IN THOUSANDS)

NL Industries                                                                        $200,197        $60,170
Tremont                                                                                48,198         14,727
--------        -------

$248,395        $74,897
========        =======

The Company holds approximately 24.8 million shares of NL common stock
and 3.5 million shares of Tremont common stock.  The quoted per share market
prices of NL and Tremont common stock at December 31, 1993 were $4.50 and
$6.875, respectively, or an aggregate quoted market value of $135.8 million.
See Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations" of this Annual Report on Form 10-K for summarized
information

F-22

94
relating to the results of operations, financial position and cash flows of
each of NL and Tremont.

The carrying value of NL is stated net of a $10.3 million elimination
for Valhi common stock held by NL classified by the Company as common stock
reacquired.  See Note 13.

NOTE 9 - OTHER NONCURRENT ASSETS:

DECEMBER 31,   
----------------------
1992           1993
----           ----
(IN THOUSANDS)

Intangible assets, net of accumulated
amortization of $6,266 and $7,856:
Goodwill                                                                            $ 5,666        $ 5,500
Franchise fees                                                                        7,991          7,257
Other                                                                                 9,172          8,323
-------        -------
22,829         21,080
Deferred financing costs                                                                3,838          7,817
Prepaid pension cost                                                                    4,288          4,864
Property held for sale                                                                  4,225          3,853
Other                                                                                   4,692          5,273
-------        -------

$39,872        $42,887
=======        =======

Property held for sale is carried at the lower of cost or estimated net
realizable value under current market conditions.

NOTE 10 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

DECEMBER 31,   
-----------------------
1992           1993
----           ----
(IN THOUSANDS)

Accounts payable:
Sugarbeet purchases                                                                $132,565       $126,430
Other                                                                                36,600         36,908
--------       --------
169,165        163,338
--------       --------

Accrued liabilities:
Sugar processing costs                                                               27,043         22,301
Employee benefits                                                                    17,503         17,657
Interest                                                                             14,082          3,987
Other                                                                                23,335         16,245
--------       --------
81,963         60,190
--------       --------

$251,128       $223,528
========       ========

F-23

95
NOTE 11 - NOTES PAYABLE AND LONG-TERM DEBT:

DECEMBER 31,    
-----------------------
1992           1993
----           ----
(IN THOUSANDS)

Notes payable - Amalgamated:
United States Government loans                                                     $ 76,453       $ 75,518
Bank credit agreements                                                               41,727         42,235
Commercial paper                                                                      4,000           -   
--------       --------

$122,180       $117,753
========       ========

Long-term debt:
Valhi:
Liquid Yield Option NotesTM ("LYONsTM")                                          $ 99,393       $108,800
Senior subordinated notes                                                         227,348           -   
--------       --------
326,741        108,800
--------       --------

Amalgamated:
Bank term loan                                                                     18,000         15,000
Other                                                                                  67           -   
--------       --------
18,067         15,000
--------       --------

Valcor:
Valcor - Senior Notes                                                                -           100,000
--------       --------

Medite:
U.S. bank credit agreements:
Term loans                                                                     18,000         61,000
Revolving credit facilities                                                     4,000           -
Irish bank credit agreements:
Term loan                                                                        -             1,700
Revolving credit facility                                                       7,096          6,741
State of Oregon term loan                                                          -             4,328
Other                                                                               445            267
--------       --------
29,541         74,036
--------       --------

Sybra:
Bank credit agreements                                                           16,500         13,387
Capital lease obligations                                                         7,935          7,133
Other                                                                                51             41
--------       --------
24,486         20,561
--------       --------

National Cabinet Lock                                                                 148            179
--------       --------
398,983        318,576
Less current maturities                                                             110,279         16,086
--------       --------

$288,704       $302,490
========       ========

F-24

96
Valhi

The zero coupon Senior Secured LYONs, $379 million principal amount at
maturity in October 2007, were issued with significant OID to represent a yield
to maturity of 9.25%.  No periodic interest payments are required.  Each $1,000
in principal amount at maturity of the LYONs is exchangeable, at any time, for
14.4308 shares of Dresser common stock held by Valhi.  Prior to the
Baroid/Dresser merger in January 1994, the LYONs were exchangeable for Baroid
common stock (see Note 5).  The LYONs are redeemable at the option of the
holder in October 1997 or October 2002 at $404.84 or $636.27, respectively, per
$1,000 principal amount (the issue price plus accrued OID through such purchase
dates).  Such redemptions may be paid, at Valhi's option, in cash, Dresser
common stock, or a combination thereof.  The LYONs are not redeemable at
Valhi's option prior to October 1997 unless the market price of Dresser common
stock exceeds $35.70 per share for specified time periods.  At December 31,
1992 and 1993, the net carrying value of the LYONs per $1,000 principal amount
at maturity was $262.22 and $287.04, respectively, and the quoted market price
was $253 and $330, respectively.

The LYONs are secured by the 5.5 million shares of Dresser common stock
held by Valhi, which shares are held in escrow for the benefit of holders of
the LYONs.  Valhi receives the regular quarterly dividend on the escrowed
Dresser shares.

Amalgamated

The United States Government loans are made under the sugar price
support loan program, which program extends through the 1997 crop year ending
September 30, 1998.  These short-term nonrecourse loans are collateralized by
refined sugar inventories and are payable at the earlier of the date the
refined sugar is sold or upon maturity.  The weighted average interest rate on
Government loans was 3.4% at December 31, 1993.

Amalgamated's principal bank credit agreement (the "Sugar Credit
Agreement") provides for a revolving credit facility in varying amounts up to
$75 million, with advances based upon formula-determined amounts of accounts
receivable and inventories, and a $21 million term loan.  Borrowings under the
revolving credit facility bear interest, at Amalgamated's option, at the prime
rate or LIBOR plus 1.25% and mature not later than September 30, 1995.  The
term loan bears interest, at Amalgamated's option, at the prime rate plus .25%
or LIBOR plus 1.5% and matures in July 1996.  The Sugar Credit Agreement may be
terminated by the lenders in the event the sugar price support loan program is
abolished or materially and adversely modified, and borrowings are
collateralized by substantially all of Amalgamated's assets.  Amalgamated also
has a $5 million unsecured line of credit with the agent bank for the Sugar
Credit Agreement.  At December 31, 1993, the weighted average interest rate on
Amalgamated's outstanding bank borrowings was 4.9%.

At December 31, 1993, unused credit available to Amalgamated under its
bank credit agreements and the sugar price support loan program aggregated
approximately $24 million.

F-25

97
Valcor

Valcor's unsecured 9 5/8% Senior Notes Due November 2003 are redeemable
at the Company's option beginning November 1998, initially at 104.813% of
principal amount declining to 100% after November 2000.  In the event of a
Change of Control, as defined, Valcor would be required to make an offer to
purchase the Valcor Notes at 101% of principal amount.  At December 31, 1993,
the quoted market price of the Valcor Senior Notes was $100.75.

Medite

Medite's U.S. bank credit agreement (the "Timber Credit Agreement")
provides for (i) $75 million of term loan financing due in annual installments
of $8 million beginning September 1994 with the balance due September 2000, and
(ii) a $15 million revolving working capital facility through September 1995.
Borrowings generally bear interest at rates 1.75% to 2% over LIBOR, are
collateralized by Medite's timber and timberlands, and borrowings under the
working capital facility are also collateralized by Medite's U.S. receivables
and inventories.  The term loan consists of two tranches - a $50 million term
loan (Tranche A) and a $25 million reducing revolving facility (Tranche B).
Medite has entered into interest rate swaps for $26 million of the Tranche A
term loan that results in a weighted average interest rate of 7.6% for such
borrowings.  At December 31, 1993, the fair value of the swap agreements, which
mature in 1998 through 2000, is estimated to be a $.1 million liability, which
amount represents the estimated cost to the Company if it were to terminate the
swap agreements at that date.  The Company is exposed to interest rate risk in
the event of nonperformance by the other parties to the swap agreements,
however, it does not anticipate nonperformance by such parties.

Medite's Irish subsidiary, Medite of Europe Limited, has bank credit
agreements providing for (i) a $26 million multi-currency term construction
loan repayable in installments from 1995 through 2000 and (ii) a $12 million
multi-currency revolving credit facility through January 1995.  Borrowings
under both facilities bear interest at rates based upon LIBOR and are
collateralized by substantially all of Medite/Europe's assets.

At December 31, 1993, the weighted average interest rates on Medite's
outstanding U.S. and non-U.S. bank borrowings, including the effect of the
interest rate swaps discussed above, were 6.3% and 6.7%, respectively, and
amounts available for borrowing under the existing bank credit facilities
aggregated approximately $55 million.

The State of Oregon term loan matures in monthly installments through
March 2008, bears interest at 6.9% and is collateralized by certain of Medite's
property and equipment.

Sybra

Sybra's revolving bank credit agreements provide for unsecured credit
facilities aggregating $21 million with interest generally at LIBOR plus 1.25%.
Borrowings under these agreements mature July 1995, subject to renewal by the
parties through July 1997.  At December 31, 1993, the weighted average interest

F-26

98
rate on outstanding revolving borrowings was 4.7% and amounts available for
borrowing aggregated approximately $8 million.

Future minimum payments under capital lease obligations at December 31,
1993, including amounts representing interest, are approximately $1.5 million
in each of the next five years and an aggregate of $4.6 million thereafter.
Capital lease obligations incurred on sale/leaseback and financing transactions
were $3.5 million in 1991.

National Cabinet Lock

National Cabinet Lock's Canadian subsidiary has a bank credit agreement
which provides for a $3.3 million term facility due through 2001 and a $3
million revolving facility through April 1994.  Borrowings may be in U.S. or
Canadian dollars, bear interest generally at LIBOR plus .5% and are
collateralized by substantially all of this subsidiary's assets.  At December
31, 1993, the full amount of these facilities was available for borrowing.

Other

The quoted market prices of the Valhi LYONs and Valcor Senior Notes are
disclosed above.  Substantially all other notes payable and long-term debt of
subsidiaries either reprice with changes in market interest rates or bear
interest at recently fixed market rates, and the book value of such
indebtedness is deemed to approximate market value.

The Indenture governing the Valcor Senior Notes, among other things,
limits Valcor dividends and additional indebtedness and prohibits Valcor from
co-investing with affiliates.  Other credit agreements of subsidiaries
typically require the respective subsidiary to maintain minimum levels of
equity, require the maintenance of certain financial ratios, limit dividends
and additional indebtedness and contain other provisions and restrictive
covenants customary in lending transactions of this type.  At December 31,
1993, the restricted net assets of consolidated subsidiaries approximated $14
million.

Aggregate maturities of long-term debt at December 31, 1993

YEARS ENDING DECEMBER 31,                                                                          AMOUNT
- -------------------------                                                                          ------
(IN THOUSANDS)

1994                                                                                            $ 16,894
1995                                                                                              37,488
1996                                                                                              11,322
1997                                                                                             163,761
1998                                                                                               9,662
1999 and thereafter                                                                              129,028
--------
368,155
Less:
Unamortized LYONs OID                                                                           44,651
Amounts representing interest on capital leases                                                  4,928
--------

$318,576
========

F-27

99
The LYONs are reflected in the above table as due October 1997, the
first of the two dates they are redeemable at the option of the holder, at the
aggregate redemption price on such date of $153.5 million ($404.84 per $1,000
principal amount at maturity in October 2007).

NOTE 12 - OTHER NONCURRENT LIABILITIES:

DECEMBER 31,   
----------------------
1992           1993
----           ----
(IN THOUSANDS)

Accrued OPEB cost                                                                     $16,984        $17,705
Accrued pension cost                                                                    1,117            110
Insurance claims and expenses                                                           6,305          5,141
Other                                                                                   5,026          4,372
-------        -------

$29,432        $27,328
=======        =======

NOTE 13 - STOCKHOLDERS' EQUITY:

Common stock

SHARES OF COMMON STOCK    
----------------------------------------
ISSUED       REACQUIRED      OUTSTANDING
------       ----------      -----------
(IN THOUSANDS)

Balance at December 31, 1990                                       123,935         (10,542)         113,393

Issued                                                                 170              24              194
Reacquired                                                            -                283              283
-------         -------          -------

Balance at December 31, 1991                                       124,105         (10,235)         113,870

Issued                                                                 185              24              209
Reacquired                                                            -                (26)             (26)
-------         -------          ------- 

Balance at December 31, 1992                                       124,290         (10,237)         114,053

Issued                                                                 145              55              200
-------         -------          -------

Balance at December 31, 1993                                       124,435         (10,182)         114,253
=======         =======          =======

Common stock issued includes 14,800 shares in 1991, 15,500 shares in
1992 and 47,800 in 1993 to pay accrued employee benefits of $74,000, $87,000
and $239,000, respectively.

Consolidated common stock reacquired at December 31, 1993 includes
679,000 shares representing the Company's proportional interest in shares of
Valhi common stock held by NL.  Under Delaware Corporation Law, all shares held
by a less than 50%-owned company are considered to be outstanding.  As a
result, shares outstanding for financial reporting purposes differ from those
outstanding for legal purposes.

F-28

100
Options and restricted stock

The Valhi, Inc. 1987 Incentive Stock Option - Stock Appreciation Rights
Plan, as amended, (the "1987 Option Plan") provides for the discretionary grant
of stock options, restricted stock and stock appreciation rights.  Valhi's
Board of Directors has increased, subject to stockholder approval, the number
of shares of Valhi common stock that may be issued pursuant to the 1987 Option
Plan from six million to nine million shares.  The 1987 Option Plan provides
for the grant of options that qualify as incentive options and for options
which are not so qualified.  Options are granted at a price not less than 85%
of fair market value on the date of grant, vest ratably over a five-year period
beginning one year from the date of grant and expire 10 years from the date of
grant.  The exercise price of certain options increases annually based upon an
interest factor less Valhi dividends per share paid during the year.
Restricted stock, forfeitable unless certain periods of employment are
completed, is held in escrow in the name of the grantee until the restriction
period expires.  At December 31, 1993, 296,400 shares restricted for periods up
to 30 months are included in outstanding shares.  No stock appreciation rights
have been granted.

Pursuant to the Valhi, Inc. 1990 Non-Employee Director Stock Option
Plan, options to purchase 2,000 shares of Valhi common stock are automatically
granted once a year to each non-employee director of Valhi.  Options are
granted at a price equal to the fair market value on the date of grant, vest
one year from the date of grant and expire five years from the date of grant.
Up to 50,000 shares of Valhi common stock may be issued pursuant to this plan.

Changes in outstanding options are summarized in the table below.  At
December 31, 1993, options to purchase 3,095,000 Valhi shares were exercisable
(20,000 shares exercisable at prices lower than the December 31, 1993 quoted
market price of $4.875 per share) and options to purchase 506,000 shares become
exercisable in 1994.  At December 31, 1993, an aggregate of 711,000 shares were
available for future grants.

AMOUNT
EXERCISE          PAYABLE
PRICE PER          UPON
SHARES             SHARE          EXERCISE
------          ------------      --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)

Outstanding at December 31, 1990                                   3,541           $1.00-15.00       $29,995

Granted                                                              621            5.63- 7.25         3,509
Cancelled                                                           (214)           1.00-15.00        (2,209)
-----           -----------       ------- 

Outstanding at December 31, 1991                                   3,948            3.51-15.00        31,295

Granted                                                                8                  5.50            44
Cancelled                                                            (46)           5.00-15.00          (393)
-----           -----------       ------- 

Outstanding at December 31, 1992                                   3,910            3.51-15.00        30,946

Granted                                                              620                  5.00         3,102
Exercised                                                             (5)                 3.61           (18)
Cancelled                                                             (1)                 3.51            (3)
-----           -----------       ------- 

Outstanding at December 31, 1993                                   4,524           $3.51-15.00       $34,027
=====           ===========       =======

F-29

101
NOTE 14 - INCOME TAXES:

Summarized below are (i) the components of income (loss) before income
taxes, extraordinary items and cumulative effect of changes in accounting
principles ("pretax income"), (ii) the difference between income tax benefit
(expense) attributable to pretax income and the amounts that would be expected
using the U.S. federal statutory income tax rate of 34% in 1991 and 1992 and
35% in 1993, (iii) the components of income tax benefit (expense) attributable
to pretax income, and (iv) the components of the comprehensive tax benefit
(expense).

YEARS ENDED DECEMBER 31,
-----------------------------
1991       1992        1993
----       ----        ----
(IN MILLIONS)

Pretax income (loss):
United States:
Contran Tax Group:
Consolidated companies                                                  $ 51.9     $ 21.9      $  32.8
Dividends from NL and Tremont                                             24.4       10.7          -  
------     ------      -------
76.3       32.6         32.8
Undistributed equity in losses of NL and
Tremont                                                                   (44.1)     (81.4)      (143.8)
------     ------      ------- 
32.2      (48.8)      (111.0)
Non-U.S. subsidiaries                                                          7.4       13.4         16.5
------     ------      -------

$ 39.6     $(35.4)     $ (94.5)
======     ======      ======= 

Expected tax benefit (expense)                                                $(13.5)    $ 12.0      $  33.1
Non-U.S. tax rates                                                                .7        1.8          1.8
U.S. state income taxes, net                                                    (1.4)      (1.7)        (1.8)
Incremental U.S. tax and rate differences on equity
in earnings of non-tax group companies                                         (5.0)       (.5)        (3.6)
Rate change adjustment of deferred taxes                                         -          -             .1
Other, net                                                                       (.4)       1.6           .8
------     ------      -------

$(19.6)    $ 13.2      $  30.4
======     ======      =======
Income tax benefit (expense):
Currently payable:
U.S. federal                                                              $(12.1)    $ (7.0)     $ (12.1)
U.S. state                                                                  (3.4)      (2.8)        (2.6)
Non-U.S.                                                                    (1.7)      (2.2)        (4.3)
------     ------      ------- 
(17.2)     (12.0)       (19.0)
Deferred income taxes, principally U.S.                                       (2.4)      25.2         49.4
------     ------      -------

$(19.6)    $ 13.2      $  30.4
======     ======      =======

Comprehensive provision for income tax benefit
(expense) allocable to:
Pre-tax income                                                              $(19.6)    $ 13.2      $  30.4
Extraordinary items                                                            (.3)       3.2          8.3
Stockholders' equity, principally deferred taxes
allocable to currency translation adjustments                                 2.0        3.5          4.9
------     ------      -------

$(17.9)    $ 19.9      $  43.6
======     ======      =======

F-30

102
Changes in deferred income taxes related to adoption of new accounting
standards is disclosed in Note 18.

The components of the net deferred tax liability are summarized below.

DECEMBER 31,              
----------------------------------------
1992                 1993       
-------------------  -------------------
ASSETS  LIABILITIES  ASSETS  LIABILITIES
------  -----------  ------  -----------
(IN MILLIONS)

Tax effect of temporary differences relating to:
Inventories                                                       $   .1     $ (8.8)    $  .1     $ (8.8)
Marketable securities                                                -          (.8)      -        (23.5)
Timber and timberlands                                               -        (11.2)      -        (11.3)
Property and equipment                                               -        (19.9)      -        (18.6)
Capital lease assets and obligations                                 1.4        -         1.4        -
Accrued OPEB cost                                                    6.8        -         7.2        -
Accrued liabilities and other deductible differences                16.7        -        13.1        -
Other taxable differences                                            -        (15.0)      -        (16.9)
Investments in subsidiaries and affiliates not
members of the consolidated tax group                              20.3        -        80.8        -
Non-U.S. tax loss carryforwards                                       .2        -          .1        -
Valuation allowance                                                    -          -         -          -  
------     ------    ------     ------
Gross deferred tax assets (liabilities)                           45.5      (55.7)    102.7      (79.1)
Netting of items by tax jurisdiction                                 (44.9)      44.9     (74.9)      74.9
------     ------    ------     ------
.6      (10.8)     27.8       (4.2)
Less net current deferred tax asset (liability)                         .6        -          .1       (2.5)
------     ------    ------     ------ 

Net noncurrent deferred tax asset (liability)                   $  -       $(10.8)   $ 27.7     $ (1.7)
======     ======    ======     ====== 

The components of the provision for deferred income taxes for 1991 (a
disclosure not required after adopting SFAS No. 109 in 1992) is summarized
below.

AMOUNT
------
(IN MILLIONS)

Depreciation                                                                                       $(1.7)
Undistributed income of subsidiaries and affiliates                                                 (2.5)
Reduction in interest in affiliate                                                                   7.2
Other, net                                                                                           (.6)
----- 

$ 2.4
=====

NOTE 15 - INTEREST AND OTHER INCOME:

YEARS ENDED DECEMBER 31, 
----------------------------------
1991          1992         1993
----          ----         ----
(IN THOUSANDS)

Interest and dividends:
General corporate income                                                $ 5,960       $ 9,279      $ 5,211
Sugarbeet growers and other                                                 844           706          562
Currency transactions, net                                                     32             1         (188)
Disposal of property and equipment                                             81           247          361
Other, net                                                                  7,779         7,705        5,245
-------       -------      -------

$14,696       $17,938      $11,191
=======       =======      =======

F-31

103
NOTE 16 - EXTRAORDINARY ITEMS:

YEARS ENDED DECEMBER 31, 
----------------------------------
1991          1992          1993
----          ----          ----
(IN THOUSANDS)

Prepayments of Valhi's 12 1/2% Notes                                      $ -          $(9,511)     $ (7,749)
Income tax benefit                                                          -            3,234         2,712
------       -------      --------
-           (6,277)       (5,037)
------       -------      -------- 

Equity in extraordinary items of NL:
Income tax benefit of utilization of tax loss
and tax credit carryforwards                                            4,917          -             -
Prepayments of indebtedness                                                184          -          (15,928)
------       -------      -------- 
5,101          -          (15,928)
Deferred income tax benefit (expense)                                     (349)         -            5,575
------       -------      --------
4,752          -          (10,353)
------       -------      -------- 

Extraordinary gain (loss)                                             $4,752       $(6,277)     $(15,390)
======       =======      ======== 

Funds for the prepayment of $235 million principal amount of Valhi 12
1/2% Senior Subordinated Notes during 1992 and 1993 were provided in part from
net proceeds of the LYONs ($95 million), Medite's Timber Credit Agreement ($60
million) and Valcor's Senior Notes ($50 million).

Utilization of tax loss and credit carryforwards are not classified as
extraordinary items subsequent to the adoption of SFAS No. 109.

NOTE 17 - EMPLOYEE BENEFIT PLANS:

Company-sponsored pension plans

Valhi and its subsidiaries maintain various defined benefit and defined
contribution plans and about 40% of the Company's worldwide full and part-time
employees (over 80% of full-time employees) participate in one or more of such
company-sponsored plans.  Defined pension benefits are generally based on years
of service and compensation under fixed dollar, final pay or career average
formulas and the related expenses are based on independent actuarial
valuations.  The funding policies for U.S. defined benefit plans are to
contribute amounts satisfying funding requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").  Non-U.S. defined benefit
plans are funded in accordance with applicable statutory requirements.

Defined contribution plans.  Approximately 90% of full-time U.S.
employees are eligible to participate in contributory savings plans with
Company contributions based on matching or other formulas, and certain of such
employees also participate in Valhi's noncontributory unleveraged Employee
Stock Ownership Plan.  At December 31, 1993, 186,000 shares of Valhi common
stock were held by the ESOP, all of which were allocated to participants.  The
Company's expense related to the savings plans and the ESOP approximated $2
million in 1991, $2.4 million in 1992 and $2.6 million in 1993.

F-32

104
Defined benefit plans.  Approximately 65% of the Company's worldwide
full-time employees are covered by defined benefit plans.  The funded status of
the Company's defined benefit pension plans and the components of net periodic
defined benefit pension cost are set forth below.  The rates used in
determining the actuarial present value of benefit obligations at December 31,
1993 were (i) discount rate - 7.5% (1992 - 8% to 8.5%), and (ii) rate of
increase in future compensation levels - 4% to 5%.  The expected long-term
rates of return on assets used ranged from 7.5% to 10% (1992 - 7.5% to 12%).
Approximately one-half of the aggregate plan assets at December 31, 1993
consist of units in a combined investment fund for employee benefit plans
sponsored by Valhi and its affiliates, including Contran and certain Contran
affiliates.  Other plan assets are primarily mutual funds.  Assets of the
combined investment fund are primarily investments in corporate equity and debt
securities, short-term cash investments and notes collateralized by residential
and commercial real estate.

PLAN ASSETS EXCEED       ACCUMULATED BENEFITS
ACCUMULATED BENEFITS       EXCEED PLAN ASSETS 
--------------------      --------------------
DECEMBER 31,              DECEMBER 31,    
--------------------      --------------------
1992        1993          1992       1993
----        ----          ----       ----
(IN THOUSANDS)

Actuarial present value of benefit obligations:
Vested benefits                                               $24,697     $35,141       $ 4,835    $  -
Nonvested benefits                                              3,017       4,134           394       -   
-------     -------       -------    -------

Accumulated benefit obligations                                27,714      39,275         5,229       -
Effect of projected salary increases                            6,619      10,315         4,026       -   
-------     -------       -------    -------

Projected benefit obligations                                  34,333      49,590         9,255       -
Plan assets at fair value                                        32,691      46,040         4,825       -   
-------     -------       -------    -------

Plan assets over (under) projected benefit obligations           (1,642)     (3,550)       (4,430)      -
Unrecognized net loss from experience different from
actuarial assumptions                                            5,655       7,526         2,204       -
Unrecognized prior service cost                                     597         938           525       -
Unrecognized net obligations (assets) being amortized
over periods of 9 to 16 years                                   (1,290)       (140)          917       -   
-------     -------       -------    -------

Total prepaid (accrued) pension cost                              3,320       4,774          (784)      -
Current portion and reclassification, net                           968          90          (333)      (110)
-------     -------       -------    ------- 

Noncurrent prepaid (accrued) pension cost                   $ 4,288     $ 4,864       $(1,117)   $  (110)
=======     =======       =======    ======= 

YEARS ENDED DECEMBER 31, 
-----------------------------------
1991          1992          1993
----          ----          ----
(IN THOUSANDS)

Service cost benefits earned during the year                             $ 2,068       $ 2,435       $ 2,291
Interest cost on projected benefit obligations                             2,710         3,074         3,467
Actual return on plan assets                                              (4,671)       (1,978)       (6,012)
Net amortization and deferral                                              1,435        (1,848)        1,766
-------       -------       -------

$ 1,542       $ 1,683       $ 1,512
=======       =======       =======

F-33

105
The 1992 loss related to the permanent closure of the Company's plywood
operations (see Note 4) includes a pension curtailment loss of $.6 million.

The pension liabilities component of stockholders' equity relates to the
Company's equity in amounts recorded by NL and Tremont, net of related deferred
income taxes.

Multiemployer pension plans

A small minority of the Company's employees are covered by
union-sponsored, collectively-bargained multiemployer pension plans.
Contributions to multiemployer plans based upon collectively-bargained
agreements were $128,000 in 1991, $95,000 in 1992, and $53,000 in 1993.  Based
upon information provided by the multiemployer plans' administrators, the
Company's share of such plans' unfunded vested benefits is not significant.

Postretirement benefits other than pensions

Certain subsidiaries currently provide certain health care and life
insurance benefits for eligible retired employees.  Under plans currently in
effect, some currently active employees of Amalgamated and Medite may become
eligible for postretirement health care benefits if they reach retirement age
while working for the applicable subsidiary.  Substantially all retirees are
required to contribute a portion of the cost of their benefits and certain
current and all future retirees either cease to be eligible for health care
benefits at age 65 or are thereafter eligible only for limited benefits.

The components of the periodic OPEB cost and accumulated OPEB obligation
are set forth below.  The rates used in determining the actuarial present value
of the accumulated OPEB obligations at December 31, 1993, were (i) discount
rate - 7.5% (1992 - 7.75%), (ii) rate of increase in future compensation levels
- - 4% to 4.5% (1992 - 4% to 5%) and (iii) rate of increase in future health care
costs - 13.5% in 1994, gradually declining to approximately 6% in 2017 and
thereafter.  If the health care cost trend rate was increased by one percentage
point for each year, OPEB expense would have increased $210,000 in 1993, and
the actuarial present value of accumulated OPEB obligations at December 31,
1993 would have increased $1.7 million.

DECEMBER 31,  
--------------------
1992          1993
----          ----
(IN THOUSANDS)

Service cost benefits earned during the year                                            $  498        $  527
Interest cost on accumulated OPEB obligation                                             1,279         1,139
Net amortization and deferral                                                             -              (86)
------        ------ 

$1,777        $1,580
======        ======

Pay-as-you-go OPEB expense, prior to adoption of SFAS No. 106, was
approximately $1 million in 1991.

F-34

106

DECEMBER 31,   
----------------------
1992           1993
----           ----
(IN THOUSANDS)

Actuarial present value of accumulated OPEB obligations:
Retiree benefits                                                                    $10,484        $ 8,006
Other fully eligible active plan participants                                         1,848          1,876
Other active plan participants                                                        5,481          5,527
-------        -------
17,813         15,409
Unrecognized net gain from experience different
from actuarial assumptions                                                               161          3,150
-------        -------

Total accrued OPEB cost                                                                17,974         18,559
Less current portion                                                                      990            854
-------        -------

Noncurrent accrued OPEB cost                                                        $16,984        $17,705
=======        =======

NOTE 18 - CHANGES IN ACCOUNTING PRINCIPLES:

Marketable securities (SFAS No. 115).  The Company, NL and Tremont each
elected early compliance with SFAS No. 115 effective December 31, 1993.  The
cumulative effect of this change in accounting principle is shown in the table
below.  The amounts attributable to the Company's investment in NL and Tremont
consist of the Company's equity in the respective amounts reported by NL and
Tremont.

AMOUNT REFLECTED IN      
-----------------------------
EQUITY  
EARNINGS            COMPONENT
--------            ---------
(IN THOUSANDS)        

Increase (decrease) in net assets at
December 31, 1993:
Marketable securities                                                          $ -                $ 64,550
Investment in NL and Tremont                                                     661                  (661)
Deferred income taxes                                                           (232)              (22,361)
-----              -------- 

$ 429              $ 41,528
=====              ========

OPEB (SFAS No. 106) and income taxes (SFAS No. 109).  The Company, NL
and Tremont each elected (i) early compliance with both SFAS No.  106 and SFAS
No. 109 as of January 1, 1992; (ii) to apply SFAS No. 109 prospectively and not
restate prior years; and (iii) immediate recognition of the OPEB transition
obligation.  The cumulative effect of changes in accounting principles
adjustment is shown in the table below.  The amounts attributable to the
Company's investments in NL and Tremont consist of the Company's equity in the
respective historical amounts reported by NL and Tremont and applicable
adjustment of the Company's purchase accounting basis differences originally
recorded net-of- tax at rates differing from current rates.

F-35

107

AMOUNT
------
(IN THOUSANDS)

Increase (decrease) in net assets at January 1, 1992:
Inventories                                                                                    $  2,629
Timber and timberlands                                                                            8,606
Investment in NL and Tremont                                                                    (74,107)
Franchise fees and other intangible assets                                                        5,647
Property and equipment                                                                           (1,696)
Accrued OPEB cost                                                                               (16,965)
Deferred income taxes, net                                                                        6,112
--------

Loss from cumulative effect of changes in accounting
principles                                                                                  $(69,774)
======== 

NOTE 19 - RELATED PARTY TRANSACTIONS:

The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. While no
transactions of the type described above are planned or proposed with respect
to the Company (except as otherwise set forth in this Annual Report on Form
10-K), the Company continuously considers, reviews and evaluates, and
understands that Contran and related entities consider, review and evaluate
such transactions.  Depending upon the business, tax and other objectives then
relevant, it is possible that the Company might be a party to one or more such
transactions in the future.

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

Loans are made between the Company and various related parties,
including Contran, pursuant to term and demand notes, principally for cash
management purposes.  Related party loans generally bear interest at rates
related to credit agreements with unrelated parties.  Interest income on loans
to related parties was $1,694,000 in 1991, $405,000 in 1992, and $73,000 in
1993 and related party interest expense was $625,000 in 1991, nil in 1992 and
$39,000 in 1993.

Contran has an $18 million bank credit agreement which includes a $10
million letter of credit facility.  Pursuant to such agreement, Contran may
authorize the banks to issue letters of credit on behalf of Valmont ($2.3
million outstanding at December 31, 1993).  Obligations under this Contran
credit agreement are collateralized by certain securities held by Contran.

F-36

108
Under the terms of Intercorporate Services Agreements ("ISAs") with
Contran, Contran provides certain management, administrative and aircraft
maintenance services to the Company, and the Company provides various
administrative and other services to Contran, on a fee basis.  The net ISA fees
charged to the Company were approximately $1.2 million in each of the past
three years.  Charges from corporate related parties for services provided in
the ordinary course of business were less than $250,000 in each of the past
three years.  Such charges are principally pass-through in nature and, in the
Company's opinion, are not materially different from those that would have been
incurred on a stand-alone basis.  The Company has established a policy whereby
the Board of Directors will consider the payment of additional management fees
to Contran for certain financial advisory and other services provided by
Contran beyond the scope of the ISAs.  No such payments were made in the past
three years.

NL and Tremont are parties to ISAs with Valhi whereby Valhi provides
certain management, financial and administrative services to NL and Tremont on
a fee basis.  Baroid and Valhi were parties to a similar agreement terminated
in May 1991.  Fees charged to affiliates pursuant to these agreements
aggregated $2.1 million in 1991, $1.8 million in 1992 and $1.0 million in 1993.

In June 1991, Valhi sold 2.3 million Baroid shares to Contran for cash
at the then-current market price of $6.375 per share.  See Note 5.  The
Company's December 1991 sale of NL common stock to Tremont is described in Note
3.  In conjunction with the issuance of the LYONs in October 1992, Valhi
purchased 1.7 million shares of Baroid common stock from Contran at the
then-current market price of $6.375 per share.

COAM Company is a partnership, formed prior to 1991, which has sponsored
research agreements with the University of Texas Southwestern Medical Center at
Dallas (the "University") to develop and commercially market a safe and
effective treatment for arthritis (the "Arthritis Research Agreement") and to
develop and commercially market patents and technology resulting from a cancer
research program (the "Cancer Research Agreement").  At December 31, 1993, COAM
partners are Contran, Valhi and another Contran subsidiary.  Harold C. Simmons
is the manager of COAM.  The Arthritis Research Agreement, as amended, provides
for payments by COAM of up to $8.4 million over the next 11 years and the
Cancer Research Agreement, as amended, provides for funds of up to $19.7
million over the next 17 years.  Funding requirements pursuant to the Arthritis
and Cancer Research Agreements are without recourse to the COAM partners and
the partnership agreement provides that no partner shall be required to make
capital contributions.  The Company's contributions to COAM were approximately
$1.1 million in 1991, $1.7 million in 1992 and $2 million in 1993.

F-37

109
NOTE 20 - COMMITMENTS AND CONTINGENCIES:

Legal proceedings

Valhi and consolidated subsidiaries

In November 1987, a complaint was filed in the United States District
Court for the District of Utah against Valhi, Amalgamated, the Amalgamated
Retirement Plan Committee and Harold C. Simmons (Holland, et al. v. Valhi,
Inc., et al., No. 87-C-968G).  The complaint, a class action on behalf of
certain retired salaried employees of Amalgamated, alleges, among other things,
that the defendants breached their fiduciary duties under ERISA by amending
certain provisions of a retirement plan for salaried employees maintained by
Amalgamated to permit the reversion of excess plan assets to Amalgamated in
1986.  The complaint seeks a variety of remedies, including, among other
things, orders requiring a return of all reverted funds (alleged to be in
excess of $4 million) and a distribution of such funds to retirees and their
beneficiaries, an award of punitive damages, and costs and expenses, including
attorneys' fees.  The punitive damage claim was dismissed in April 1989, Valhi
was dismissed as a defendant in the suit and trial was held in July 1991.  In
January 1992, the court issued Findings of Fact and Conclusions of Law which
held, among other things, that Harold C. Simmons was not liable for any
violation of law, that the acts which are the subject of the complaint fall
outside of Mr. Simmons' fiduciary function, that Amalgamated was entitled to a
reversion of excess plan assets but that Amalgamated and the Plan Committee had
breached their fiduciary duties under ERISA by calculating the plan
participants' share of the reversion in accordance with regulations issued by
the Pension Benefit Guaranty Corporation ("PBGC") where application of those
regulations resulted in what the court deemed an inequitable distribution to
plan participants.  The court held that Amalgamated and the Plan Committee had
a fiduciary duty under ERISA to consider alternative methods for calculating
the plan participants' share of the reversion and, if necessary, to seek
approval from the PBGC to utilize such an alternative method.  Pursuant to a
method of calculation that the court found to result in a more equitable
distribution, the plaintiff class was awarded approximately $915,000 plus
interest from July 1, 1986, costs and reasonable attorneys' fees.  In April
1992, defendants Amalgamated and the Plan Committee filed a notice of appeal,
and shortly thereafter, the plaintiffs cross-appealed certain issues resolved
in favor of defendants.  In November 1992, plaintiffs' appealed the amount of
attorneys' fees the court awarded on behalf of plaintiffs.  In September 1993
the United States Court of Appeals for the Tenth Circuit heard oral arguments.
Amalgamated and the Plan Committee continue to believe the action is without
merit, believe the court erred as to certain of its findings and conclusions,
and intend to continue to appeal vigorously the court's decision.

In November 1992, a complaint was filed in the United States District
Court for the District of Utah against Valhi, Amalgamated and the Amalgamated
Retirement Plan Committee (American Federation of Grain Millers International,
et al. v. Valhi, Inc. et al., No. 29-NC-129J).  The complaint, a purported
class action on behalf of certain current and retired hourly employees of
Amalgamated, alleges, among other things, that the defendants breached their
fiduciary duties under ERISA by amending certain provisions of a retirement
plan for hourly employees maintained by Amalgamated to permit the reversion of
excess plan assets to Amalgamated in 1986.  The complaint seeks a variety of
remedies, including, among other things, orders requiring a return of all
reverted funds (alleged to

F-38

110
be in excess of $8 million) and any profits earned thereon, a distribution of
such funds to the plan participants, retirees and their beneficiaries and
enhancement of the benefits under the plan, and an award of costs and expenses,
including attorney fees.  The hearing on the Company's motion to dismiss and/or
for partial summary judgment has been continued.  The Company and the Plan
Committee believe the action is without merit and intend to defend the action
vigorously.

In November 1991, a purported derivative complaint was filed in the
Court of Chancery of the State of Delaware, New Castle County (Alan Russell
Kahn v. Tremont Corporation, et al., No. 12339), in connection with Tremont's
agreement to purchase 7.8 million NL common shares from Valhi.  In addition to
Tremont, the complaint names as defendants the members of Tremont's board of
directors and Valhi.  The complaint alleges, among other things, that Tremont's
purchase of the NL shares constitutes a waste of Tremont's assets and that
Tremont's board of directors breached their fiduciary duties to Tremont's
public stockholders and seeks, among other things, to rescind Tremont's
consummation of the purchase of the NL shares and award damages to Tremont for
injuries allegedly suffered as a result of the defendants' wrongful conduct.
Valhi believes, and understands that Tremont and the other defendants believe,
that the action is without merit.  Valhi has denied, and understands that
Tremont and the other defendants have denied, all allegations of wrongdoing and
liability and intends to defend the action vigorously.  The defendants have
moved to dismiss the complaint on the ground that the plaintiff lacks standing
to pursue this action, and oral arguments are scheduled for Spring 1994.  The
court has granted the plaintiff limited discovery with respect to the motion to
dismiss.

The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
business.  The Company currently believes that the disposition of all claims
and disputes, individually or in the aggregate, should not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.

NL Industries

Lead pigment litigation.  Since 1987, NL, other past manufacturers of
lead pigments for use in paint and lead-based paint and the Lead Industries
Association have been named as defendants in various legal proceedings seeking
damages for personal injury and property damage allegedly caused by the use of
lead-based paints.  Certain of these actions have been filed by or on behalf of
large United States cities or their public housing authorities.  These legal
proceedings seek recovery under a variety of theories, including negligent
product design, failure to warn, breach of warranty, conspiracy/concert of
action, enterprise liability, market share liability, intentional tort, and
fraud and misrepresentation.

The plaintiffs in these actions generally seek to impose on the
defendants responsibility for lead paint abatement and asserted health concerns
associated with the use of lead-based paints, which was permitted for interior
residential use in the United States until 1973, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical
monitoring expenses, and costs for educational programs.  Most of these legal
proceedings are in various pre-trial stages; several are on appeal.

F-39

111
NL is vigorously defending the pending lead pigment litigation and has
not accrued any amounts for such litigation.  Although no assurance can be
given that NL will not incur future liability in respect of this litigation,
based on, among other things, results of such litigation to date, NL believes
that the pending lead pigment litigation is without merit.  Considering NL's
previous involvement in the lead and lead pigment businesses, there can be no
assurance that additional litigation similar to that currently pending will not
be filed.

Environmental matters and litigation.  Some of NL's current and former
facilities, including several divested secondary lead smelters and former
mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws.  Additionally, in connection with past disposal practices, NL has been
named a potentially responsible party ("PRP") pursuant to CERCLA in
approximately 80 governmental enforcement and private actions associated with
hazardous waste sites and former mining locations, some of which are on the
U.S. EPA's Superfund National Priority List.  These actions seek cleanup costs
and/or damages for personal injury or property damage.  While NL may be jointly
and severally liable for such costs, in most cases, it is only one of a number
of PRPs who are also jointly and severally liable.  In addition, NL is a party
to a number of lawsuits filed in various jurisdictions alleging CERCLA or other
environmental claims.  At December 31, 1993, NL had accrued $70 million in
respect of those environmental matters which are reasonably estimable.  It is
not possible to estimate the range of costs for certain sites.  The upper end
of range of reasonably possible costs to NL for sites for which it is possible
to estimate costs is approximately $105 million.  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.  The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs,
or a determination that NL is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated by NL to be required for such matters.  Further,
there can be no assurance that additional environmental matters will not arise
in the future.

Other litigation.  On February 24, 1994, NL settled its lawsuit against
Lockheed Corporation and its directors.  The litigation arose out of NL's
claims, among other things, that Lockheed had violated the federal securities
laws by making false and misleading statements about its ESOP that impacted the
value of the Lockheed stock formerly owned by NL.  The jury concluded in a
December 1992 verdict that Lockheed violated the anti-fraud provisions of the
federal securities laws and awarded NL $30 million, which gain contingency was
not recorded as income by NL at that time.  Both companies appealed.  In
connection with the settlement, NL and Lockheed agreed to dismiss the pending
proceedings and to release all claims that each may have against the other.
Under terms of the 1994 settlement, Lockheed made a $27 million cash payment to
NL, resulting in net proceeds to NL of approximately $20 million.  NL will
recognize the resolution of this gain contingency in 1994.

F-40

112
In January 1990, an action was filed in the United States District Court
for the Southern District of Ohio against NLO, Inc., a subsidiary of NL, and NL
on behalf of a putative class of former NLO employees and their families and
former frequenters and invitees of the Feed Materials Production Center
("FMPC") in Ohio (Day, et al. v. NLO, Inc., et al., No. C-1-90-067).  The FMPC
is owned by the United States Department of Energy (the "DOE") and was formerly
managed under contract by NLO.  The complaint seeks damages for, among other
things, emotional distress and damage to personal property allegedly caused by
exposure to radioactive and/or hazardous materials at the FMPC and punitive
damages.  A trial was held separately on the defendants' defense that the
statute of limitations barred the plaintiffs' claims.  In November 1991, the
jury returned a verdict against six of the ten named plaintiffs, finding that
their claims were time barred.  Without denying the plaintiffs' motion to
vacate the verdict, the court certified this action as a class action.  A
merits trial is expected to be held in late 1994.  Although no assurance can be
given, the Company understands that NL believes that, consistent with a July
1987 DOE contracting officer's decision, the DOE will indemnify NLO in the
event of an adverse decision just as it did when two previous cases relating to
NLO's management of the FMPC were settled; therefore, the resolution of the Day
matter is not expected to have a material adverse effect on NL.  In the 1987
decision, the contracting officer affirmed NLO's entitlement to indemnification
under its contract for the operation of the FMPC for all liability, including
the cost of defense, arising out of those two previous cases.

Tremont Corporation

Titanium Metals Corporation ("TIMET"), a 75%-owned Tremont subsidiary,
along with others, including the airline and the engine manufacturers, has been
named in a number of lawsuits arising out of the July 1989 crash of a DC-10
aircraft in Iowa.  The majority of the cases naming TIMET have been settled
without payment by TIMET to date, although the possibility of a future claim
for contribution by one or more other defendants exists with respect to certain
of such cases.  In addition, TIMET was granted summary judgment in
approximately 15 other cases and approximately 25 cases were dismissed in 1993
but have been refiled by the plaintiffs.  The Company understands TIMET
maintains substantial general liability insurance coverage against claims of
this nature and TIMET's insurance carrier has assumed TIMET's defense in the
litigation.  The Company understands that TIMET, based upon the information
which TIMET has obtained to date, does not believe that its ultimate liability
in this matter, if any, will exceed its applicable insurance coverage or
otherwise have a material adverse effect on TIMET's consolidated financial
position, results of operations or liquidity.

See also the third paragraph under "Valhi and consolidated subsidiaries"
above (Kahn v. Tremont, et al.).

In addition to the litigation described above, NL and Tremont are
involved in various environmental, contractual, product liability and other
claims and disputes incidental to their respective present and former
businesses.  The Company understands that each of NL and Tremont currently
believe the disposition of all claims and disputes, individually or in the
aggregate, should not have a material adverse effect on its respective
consolidated financial position, results of operations or liquidity.

F-41

113
Environmental matters

Valhi and consolidated subsidiaries.  The Company's operations are
governed by various federal, state, local and foreign environmental laws and
regulations.  The Company's policy is to comply with environmental laws and
regulations at all of its plants and to continually strive to improve
environmental performance in association with applicable industry initiatives
and believes that its operations are in substantial compliance with applicable
requirements of environmental laws.  From time to time, the Company may be
subject to environmental regulatory enforcement under various statutes,
resolution of which typically involves the establishment of compliance
programs.  At December 31, 1993, the Company has accrued approximately $2
million in respect of environmental cleanup matters, principally related to one
Superfund site in Indiana where the Company, as a result of former operations,
has been named as a PRP.  Such accrual does not reflect any amounts which the
Company could potentially recover from insurers or other third parties and is
near the upper end of the range of the Company's estimate of reasonably
possible costs for such matters.  The imposition of more strict standards or
requirements under environmental laws or regulations, new developments or
changes in site cleanup costs or allocations of such costs could result in
expenditures in excess of amounts currently estimated to be required for such
matters.

NL and Tremont.  In addition to litigation referred to above, certain
other information relating to regulatory and environmental matters pertaining
to NL and Tremont is included in Item 1 - "Business - Unconsolidated Affiliates
- - NL and Tremont" of this Annual Report on Form 10- K.

Concentrations of credit risk

Amalgamated sells refined sugar primarily in the North Central and
Intermountain Northwest regions of the United States.  Amalgamated does not
believe it is dependent upon one or a few customers; however, major food
processors are substantial customers and represent an important portion of
refined sugar segment sales.  Amalgamated's ten largest customers accounted for
about one-third of its sales in each of the past three years.

Medite's sales are made primarily to wholesalers of building materials
located principally in the western United States, the Pacific Rim, Europe and
Mexico.  In each of the past three years, Medite's ten largest customers
accounted for approximately one-fourth of its sales with eight of such
customers in each year located in the U.S.

Sybra's approximately 160 Arby's restaurants are clustered in four
regions, principally Texas, Michigan, Pennsylvania and Florida.  All fast food
sales are for cash.

National Cabinet Lock's sales are primarily in the U.S. and Canada.  In
each of the past three years, National Cabinet Lock's ten largest customers
accounted for approximately one-third of its sales with at least seven of such
customers in each year located in the U.S.

F-42

114
Operating leases

The Company leases various fast food retail and other facilities and
equipment.  Most of the leases contain purchase and/or various term renewal
options at fair market values.  In most cases the Company expects that, in the
normal course of business, leases will be renewed or replaced by other leases.
Net rent expense was $5.6 million in 1991, $5.7 million in 1992 and $5.8
million in 1993.  Contingent rentals based upon gross sales of individual fast
food restaurants were less than 10% of total rent expense in each of the past
three years.

At December 31, 1993, substantially all future minimum payments under
noncancellable operating leases having an initial or remaining term of more
than one year relate to fast food restaurant facilities.

YEARS ENDING DECEMBER 31,                                                                           AMOUNT
- -------------------------                                                                           ------
(In thousands)

1994                                                                                             $ 5,430
1995                                                                                               4,764
1996                                                                                               4,246
1997                                                                                               3,436
1998                                                                                               2,551
1999 and thereafter                                                                                9,980
-------
30,407
Less minimum rentals due under noncancellable subleases                                            1,526
-------

Net minimum commitments                                                                      $28,881
=======

Capital expenditures

At December 31, 1993, the estimated cost to complete capital projects in
process approximated $36 million, including $23.5 millon related to an
expansion of Medite/Europe's medium density fiberboard plant.  Medite/Europe
has entered into certain forward currency contracts to hedge exchange rate risk
on the equivalent of approximately $4 million of equipment purchase commitments
related to its plant expansion.  At December 31, 1993, the fair value of such
currency contracts approximated the contract amount.

Timber cutting contracts

Deposits are made on timber cutting contracts with public and private
sources from which Medite obtains a portion of its timber requirements.  Medite
records only the cash deposits and advances on these contracts because it does
not obtain title to the timber until it has been harvested.  At December 31,
1993, timber and log purchase obligations aggregated approximately $13.5
million under agreements expiring principally in 1994.

F-43

115
Royalties

Royalty expense, substantially all of which relates to fast food
operations, was $3.6 million in 1991, $4.2 million in 1992 and $4.5 million in
1993.  Fast food royalties are paid to the franchisor based upon a percentage
of gross sales, as specified in the franchise agreement related to each
individual store.

Income taxes

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

NL is undergoing examinations of certain of its income tax returns in
various U.S. and non-U.S. jurisdictions, including Germany, and tax authorities
have or may propose tax deficiencies.  The Company understands that NL believes
that it has adequately provided accruals for additional income taxes and
related interest expense which may ultimately result from such examinations and
believes that the ultimate disposition of all such examinations should not have
a material adverse effect on its consolidated financial position, results of
operations or liquidity.

F-44

116
NOTE 21 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

QUARTER ENDED                   
---------------------------------------------------
MARCH 31       JUNE 30       SEPT. 30       DEC. 31
--------       -------       --------       -------
(IN MILLIONS, EXCEPT PER SHARE DATA)       

Year ended December 31, 1993

Net sales                                               $171.3         $193.5        $213.2        $203.1
Operating income                                          16.5           21.5          27.0          26.0

Income (loss):
Before extraordinary items                            $(60.3)        $ (7.1)       $  1.2        $  2.1
Extraordinary items                                      -              -            (3.2)        (12.2)
Cumulative effect of change
in accounting principles                                -              -             -              .4
------         ------        ------        ------

Net loss                                            $(60.3)        $ (7.1)       $ (2.0)       $ (9.7)
======         ======        ======        ====== 

Income (loss) per common share:
Before extraordinary items                            $ (.53)        $ (.06)       $  .01        $  .02
Extraordinary items                                      -              -            (.03)         (.10)
Cumulative effect of change
in accounting principles                                -              -             -             -  
------         ------        ------        ------

Net loss                                            $ (.53)        $ (.06)       $ (.02)       $ (.08)
======         ======        ======        ====== 

Year ended December 31, 1992

Net sales                                               $195.6         $209.6        $207.5        $199.1
Operating income                                          17.8           22.3          19.5          19.4

Income (loss):
Before extraordinary items                            $ (1.5)        $   .4        $  (.8)       $(20.3)
Extraordinary items                                      (.2)           -             -            (6.1)
Cumulative effect of changes
in accounting principles                              (69.8)           -             -             -  
------         ------        ------        ------

Net income (loss)                                   $(71.5)        $   .4        $  (.8)       $(26.4)
======         ======        ======        ====== 

Income (loss) per common share:
Before extraordinary items                            $ (.02)        $  .01        $ (.01)       $ (.17)
Extraordinary items                                      -              -             -            (.06)
Cumulative effect of changes
in accounting principles                               (.61)           -             -             -  
------         ------        ------        ------

Net income (loss)                                   $ (.63)        $  .01        $ (.01)       $ (.23)
======         ======        ======        ====== 

F-45

117

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118

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

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

Our report on the consolidated financial statements of Valhi, Inc. and
Subsidiaries as of December 31, 1992 and 1993 and for each of the three years
in the period ended December 31, 1993 is herein included on this Annual Report
on Form 10-K.  As discussed in Notes 1 and 18 to the consolidated financial
statements, in 1992 the Company changed its method of accounting for
postretirement benefits other than pensions and income taxes in accordance with
Statements of Financial Accounting Standards ("SFAS") Nos. 106 and 109,
respectively, and in 1993 changed its method of accounting for certain
investments in debt and equity securities in accordance with SFAS No. 115.  In
connection with our audits of such financial statements, we have also audited
the related financial statement schedules listed in the index on page F-1 of
this Annual Report on Form 10-K.  These consolidated financial statement
schedules are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statement schedules based on our audits.  We did not audit the financial
statements of the refined sugar (The Amalgamated Sugar Company) and forest
products (Medite Corporation) subsidiaries constituting approximately 48% and
59% of consolidated assets as of December 31, 1992 and 1993, respectively, and
approximately 81%, 81% and 77% of consolidated net sales for the years ended
December 31, 1991, 1992 and 1993, respectively.  These statements were audited
by other auditors whose reports thereon were furnished to us and our opinion
expressed herein, insofar as it relates to amounts included for such
subsidiaries, is based solely upon their reports.

In our opinion, based upon our audits and the reports of other
auditors, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information required to be included therein.

COOPERS & LYBRAND

Dallas, Texas
February 25, 1994

S-1   

119

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Shareholder of The Amalgamated Sugar Company:

Under date of January 28, 1994, we reported on the consolidated
balance sheets of The Amalgamated Sugar Company as of December 31, 1992 and
1993, and the related consolidated statements of income and shareholder's
equity and cash flows for each of the three years in the period ended December
31, 1993 (not presented separately herein).  In connection with our audits of
the aforementioned consolidated financial statements, we also audited
consolidated financial statement schedules V, VI, VIII, IX and X (not presented
separately herein).  These consolidated financial statement schedules are the
responsibility of the Company's management.  Our responsibility is to express
an opinion on these consolidated financial statement schedules based on our
audits.

In our opinion, such schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.

KPMG PEAT MARWICK

Salt Lake City, Utah
January 28, 1994

S-2

120

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES

To the Stockholder of Medite Corporation:

We have audited in accordance with generally accepted auditing
standards the consolidated financial statements (not presented separately
herein) of Medite Corporation as of December 31, 1992 and 1993 and for each of
the three years in the period ended December 31, 1993, and have issued our
report thereon dated January 28, 1994.  As discussed in Note 8 to the
consolidated financial statements (not presented separately herein), in 1992
the Company changed its method of accounting for postretirement benefits other
than pensions and income taxes in accordance with Statements of Financial
Accounting Standards Nos. 106 and 109, respectively.  Our audits of the
financial statements were made for the purpose of forming an opinion on the
basic financial statements taken as a whole.  The financial statement schedules
V, VI, VIII and X (not presented separately herein) are the responsibility of
the Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not a required part of the
basic financial statements.  These schedules have been subjected to the
auditing procedures applied in our audits of the basic financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

ARTHUR ANDERSEN & CO.

Portland, Oregon,
January 28, 1994

S-3

121
VALHI, INC. AND SUBSIDIARIES

SCHEDULE I - MARKETABLE SECURITIES (1)

DECEMBER 31, 1993

(IN THOUSANDS)

PRINCIPAL
AMOUNT
OF NOTES/                          AMOUNT
NAME OF ISSUER AND                      NUMBER OF             MARKET      CARRIED IN
TITLE OF EACH ISSUE                       SHARES     COST     VALUE     BALANCE SHEET
-------------------                     ---------  --------  --------   -------------

Current assets

Trading securities - U.S. Treasury Notes   $ 28,065   $ 28,621   $ 28,518    $ 28,518
========   ========   ========    ========

Noncurrent assets

Available-for-sale securities - Baroid
Corporation common stock (2)                13,675   $ 44,250   $112,816    $108,800
======   ========   ========    ========

(1)  The Company adopted SFAS No. 115 effective December 31, 1993.

(2)  Valhi's Liquid Yield Option Notes are exchangeable for the Company's
Baroid common stock at the option of the LYONs holders.  The carrying
value of the Baroid common stock is therefore limited to the accreted
value of the LYONs obligation.

S-4

122
VALHI, INC. AND SUBSIDIARIES

SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES

AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES

(IN THOUSANDS)

BALANCE AT                                              BALANCE
BEGINNING                  AMOUNT       AMOUNT         AT END
OF YEAR      ADDITIONS   COLLECTED   WRITTEN OFF      OF YEAR
----------     ---------   ---------   -----------      -------

Notes receivable - Contran Corporation:
Year ended December 31, 1991               $18,150      $ 49,675    $ 67,825        $  -         $  -
Year ended December 31, 1992                  -           66,953      66,953           -            -
Year ended December 31, 1993                  -           11,800     (11,800)          -            -

This schedule omits income tax accruals and payments resulting from inclusion
of the Registrant and its qualifying subsidiaries in Contran's consolidated
U.S. federal income tax return and other amounts arising in the ordinary course
of business.

S-5

123
VALHI, INC. AND SUBSIDIARIES

SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

CONDENSED BALANCE SHEETS

DECEMBER 31, 1992 AND 1993

(IN THOUSANDS)

1992           1993
----           ----

Current assets:
Cash and cash equivalents                            $ 31,565       $ 10,856
Marketable securities                                 127,459         28,518
Accounts and notes receivable                           2,521          2,505
Receivable from subsidiaries and affiliates             5,561          2,061
Deferred income taxes                                   3,718          1,619
Other                                                   4,823             96
--------       --------
Total current assets                              175,647         45,655
--------       --------

Other assets:
Marketable securities                                  44,250        108,800
Investment in subsidiaries                            155,885         39,096
Investment in NL and Tremont                          248,395         74,897
Deferred income taxes                                  13,137         50,744
Other                                                   8,505          9,650
--------       --------
Total other assets                                470,172        283,187
--------       --------

Property and equipment, net                                 415            418
--------       --------

$646,234       $329,260
========       ========

Current liabilities:
Current maturities of long-term debt                 $ 96,629       $   -
Accounts payable and accrued liabilities               23,560          7,222
Payable to subsidiaries and affiliates                 31,769          1,058
Income taxes                                            1,498          1,464
--------       --------
Total current liabilities                         153,456          9,744
--------       --------

Noncurrent liabilities:
Long-term debt                                        230,112        108,800
Other                                                   3,542          3,215
--------       --------
Total noncurrent liabilities                      233,654        112,015
--------       --------

Stockholders' equity:
Capital and retained earnings                         269,633        185,821
Adjustments:
Currency translation                                (10,277)       (17,776)
Marketable securities                                  (232)        41,075
Pension liabilities                                    -            (1,619)
--------       -------- 
Total stockholders' equity                        259,124        207,501
--------       --------

$646,234       $329,260
========       ========

S-6

124
VALHI, INC. AND SUBSIDIARIES

SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

CONDENSED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991           1992            1993
----           ----            ----

Revenues and other income:
Interest and dividends                         $  6,492       $  9,234       $   5,188
Securities transactions                          63,201          2,113           1,167
Other, net                                        5,192          1,403             752
--------       --------       ---------
74,885         12,750           7,107
--------       --------       ---------

Costs and expenses:
General and administrative                        8,527          8,534           9,139
Interest                                         58,137         40,992          26,563
Other, net                                          (83)             1           1,476
--------       --------       ---------
66,581         49,527          37,178
--------       --------       ---------

8,304        (36,777)        (30,071)
Equity in earnings of subsidiaries                 32,746         45,550          47,941
Equity in losses of NL and Tremont                (19,667)       (70,700)       (143,819)
--------       --------       --------- 

Income (loss) before income taxes                21,383        (61,927)       (125,949)

Income tax benefit (expense)                       (1,373)        39,690          61,825
--------       --------       ---------

Income (loss) before extraordinary items
and cumulative effect of changes in
accounting principles                           20,010        (22,237)        (64,124)

Extraordinary items                                 4,752         (6,277)        (15,390)

Cumulative effect of changes in accounting
principles                                          -           (69,774)            429
--------       --------       ---------

Net income (loss)                          $ 24,762       $(98,288)      $ (79,085)
========       ========       ========= 

S-7

125
VALHI, INC. AND SUBSIDIARIES

SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991             1992             1993
----             ----             ----

Cash flows from operating activities:
Net income (loss)                             $ 24,762        $ (98,288)        $(79,085)
--------        ---------         -------- 
Adjustments:
Noncash interest expense                       1,973            2,966           10,110
Deferred income taxes                          5,127          (28,689)         (54,636)
Equity in earnings of subsidiaries           (32,746)         (45,550)         (47,941)
Equity in losses of NL and Tremont            14,566           70,700          159,747
Dividends from subsidiaries                   46,297           40,937          164,454
Dividends from NL and Tremont                 24,414           10,740             -
Securities transactions                      (63,201)          (2,113)          (1,167)
Prepayments of senior subordinated
notes                                          -               9,511            7,749
Other, net                                    (1,515)           2,062            2,085
Net change in assets and liabilities         (14,977)          (3,595)          (8,140)
Cumulative effect of changes in
accounting principles                          -              69,774             (429)
--------        ---------         -------- 

Total adjustments                          (20,062)         126,743          231,832
--------        ---------         --------

Net cash provided by operating
activities                                4,700           28,455          152,747
--------        ---------         --------

Cash flows from investing activities:
Proceeds from disposition of securities        463,596          280,486          381,395
Purchases of:
Marketable securities                       (201,820)        (294,105)        (281,795)
Stock of affiliates                             -              (4,853)            -
Loans to subsidiaries and affiliates:
Loans                                        (90,127)         (68,953)         (11,800)
Collections                                  115,777           66,953           13,800
Capital expenditures                              (134)              (27)           (195)
Other, net                                         (99)          (2,161)           3,769
--------        ---------         --------

Net cash provided (used) by
investing activities                    287,193          (22,660)         105,174
--------        ---------         --------

S-8

126
VALHI, INC. AND SUBSIDIARIES

SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS (CONTINUED)

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991              1992            1993
----              ----            ----

Cash flows from financing activities:
Notes payable and long-term debt:
Additions                                       $  25,000          $ 97,637       $    -
Principal payments, including
retirement premiums                             (284,381)          (58,565)       (241,715)
Deferred financing costs                             -               (3,830)           -
Loans from subsidiaries and affiliates:
Loans                                             199,494            55,801          27,631
Repayments                                       (220,565)          (47,343)        (58,895)
Dividends                                           (22,725)          (22,753)         (5,704)
Other, net                                              (86)               48              53
---------          --------       ---------

Net cash provided (used) by
financing activities                          (303,263)           20,995        (278,630)
---------          --------       --------- 

Cash and cash equivalents:
Net increase (decrease)                             (11,370)           26,790         (20,709)
Balance at beginning of year                         16,145             4,775          31,565
---------          --------       ---------

Balance at end of year                            $   4,775          $ 31,565       $  10,856
=========          ========       =========

Supplemental disclosures-cash paid for:
Interest                                          $  61,577          $ 41,492       $  26,817
Income taxes (received)                              (3,158)          (11,384)        (16,482)

S-9

127
VALHI, INC. AND SUBSIDIARIES

SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

NOTES TO CONDENSED FINANCIAL INFORMATION

NOTE 1 -  BASIS OF PRESENTATION:

The Consolidated Financial Statements of Valhi, Inc. and Subsidiaries
are incorporated herein by reference.  Condensed financial information for all
periods presented is classified based on the Company's organizational structure
as of December 31, 1993, and certain prior year amounts have been reclassified
to conform with the 1993 presentation.

NOTE 2 -  MARKETABLE SECURITIES:

DECEMBER 31,   
------------------
1992      1993
----      ----
(IN THOUSANDS)

Current assets - U.S. Treasury securities     $127,459  $ 28,518
========  ========

Noncurrent assets - Baroid common stock       $ 44,250  $108,800
========  ========

The Company adopted SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" as of December 31, 1993 and classified its
portfolio of U.S. Treasury securities as trading securities, and its Baroid
common stock as securities available-for-sale.  Cost of the U.S. Treasury
securities at December 31, 1993 was approximately $28.6 million.

At December 31, 1993, Valhi held 13.7 million Baroid shares (cost -
$44.3 million) with a quoted market price of $8.25 per share, or an aggregate
of $112.8 million.  However, because the Baroid common stock is exchangeable
for the Company's LYONs at the option of the LYONs holder (see Note 3), the
carrying value of the Baroid stock is limited to the accreted LYONs obligation.
In January 1994, Baroid and Dresser merged and each share of Baroid common
stock was exchanged for .4 shares of Dresser common stock.  As a result, the
LYONS became exchangeable for the 5.5 million Dresser shares now held by the
Company, which shares represent approximately 3% of Dresser's outstanding
common stock.

S-10

128
NOTE 3 -  LONG-TERM DEBT:

DECEMBER 31,   
------------------
1992      1993
----      ----
(IN THOUSANDS)

Liquid Yield Option NotesTM      $ 99,393  $108,800
Senior subordinated notes         227,348      -   
--------  --------
326,741   108,800
Less current maturities            96,629      -   
--------  --------

$230,112  $108,800
========  ========

The zero coupon Senior Secured LYONs, $379 million principal amount at
maturity in October 2007, were issued with significant original issue discount
("OID") to represent a yield to maturity of 9.25%.  No periodic interest
payments are required.  Each $1,000 in principal amount at maturity of the
LYONs is exchangeable, at any time, for 14.4308 shares of Dresser common stock
held by the Company (see Note 2).  The LYONs are redeemable at the option of
the holder in October 1997 or October 2002 at the issue price plus accrued OID
through such purchase date.  Such redemptions may be paid, at Valhi's option,
in cash, Dresser common stock, or a combination thereof.  The LYONs are not
redeemable at Valhi's option prior to October 1997 unless the market price of
Dresser common stock exceeds $35.70 per share for specified time periods.

The LYONs are secured by the 5.5 million shares of Dresser common
stock held by Valhi, which shares are held in escrow for the benefit of holders
of the LYONs.  Valhi receives the regular quarterly dividend (currently $.17
per quarter) on the escrowed Dresser shares.

Aggregate maturities of long-term debt at December 31, 1993

AMOUNT
------
(IN THOUSANDS)

October 1997 - LYONs                          $153,451
Less unamortized original issue discount        44,651
--------

$108,800
========

The LYONs are reflected in the above table as due in October 1997, the
first of the two dates they are redeemable at the option of the holder, at the
redemption price on such date of $404.84 per $1,000 principal amount at
maturity.

S-11

129
NOTE 4 -  INVESTMENT IN AND ACCOUNTS WITH SUBSIDIARIES AND AFFILIATES:

DECEMBER 31,   
--------------------
1992        1993
----        ----
(IN THOUSANDS)

Investment in subsidiaries
Amalgamated                        $ 21,176     $25,245
Valcor                              134,709      13,851
--------     -------

$155,885     $39,096
========     =======

Investment in affiliates:
NL Industries                      $200,197     $60,170
Tremont                              48,198      14,727
--------     -------

$248,395     $74,897
========     =======

Receivables:
Loan to Medite                     $  2,000     $  -
Income taxes, net                       883        -
Other                                 2,678       2,061
--------     -------

$  5,561     $ 2,061
========     =======

Payables:
Loan from Amalgamated              $ 31,186     $  -
Income taxes, net                      -            296
Other                                   583         762
--------     -------

$ 31,769     $ 1,058
========     =======

NOTE 5 -  EQUITY IN EARNINGS OF SUBSIDIARIES AND IN LOSSES OF AFFILIATES:

YEARS ENDED DECEMBER 31,  
------------------------------
1991      1992        1993
----      ----        ----
(IN THOUSANDS)

Subsidiaries:
Valcor                                   $ 10,134  $ 25,092   $  28,350
Amalgamated                                22,612    20,458      19,591
--------  --------   ---------

$ 32,746  $ 45,550   $  47,941
========  ========   =========

Affiliates:
NL Industries                            $(19,327) $(32,110)  $ (44,739)
Tremont                                      (340)  (16,590)    (15,065)
--------  --------   --------- 
(19,667)  (48,700)    (59,804)
Provisions for market value impairment       -      (22,000)    (84,015)
--------  --------   --------- 

$(19,667) $(70,700)  $(143,819)
========  ========   ========= 

S-12

130
NOTE 6 -  DIVIDENDS FROM SUBSIDIARIES AND AFFILIATES:

YEARS ENDED DECEMBER 31,   
---------------------------------
1991        1992          1993
----        ----          ----
(IN THOUSANDS)

Subsidiaries:
Amalgamated             $38,681     $19,823      $ 15,522
Valcor                    7,616      21,114       148,932
-------     -------      --------

$46,297     $40,937      $164,454
=======     =======      ========

Affiliates:
NL Industries           $22,461     $ 8,675      $   -
Tremont                   1,953       2,065          -   
-------     -------      --------

$24,414     $10,740      $   -   
=======     =======      ========

Dividends from Valcor in 1993 include (1) $60 million from the
proceeds of new borrowings under Medite's Timber Credit Agreement and (ii) $75
million from the proceeds of Valcor's Senior Notes Due 2003.  NL and Tremont
each suspended dividends during 1992.

NOTE 7 -  CASH RECEIVED FOR INCOME TAXES:

YEARS ENDED DECEMBER 31, 
----------------------------
1991      1992      1993
----      ----      ----
(IN THOUSANDS)

Received from subsidiaries:
Amalgamated                                $11,338   $12,620   $11,336
Valcor                                       7,344     7,623    14,294
-------   -------   -------
18,682    20,243    25,630
-------   -------   -------

Paid to:
Contran                                     14,086     7,630     8,845
State and foreign tax authorities            1,438     1,229       303
-------   -------   -------
15,524     8,859     9,148
-------   -------   -------

Cash received for income taxes, net      $ 3,158   $11,384   $16,482
=======   =======   =======

NL and Tremont are separate U.S. taxpayers and are not members of the
Contran Tax Group.

S-13

131
NOTE 8 -  INCOME TAXES:

The components of the provision for income tax benefit (expense)
attributable to income (loss) before extraordinary items and cumulative effect
of changes in accounting principles are presented below.

YEARS ENDED DECEMBER 31, 
---------------------------
1991      1992      1993
----      ----      ----
(IN THOUSANDS)

Provision for income tax benefit (expense):
Currently refundable                            $ 3,405   $13,056   $10,649
Deferred income taxes                            (4,778)   26,634    51,176
-------   -------   -------

$(1,373)  $39,690   $61,825
=======   =======   =======

The components of the net deferred tax asset at December 31, 1992 and
1993 are summarized below.

DEFERRED TAX
ASSET (LIABILITY)
-------------------
DECEMBER 31,   
-------------------
1992        1993
----        ----
(IN THOUSANDS)

Tax effect of temporary differences related to:
Marketable securities                                       $  (751)   $(23,498)
Investment in NL and Tremont                                 17,747      78,844
Accrued liabilities and other deductible differences          6,695       5,420
Other taxable differences                                    (6,836)     (8,403)
-------    -------- 

$16,855    $ 52,363
=======    ========

Current deferred tax asset                                    $ 3,718    $  1,619
Noncurrent deferred tax asset                                  13,137      50,744
-------    --------

$16,855    $ 52,363
=======    ========

S-14

132
NOTE 9 -  CHANGES IN ACCOUNTING PRINCIPLES:

Marketable securities (SFAS No. 115).  The Company, NL and Tremont
each elected early compliance with SFAS No. 115 effective December 31, 1993.
The cumulative effect of this change in accounting principle is shown in the
table below.  The amounts attributable to the Company's investment in NL and
Tremont consist of the Company's equity in the respective amounts reported by
NL and Tremont.

CUMULATIVE ADJUSTMENT TO
------------------------
EQUITY
EARNINGS       COMPONENT
--------       ---------
(IN THOUSANDS)

Increase (decrease) in net assets at
December 31, 1993:
Marketable securities                      $  -         $ 64,550
Investment in NL and Tremont                   661          (661)
Deferred income taxes, net                    (232)      (22,361)
-------      -------- 

$   429      $ 41,528
=======      ========

OPEB (SFAS No. 106) and income taxes (SFAS No. 109).  The Company, NL
and Tremont each elected (i) early compliance with both SFAS No.  106 and SFAS
No. 109 as of January 1, 1992; (ii) to apply SFAS No. 109 prospectively and not
restate prior years; and (iii) immediate recognition of the OPEB transition
obligation.  The cumulative effect of these changes in accounting principles
adjustment is shown in the table below.  The amounts attributable to the
Company's investments in NL and Tremont consist of the Company's equity in the
respective historical amounts reported by NL and Tremont and, pursuant to SFAS
No. 109, applicable adjustment of certain of the Company's purchase accounting
basis differences originally recorded net-of-tax at rates differing from
current rates.

AMOUNT
------
(IN THOUSANDS)

Increase (decrease) in net assets at January 1, 1992:
Investment in Amalgamated and Valcor                          $ (5,704)
Investment in NL and Tremont                                   (74,107)
Deferred income taxes, net                                      10,037
--------

Loss from cumulative effect of changes in accounting
principles                                                 $(69,774)
======== 

S-15

133
VALHI, INC. AND SUBSIDIARIES

SCHEDULE V - PROPERTY AND EQUIPMENT

(IN THOUSANDS)

BALANCE AT                               CURRENCY     CHANGE IN                   BALANCE
BEGINNING     ADDITIONS                 TRANSLATION   ACCOUNTING                  AT END
CLASSIFICATION            OF YEAR       AT COST    RETIREMENTS   ADJUSTMENTS   METHOD (A)     OTHER (B)    OF YEAR 
- ----------------------------    ----------    ---------   -----------   -----------   ----------     ---------    --------

Year ended December 31, 1991:
Land                            $ 16,399     $ 2,028     $   -          $  -          $  -           $  -         $ 18,427
Buildings                         41,895       2,352           (2)         -             -              -           44,245
Equipment                        292,623      13,924       (1,466)         -             -               624       305,705
Construction in progress           2,551       6,614         -             -             -              -            9,165
--------     -------     --------       -------       -------        -------      --------

$353,468     $24,918     $ (1,468)      $  -          $  -           $   624      $377,542
========     =======     ========       =======       =======        =======      ========

Year ended December 31, 1992:
Land                            $ 18,427     $ 1,783     $ (3,371)      $    (2)      $ 1,344        $  -         $ 18,181
Buildings                         44,245       2,072       (2,404)         (254)       (2,142)          -           41,517
Equipment                        305,705      27,930      (11,113)         (892)         (898)           988       321,720
Construction in progress           9,165      (5,084)        -             -             -              -            4,081
--------     -------     --------       -------       -------        -------      --------

$377,542     $26,701     $(16,888)      $(1,148)      $(1,696)       $   988      $385,499
========     =======     ========       =======       =======        =======      ========

Year ended December 31, 1993:
Land                            $ 18,181     $   642     $   -          $    (1)      $  -           $  -         $ 18,822
Buildings                         41,517       2,137          (22)         (110)         -              -           43,522
Equipment                        321,720      21,872       (1,600)         (437)         -               313       341,868
Construction in progress           4,081      13,283          (13)           (7)         -              -           17,344
--------     -------     --------       -------       -------        -------      --------

$385,499     $37,934     $ (1,635)      $  (555)      $  -           $   313      $421,556
========     =======     ========       =======       =======        =======      ========

(a)  Adjustment of carrying value resulting from adoption of SFAS No. 109.
(b)  A 1992 business combination accounted for by the purchase method, and
reclassifications.

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134
VALHI, INC. AND SUBSIDIARIES

SCHEDULE V - PROPERTY AND EQUIPMENT (CONTINUED)

(IN THOUSANDS)

DEPLETION
BALANCE AT               CHARGED TO   CHANGE IN    BALANCE
BEGINNING   ADDITIONS    COSTS AND    ACCOUNTING   AT END
CLASSIFICATION                OF YEAR     AT COST      EXPENSES    METHOD (A)   OF YEAR 
- ----------------------------        ----------  ---------    ----------   ----------   --------

Timber and timberlands:
Year ended December 31, 1991       $48,131      $ 1,861     $ (5,631)    $ -           $44,361

Year ended December 31, 1992        44,361        1,253       (2,629)     8,606         51,591

Year ended December 31, 1993        51,591        1,152         (875)      -            51,868

(a)  Adjustment of carrying value resulting from adoption of SFAS No. 109.

S-17

135
VALHI, INC. AND SUBSIDIARIES

SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY AND EQUIPMENT

(IN THOUSANDS)

ADDITIONS
BALANCE AT   CHARGED TO                CURRENCY                   BALANCE
BEGINNING     COSTS AND               TRANSLATION                 AT END
CLASSIFICATION               OF YEAR      EXPENSES    RETIREMENTS ADJUSTMENTS     OTHER (A)   OF YEAR 
- ----------------------------       ----------   ----------   ----------- -----------     ---------   --------

Year ended December 31, 1991:
Buildings                         $ 15,164      $ 2,331    $  -             $ -          $ -        $ 17,495
Equipment                          147,930       19,228     (1,260)           -           (290)      165,608
--------      -------    -------          -----        -----      --------

$163,094      $21,559    $(1,260)         $ -          $(290)     $183,103
========      =======    =======          =====        =====      ========

Year ended December 31, 1992:
Buildings                         $ 17,495      $ 2,071    $(1,555)         $ (65)       $ -        $ 17,946
Equipment                          165,608       21,201     (7,050)          (623)         102       179,238
--------      -------    -------          -----        -----      --------

$183,103      $23,272    $(8,605)         $(688)       $ 102      $197,184
========      =======    =======          =====        =====      ========

Year ended December 31, 1993:
Buildings                         $ 17,946      $ 2,830    $   (15)         $ (31)       $ -        $ 20,730
Equipment                          179,238       20,127     (1,583)          (312)         100       197,570
--------      -------    -------          -----        -----      --------

$197,184      $22,957    $(1,598)         $(343)       $ 100      $218,300
========      =======    =======          =====        =====      ========

(a) Reclassifications.

S-18

136
VALHI, INC. AND SUBSIDIARIES

SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS

(IN THOUSANDS)

ADDITIONS
BALANCE AT   CHARGED TO                    BALANCE
BEGINNING     COSTS AND                    AT END
DESCRIPTION                      OF YEAR      EXPENSES     DEDUCTIONS      OF YEAR
- -------------------------------           ----------   ----------    ----------      -------

Year ended December 31, 1991:
Allowance for doubtful accounts           $1,114       $  176       $  (115)        $1,175
======       ======       =======         ======

Amortization of intangibles:
Goodwill                                $  508       $  169       $  -            $  677
Franchise fees and other                 3,583        2,044        (1,734)         3,893
------       ------       -------         ------

$4,091       $2,213       $(1,734)        $4,570
======       ======       =======         ======

Year ended December 31, 1992:
Allowance for doubtful accounts           $1,175       $  641       $  (493)        $1,323
======       ======       =======         ======

Amortization of intangibles:
Goodwill                                $  677       $  165       $  -            $  842
Franchise fees and other                 3,893        1,550           (19)         5,424
------       ------       -------         ------

$4,570       $1,715       $   (19)        $6,266
======       ======       =======         ======

Year ended December 31, 1993:
Allowance for doubtful accounts           $1,323       $   31       $  (380)        $  974
======       ======       =======         ======

Amortization of intangibles:
Goodwill                                $  842       $  166       $  -            $1,008
Franchise fees and other                 5,424        1,571          (147)         6,848
------       ------       -------         ------

$6,266       $1,737       $  (147)        $7,856
======       ======       =======         ======

S-19

137
VALHI, INC. AND SUBSIDIARIES

SCHEDULE IX - SHORT-TERM BORROWINGS

(IN MILLIONS, EXCEPT PERCENTAGES)

MAXIMUM        AVERAGE         WEIGHTED
BALANCE    WEIGHTED       AMOUNT         AMOUNT           AVERAGE
CATEGORY OF AGGREGATE            AT END     AVERAGE     OUTSTANDING    OUTSTANDING     INTEREST RATE
SHORT-TERM BORROWINGS           OF YEAR  INTEREST RATE  DURING YEAR  DURING YEAR (A)  DURING YEAR (B)
- --------------------------------     -------  -------------  -----------  ---------------  ---------------

Year ended December 31, 1991:
United States Government loans      $60.8         5.2%        $114.5         $61.9              6.7%
Bank credit agreements               25.0         6.4           37.9          20.4              8.7
Commercial paper                     20.0         6.2           40.0          29.5              7.1

Year ended December 31, 1992:
United States Government loans      $76.5         3.3%        $119.7         $68.2              4.2%
Bank credit agreements               41.7         5.2           52.9          32.4              6.0
Commercial paper                      4.0         4.4           35.0          20.7              5.0

Year ended December 31, 1993:
United States Government loans      $75.5         3.4%        $122.7         $74.4              3.5%
Bank credit agreements               42.2         4.8           85.7          50.0              4.8
Commercial paper                      -            -             4.0           1.0              4.5

(a)  Based upon average daily balances.

(b)  Computed using actual interest charges as a percent of the average
amount outstanding during the year.

S-20

138
VALHI, INC. AND SUBSIDIARIES

SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION

YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993

(IN THOUSANDS)

1991       1992      1993
----       ----      ----

Depreciation, depletion and amortization:
Property and equipment                          $21,559    $23,272   $22,957
Timber and timberlands                            5,631      2,629       875
Goodwill                                            169        165       166
Franchise fees and other intangible assets        2,044      1,550     1,571
-------    -------   -------

$29,403    $27,616   $25,569
=======    =======   =======

Advertising                                       $ 9,191    $ 9,349   $ 9,927
=======    =======   =======

Maintenance and repairs                           $26,292    $27,864   $28,110
=======    =======   =======

Taxes, other than payroll and income taxes        $ 8,335    $ 7,645   $ 7,220
=======    =======   =======

S-21

1

EXHIBIT 21.1     SUBSIDIARIES OF THE REGISTRANT

Jurisdiction of        % of Voting
Incorporation or       Securities
Name of Corporation                               Organization            Held
- -------------------                               ------------            ----

Consolidated subsidiaries                                                     

The Amalgamated Sugar Company                   Utah                      100 
DRC Leasing Company                           Idaho                     100 

Valcor, Inc.                                    Delaware                  100 
Medite Corporation                            Delaware                  100 
Medford International Holdings              Republic of Ireland       100 
Medite of Europe Limited                  Republic of Ireland       100 
Medite Timber Acquisitions Corporation      Delaware                  100 
National Cabinet Lock, Inc.                   Delaware                  100 
Waterloo Furniture Components Limited       Canada                    100 
National Cabinet Lock of Canada Inc.      Canada                    100 
Sybra, Inc.                                   Michigan                  100 

Other                                                                         
Valmont Insurance Company                     Vermont                   100 
New England Insurance Services Company      Vermont                   100 
Impex Realty Holding, Inc.                    Delaware                  100 
Medco FSC, Inc.                               U.S. Virgin Islands       100 

Unconsolidated affiliates                                                     

NL Industries, Inc.                             New Jersey                 49*
Tremont Corporation                             Delaware                   48 

* Tremont holds an additional 18% of NL's voting securities.

1
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in Valhi, Inc.'s (i)
Registration Statement (Form S-8 No. 2-60399) and related Prospectus pertaining
to the 1976 Employee's Incentive Stock Option Plan, (ii) Registration Statement
(Form S-8 Nos. 33-41507 and 33-21758) and related Prospectus pertaining to the
Valhi, Inc. 1987 Incentive Stock Option -- Stock Appreciation Rights Plan, and
(iii) Registration Statement (Form S-8 No. 33-41508) and related Prospectus
pertaining to the Valhi, Inc. 1990 Non-Employee Director Stock Option Plan, of
our reports dated February 25, 1994 on our audits of the consolidated financial
statements and financial statement schedules of Valhi, Inc. and Subsidiaries
included in this Annual Report on Form 10-K for the year ended December 31,
1993.

COOPERS & LYBRAND

Dallas, Texas
March 10, 1994

1
EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

We consent to the incorporation by reference in Valhi, Inc.'s (i)
Registration Statement (Form S-8 No. 2-60399) and related Prospectus pertaining
to the 1976 Employee's Incentive Stock Option Plan, (ii) Registration Statement
(Form S-8 Nos. 33-41507 and 33-21758) and related Prospectus pertaining to the
Valhi, Inc. 1987 Incentive Stock Option -- Stock Appreciation Rights Plan, and
(iii) Registration Statement (Form S-8 No. 33-41508) and related Prospectus
pertaining to the Valhi, Inc. 1990 Non-Employee Director Stock Option Plan, of
our reports dated January 28, 1994, relating to the consolidated financial
statements and financial statement schedules (not presented separately herein)
of The Amalgamated Sugar Company for each of the three years in the period
ended December 31, 1993, which reports are  included in this Annual Report on
Form 10-K of Valhi, Inc. for the year ended December 31, 1993.

KPMG PEAT MARWICK

Salt Lake City, Utah
March 10, 1994

1
EXHIBIT 23.3

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the
incorporation by reference of our reports related to Medite Corporation dated
January 28, 1994, included in this Annual Report on Form 10-K of Valhi, Inc.
for the year ended December 31, 1993, into Valhi, Inc.'s previously filed  (i)
Registration Statement (Form S-8 No. 2-60399) and related Prospectus pertaining
to the 1976 Employee's Incentive Stock Option Plan, (ii) Registration Statement
(Form S-8 Nos. 33-41507 and 33-21758) and related Prospectus pertaining to the
Valhi, Inc. 1987 Incentive Stock Option -- Stock Appreciation Rights Plan, and
(iii) Registration Statement (Form S-8 No. 33-41508) and related Prospectus
pertaining to the Valhi, Inc. 1990 Non-Employee Director Stock Option Plan.

ARTHUR ANDERSEN & CO.

Portland, Oregon,
March 10, 1994

1
EXHIBIT 99.1
ITEM 3.  LEGAL PROCEEDINGS

LEAD PIGMENT LITIGATION

The Company was formerly involved in the manufacture of lead pigments
for use in paint and lead-based paint.  The Company has been named as a
defendant or third party defendant in various legal proceedings alleging that
the Company and other manufacturers are responsible for personal injury and
property damage allegedly associated with the use of lead pigments.  The
Company is vigorously defending such litigation.  Considering the Company's
previous involvement in the lead pigment and lead-based paint businesses, there
can be no assurance that additional litigation, similar to that described
below, will not be filed.  In addition, various legislation and administrative
regulations have, from time to time, been enacted or proposed at the state,
local and federal levels that seek

- 9 -

2
to (a) 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 (b) effectively overturn court
decisions in which the Company and other pigment manufacturers have been
successful.  One such bill that would subject lead pigment manufacturers to
civil liability for damages caused by lead- based paint on the basis of market
share, and extends certain statutes of limitations, passed the Massachusetts
House of Representatives in 1993.  The same bill has been reintroduced in the
Massachusetts legislature in 1994.  No legislation or regulations have been
enacted to date which are expected to have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.
The Company has not accrued any amounts for the pending lead pigment
litigation.  Although no assurance can be given that the Company will not incur
future liability in respect of this litigation, based on, among other things,
the results of such litigation to date, the Company believes that the pending
lead pigment litigation is without merit.  Any liability that may result is not
reasonably capable of estimation.

In 1987, an action was filed against the Company and other defendants
for injuries allegedly caused by lead pigment purportedly supplied by the
defendants (Spriggs v. Sherwin-Williams, et al.,  No. LE3121-5-87 Housing Court
of Massachusetts, Hampden County). The complaint sought compensatory and
punitive damages for alleged negligent product design, failure to warn, breach
of warranty, and concert of action from the Company, other alleged
manufacturers of lead pigment (together with the Company, the "pigment
manufacturers") and the Lead Industries Association (the "LIA").  In November
1993, a stipulation of dismissal with prejudice was filed with the court.

In July 1992, the Company was served with a complaint entitled Boston
Housing Authority v. Sherwin-Williams Company,  C.A. No. 92-10624- Y, United
States District Court for the District of Massachusetts.  The complaint
asserted a claim for contribution from the Company, other pigment manufacturers
and the LIA based on their alleged negligence in product design, manufacture
and distribution; negligent failure to warn; breach of warranty; aiding and
abetting; and conspiracy.  The plaintiff sought contribution to its $1.45
million cost of settling a claim by an individual who was allegedly injured by
exposure to lead pigment in the period from 1973 to 1977.  In November 1993,
the parties filed a stipulation of dismissal with prejudice with the court.

In November and December 1990, the Company and others were served with
third-party complaints in actions entitled Coren, et al. v.  Cardozo v.
Sherwin-Williams, et al. (No. 29101) and Pacheco, et al. v. Ortiz v. The
Sherwin-Williams Company, et al. (No. 90-3067-B) in the Housing Court of
Massachusetts, Suffolk County.  The third-party complaints against the pigment
manufacturers and the LIA contain allegations similar to those in the Spriggs
action and also seek contribution and indemnification for any relief awarded to
plaintiffs.  In Coren, the third-party defendants removed the case to federal
court.  In 1992, the federal court dismissed the direct claims and remanded the
indemnification and contribution claims to the housing court.  Thereafter, the
housing court granted the third-party defendants' motion to stay discovery,
pending trial on the main action.  The Company has answered the third-party
complaint, denying all allegations of wrongdoing.  In Pacheco, plaintiffs
settled with the defendant landlords for less than $100,000.  The third-party
claims are in discovery.  Third-party plaintiffs have proposed a stay of this
matter pending the outcome of the appeal in another personal injury action,
which was thereafter resolved in the Company's favor.

In October 1991, the Company and others were served with a third-party

- 10 -

3
complaint by the owner of the plaintiff's apartment in an action entitled
Barros v. Pires v. Sherwin-Williams Co., et al., (Civ. No. 01011), in the
Housing Court of Massachusetts, Suffolk County.  The third party complaint
against the pigment manufacturers and the LIA alleges negligent product design,
negligent failure to warn, breach of warranty, aiding and abetting, and concert
of action, and also seeks contribution and indemnification for any relief
awarded to plaintiff for damages allegedly suffered due to exposure to
lead-based paint.  In May 1992, the court granted the third-party defendants'
motion to dismiss.  In June 1992, the third-party plaintiffs moved for
reconsideration or for reversal of the dismissal.

In 1989 and 1990, the Housing Authority of New Orleans ("HANO") filed
third-party complaints for indemnity and/or contribution against the pigment
manufacturers and the LIA in 14 actions commenced by residents of HANO units
seeking compensatory and punitive damages for injuries allegedly caused by lead
pigment.  The actions are pending in the Civil District Court for the Parish of
Orleans, State of Louisiana.  Subsequently, HANO agreed to dismiss all such
complaints and to consolidate them for purposes of appeal.  In March 1992, the
Louisiana Court of Appeals, Fourth Circuit, dismissed HANO's appeal as untimely
with respect to three of these cases.  With respect to the other eight cases
also included in the appeal, the court of appeals reversed the lower court
decision dismissing the cases due to inadequate pleading of facts.  These eight
cases have been remanded to the district court for further proceedings.
Discovery is proceeding.

In December 1991, the Company received a copy of a complaint filed in
the Civil District Court for the Parish of Orleans seeking indemnification
and/or contribution against the Company and eight other defendants for
approximately $4.5 million in settlements paid to Housing Authority residents
(Housing Authority of New Orleans v. Hoechst Celanese Corp., et al., No.
91-28067).  These claims appear to be based upon the same theories which HANO
had previously filed. The Company has not been served.

In June 1989, a complaint was filed in the Supreme Court of the State of
New York, County of New York, against the pigment manufacturers and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess
of $50 million for monitoring and abating alleged lead paint hazards in public
and private residential buildings, diagnosing and treating children allegedly
exposed to lead paint in city buildings, the costs of educating city residents
to the hazards of lead paint, and liability in personal injury actions against
the City and the Housing Authority based on alleged lead poisoning of city
residents (The City of New York, the New York City Housing Authority and the
New York City Health and Hospitals Corp. v. Lead Industries Association, Inc.,
et al., No. 89-4617).  In December 1991, the court granted the defendants'
motion to dismiss claims alleging negligence and strict liability and denied
the remainder of the motion.  In January 1992, defendants appealed the denial.
The Company has answered the remaining portions of the complaint denying all
allegations of wrongdoing, and the case is in discovery.  In December 1992,
plaintiffs filed a motion to stay the claims of the City of New York and the
New York City Health and Hospitals Corporation pending resolution of the
Housing Authority's claim.  In May 1993, the Appellate Division of the Supreme
Court affirmed the denial of the motion to dismiss plaintiffs' fraud,
restitution, conspiracy and concert of action claims.  In August 1993, the
defendants' motion for leave to appeal was denied.  Discovery is proceeding.

In March 1992, the Company was served with a complaint in Skipworth v.

- 11 -

4
Sherwin-Williams Co., et al. (No. 92-3069), Court of Common Pleas, Philadelphia
County.  Plaintiffs are a minor and her legal guardians seeking damages from
lead paint and pigment producers, the LIA, the PHA and the owners of the
plaintiffs' premises for bodily injuries allegedly suffered by the minor from
lead-based paint.  Plaintiffs' counsel asserted that approximately 200 similar
complaints would be served shortly, but no such complaints have yet been
served.  Defendants moved to dismiss various claims, but the court dismissed
only the claim for loss of consortium.  Defendants answered the complaint
denying allegations of wrongdoing.  The case is in discovery.

In August 1992, the Company was named as a defendant and served with an
amended complaint in Jackson, et al. v. The Glidden Co., et al., Court of
Common Pleas, Cuyahoga County, Cleveland, Ohio (Case No. 236835).  Plaintiffs
seek compensatory and punitive damages for personal injury caused by the
ingestion of lead, and an order directing defendants to abate lead-based paint
in buildings.  Plaintiffs purport to represent a class of similarly situated
persons throughout the State of Ohio.  The amended complaint identifies 18
other defendants who allegedly manufactured lead products or lead-based paint,
and asserts causes of action under theories of strict liability, negligence per
se, negligence, breach of express and implied warranty, fraud, nuisance,
restitution, and negligent infliction of emotional distress.  The complaint
asserts several theories of liability including joint and several, market
share, enterprise and alternative liability.  In October 1992, the Company and
the other defendants moved to dismiss the complaint with prejudice.  In July
1993, the court dismissed the complaint.  In September 1993, the plaintiffs
appealed.

In November 1993, the Company was served with a complaint in Brenner, et
al. v. American Cyanamid, et al., Supreme Court, State of New York, Erie County
alleging injuries to two children purportedly caused by lead pigment.  The
complaint seeks $24 million in compensatory and $10 million in punitive damages
for alleged negligent failure to warn, strict products liability, fraud and
misrepresentation, concert of action, civil conspiracy, enterprise liability,
market share liability, and alternative liability.  In January 1994, the
Company answered the complaint, denying liability.

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

The Company has filed declaratory judgment actions against various
insurance carriers seeking costs of defense and indemnity coverage for certain
of its environmental and lead pigment litigation.  NL Industries, Inc. v.
Commercial Union Insurance Cos., et al., Nos. 90-2124, -2125 (HLS).  In May
1990, the Company filed an action in the United States District Court for the
District of New Jersey against Commercial Union Insurance Company ("Commercial
Union") seeking to recover defense costs incurred in the City of New York lead
pigment case and two other cases which have since been resolved in the
Company's favor.  In July 1991, the court granted the Company's motion for
summary judgment and ordered Commercial Union to pay the Company's reasonable
defense costs for such cases.  In June 1992, the Company filed an amended
complaint in the United States District Court for the District of New Jersey
against Commercial Union seeking to recover costs incurred in defending four
additional lead pigment cases which have since been resolved in the Company's
favor.  In August 1993, the court granted the Company's motion for summary
judgment and ordered Commercial Union to pay the reasonable costs of defending
those cases.  The court has not made any rulings on defense costs or indemnity
coverage with respect to the Company's pending environmental litigation or on
indemnity coverage in the lead pigment

- 12 -

5
litigation.  No trial dates have been set.  Other than rulings to date, the
issue of whether insurance coverage for defense costs or indemnity or both will
be found to exist depends upon a variety of factors, and there can be no
assurance that such insurance coverage will exist in other cases.  The Company
has not included amounts in any accruals in anticipation of insurance coverage
for lead pigment or environmental litigation.

ENVIRONMENTAL MATTERS AND LITIGATION

The Company has been named as a defendant, PRP, or both, pursuant to
CERCLA and similar state laws in approximately 80 governmental and private
actions associated with waste disposal sites and facilities currently or
previously owned, operated or used by the Company, or its subsidiaries, or
their predecessors, many of which are on the U.S. Environmental Protection
Agency's ("U.S. EPA") Superfund National Priorities List or similar state
lists.  These proceedings seek cleanup costs, damages for personal injury or
property damage, or both.  Certain of these proceedings involve claims for
substantial amounts.  Although the Company may be jointly and severally liable
for such costs, in most cases, it is only one of a number of PRPs who are also
jointly and severally liable.  In addition to the matters noted above, certain
current and former facilities of the Company, including several divested
secondary lead smelter and former mining locations, are the subject of
environmental investigations or litigation arising out of industrial waste
disposal practices and mining activities.

The extent of CERCLA liability cannot be determined until the Remedial
Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA issues a
record of decision and costs are allocated among PRPs.  The extent of liability
under analogous state cleanup statutes and for common law equivalents are
subject to similar uncertainties.  The Company believes it has provided
adequate accruals for reasonably estimable costs for CERCLA matters and other
environmental liabilities.  At December 31, 1993, the Company had accrued $70
million in respect of those environmental matters which are reasonably
estimable.  The Company determines the amount of accrual on a quarterly basis
by analyzing and estimating the range of possible costs to the Company.  Such
costs include, among other things, remedial investigations, monitoring,
studies, clean-up, removal and remediation.  It is not possible to estimate the
range of costs for certain sites.  The Company has estimated that the upper end
of the range of reasonably possible costs to the Company for sites for which it
is possible to estimate costs is approximately $105 million.  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.  The imposition of more stringent standards or
requirements under environmental laws or regulations, new developments or
changes respecting site cleanup costs or allocation of such costs among PRPs,
or a determination that the Company is potentially responsible for the release
of hazardous substances at other sites could result in expenditures in excess
of amounts currently estimated by the Company to be required for such matters.
Further, there can be no assurance that additional environmental matters will
not arise in the future.  More detailed descriptions of certain legal
proceedings relating to environmental matters are set forth below.

The Company has been identified as a PRP by the U.S. EPA because of its
former ownership of three secondary lead smelters (battery recycling plants) in
Pedricktown, New Jersey; Granite City, Illinois; and Portland, Oregon.  In all
three matters, the Company voluntarily entered into administrative consent
orders

- 13 -

6
with the U.S. EPA requiring the performance of a RIFS, a study with the
objective of identifying the nature and extent of the hazards, if any, posed by
the sites, and selecting a remedial action, if necessary.

At Pedricktown, the U.S. EPA divided the site into two operable units.
Operable unit one covers contaminated ground water, surface water, soils and
stream sediments.  The Company submitted the final RIFS for operable unit one
to the U.S. EPA in May 1993.  In July 1993, the U.S. EPA issued the proposed
remediation plan for operable unit one, which the U.S. EPA estimates will cost
approximately $24.5 million.  In addition, the U.S. EPA proposed that a removal
action be performed on the soils and sediments of a stream at the site,
estimated to cost approximately $1.3 million.  The U.S. EPA has not yet issued
the record of decision.  The U.S. EPA issued a Unilateral Administrative Order
(Index No. II-CERCLA 20205) with respect to operable unit two in March 1992 to
the Company and 30 other PRPs directing immediate removal activities including
the cleanup of waste, surface water and building surfaces.  The Company has
agreed to pay approximately 50% of the operable unit two costs, up to $2.5
million.

At Granite City, the RIFS is complete, and the U.S. EPA selected a
remedy estimated to cost approximately $28 million.  In July 1991, the United
States filed an action in the U.S. District Court for the Southern District of
Illinois against the Company and others (United States of America v. NL
Industries, Inc., et al., Civ. No. 91-CV 00578) with respect to the Granite
City smelter.  The complaint seeks injunctive relief to compel the defendants
to comply with an administrative order issued pursuant to CERCLA, and fines and
treble damages for the alleged failure to comply with the order.  The Company
and the other parties did not comply with the order believing that the remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and not in
accordance with law.  The complaint also seeks recovery of past costs of $.3
million and a declaration that the defendants are liable for future costs.
Although the action was filed against the Company and ten other defendants,
there are 330 other PRPs who have been notified by the U.S. EPA.  Some of those
notified were also respondents to the administrative order.  In February 1992,
the court entered a case management order directing that the remedy issues be
tried before the liability aspects are presented.  At a status conference in
January 1993, the court ordered the parties to consider the submission of
proposals to a Technical Advisory Committee, whose role would be to advise the
court as to the technical issues in the case.  The government has opposed the
establishment of a Technical Advisory Committee.  The court has not ruled on
the matter.  The government has agreed to reopen the administrative record to
receive additional public comments on the selected remedy and the court stayed
the action until the record is again closed.

Having completed the RIFS at Portland, the Company conducted predesign
studies to explore the viability of the U.S. EPA's selected remedy pursuant to
a June 1989 consent decree captioned U.S. v. NL Industries, Inc., Civ. No.
89-408, United States District Court for the District of Oregon.  Subsequent to
the completion of the predesign studies, the U.S. EPA issued notices of
potential liability to approximately 20 PRPs, including the Company, directing
them to perform the remedy, which was initially estimated to cost approximately
$17 million, exclusive of administrative and overhead costs and any additional
costs for the disposition of recycled materials from the site.  In January
1992, the U.S. EPA issued unilateral administrative orders Docket No.
1091-01-10-106 to the Company and six other PRPs directing the performance of
the remedy.  The Company and others have commenced performance of the remedy
and, through December 31, 1993, the Company and the PRPs had spent
approximately $5.5 million.  Based upon

- 14 -

7
site operations to-date, the remedy is not proceeding in accordance with
engineering expectations or cost projections; therefore, the Company and the
other PRPs have met with the U.S. EPA to discuss alternative remedies.
Pursuant to an interim allocation, the Company's share of remedial costs is
approximately 50%. In November 1991, Gould Inc., the current owner of the site,
filed an action, Gould Inc. v. NL Industries, Inc.,  No. 91-1091, United States
District Court for the District of Oregon, against the Company for damages for
alleged fraud in the sale of the smelter, rescission of the sale, past CERCLA
response costs and a declaratory judgment allocating future response costs and
$5 million in punitive damages.  The court granted Gould's motion to amend the
complaint to add additional defendants (adjoining current and former
landowners) and third party defendants (generators).  The amended complaint
deletes the fraud and punitive damages claims asserted against NL; thus, the
pending action is essentially one for allocation of past and future cleanup
costs.  In March 1993, the parties agreed to a case management order limiting
discovery until 1995, after which time full discovery will proceed.  A trial
date has been tentatively set for September 1996.

There are several actions pending relating to alleged contamination at
other properties formerly owned or operated by the Company or its subsidiaries
or their predecessors.  In one of those cases, suit was filed in November 1992
against the Company asserting claims arising out of the sale of a former
business of the Company to Exxon Chemical Company (Exxon Chemical Company v. NL
Industries, Inc.,  United States District Court for the Southern District of
Texas, No. H-92-3360).  The action seeks contractual indemnification,
contribution under CERCLA for costs associated with the environmental
assessment and cleanup at nine properties included in the sale, a declaration
of liability for future environmental cleanup costs, and punitive damages for
fraud.  Plaintiff has asserted that past and future cleanup costs, business
interruption, and asset value losses and legal and site assessment costs are
approximately $25 million.  In February 1994, the court entered an order
referring the case to mediation which is to occur by April 1994.

The Company and other PRPs entered into an administrative consent order
with the U.S. EPA requiring the performance of a RIFS at two sites in Cherokee
County, Kansas, where the Company and others formerly mined lead and zinc.  The
Company mined at the Baxter Springs subsite, where it is the largest viable
PRP. The final RIFS was submitted to the U.S. EPA in May 1993.  The estimated
cost of proposed remedies at the Baxter Springs subsite ranges from
approximately $1 million to $28 million, plus annual operation and maintenance
costs.

In January 1989, the State of Illinois brought an action against the
Company and several other subsequent owners and operators of the former lead
oxide plant in Chicago, Illinois (People of the State of Illinois v. NL
Industries, et al.,  No. 88-CH-11618, Circuit Court, Cook County).  The
complaint seeks recovery of $2.27 million of cleanup costs expended by the
Illinois Environmental Protection Agency, plus penalties and treble damages.
In October 1992, the Supreme Court of Illinois reversed the Appellate Division,
which had affirmed the trial court's earlier dismissal of the complaint, and
remanded the case for further proceedings.  In December 1993, the trial court
denied the State's petition to reinstate the complaint, and dismissed the case
with prejudice.  In February 1994, the State filed a notice of appeal.

In 1980, the State of New York commenced litigation against the Company
in connection with the operation of a plant in Colonie, New York formerly owned
by the Company.  Flacke v. NL Industries, Inc., No. 1842-80 ("Flacke I") and
Flacke v. Federal Insurance Company and NL Industries, Inc., No. 3131-92
("Flacke II"), New York Supreme Court, Albany County.  The plant manufactured
military and

- 15 -

8
civilian products from depleted uranium and was acquired from the Company by
the U.S. Department of Energy ("DOE") in 1984.  Flacke I seeks penalties for
alleged violations of New York's Environmental Conservation Law, and of a
consent order entered into to resolve these alleged violations.  Flacke II
seeks forfeiture of a $200,000 surety bond posted in connection with the
consent order, plus interest from February 1980.  The Company denied liability
in both actions.  The litigation had been inactive since 1984.  In July 1993,
the State moved for partial summary judgment for approximately $1.5 million on
certain of its claims in Flacke I and for summary judgment in Flacke II.  In
January 1994, the Company cross-moved for summary judgment in Flacke I and
Flacke II.

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

In July 1991, a complaint was filed in the United States District Court
for the Central District of California, United States of America v. Peter Gull
and NL Industries, Inc., Civ. No. 91-4098.  The complaint seeks to recover $2
million in costs incurred by the United States in response to the alleged
release of hazardous substances into the environment from a facility located in
Norco, California, treble damages and $1.75 million in penalties for the
Company's alleged failure to comply with the U.S. EPA's administrative order
No. 88-13.  The order, which alleged that the Company arranged for the
treatment or disposal of materials at the Norco site, directed the immediate
removal of hazardous substances from the site.  The Company carried out a
portion of the remedy at the Norco site, but did not complete the ordered
activities because it believed they were in conflict with California law.  The
Company answered the complaint denying liability.  The government now claims it
expended in excess of $2.7 million for this matter.  Trial was held in March
and April 1993.  The judge has preliminarily indicated that the Company will be
ordered to pay response costs plus an amount which is the product of a
multiplier of 1.625 to be applied to a portion of those costs, which amount has
not yet been determined.  In May 1993, the government submitted Proposed
Supplemental Findings of Fact and Conclusions of Law Regarding Response Costs
and Penalty Amount stating that the amount owed is $6.7 million.  The Company's
response states that the total of recoverable response costs and penalty is
$6.4 million.  The Court has not yet entered final judgment in this matter.

- 16 -

9
At a municipal and industrial waste disposal site in Batavia, New York,
the Company and six others have been identified as PRPs.  The U.S. EPA has
divided the site into two operable units.  Pursuant to an administrative
consent order entered into with the U.S. EPA, the Company is conducting a RIFS
for operable unit one, the closure of the industrial waste disposal section of
the landfill.  The Company's RIFS costs to date are approximately $1.9 million.
With respect to the second operable unit, the extension of the municipal water
supply, the U.S. EPA estimated the costs at $1 million plus annual operation
and maintenance costs.  The Company and the other PRPs are performing the work
comprising operable unit two.  The U.S. EPA has also demanded approximately $.9
million in past costs from the PRPs.

In July 1990, the Company notified the U.S. EPA that it was
investigating the possibility that certain chemicals manufactured during the
period in which Kronos owned a former subsidiary were not appropriately listed
with the U.S. EPA pursuant to the Toxic Substances Control Act.  The Company
believes that the manufacture of the chemicals in question was initiated by a
prior owner of the subsidiary. The Company intends to cooperate fully with the
U.S. EPA in investigating this matter and determining whether any manufacture
of non-listed chemicals occurred. If such manufacture is found to have
occurred, the U.S. EPA may levy fines against the Company and possibly others.
If any fines are levied, the Company will attempt to seek reimbursement from
the prior owner of the subsidiary.

See Item 1 - "Business - Regulatory and Environmental Matters".

OTHER LITIGATION

In April 1990, the Company filed a complaint in the United States
District Court for the Central District of California against Lockheed
Corporation and its directors in connection with Lockheed's 1990 annual meeting
of stockholders, (NL Industries, Inc. v. Lockheed Corporation, et al., No.
CV-90-1950 RMT (Bx)), which complaint was subsequently amended.  In December
1992, a unanimous jury verdict was returned in the Company's favor in the
amount of $30 million, which award is a gain contingency not recorded as income
by the Company.  The jury found that Lockheed violated the federal securities
laws by making false and misleading public statements about Lockheed's employee
stock ownership plan.  Lockheed has appealed.  The Company has cross appealed
with respect to its claims against Lockheed's directors.  On February 24, 1994,
the case was settled with a cash payment to the Company by Lockheed of $27
million resulting in net proceeds to the Company of approximately $20 million.

In January 1990, an action was filed in the United States District Court
for the Southern District of Ohio against NLO, Inc., a subsidiary of the
Company, and the Company on behalf of a putative class of former NLO employees
and their families and former frequenters and invitees of the Feed Materials
Production Center ("FMPC") in Ohio (Day, et al. v. NLO, Inc., et al,  No.
C-1-90-067).  The FMPC is owned by the DOE and was formerly managed under
contract by NLO.  The complaint seeks damages for, among other things,
emotional distress and damage to personal property allegedly caused by exposure
to radioactive and/or hazardous materials at the FMPC and punitive damages.  A
trial was held separately on the defendants' defense that the statute of
limitations barred the plaintiffs' claims.  In November 1991, the jury returned
a verdict against six of the ten named plaintiffs, finding that their claims
were time barred.  Without denying the plaintiffs' motion to vacate the
verdict, the court certified this action as a class action.  A merits trial is
expected to be held in 1994.  Although no assurance can be given, the Company
believes that, consistent with a July 1987

- 17 -

10
DOE contracting officer's decision, the DOE will indemnify NLO in the event of
an adverse decision just as it did when two previous cases relating to NLO's
management of the FMPC were settled; therefore, the resolution of the Day
matter is not expected to have a material adverse affect on the Company.  In
the 1987 decision, the contracting officer affirmed NLO's entitlement to
indemnification under its contract for the operation of the FMPC for all
liability, including the cost of defense, arising out of those two previous
cases.

The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
present and former businesses, and the disposition of past properties and
former businesses.

- 18 -

11

NL INDUSTRIES, INC.

ANNUAL REPORT ON FORM 10-K

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

Index of Financial Statements and Schedules

Financial Statements                                                                             Page
- --------------------                                                                             ----

Report of Independent Accountants                                                             F-2

Consolidated Balance Sheets - December 31, 1992 and 1993                                      F-3/F-4

Consolidated Statements of Operations - Years ended
December 31, 1991, 1992 and 1993                                                             F-5/F-6

Consolidated Statements of Shareholders' Deficit - Years ended
December 31, 1991, 1992 and 1993                                                             F-7

Consolidated Statements of Cash Flows - Years ended
December 31, 1991, 1992 and 1993                                                             F-8/F-10

Notes to Consolidated Financial Statements                                                    F-11/F-38

Financial Statement Schedules
- -----------------------------

Report of Independent Accountants                                                             S-1

Schedule I    - Marketable securities                                                         S-2

Schedule III  - Condensed financial information of Registrant                                 S-3/S-8

Schedule V    - Property and equipment                                                        S-9

Schedule VI   - Accumulated depreciation and depletion of
property and equipment                                                       S-10

Schedule VIII - Valuation and qualifying accounts                                             S-11

Schedule IX   - Short-term borrowings                                                         S-12

Schedule X    - Supplementary income statement information                                    S-13

All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.

F-1

12

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors of NL Industries, Inc.:

We have audited the accompanying consolidated balance sheets of NL
Industries, Inc. as of December 31, 1992 and 1993, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for each of the
three years in the period ended December 31, 1993.  These financial statements
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of NL
Industries, Inc. as of December 31, 1992 and 1993, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles.

As discussed in Notes 2 and 19 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for certain investments in
debt and equity securities in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115, and in 1992 the Company changed its method of
accounting for postretirement benefits other than pensions and income taxes in
accordance with SFAS Nos. 106 and 109, respectively.

COOPERS & LYBRAND

Houston, Texas
February 9, 1994 except for
Note 21, as to which the
date is February 24, 1994

F-2

13
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1992 and 1993

(In thousands, except per share data)

1992              1993
----              ----

ASSETS                               
Current assets:                                    
Cash and cash equivalents                                      $   87,333        $  106,593
Marketable securities                                             100,607            41,045
Accounts and notes receivable, less allowance    
of $2,385 and $3,008                                             123,020           116,355
Refundable income taxes                                           101,537               386
Inventories                                                       216,232           194,167
Prepaid expenses                                                    5,413             5,637
Deferred income taxes                                               1,676             3,315
----------        ----------

Total current assets                                          635,818           467,498
----------        ----------

Other assets:                                      
Marketable securities                                              23,581            18,428
Refundable income taxes                                              -               91,994
Investment in joint ventures                                        2,434           190,787
Prepaid pension cost                                               16,056            16,307
Deferred income taxes                                                -                  577
Other                                                              48,241            42,355
----------        ----------

Total other assets                                             90,312           360,448
----------        ----------

Property and equipment:                            
Land                                                               29,863            18,237
Buildings                                                         208,056           129,582
Machinery and equipment                                           811,531           515,090
Mining properties                                                  75,731            72,711
Construction in progress                                           21,042            30,050
----------        ----------
1,146,223           765,670

Less accumulated depreciation and depletion                       400,246           387,067
----------        ----------

Net property and equipment                                    745,977           378,603
----------        ----------

$1,472,107        $1,206,549
==========        ==========

F-3

14
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

December 31, 1992 and 1993

(In thousands, except per share data)

1992              1993
----              ----

LIABILITIES AND SHAREHOLDERS' DEFICIT 

Current liabilities:                                      
Notes payable                                                     $      315        $     -
Current maturities of long-term debt                                  43,328            35,716
Accounts payable and accrued liabilities                             189,638           177,265
Payable to affiliates                                                  4,086             9,566
Income taxes                                                           6,825             6,353
Deferred income taxes                                                  4,573             3,623
----------        ----------

Total current liabilities                                        248,765           232,523
----------        ----------

Noncurrent liabilities:                                   
Long-term debt                                                       991,956           835,169
Deferred income taxes                                                145,745           138,977
Accrued pension cost                                                  73,956            72,606
Accrued postretirement benefits cost                                  71,761            68,322
Other                                                                 83,878           121,309
----------        ----------

Total noncurrent liabilities                                   1,367,296         1,236,383
----------        ----------

Minority interest                                                        2,339             2,438
----------        ----------

Shareholders' deficit:                                    
Preferred stock - 5,000 shares authorized,              
no shares issued or outstanding                                        -                 -
Common stock - $.125 par value; 150,000 shares          
authorized; 66,839 shares issued                                      8,355             8,355
Additional paid-in capital                                           759,281           759,281
Adjustments:                                            
Currency translation                                              (111,820)         (115,803)
Pension liabilities                                                   -               (3,442)
Marketable securities                                                 (896)           (2,164)
Accumulated deficit                                                 (433,250)         (543,059)
----------        ---------- 
221,670           103,168
Less treasury stock, at cost (15,949 shares)                         367,963           367,963
----------        ----------

Total shareholders' deficit                                     (146,293)         (264,795)
----------        ---------- 

$1,472,107        $1,206,549
==========        ==========

Commitments and contingencies (Notes 14 and 18)

See accompanying notes to consolidated financial statements.

F-4

15
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 1991, 1992 and 1993

(In thousands, except per share data)

1991            1992             1993
----            ----             ----

Revenues and other income:
Net sales                                                        $840,295        $893,465        $ 805,323
Interest and dividends                                             47,293          19,618            7,872
Securities transactions                                           (53,092)         (6,018)           4,363
Other, net                                                          7,043           1,197            9,849
--------        --------        ---------

841,539         908,262          827,407
--------        --------        ---------

Costs and expenses:
Cost of sales                                                     566,608         629,029          612,367
Selling, general and administrative                               193,481         203,736          185,689
Interest                                                          100,412         118,511           99,119
--------        --------        ---------

860,501         951,276          897,175
--------        --------        ---------
Loss before income taxes, minority
interest, extraordinary items and
cumulative effect of changes in
accounting principles                                          (18,962)        (43,014)         (69,768)

Income tax expense                                                    3,910             459           12,713
--------        --------        ---------

Loss before minority interest,
extraordinary items and cumulative
effect of changes in accounting
principles                                                     (22,872)        (43,473)         (82,481)

Minority interest                                                     1,113           1,123              730
--------        --------        ---------

Loss before extraordinary items and
cumulative effect of changes in
accounting principles                                          (23,985)        (44,596)         (83,211)

Extraordinary items                                                   7,523            -             (27,815)
Cumulative effect of changes in
accounting principles                                                 -            (31,804)           1,217
--------        --------        ---------

Net loss                                                      $(16,462)       $(76,400)       $(109,809)
========        ========        ========= 

F-5

16
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

Years ended December 31, 1991, 1992 and 1993

(In thousands, except per share data)

1991           1992             1993
----           ----             ----

Loss per share of common stock:       
Before extraordinary items and      
cumulative effect of changes in    
accounting principles                              $(.40)        $ (.88)           $(1.63)
Extraordinary items                                   .13            -                (.55)
Cumulative effect of changes in     
accounting principles                                -             (.62)              .02 
-----         ------            ------

Net loss                                          $(.27)        $(1.50)           $(2.16)
=====         ======            ====== 

Weighted average common shares        
outstanding                                         60,233         50,907            50,890 
======         ======            ======

See accompanying notes to consolidated financial statements.

F-6

17
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT

Years ended December 31, 1991, 1992 and 1993

(In thousands, except per share data)

Adjustments               
Additional     ------------------------------------------
Common        paid-in       Currency        Pension       Marketable 
stock        capital      translation    liabilities     securities 
--------     -----------    -----------    -----------    ------------

Balance at December 31, 1990                  $8,355        $759,273       $(136,277)        $  -          $(143,123)

Net loss                                        -               -               -               -               -   
Common dividends declared - $.60 per share      -               -               -               -               -   
Adjustments                                     -               -             19,637            -            137,198
Purchases of treasury stock                     -               -               -               -               -   
Other, net                                      -                 27            -               -               -   
------        --------       ---------         -------       ---------

Balance at December 31, 1991                   8,355         759,300        (116,640)           -             (5,925)

Net loss                                        -               -               -               -               -   
Common dividends declared - $.35 per share      -               -               -               -               -   
Adjustments                                     -               -              4,820            -              5,029
Purchases of treasury stock                     -               -               -               -               -   
Other, net                                      -                (19)           -               -               -   
------        --------       ---------         -------       ---------

Balance at December 31, 1992                   8,355         759,281        (111,820)           -               (896)

Net loss                                        -               -               -               -               -   
Adjustments                                     -               -             (3,983)         (3,442)            (51)
Cumulative effect of change in                                                                                      
accounting principle                           -               -               -               -             (1,217)
------        --------       ---------         -------       ---------

Balance at December 31, 1993                  $8,355        $759,281       $(115,803)        $(3,442)      $  (2,164)
======        ========       =========         =======       =========

Accumulated      Treasury
deficit          stock          Total
-----------      -------         --------

Balance at December 31, 1990                   $(287,857)      $(161,803)        $38,568

Net loss                                         (16,462)           -            (16,462)
Common dividends declared - $.60 per share       (34,724)           -            (34,724)
Adjustments                                         -               -            156,835
Purchases of treasury stock                         -           (202,519)       (202,519)
Other, net                                          -               -                 27
---------       ---------       ---------

Balance at December 31, 1991                    (339,043)       (364,322)        (58,275)

Net loss                                         (76,400)           -            (76,400)
Common dividends declared - $.35 per share       (17,807)           -            (17,807)
Adjustments                                         -               -              9,849
Purchases of treasury stock                         -             (3,641)         (3,641)
Other, net                                          -               -                (19)
---------       ---------       --------- 

Balance at December 31, 1992                    (433,250)       (367,963)       (146,293)

Net loss                                        (109,809)           -           (109,809)
Adjustments                                         -               -             (7,476)
Cumulative effect of change in             
accounting principle                               -               -             (1,217)
---------       ---------       --------- 

Balance at December 31, 1993                   $(543,059)      $(367,963)      $(264,795)
=========       =========       ========= 

See accompanying notes to consolidated financial statements.

F-7

18
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 1991, 1992 and 1993

(In thousands)

1991           1992            1993
----           ----            ----

Cash flows from operating activities:
Net loss                                                        $(16,462)      $(76,400)       $(109,809)
--------       --------        --------- 
Adjustments:
Depreciation, depletion and
amortization                                                   32,581         47,829           46,340
Deferred income taxes                                          (14,665)       (18,949)            (670)
Cumulative effect of changes in
accounting principles                                            -            31,804           (1,217)
Minority interest                                                1,113          1,123              730
Net (gains) losses from:
Securities transactions                                       53,092          6,018           (4,363)
Disposition of property and equipment                          1,009          1,419              199
Pension cost, net                                                 (377)        (2,024)          (2,134)
Other postretirement benefits, net                                -             1,830           (2,422)
Other, net                                                      (8,872)         3,442           (1,349)
Change in assets and liabilities:
Accounts and notes receivable                                 (6,430)        (1,776)          (1,291)
Inventories                                                    6,582        (33,814)          12,166
Prepaid expenses                                               4,885            207             (472)
Accounts payable and accrued
liabilities                                                  30,218         (6,111)          (1,567)
Income taxes                                                 (43,629)       (13,501)           1,507
Accounts with affiliates                                       5,328         (4,106)           5,426
Other noncurrent assets                                        4,604          5,264           14,588
Other noncurrent liabilities                                   9,143         13,072           37,069
---------       --------        ---------

Total adjustments                                             74,582         31,727          102,540
--------       --------        ---------

Net cash provided (used) by
operating activities                                       58,120        (44,673)          (7,269)
--------       --------        --------- 

F-8

19
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years ended December 31, 1991, 1992 and 1993

(In thousands)

1991             1992               1993
----             ----               ----

Cash flows from investing activities:
Capital expenditures                                         $(195,146)       $ (85,150)         $ (47,986)
Marketable securities:
Purchases                                                   (536,435)        (156,573)           (11,053)
Dispositions                                                 623,937          473,935             79,398
Proceeds from disposition of
property and equipment                                          1,033            1,484            175,537
Investment in joint venture                                       -                -               (14,405)
Loans to affiliates:
Loans                                                       (150,000)            -                  (210)
Collections                                                  150,000             -                  -
Other, net                                                      (2,819)           1,168                670
---------        ---------          ---------

Net cash provided (used) by
investing activities                                     (109,430)         234,864            181,951
---------        ---------          ---------

Cash flows from financing activities:
Notes payable and long-term debt:

Additions                                                    178,195           63,603            465,554
Principal payments                                          (174,565)        (263,093)          (607,417)
Deferred financing costs                                      (8,188)          (1,881)           (12,860)
Repayments of loans from affiliates                             (1,126)            -                  -
Distributions to minority interest                                (869)            (277)              (613)
Dividends paid                                                 (34,724)         (17,807)              -
Purchases of treasury stock and other                         (202,492)          (3,660)              -   
---------        ---------          ---------

Net cash used by financing
activities                                               (243,769)        (223,115)          (155,336)
---------        ---------          --------- 

Net change during the year from
operating, investing and
financing activities                                    $(295,079)       $ (32,924)         $  19,346
=========        =========          =========

F-9

20
NL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years ended December 31, 1991, 1992 and 1993

(In thousands)

1991           1992           1993
----           ----           ----

Cash and cash equivalents:
Net change during the year from:
Operating, investing and financing
activities                                                     $(295,079)     $(32,924)       $ 19,346
Currency translation                                              (14,907)       (5,013)            (86)
----------     --------        -------- 

(309,986)      (37,937)         19,260
Balance at beginning of year                                        435,256       125,270          87,333
---------      --------        --------

Balance at end of year                                            $ 125,270      $ 87,333        $106,593
=========      ========        ========

Supplemental disclosures - cash paid for:
Interest, net of amounts capitalized                              $ 107,638      $137,996        $ 91,576
Income taxes                                                         54,628        31,369          11,897

See accompanying notes to consolidated financial statements.

F-10

21
NL INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION:

NL Industries, Inc. is primarily a holding company and conducts its
operations through its wholly-owned subsidiaries, Kronos, Inc.  (titanium
dioxide pigments ("TiO2")) and Rheox, Inc. (specialty chemicals).

At December 31, 1993, Valhi, Inc. held approximately 49% of NL's
outstanding common stock and Tremont Corporation, a 48%-owned affiliate of
Valhi, held an additional 18% of NL's outstanding common stock.  Contran
Corporation holds, directly or through subsidiaries, approximately 90% of
Valhi's outstanding common stock.  All of Contran's outstanding voting stock is
held by trusts established for the benefit of the children and grandchildren of
Harold C. Simmons, of which Mr. Simmons is the sole trustee.  Mr. Simmons, the
Chairman of the Board of each of Contran, Valhi and NL and a director of
Tremont, may be deemed to control each of such companies.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation

The accompanying consolidated financial statements include the accounts
of NL and its majority-owned subsidiaries (collectively, the "Company").  All
material intercompany accounts and balances have been eliminated.  Certain
prior year amounts have been reclassified to conform to the 1993 presentation.

Translation of foreign currencies

Assets and liabilities of subsidiaries whose functional currency is
deemed to be other than the U.S. dollar are translated at year-end rates of
exchange and revenues and expenses are translated at weighted average exchange
rates prevailing during the year.  Resulting translation adjustments, gains and
losses from hedges of investments in non-U.S. entities and the related income
tax effects are accumulated in the currency translation adjustments component
of shareholders' deficit.  Currency transaction gains and losses are recognized
in income currently.

Cash and cash equivalents

Cash equivalents include U.S. Treasury securities purchased under
short-term agreements to resell, bank deposits, and government and commercial
notes and bills with original maturities of three months or less.  Cash and
cash equivalents includes $6 million and $18 million at December 31, 1992 and
1993, respectively, which are restricted for letters of credit and certain
indebtedness agreements.

F-11

22
Marketable securities and securities transactions

The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" effective December 31, 1993, and the Company's marketable
securities were classified as either "available-for-sale" or "trading" and are
carried at market.  Unrealized gains and losses on trading securities are
recognized in income currently. Unrealized gains and losses on
available-for-sale securities, and the related deferred income tax effects, are
accumulated in the marketable securities adjustment component of shareholders'
deficit.  See Notes 4 and 19.

SFAS No. 115 superseded SFAS No. 12 under which marketable securities
were generally carried at the lower of aggregate market or amortized cost and
unrealized net gains were not recognized.

Realized gains or losses are computed based on specific identification
of the securities sold.

Inventories

Inventories are stated at the lower of cost (principally average cost)
or market.  Amounts are removed from inventories at average cost.

Investment in joint ventures

Investments in 20% to 50%-owned entities are accounted for by the equity
method.

Intangible assets

Intangible assets, included in other noncurrent assets, are amortized by
the straight-line method over the periods expected to be benefitted.

Property, equipment, depreciation and depletion

Property and equipment are stated at cost.  Interest costs related to
major, long-term capital projects are capitalized as a component of
construction costs.  Maintenance, repairs and minor renewals are expensed;
major improvements are capitalized.

Depreciation is computed principally by the straight-line method over
the estimated useful lives of ten to 40 years for buildings and three to 20
years for machinery and equipment.  Depletion of mining properties is computed
by the unit-of-production and straight-line methods.

Employee benefit plans

Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.

Net sales

Sales are recognized as products are shipped.

F-12

23
Income taxes

Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the income
tax and financial reporting carrying amounts of assets and liabilities,
including investments in subsidiaries and unconsolidated affiliates not
included in the Company's U.S. tax group (the "NL Tax Group").

Loss per share of common stock

Loss per share of common stock is based upon the weighted average
number of common shares outstanding.  Common stock equivalents are excluded
from the computation because they are antidilutive.

NOTE 3 - BUSINESS AND GEOGRAPHIC SEGMENTS:

The Company's operations are conducted in two business segments - TiO2
conducted by Kronos and specialty chemicals conducted by Rheox.  Titanium
dioxide pigments are used to impart whiteness, brightness and opacity to a wide
variety of products, including paints, plastics, paper, fibers and ceramics.
Specialty chemicals include rheological additives which control the flow and
leveling characteristics of a variety of products, including paints, inks,
lubricants, sealants, adhesives and cosmetics. General corporate assets consist
principally of cash, cash equivalents and marketable securities.

F-13

24

Years ended December 31,      
-------------------------------------------
1991               1992               1993
----               ----               ----
(In thousands)

Business segments                     
Net sales:                          
Kronos                                        $ 732,108          $ 784,568          $697,048
Rheox                                           108,187            108,897           108,275
---------          ---------          --------

$ 840,295          $ 893,465          $805,323
=========          =========          ========

Operating income:                   
Kronos                                        $ 110,767          $  81,941          $ 36,146
Rheox                                            28,194             28,792            26,254
---------          ---------          --------

138,961            110,733            62,400

General corporate income (expense): 
Interest and dividends                           40,502             14,234             4,104
Securities transactions                         (53,092)            (6,018)            4,363
Expenses, net                                   (44,921)           (43,452)          (41,516)
Interest expense                               (100,412)          (118,511)          (99,119)
---------          ---------          -------- 

$ (18,962)         $ (43,014)         $(69,768)
=========          =========          ======== 

Capital expenditures:               
Kronos                                        $ 189,475          $  81,872          $ 46,913
Rheox                                             5,358              3,064             1,069
General corporate                                   313                214                 4
---------          ---------          --------

$ 195,146          $  85,150          $ 47,986
=========          =========          ========

Depreciation, depletion and         
amortization:                      
Kronos                                        $  29,324          $  44,360          $ 42,877
Rheox                                             2,974              3,184             3,176
General corporate                                   283                285               287
---------          ---------          --------

$  32,581          $  47,829          $ 46,340
=========          =========          ========

F-14

25

Years ended December 31,     
-----------------------------------------------
1991               1992                1993
----               ----                ----
(In thousands)

Geographic areas

Net sales - point of origin:
United States                                           $ 207,762          $ 238,170           $ 270,288
Europe                                                    623,036            643,670             519,064
Canada                                                    136,316            138,656             132,930
Eliminations                                             (126,819)          (127,031)           (116,959)
---------          ---------           --------- 

$ 840,295          $ 893,465           $ 805,323
=========          =========           =========

Net sales - point of destination:
United States                                           $ 180,883          $ 204,270           $ 217,892
Europe                                                    485,784            518,711             418,072
Canada                                                     79,198             72,692              76,078
Other                                                      94,430             97,792              93,281
---------          ---------           ---------

$ 840,295          $ 893,465           $ 805,323
=========          =========           =========
Operating income:
United States                                           $  16,578          $     629           $  20,981
Europe                                                     99,646             81,805              19,658
Canada                                                     22,737             28,299              21,761
---------          ---------           ---------

$ 138,961          $ 110,733           $  62,400
=========          =========           =========

December 31,     
-------------------------
1992                1993
----                ----
(In thousands)

Identifiable assets

Business segments:
Kronos                                                                     $1,246,186         $1,008,453
Rheox                                                                          76,248             75,362
General corporate                                                             149,673            122,734
----------         ----------

$1,472,107         $1,206,549
==========         ==========

Geographic segments:
United States                                                              $  498,029         $  326,831
Europe                                                                        671,349            622,826
Canada                                                                        153,056            134,158
General corporate                                                             149,673            122,734
----------         ----------

$1,472,107         $1,206,549
==========         ==========

F-15

26
NOTE 4 - MARKETABLE SECURITIES AND SECURITIES TRANSACTIONS:

December 31,   
-------------------
1992           1993
----           ----
(In thousands)

Current:                          
Marketable equity securities                   $  6,996        $  -
U.S. Treasury securities                         93,611         41,045
--------        -------

$100,607        $41,045
========        =======

Noncurrent:                       
Marketable equity securities                   $  9,192        $18,428
U.S. Treasury securities                         14,389           -   
--------        -------

$ 23,581        $18,428
========        =======

Marketable equity securities:     
Current:                        
Unrealized gains                             $     13        $  -
Unrealized losses                              (4,233)          -
Cost                                           11,216           -   
--------        -------

Aggregate market                           $  6,996        $  -   
========        =======

Noncurrent:                     
Unrealized gains                             $   -           $    33
Unrealized losses                                (979)        (2,951)
Cost                                           10,171         21,346
--------        -------

Aggregate market                           $  9,192        $18,428
========        =======

Current U.S. Treasury securities: 
Unrealized gains (losses)                      $    (59)       $    52
Cost                                             93,670         40,993
--------        -------

Aggregate market                             $ 93,611        $41,045
========        =======

Upon adoption of SFAS No. 115 as of December 31, 1993, the Company
classified its portfolio of U.S. Treasury Securities as trading securities and
its marketable equity securities as available-for-sale.

F-16

27
Net gains and losses from securities transactions are composed of:

Years ended December 31,      
------------------------------------------
1991               1992               1993
----               ----               ----
(In thousands)

Unrealized gains (losses):
Marketable equity securities                              $   (517)           $   (52)            $2,348
Other securities                                             2,337               (513)             1,172
Realized gains (losses):
Marketable equity securities                               (52,813)              (528)                (9)
Other securities                                             4,437              1,006                852
Writedown of noncurrent marketable
equity securities                                            (6,536)            (5,931)              -   
--------            -------             ------

$(53,092)           $(6,018)            $4,363
========            =======             ======

NOTE 5 - INVENTORIES:

December 31,   
----------------------
1992            1993
----            ----
(In thousands)

Raw materials                                              $ 43,773        $ 19,785
Work in process                                               9,201           7,173
Finished products                                           123,317         135,102
Supplies                                                     39,941          32,107
--------        --------

$216,232        $194,167
========        ========

NOTE 6 - INVESTMENT IN JOINT VENTURES:

December 31,   
----------------------
1992             1993
----             ----
(In thousands)

TiO2 manufacturing joint venture                            $ -            $188,031
Other                                                        2,434            2,756
------         --------

$2,434         $190,787
======         ========

In October 1993, Kronos Louisiana, Inc. ("KLA"), a wholly-owned
subsidiary of Kronos, formed a manufacturing joint venture with Tioxide Group,
Ltd., a wholly-owned subsidiary of Imperial Chemicals Industries PLC
("Tioxide").  Under the terms of the joint venture and related agreements, KLA
contributed the Louisiana plant to the joint venture, Tioxide paid an aggregate
of approximately $205 million, including its tranche of the joint venture debt,
and Kronos and certain of its subsidiaries exchanged proprietary chloride
process and product technologies with Tioxide and certain of its affiliates. Of
the total consideration paid by Tioxide, $30 million is attributable to the
exchange of technologies.  The manufacturing joint venture, which was equally
owned by KLA and a subsidiary of Tioxide, owns and operates the Louisiana
chloride process TiO2 plant formerly owned by KLA.  Upon formation, the

F-17

28
joint venture obtained $216 million in new financing, which is collateralized
by the partnership interests of the partners and substantially all of the
assets of the joint venture.  The new financing consists of two equal tranches,
one attributable to each partner, and each tranche is serviced through (i) the
purchase of the plant's TiO2 output in equal quantities by the partners and
(ii) cash capital contributions.  KLA has entered into an Offtake Agreement
which requires the purchase of one-half of the TiO2 produced by the joint
venture.  Kronos' pro rata share of the joint venture debt is reflected as
outstanding indebtedness of the Company because Kronos has guaranteed the
purchase obligation relative to the debt service of its tranche.  See Note 10.

The manufacturing joint venture is intended to be operated on a
break-even basis and, accordingly, Kronos' transfer price for its share of the
TiO2 produced is equal to its share of the joint venture's operating expenses
(fixed and variable costs of production and interest expense).  Kronos' share
of the fixed and variable production costs are reported as cost of sales as the
related TiO2 acquired from the joint venture is sold, and its share of the
joint venture's interest expense is reported as a component of interest
expense.

A summary balance sheet of the manufacturing joint venture is shown
below.

December 31,
1993    
------------
(In thousands)

ASSETS                             
Current assets                                             $ 44,477
Other assets                                                  2,376
Property and equipment, net                                 347,344
--------

$394,197
========

LIABILITIES AND PARTNERS' EQUITY                

Long-term debt, including current portion:         
Kronos tranche                                           $104,143
Tioxide tranche                                           102,600
Other liabilities, primarily current                         16,197
--------
222,940

Partners' equity                                            171,257
--------

$394,197
========

F-18

29
NOTE 7 - OTHER NONCURRENT ASSETS:

December 31,   
-----------------------
1992            1993
----            ----
(In thousands)

Intangible assets, net of accumulated              
amortization of $9,792 and $11,941                       $19,127         $15,317
Deferred financing costs, net                              20,533          18,954
Other                                                       8,581           8,084
-------         -------

$48,241         $42,355
=======         =======

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES: 

December 31,    
------------------------
1992            1993
----            ----
(In thousands)

Accounts payable                                         $ 98,990        $ 89,010
--------        --------
Accrued liabilities:                               
Employee benefits                                        38,506          32,350
Environmental costs                                      12,080          14,517
Interest                                                  4,376           6,933
Miscellaneous taxes                                       3,980           2,240
Other                                                    31,706          32,215
--------        --------

90,648          88,255
--------        --------

$189,638        $177,265
========        ========

NOTE 9 - OTHER NONCURRENT LIABILITIES:             

December 31,    
-----------------------
1992            1993
----            ----
(In thousands)

Environmental costs                                       $59,403        $ 70,789
Insurance claims expenses                                  10,014          10,299
Employee benefits                                          10,392          10,084
Deferred technology fee income                               -             26,881
Other                                                       4,069           3,256
-------        --------

$83,878        $121,309
=======        ========

F-19

30
NOTE 10 - NOTES PAYABLE AND LONG-TERM DEBT:

December 31,    
----------------------------
1992              1993
----              ----
(In thousands)

Notes payable - non-U.S. credit agreements      $      315          $   -   
==========          ========

Long-term debt:                              
NL Industries:                             
11.75% Senior Secured Notes                 $     -             $250,000
13% Senior Secured Discount Notes                 -              102,627
7.5% sinking fund debentures                    14,374              -   
----------          --------

14,374           352,627
----------          --------
Kronos:                                    
DM bank credit facility                        681,560           316,032
Joint venture term loan                           -              104,143
Kronos Louisiana credit facility               215,000              -
Canadian bank credit agreement                   3,942              -
5% to 8% bank loans payable through 2000        19,367            12,338
Other                                            2,230             2,175
----------          --------

922,099           434,688
----------          --------
Rheox:                                     
Bank term loan                                  97,500            82,500
Other                                            1,311             1,070
----------          --------

98,811            83,570
----------          --------

1,035,284           870,885
Less current maturities                           43,328            35,716
----------          --------

$  991,956          $835,169
==========          ========

In October 1993, NL issued $250 million principal amount of 11.75%
Senior Secured Notes due 2003 and $188 million principal amount at maturity
($100 million proceeds at issuance) of 13% Senior Secured Discount Notes due
2005 (collectively, the "Notes").  The Notes are collateralized by a series of
intercompany notes from Kronos International, Inc. ("KII"), a wholly-owned
subsidiary of Kronos, to NL, the terms of which mirror those of the respective
Notes (the "Mirror Notes").  The Senior Secured Notes are also collateralized by
a first priority lien on the stock of Kronos and a second priority lien on the
stock of Rheox.  The Senior Secured Notes and the Senior Secured Discount Notes
are redeemable, at the Company's option, after October 2000 and October 1998,
respectively, except that up to one-third of the aggregate principal amount of
the Senior Secured Discount Notes are redeemable (at 113% of the then-accreted
value) upon any Common Stock Offering, as defined, prior to October 1996.  For
redemptions, other than redemptions pursuant to any Common Stock Offering, the
redemption prices range from 101.5% (starting October 2000) declining to 100%
(after October 2001) of the principal amount for the Senior Secured Notes and
range from 106% (starting October 1998) declining to 100% (after October 2001)
of the then-accreted value of the Senior Secured Discount Notes.  In the event
of a Change of Control, as defined, the Company would be required to make an
offer to purchase the Notes at 101% of the principal amount of the Senior
Secured Notes and 101% of the then-accreted value of the Senior Secured Discount
Notes.  The Notes are issued

F-20

31
pursuant to indentures which contain a number of covenants and restrictions
which, among other things, restrict the ability of the Company and its
subsidiaries to incur debt, incur liens, pay dividends or merge or consolidate
with, or sell or transfer all or substantially all of its assets to, another
entity.  At December 31, 1993, there were no amounts available for payment for
dividends pursuant to the terms of the indentures.  The Senior Secured Discount
Notes do not require cash interest payments for the first five years.  At
December 31, 1993, the quoted market price per $100 principal amount at
maturity of the Senior Secured Notes and the Senior Secured Discount Notes was
$104 and $57.75, respectively.

The DM credit facility, as amended, consists of a DM 448 million term
loan due from 1997 to 1999 and a DM 250 million revolving credit facility due
no later than 2000, of which DM 100 million is outstanding and DM 150 million
was available for future borrowings by KII at December 31, 1993.  During
February 1994, the Company borrowed an additional DM 25 million under the
revolving credit facility.  Borrowings bear interest at DM LIBOR plus 1.625%
(8.19% at December 31, 1993).  KII has entered into agreements with certain
banks in the syndicate which caps DM LIBOR at 10.5% on DM 520 million principal
amount of the loan.  The principal amount subject to the cap declines as the
loan is repaid.  NL and Kronos have agreed, under certain circumstances, to
provide KII with up to DM 125 million through January 1, 2001.

The DM credit facility is collateralized by pledges of the stock of
certain KII subsidiaries.  The credit agreement restricts KII's ability to
incur additional indebtedness, restricts its dividends and other payments to
affiliates, requires it to maintain specified debt service coverage and other
ratios, and contains other provisions and restrictive covenants customary in
lending transactions of this type.

Borrowings under KLA's tranche of the joint venture term loan bear
interest at LIBOR plus 1.625% (5.01% at December 31, 1993) and are repayable in
quarterly installments through September 2000.  See Note 6.

Rheox has a credit agreement providing for a seven-year term loan due in
quarterly installments through December 1997 and a $15 million revolving
credit/letter of credit facility due March 1994.  At December 31, 1993, letters
of credit aggregating $1 million were outstanding.  Borrowings bear interest,
at Rheox's option, at prime rate plus 1.5% or LIBOR plus 2.5% (5.83% at
December 31, 1993), and are collateralized by the stock of Rheox and its
domestic subsidiary and by Rheox's U.S. assets.  The credit agreement restricts
Rheox's ability to incur additional indebtedness, restricts its dividend
payments and contains other provisions and restrictive covenants customary in
lending transactions of this type.  The Company has initiated discussions with
the agent bank regarding the extension of the revolving credit/letter of credit
facility.

In connection with the credit agreement, Rheox has entered into interest
rate swap agreements to mitigate the impact of changes in interest rates on the
term loan.  These swap agreements, which mature December 31, 1994, effectively
convert the interest rate on $60 million of the loan (at December 31, 1993)
from a variable rate to a fixed rate of 8.1%  The effective interest rate on
the Rheox term loan was 7.3% at December 31, 1993, including the impact of the
swap agreements.  At December 31, 1993, the fair value of the swap agreements
payable is estimated to be $1 million, which amount represents the estimated
cost to the Company if it were to terminate the swap agreements at that date.
Rheox is exposed to interest rate risk in the event of nonperformance by the
other parties to the agreements.  However, Rheox does not anticipate
nonperformance by such

F-21

32
parties.

Unused lines of credit available for short-term borrowings under U.S.
and non-U.S. credit facilities approximated $14 million and $117 million,
respectively, at December 31, 1993.

Other loans consist of non-U.S. mortgage and other borrowings of the
Company's subsidiaries denominated primarily in non-U.S.  currencies.

Substantially all of the long-term debt of subsidiaries, except to the
extent of the interest rate swap agreements relating to the Rheox term loan as
noted above, have variable interest rates which adjust with changes in market
interest rates or have short terms to maturity, and the book value of such
indebtedness is deemed to approximate fair value.

The aggregate maturities of long-term debt at December 31, 1993 are
shown in the table below.

Years ending December 31,                                          Amount    
-------------------------                                      --------------
(In thousands)

1994                                                            $ 35,716
1995                                                              39,327
1996                                                              40,940
1997                                                             101,100
1998                                                             102,186
1999 and thereafter                                              636,489
--------
955,758
Less unamortized original issue discount on the
Senior Secured Discount Notes                                       84,873
--------

$870,885
========

NOTE 11 -  EMPLOYEE BENEFIT PLANS:

Company-sponsored pension plans

The Company maintains various defined benefit and defined contribution
pension plans covering substantially all employees.  Personnel employed by
non-U.S. subsidiaries are covered by separate plans in their respective
countries and U.S. employees are covered by various plans including the
Retirement Programs of NL Industries, Inc. (the "NL Pension Plan").

A majority of U.S. employees are eligible to participate in a
contributory savings plan with partial matching contributions by the Company.
The Company's expense related to matching contributions was $.6 million, $1.0
million and nil in 1991, 1992 and 1993, respectively.

Defined pension benefits are generally based upon years of service and
compensation under fixed-dollar, final pay or career average formulas, and the
related expenses are based upon independent actuarial valuations.  The funding
policy for U.S. defined benefit plans is to contribute amounts which satisfy
funding requirements of the Employee Retirement Income Security Act of 1974, as
amended.  Non-U.S. defined benefit pension plans are funded in accordance with
applicable statutory requirements.

F-22

33
The funded status of the Company's defined benefit pension plans is set
forth below.  The rates used in determining the actuarial present value of
benefit obligations were (i) discount rates - 7% to 8.5% (1992 - 8% to 9%) and
(ii) rates of increase in future compensation levels - nil to 6% (1992 - nil to
7%).  The expected long-term rates of return on assets used ranged from 8% to
10% in both 1992 and 1993.  Plan assets are comprised primarily of investments
in U.S. and non-U.S. corporate equity and debt securities, short-term
investments, mutual funds and group annuity contracts.

SFAS No. 87, "Employers' Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated
pension benefit obligation exceeds the unfunded accrued pension liability.
Variances from actuarially assumed rates, including the rate of return on
pension plan assets, will result in additional increases or decreases in
accrued pension liabilities, pension expense and funding requirements in future
periods.

Assets exceed             Accumulated benefits
accumulated benefits             exceed assets    
--------------------         ---------------------
December 31,                 December 31,    
--------------------         ---------------------
1992           1993           1992           1993
----           ----           ----           ----
(In thousands)

Actuarial present value of benefit
obligations:
Vested benefits                                       $27,874       $40,612       $141,909       $137,156
Nonvested benefits                                        933         3,160          3,297          2,893
-------       -------       --------       --------

Accumulated benefit obligations                        28,807        43,772        145,206        140,049
Effect of projected salary
increases                                              6,289         6,235          8,762         17,664
-------       -------       --------       --------

Projected benefit obligations                          35,096        50,007        153,968        157,713
Plan assets at fair value                                50,579        63,565        102,553         88,881
-------       -------       --------       --------

Plan assets over (under) projected
benefit obligations                                     15,483        13,558        (51,415)       (68,832)
Unrecognized net loss (gain) from
experience different from
actuarial assumptions                                      718           774        (29,744)        (4,958)
Unrecognized prior service cost
(credit)                                                 3,646         3,121         (4,284)        (3,879)
Unrecognized transition obligations
(assets) being amortized over 15
to 18 years                                             (3,791)       (1,146)         5,017          2,586
Adjustment required to recognize
minimum liability                                         -             -              -            (3,442)
-------       -------       --------       -------- 

Total prepaid (accrued)
pension cost                                      16,056        16,307        (80,426)       (78,525)
Less current portion                                       -             -            (6,470)        (5,919)
-------       -------       --------       -------- 

Noncurrent prepaid (accrued)
pension cost                                     $16,056       $16,307       $(73,956)      $(72,606)
=======       =======       ========       ======== 

F-23

34

The components of the net periodic defined benefit pension cost are 
set forth below.

Years ended December 31,  
--------------------------------------
1991           1992           1993
----           ----           ----
(In thousands)

Service cost benefits earned during the year                           $  5,151       $  4,272        $  4,082
Interest cost on projected benefit obligations                           12,705         13,804          14,430
Actual return on plan assets                                            (13,147)       (12,248)        (15,647)
Net amortization and deferrals                                              439         (1,346)          2,413
--------       --------        --------

$  5,148       $  4,482        $  5,278
========       ========        ========

Incentive bonus programs

The Company has incentive bonus programs for certain employees providing
for annual payments, which may be in the form of NL common stock, based on
formulas involving the profitability of Kronos and Rheox in relation to the
annual operating plan of the employee's business unit and individual
performance.

Postretirement benefits other than pensions

In addition to providing pension benefits, the Company currently
provides certain health care and life insurance benefits for eligible retired
employees.  Certain of the Company's U.S. and Canadian employees may become
eligible for such postretirement health care and life insurance benefits if
they reach retirement age while working for the Company.  In 1989, the Company
began phasing out such benefits for currently active U.S. employees over a
ten-year period.  The majority of all retirees are required to contribute a
portion of the cost of their benefits and certain current and future retirees
are eligible for reduced health care benefits at age 65.  The Company's policy
is to fund medical claims as they are incurred, net of any contributions by the
retirees.  Effective January 1, 1993, the Company's postretirement medical
plans were revised to, among other things, increase the deductible and maximum
out-of-pocket amounts, increase the retiree copayment percentage and pass on
future cost increases to the participants through increased contributions or
decreased reimbursements.

The rates used in determining the actuarial present value of the
accumulated benefit obligations were (i) discount rate - 7% (1992 - 7.75%),
(ii) rate of increase in future compensation levels - 4% (1992 - 5%), (iii)
rate of increase in future health care costs - 11% in 1994, gradually declining
to 5% in 2000 and thereafter (1992 - 14% in 1993, gradually declining to 6% in
2000 and thereafter) and (iv) return on plan assets - 9% in both 1992 and 1993.
If the health care cost trend rate was increased by one percentage point for
each year, postretirement benefit expense would have increased approximately
$.4 million in 1993, and the actuarial present value of accumulated benefit
obligations at December 31, 1993 would have increased by approximately $3.5
million.

F-24

35

December 31,    
--------------------
1992            1993
----            ----
(In thousands)

Actuarial present value of accumulated benefit           
obligations:                                            
Retiree benefits                                                    $62,696         $61,686
Other fully eligible active plan participants                         1,151           1,106
Other active plan participants                                        2,336           1,962
-------         -------
66,183          64,754

Plan assets at fair value                                               7,640           8,095
-------         -------
Accumulated postretirement benefit obligations           
in excess of plan assets                                              58,543          56,659
Unrecognized net gain from experience different          
from actuarial assumptions                                             1,588           2,390
Unrecognized prior service credit                                      16,618          15,145
-------         -------

Total accrued postretirement benefits cost                         76,749          74,194
Less current portion                                                    4,988           5,872
-------         -------

Noncurrent accrued postretirement benefits cost                   $71,761         $68,322
=======         =======

The components of the Company's net periodic postretirement benefit cost
pursuant to SFAS No. 106 for 1992 and 1993 are set forth below:

December 31,    
--------------------
1992            1993
----            ----
(In thousands)

Interest cost on accumulated benefit obligations                       $6,189         $ 4,911
Service cost benefits earned during the year                              130             127
Expected return on plan assets                                           (650)           (647)
Net amortization and deferrals                                           -             (1,473)
------         ------- 

$5,669         $ 2,918
======         =======

The aggregate net pay-as-you-go cost to the Company for these benefits
approximated $7 million in 1991.

NOTE 12 -  SHAREHOLDERS' DEFICIT:

Common stock

Shares of common stock     
-------------------------------------
Treasury
Issued        stock       Outstanding
------      --------      -----------
(In thousands)

Balance at December 31, 1990                                       66,839        2,704          64,135
Purchase of treasury shares                                        -          12,934         (12,934)
------       ------         ------- 

Balance at December 31, 1991                                       66,839       15,638          51,201
Purchase of treasury shares                                        -             311            (311)
------       ------         ------- 

Balance at December 31, 1992 and 1993                              66,839       15,949          50,890
======       ======         =======

F-25

36
During 1990, NL's Board of Directors authorized the purchase of up to
five million shares of NL's common stock over an unspecified period of time, to
be held as treasury shares available for general corporate purposes.  Pursuant
to this authorization, the Company purchased 1.6 million and .3 million shares
of its common stock in the open market at an aggregate cost of $21 million and
$4 million in 1991 and 1992, respectively.  In September 1991, the Company
purchased 11.3 million shares of its common stock pursuant to a "Dutch auction"
self-tender offer for an aggregate cost of $181 million, including 10.9 million
shares purchased from Valhi for $175 million.

Common stock options

The 1989 Long Term Performance Incentive Plan of NL Industries, Inc.
(the "NL Option Plan") provides for the discretionary grant of restricted
common stock, stock options, stock appreciation rights ("SARs") and other
incentive compensation to officers and other key employees of the Company.
Although certain stock options and SARs granted pursuant to similar plans which
preceded the NL Option Plan ("the Predecessor Option Plans") remain outstanding
at December 31, 1993, no additional options may be granted under the
Predecessor Option Plans.

Up to five million shares of NL common stock may be issued pursuant to
the NL Option Plan.  The NL Option Plan provides for the grant of options that
qualify as incentive options and for options which are not so qualified.
Generally, stock options and SARs (collectively, "options") are granted at a
price equal to 100% of the market price at the date of grant, vest over a five
year period and expire ten years from the date of grant.  Restricted stock,
forfeitable unless certain periods of employment are completed, is held in
escrow in the name of the grantee until the restriction period expires.  No
SARs have been granted under the NL Option Plan.

Changes in outstanding options granted pursuant to the NL Option Plan
and the Predecessor Option Plans are summarized in the table below.  At
December 31, 1993, options to purchase 610,081 shares were exercisable and
options to purchase 259,000 shares become exercisable in 1994.  At December 31,
1993, an aggregate of 3.5 million shares were available for future grants under
the NL Option Plan.

F-26

37

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

Outstanding at December 31, 1990                                533             $ 8.65 - 26.17         $10,550

Granted                                                       522                  10.50               5,486
Exercised                                                      (4)              8.65 - 11.66             (44)
-----             --------------         ------- 

Outstanding at December 31, 1991                              1,051               8.65 - 26.17          15,992

Granted                                                       237                   9.31               2,207
Canceled or expired                                           (10)              9.31 - 26.17            (126)
-----             --------------         ------- 

Outstanding at December 31, 1992                              1,278               8.65 - 24.19          18,073

Granted                                                       451               5.00 -  7.00           2,645
Canceled or expired                                            (3)              8.65 - 10.78             (27)
-----             --------------         ------- 

Outstanding at December 31, 1993                              1,726             $ 5.00 - 24.19         $20,691
=====             ==============         =======

Preferred stock

The Company is authorized to issue a total of five million shares of
preferred stock.  The rights of preferred stock as to dividends, redemption,
liquidation and conversion are determined upon issuance.

NOTE 13 -  OTHER INCOME, NET:

Years ended December 31,  
-------------------------------------
1991              1992           1993
----              ----           ----
(In thousands)

Currency transaction gains, net                         $ 1,594          $ 1,735       $ 3,299
Technology fee income                                      -                -            2,048
Royalty income                                            2,547            1,014         2,016
Disposition of property and equipment                    (1,009)          (1,419)         (199)
Other, net                                                3,911             (133)        2,685
-------          -------       -------

$ 7,043          $ 1,197       $ 9,849
=======          =======       =======

F-27

38
NOTE 14 -  INCOME TAXES:

The components of (i) loss before income taxes, minority interest,
extraordinary items and cumulative effect of changes in accounting principles
("pretax income (loss)"), (ii) the difference between the provision for income
taxes attributable to pretax income (loss) and the amounts that would be
expected using the U.S. federal statutory income tax rate of 34% in 1991 and
1992 and 35% in 1993, (iii) the provision for income taxes and (iv) the
comprehensive tax provision (benefit) are presented below.

Years ended December 31,     
----------------------------------------
1991              1992              1993
----              ----              ----
(In thousands)

Pretax income (loss):                               
U.S.                                                $(25,330)         $(52,724)        $(41,579)
Non-U.S.                                               6,368             9,710          (28,189)
--------          --------         -------- 

$(18,962)         $(43,014)        $(69,768)
========          ========         ======== 

Expected tax benefit                                  $ (6,447)         $(14,625)        $(24,419)
Non-U.S. tax rates                                      (4,681)          (11,224)         (15,620)
Rate difference on capital loss carryback           
and capital loss for which no carryback            
was available                                          14,351              -                -
Rate change adjustment of deferred taxes                  -                 -               6,823
Valuation allowance                                       -               20,237           40,827
Incremental tax on income of companies not          
included in the NL Tax Group                            3,198             5,385            2,553
U.S. state income taxes                                  2,605               353              486
Other, net                                              (5,116)              333            2,063
--------          --------         --------

$  3,910          $    459         $ 12,713
========          ========         ========

Provision for income taxes:                         
Current income tax expense (benefit):             
U.S. federal                                      $ (6,180)         $ (2,103)        $   (915)
U.S. state                                           2,604              (292)             870
Non-U.S.                                            14,904            21,803           14,083
--------          --------         --------

11,328            19,408           14,038
--------          --------         --------
Deferred income tax expense (benefit):            
U.S. federal                                         7,658              (612)             244
U.S. state                                            -                  645             (384)
Non-U.S.                                           (15,076)          (18,982)          (1,185)
--------          --------         -------- 

(7,418)          (18,949)          (1,325)
--------          --------         -------- 

$  3,910          $    459         $ 12,713
========          ========         ========

F-28

39

Years ended December 31,    
---------------------------------------
1991              1992             1993
----              ----             ----
(In thousands)

Comprehensive tax provision (benefit)
allocable to:
Pretax loss                                                       $ 3,910           $   459          $12,713
Extraordinary items, principally
deferred income taxes                                             (7,241)             -                -
Shareholders' deficit, principally deferred
income taxes allocable to currency
translation and marketable securities
adjustments                                                        1,023            (1,196)          (1,243)
-------           -------          ------- 

$(2,308)          $  (737)         $11,470
=======           =======          =======

Changes in deferred income taxes related to the adoption of new
accounting standards are disclosed in Note 19.  During 1993, the Company's
valuation allowance, in the aggregate, increased by $47 million.  The
components of the net deferred tax liability are summarized below:

December 31,                  
-------------------------------------------------------------
1992                               1993
----                               ----
Deferred tax                       Deferred tax      
--------------------------         --------------------------
Assets         Liabilities         Assets         Liabilities
------         -----------         ------         -----------
(In thousands)

Tax effect of temporary differences relating
to:
Inventories                                    $  3,823        $  (2,986)         $   3,965        $  (2,532)
Property and equipment                              261         (101,409)             2,694          (90,356)
Accrued postretirement
benefits cost                                   26,112             -                25,955             -
Accrued pension cost                              7,808           (9,770)             9,712           (9,224)
Accrued environmental costs                      21,404             -                26,784             -
Other accrued liabilities and
deductible differences                          14,484             -                22,070             -
Other taxable differences                          -             (95,892)              -            (104,940)
Tax on unremitted earnings of
non-U.S. subsidiaries                                619          (39,277)               577          (27,742)
Tax loss and tax credit
carryforwards                                    112,212             -               137,706             -
Valuation allowance                               (86,031)            -              (133,377)                
--------        ---------          ---------        ---------

Gross deferred tax assets
(liabilities)                                  100,692         (249,334)            96,086         (234,794)

Reclassification, principally
netting by tax jurisdiction                      (99,016)          99,016            (92,194)          92,194
--------        ---------          ---------        ---------

Net total deferred tax assets
(liabilities)                                    1,676         (150,318)             3,892         (142,600)
Net current deferred tax
assets (liabilities)                             1,676           (4,573)             3,315           (3,623)
--------        ---------          ---------        --------- 

Net noncurrent deferred tax
assets (liabilities)                          $   -           $(145,745)         $     577        $(138,977)
========        =========          =========        ========= 

F-29

40
The components of the provision for deferred income taxes for 1991 (a
disclosure no longer required upon the adoption of SFAS No. 109) is summarized
below.

Year ended
December 31,
1991    
------------
(In thousands)

Depreciation                                               $ 2,525
Cash basis income and expense                               (1,607)
Undistributed income of subsidiaries                        (8,747)
Other, net                                                     411
-------

$(7,418)
======= 

At December 31, 1993, the Company had $250 million of non-U.S. income
tax loss carryforwards with no expiration dates.  In addition, the Company had,
for U.S. federal income tax purposes, capital loss carryforwards of $17 million
which expire during 1996, net operating loss carryforwards of $30 million, of
which $7 million expires in 2007 and $23 million expires in 2008, and an
alternative minimum tax credit carryforward of $11 million with no expiration
date.

Certain of the Company's income tax returns in various U.S. and non-U.S.
jurisdictions, including Germany are being examined and tax authorities have
proposed or may propose tax deficiencies.  In June 1993, the German tax
authorities issued assessment reports in connection with examinations of the
Company's German income tax returns, disallowing the Company's claims for
refunds, primarily for 1989 and 1990, aggregating DM 160 million ($92 million
at December 31, 1993) and proposing additional taxes of DM 100 million ($58
million at December 31, 1993).  The Company has applied for administrative
relief from collection procedures and may grant a lien on certain German assets
while the Company contests the proposed adjustments.  Although the Company
believes it will ultimately prevail, in June 1993, the Company reclassified
refundable income tax claims of approximately DM 160 million ($92 million) from
current assets to noncurrent assets due to the uncertain timing of a
resolution.  The Company believes that it has adequately provided accruals for
additional income taxes and related interest expense which may ultimately
result from such examinations and believes that the ultimate disposition of
such examinations should not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.  In July
1992, the Company paid $15 million of previously accrued interest and income
taxes related to the settlement of examinations of the Company's U.S. federal
income tax returns for the years ended December 31, 1979 through 1984.

In 1991, based upon revisions in the Company's estimate of liabilities
for income taxes and related interest expense which may ultimately result from
the examinations referred to above, the Company reduced its accrual for income
tax related interest by $9 million.  This change in estimate considered, among
other things, the Company's settlement with the IRS of a matter related to the
qualified status of certain of the Company's defined benefit pension plans,
which plans were determined to be qualified with respect to the periods in
question.

F-30

41
NOTE 15 -  OTHER ITEMS:

Research, development and sales technical support expense approximated
$9 million in 1991, $11 million in 1992 and $10 million in 1993.

Interest capitalized in connection with long-term capital projects was
$26 million in 1991, $9 million in 1992 and $1 million in 1993.

NOTE 16 -  EXTRAORDINARY ITEMS:

Years ended December 31,  
------------------------------------
1991           1992           1993
----           ----           ----
(In thousands)

Gain (loss) on early extinguishment of                
indebtedness:                                        
7.5% sinking fund debentures                           $  282        $  -          $   -
Kronos Louisiana term loan and                      
DM credit facility                                       -             -           (27,815)
Provision for income taxes                                 (6)          -              -   
------        ------        --------
276           -           (27,815)
Income tax benefit of utilization of tax              
loss and tax credit carryforwards                        7,247           -              -   
------        ------        --------

$7,523        $  -          $(27,815)
======        ======        ======== 

The extraordinary loss in 1993 relates to the settlement of certain
interest rate swap agreements for $20 million in cash in conjunction with
repaying the Louisiana plant indebtedness and the write-off of deferred
financing costs related to such repayment and the paydown of a portion of the
DM bank credit facility.

Upon adoption of SFAS No. 109 in 1992, utilization of tax loss and tax
credit carryforwards are not classified as extraordinary items.

NOTE 17 -  RELATED PARTY TRANSACTIONS:

The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, joint
ventures, partnerships, loans, options, advances of funds on open account, and
sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party.  While no
transactions of the type described above are planned or proposed with respect
to the Company, the Company from time to time considers, reviews and evaluates,
and understands that Contran, Valhi and related entities consider, review and
evaluate, such transactions.  Depending upon the business, tax and other
objectives then relevant, and restrictions under the indentures and other
agreements, it is possible that the Company might be a party to one or more
such transactions in the future.

F-31

42
It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.

During August 1991, the Company entered into a revolving demand loan
agreement with Valhi in an amount not to exceed the lesser of $200 million or
the amount Valhi has available under bank credit agreements.  The Company
advanced $150 million pursuant to this agreement which Valhi repaid in
September 1991.  Interest income on the amount advanced under the demand loan
agreement was $.6 million in 1991.

Baroid Corporation, a former wholly-owned subsidiary of the Company and
currently a subsidiary of Dresser Industries, Inc., and the Company are parties
to an intercorporate services agreement (the "Baroid ISA") pursuant to which,
as amended, Baroid agreed to make certain services available to the Company on
a fee basis subject to termination or renewal by mutual agreement.  Management
services fee expense pursuant to the Baroid ISA approximated $4.3 million in
1991, $2.3 million in 1992 and $.3 million in 1993.

The Company is a party to an intercorporate services agreement with
Valhi (the "Valhi ISA") whereby Valhi provides certain management, financial
and administrative services to the Company on a fee basis.  Management services
fee expense related to the Valhi ISA was $1.5 million in 1991, $1.4 million in
1992 and $.7 million in 1993.

The Company was party to an intercorporate services agreement with
Tremont (the "Tremont ISA") until June 1993 when the agreement was terminated.
Under the terms of the contract, the Company provided certain management,
financial and legal services to Tremont on a fee basis.  Management services
fee income related to the Tremont ISA was $.3 million in 1991, $.5 million in
1992 and $.1 million in 1993.

Purchases from Tremont in the ordinary course of business pursuant to a
long-term supply contract were $.6 million in 1991, $.6 million in 1992 and $.4
million in 1993.

Sales to Baroid in the ordinary course of business were $1.8 million in
1991, $2.1 million in 1992 and $1.8 million in 1993.

Purchases in the ordinary course of business from unconsolidated joint
ventures were approximately $9 million in 1991 and 1992 and $22 million in
1993.

Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans.  The Company
and Valhi have agreed that the Company will pay Valhi the aggregate difference
between the option price and the market value of Valhi's common stock on the
exercise date of such options.  For financial reporting purposes, the Company
accounts for the related expense (nil in 1991, 1992 and 1993) in a manner
similar to accounting for SARs.  At December 31, 1993, employees of the Company
held options to purchase 365,000 shares (347,000 shares vested) of Valhi common
stock at exercise prices ranging from $5 to $15 per share.

In conjunction with the formation of Baroid, the Company and Baroid
entered into a Cross-Indemnification Agreement pursuant to which, as amended,
the Company

F-32

43
agreed to indemnify Baroid with regard to all liabilities not expressly assumed
by Baroid and Baroid agreed to indemnify the Company with regard to all
liabilities assumed by Baroid.

Net amounts payable to affiliates are summarized in the following table.

December 31,  
--------------------
1992            1993
----            ----
(In thousands)

Tremont Corporation                                   $4,056          $4,777
Louisiana Pigment Company, L.P.                         -              4,789
Valhi, Inc.                                               30            -   
------          ------

$4,086          $9,566
======          ======

NOTE 18 -  COMMITMENTS AND CONTINGENCIES:

Leases

The Company leases, pursuant to operating leases, various manufacturing
and office space and transportation equipment.  Most of the leases contain
purchase and/or various term renewal options at fair market and fair rental
values, respectively.  In most cases management expects that, in the normal
course of business, leases will be renewed or replaced by other leases.  In
addition, Kronos has a governmental concession through 2007 to operate its
ilmenite mine in Norway.

Kronos' principal German operating subsidiary leases the land under its
Leverkusen TiO2 production facility pursuant to a lease expiring in 2050.  The
Leverkusen facility, with approximately one-third of Kronos' current TiO2
production capacity, is located within the lessor's extensive manufacturing
complex, and Kronos is the only unrelated party so situated.  Under a separate
supplies and services agreement, which expired in 1991 and to which an
extension through 2011 has been agreed in principle, the lessor provides some
raw materials, auxiliary and operating materials and utilities services
necessary to operate the Leverkusen facility.  Kronos and the lessor are
continuing discussions regarding a definitive agreement for the extension of
the supplies and services agreement.  Both the lease and the supplies and
services agreements restrict the Company's ability to transfer ownership or use
of the Leverkusen facility.

F-33

44
Net rent expense aggregated $6 million in 1991, $9 million in 1992 and
$8 million in 1993.  At December 31, 1993, minimum rental commitments under the
terms of noncancellable operating leases were as follows:

Years ending December 31,                   Real Estate       Equipment
- -------------------------                   -----------       ---------
(In thousands)

1994                                       $ 1,234            $1,776
1995                                         1,306             1,413
1996                                         1,307               777
1997                                         1,291               548
1998                                         1,263               468
1999 and thereafter                         13,193                15
-------            ------

$19,594            $4,997
=======            ======

Legal proceedings

Lead pigment litigation.  Since 1987, the Company, other past
manufacturers of lead pigments for use in paint and lead-based paint and the
Lead Industries Association have been named as defendants in various legal
proceedings seeking damages for personal injury and property damage allegedly
caused by the use of lead-based paints.  Certain of these actions have been
filed by or on behalf of large United States cities or their public housing
authorities.  These legal proceedings seek recovery under a variety of
theories, including negligent product design, failure to warn, breach of
warranty, conspiracy/concert of action, enterprise liability, market share
liability, intentional tort, and fraud and misrepresentation.

The plaintiffs in these actions generally seek to impose on the
defendants responsibility for lead paint abatement and asserted health concerns
associated with the use of lead-based paints, which was permitted for interior
residential use in the United States until 1973, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical
monitoring expenses and costs for educational programs.  Most of these legal
proceedings are in various pre-trial stages; several are on appeal.

The Company believes that these actions are without merit, intends to
continue to deny all allegations of wrongdoing and liability and to defend all
actions vigorously.  Considering the Company's previous involvement in the lead
and lead pigment businesses, there can be no assurance that additional
litigation similar to that currently pending will not be filed.

Environmental matters and litigation.  Some of the Company's current and
former facilities, including several divested secondary lead smelters and
former mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws.  Additionally, in connection with past disposal practices, the Company
has been named a potential responsible party ("PRP") pursuant to the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended by the Superfund Amendments and Reauthorization Act ("CERCLA") in
approximately 80 governmental enforcement and private actions associated with
hazardous waste sites and former mining locations, some of which are on the
U.S. Environmental

F-34

45
Protection Agency's Superfund National Priorities List.  These actions seek
cleanup costs and/or damages for personal injury or property damage.  While the
Company may be jointly and severally liable for such costs, in most cases, it
is only one of a number of PRPs who are also jointly and severally liable.  In
addition, the Company is a party to a number of lawsuits filed in various
jurisdictions alleging CERCLA or other environmental claims.  At December 31,
1993, the Company had accrued $70 million in respect of those environmental
matters which are reasonably estimable.  It is not possible to estimate the
range of costs for certain sites.  The upper end of the range of reasonably
possible costs to the Company for sites which it is possible to estimate costs
is approximately $105 million.  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.  The imposition of more stringent standards or requirements under
environmental laws or regulations, new developments or changes respecting site
cleanup costs or allocation of such costs among PRPs, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites could result in expenditures in excess of amounts currently
estimated by the Company to be required for such matters.  Further, there can
be no assurance that additional environmental matters will not arise in the
future.

Certain of the Company's businesses are and have been engaged in the
handling, manufacture or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable environmental laws.  As
with other companies engaged in similar businesses, certain operations and
products of the Company have the potential to cause environmental or other
damage.  The Company continues to implement various policies and programs in an
effort to minimize these risks.  The Company's policy is to comply with
environmental laws and regulations at all of its facilities and to continually
strive to improve environmental performance in association with applicable
industry initiatives.  It is possible that future developments, such as
stricter requirements of environmental laws and enforcement policies
thereunder, could affect the Company's production, handling, use, storage,
transportation, sale or disposal of such substances.

Other litigation.  The Company is involved in other litigation,
including litigation regarding the Feed Materials Production Center in Ohio
owned by the U.S. Department of Energy, formerly managed under contract by NLO,
Inc., a wholly-owned subsidiary of the Company, and other matters.

The Company is also involved in various other environmental,
contractual, product liability and other claims and disputes incidental to its
present and former businesses.

The Company currently believes the disposition of all claims and
disputes individually or in the aggregate, should not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or liquidity.

F-35

46
Concentrations of credit risk

Sales of TiO2 accounted for almost 90% of net sales during the past
three years.  TiO2 is sold to the paint, paper and plastics industries.  Such
markets are generally considered "quality-of-life" markets whose demand for
TiO2 is influenced by the relative economic well- being of the various
geographic regions.  TiO2 is sold to over 5,000 customers, none of which
represents a significant portion of net sales.  In the past three years,
approximately one-half of the Company's TiO2 sales by volume were to Europe and
approximately one-third in 1991 and 1992 and 38% in 1993 of sales were
attributable to North America.

Consolidated cash and cash equivalents includes $22 million and $64
million invested in U.S. Treasury securities purchased under short- term
agreements to resell at December 31, 1992 and 1993, respectively.  Such
securities are held in trust for the Company by a single U.S.  bank.

NOTE 19 -  CHANGES IN ACCOUNTING PRINCIPLES:

In 1993, the Company adopted SFAS No. 115 (marketable securities) as of
December 31, 1993.  In 1992, the Company (i) elected early compliance with both
SFAS No. 106 (OPEB) and SFAS No. 109 (income taxes) as of January 1, 1992; (ii)
elected immediate recognition of the OPEB transition obligation; and (iii)
elected to apply SFAS No. 109 prospectively and not restate prior years.  The
cumulative effect of changes in accounting principles adjustments are shown
below.

Amount reflected in    
-----------------------------
Equity
Earnings            component
--------            ---------
(In thousands)

Increase (decrease) in net assets at                            
December 31, 1993 - SFAS No. 115:                              
Marketable securities                        $1,872               $(1,872)
Deferred income taxes                          (655)                  655
------               -------

$1,217               $(1,217)
======               ======= 

Amount  
----------
(In thousands)

Increase (decrease) in net assets at               
January 1, 1992 - SFAS Nos. 106 and 109:          
Accrued postretirement benefits cost                    $(74,918)
Deferred income taxes, net                                43,114
--------

$(31,804)
======== 

F-36

47
NOTE 20 -  QUARTERLY FINANCIAL DATA (UNAUDITED):

Quarter ended,            
-------------------------------------------------------
March 31        June 30        Sept. 30        Dec. 31 
--------        --------       --------        --------
(In thousands, except per share amounts)

Year ended December 31, 1992:

Net sales                                            $226,091       $235,603        $232,297       $199,474
Cost of sales                                         158,891        169,896         164,133        136,109
Operating income                                       25,610         26,302          29,282         29,539

Loss before cumulative effect
of changes in accounting
principles                                          $ (7,510)      $ (8,467)       $(11,331)      $(17,288)
Cumulative effect of changes in
accounting principles                                (31,804)         -                -              -   
--------       --------        --------       --------

Net loss                                         $(39,314)      $ (8,467)       $(11,331)      $(17,288)
========       ========        ========       ======== 

Per share of common stock:
Loss before cumulative effect
of changes in accounting
principles                                        $   (.15)      $   (.17)       $   (.22)      $   (.34)
Cumulative effect of changes in
accounting principles                                 (.62)           -               -              -  
--------       --------        --------       --------

Net loss                                         $   (.77)      $   (.17)       $   (.22)      $   (.34)
========       ========        ========       ======== 

Weighted average shares
outstanding                                           50,959         50,890          50,890         50,890
========       ========        ========       ========

Year ended December 31, 1993:

Net sales                                            $198,518       $221,378        $202,096       $183,331
Cost of sales                                         142,506        171,671         156,894        141,296
Operating income                                       23,105         15,166          12,773         11,356

Loss before extraordinary item
and cumulative effect of change
in accounting principle                             $(13,490)      $(28,002)       $(18,722)      $(22,997)
Extraordinary item                                       -              -               -           (27,815)
Cumulative effect of change in
accounting principle                                    -              -               -             1,217
--------       --------        --------       --------

Net loss                                         $(13,490)      $(28,002)       $(18,722)      $(49,595)
========       ========        ========       ======== 

F-37

48

Quarter ended,            
------------------------------------------------------
March 31       June 30         Sept. 30       Dec. 31 
--------       --------        --------       --------
(In thousands, except per share amounts)

Per share of common stock:
Loss before extraordinary item
and cumulative effect of change
in accounting principle                             $(.27)         $(.55)          $(.37)         $(.44)
Extraordinary item                                     -              -               -             (.55)
Cumulative effect of change in
accounting principle                                  -              -               -              .02
-----          -----           -----          -----

Net loss                                           $(.27)         $(.55)          $(.37)         $(.97)
=====          =====           =====          ===== 

Weighted average shares
outstanding                                          50,890         50,890          50,890         50,890
======         ======          ======         ======

NOTE 21 - SUBSEQUENT EVENT:

On February 24, 1994, the Company settled its lawsuit against Lockheed
Corporation and its directors in connection with Lockheed's 1990 annual meeting
of stockholders.  Under the terms of the settlement, Lockheed made a cash
payment to the Company of $27 million with net proceeds to the Company of
approximately $20 million.

F-38

1
EXHIBIT 99.2

ANNUAL REPORT ON FORM 10-K
ITEMS 8, 14(a) and 14(d)

INDEX OF FINANCIAL STATEMENTS AND SCHEDULES

Page
----

Financial Statements
- --------------------

Report of Independent Accountants                                                           F-2

Consolidated Balance Sheets -- December 31, 1992 and 1993                                 F-3/F-4

Consolidated Statements of Operations -- Years ended
December 31, 1991, 1992, and 1993                                                        F-5

Consolidated Statements of Stockholders' Equity -- Years ended
December 31, 1991, 1992, and 1993                                                        F-6

Consolidated Statements of Cash Flows -- Years ended
December 31, 1991, 1992 and 1993                                                       F-7/F-8

Notes to Consolidated Financial Statements                                                F-9/F-33

Financial Statement Schedules
- -----------------------------

Report of Independent Accountants                                                           S-1

Schedule III        --   Condensed financial information of Registrant                    S-2/S-6

Schedule V          --   Property and equipment                                             S-7

Schedule VI         --   Accumulated depreciation and depletion of
property and equipment                                             S-8

Schedule VIII       --   Valuation and qualifying accounts                                  S-9

Schedule X          --   Supplementary income statement information                         S-10

All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.

F-1

2
REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Tremont Corporation:

We have audited the accompanying consolidated balance sheets of
Tremont Corporation and Subsidiaries as of December 31, 1992 and 1993, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1993.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards.  Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement.  An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.  An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.  We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Tremont Corporation and Subsidiaries as of December 31, 1992 and 1993, and the
consolidated results of their operations and cash flows for each of the three
years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.

As discussed in Notes 2 and 13 to the consolidated financial
statements, in 1993 the Company changed its method of accounting for certain
investments in debt and equity securities in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, and in 1992 changed its method
of accounting for postretirement benefits other then pensions and income taxes
in accordance with Statements of Financial Accounting Standards Nos. 106 and
109, respectively.

COOPERS & LYBRAND

Denver, Colorado
January 24, 1994

F-2

3
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 1992 and 1993

(In thousands, except per share data)

1992*           1993
----            ----

ASSETS

Current assets:
Cash and cash equivalents                                    $  9,750        $  8,898
Marketable securities                                           4,904          11,424
Accounts and notes receivable, less
allowance of $4,206 and $4,806                                35,988          37,399
Refundable income taxes                                         1,995             225
Receivable from related parties                                   280              45
Inventories                                                    57,326          52,640
Prepaid expenses                                                4,372           3,378
--------        --------

Total current assets                                      114,615         114,009
--------        --------

Other assets:
Investment in NL Industries                                    76,499          22,294
Investment in joint ventures                                   11,039          13,629
Investment in Bentonite                                         8,682            -
Receivable from related parties                                 4,556           5,145
Deferred income taxes                                          25,556           5,930
Prepaid pension cost                                            2,973           1,418
Other                                                          14,869          13,425
--------        --------

Total other assets                                        144,174          61,841
--------        --------

Property and equipment:
Land                                                            2,509           4,929
Buildings                                                       8,890          18,971
Machinery and equipment                                        35,840         122,835
Construction in progress                                       99,913           8,610
--------        --------
147,152         155,345
Less accumulated depreciation                                   7,601           8,025
--------        --------

Net property and equipment                                139,551         147,320
--------        --------

$398,340        $323,170
========        ========

F-3

4
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (CONTINUED)

December 31, 1992 and 1993

(In thousands, except per share data)

1992*           1993
----            ----

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Notes payable                                                 $     -         $    141
Current maturities of long-term debt                             6,807           6,807
Accounts payable and accrued liabilities                        40,713          48,393
Payable to related parties                                         147           6,077
Deferred income taxes                                            4,619           4,457
Income taxes                                                       117             123
--------        --------

Total current liabilities                                   52,403          65,998
--------        --------

Noncurrent liabilities:
Convertible subordinated debentures                             75,000            -
Other long-term debt                                            48,951          43,484
Payable to related parties                                       3,051            -
Insurance claims and claim expenses                             15,387          15,093
Accrued OPEB cost                                               51,532          51,653
Accrued pension cost                                             1,742             236
Other                                                            1,019           1,038
--------        --------

Total noncurrent liabilities                               196,682         111,504
--------        --------

Minority interest in TIMET                                          -             27,246
--------        --------

Stockholders' equity:
Preferred stock, $1.00 par value; 1,000 shares
authorized; none issued                                          -               -
Common stock, $1.00 par value; 14,000 shares
authorized; 7,526 shares issued                                 7,526           7,526
Additional paid-in capital                                     200,549         231,314
Accumulated deficit                                            (50,964)       (108,529)
Adjustments:
Currency translation                                          (4,142)         (6,571)
Marketable securities                                           (118)           (298)
Pension liabilities                                             -             (1,424)
--------        -------- 
152,851         122,018
Less treasury stock, at cost (173 shares)                          3,596           3,596
--------        --------

Total stockholders' equity                                 149,255         118,422
--------        --------

$398,340        $323,170
========        ========

* Reclassified

Commitments and contingencies (Notes 15 and 16).

See accompanying notes to consolidated financial statements.

F-4

5
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended December 31, 1991, 1992 and 1993

(In thousands, except per share data)

1991*            1992*            1993
----             ----             ----

Revenues and other income:
Net sales                                           $155,684         $153,869         $151,177
Other, net                                             6,056           (3,418)          10,744
--------         --------         --------

161,740          150,451          161,921
--------         --------         --------
Costs and expenses:
Cost of sales                                        136,385          151,573          153,393
Selling, general and administrative                   21,590           20,456           16,223
Restructuring charge                                    -                -               4,700
Interest                                               3,813            3,681            4,266
--------         --------         --------

161,788          175,710          178,582
--------         --------         --------

Loss before equity in NL                             (48)         (25,259)         (16,661)

Equity in loss of NL                                    (308)         (10,925)         (44,778)
--------         --------         -------- 

Loss before income taxes                            (356)         (36,184)         (61,439)

Income tax benefit (expense)                          (1,084)           2,061            1,291
--------         --------         --------

Loss from continuing operations                   (1,440)         (34,123)         (60,148)

Discontinued operations                                    (76)             442            7,536
Extraordinary item                                        -                -              (4,953)
Cumulative effect of changes in
accounting principles                                    -             (31,902)            -   
--------         --------         --------

Net loss                                        $ (1,516)        $(65,583)        $(57,565)
========         ========         ======== 

Income (loss) per common share:
Continuing operations                               $   (.20)        $  (4.64)        $  (8.18)
Discontinued operations                                 (.01)             .06             1.02
Extraordinary item                                       -                -               (.68)
Cumulative effect of changes in
accounting principles                                   -              (4.34)             -  
--------         --------         --------

Net loss                                        $   (.21)        $  (8.92)        $  (7.84)
========         ========         ======== 

Cash dividends per share                              $    .60         $    .60         $    -  
========         ========         ========

Weighted average common shares outstanding               7,385            7,350            7,354
========         ========         ========

* Reclassified

See accompanying notes to consolidated financial statements.

F-5

6
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Years ended December 31, 1991, 1992, 1993

(In thousands)

Adjustments         
------------------------------------
Additional  Accumulated                                                       Total
Common       paid-in    earnings      Currency    Marketable   Pension     Treasury   stockholders'
stock       capital    (deficit)   translation   securities liabilities    stock        equity    
---------   ----------   ---------   -----------   ---------- -----------  ----------  -------------

Balance at December 31, 1990   $   7,404     $ 199,185   $  24,984    $     745    $     -      $    -     $    -      $ 232,318

Net loss                            -             -         (1,516)        -             -           -          -         (1,516)
Dividends declared                  -             -         (4,447)        -             -           -          -         (4,447)
Common stock issued                   103        1,236        -            -             -           -          -          1,339
Adjustments                         -             -           -          (1,870)        (106)                   -         (1,976)
Purchase of common stock            -             -           -            -            -            -        (3,596)     (3,596)
---------     ---------   ---------    ---------    ---------    ---------  ---------   --------- 

Balance at December 31, 1991       7,507       200,421      19,021       (1,125)        (106)        -        (3,596)    222,122

Net loss                            -             -        (65,583)        -             -           -          -        (65,583)
Dividends declared                  -             -         (4,402)        -             -           -          -         (4,402)
Common stock issued                    19          128        -            -             -           -          -            147
Adjustments                         -             -           -          (3,017)         (12)                   -         (3,029)
---------     ---------   ---------    ---------    ---------    ---------  ---------   ----------

Balance at December 31, 1992       7,526       200,549     (50,964)      (4,142)        (118)        -        (3,596)    149,255

Net loss                            -             -        (57,565)        -            -            -          -        (57,565)
UTSC conversion (Note 2)            -           30,765        -               5         -             270       -         31,040
Adjustments                         -             -           -          (2,434)        (180)      (1,694)      -         (4,308)
---------     ---------   ---------    ---------    ---------    ---------  ---------   --------- 

Balance at December 31, 1993   $   7,526     $ 231,314   $(108,529)   $  (6,571)  $     (298)   $  (1,424) $  (3,596)  $ 118,422
=========     =========   =========    =========   ==========    =========  =========   =========

See accompanying notes to consolidated financial statements.

F-6

7
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31, 1991, 1992 and 1993

(In thousands)

1991*         1992*         1993
----          ----          ----

Cash flows from operating activities:
Net loss                                           $ (1,516)     $(65,583)      $(57,565)
--------      --------       -------- 
Adjustments:
Depreciation and amortization                       2,740         3,219          4,645
Restructuring charge                                 -             -             4,700
Noncash OPEB expense                                 -            1,266            (13)
Deferred income taxes                               3,138            32          4,108
Equity in loss of NL                                  308        10,925         49,731
Dividends from NL                                     369         2,908           -
Gain from sale of gold venture                       -             -            (5,500)
Securities transactions                            (2,083)         (648)          (217)
Loss on property and other assets                   3,359         5,940           -
Discontinued operations                                76          (442)        (7,536)
Bentonite, net                                      1,082         1,186          1,375
Other, net                                            913           410         (2,127)
Change in assets and liabilities:
Accounts and notes receivable                    15,523        (4,126)          (649)
Inventories                                       6,465         5,503          4,577
Accounts with related parties                      (104)         (755)          (306)
Accounts payable and accrued
liabilities                                     (4,687)        5,814          8,127
Income taxes                                        567           125         (1,967)
Other, net                                       (1,351)       (1,465)           134
Cumulative effect of changes
in accounting principles                           -           31,902           -   
--------      --------       --------
26,315        61,794         59,082
--------      --------       --------
Net cash provided (used) by
operating activities                          24,799        (3,789)         1,517
--------      --------       --------

Cash flows from investing activities:
Capital expenditures                                (30,312)      (67,712)       (16,335)
Proceeds from disposition of:
Bentonite                                            -             -            20,198
Gold venture                                         -             -             5,500
Marketable securities                              91,524        21,926         14,191
Property held for sale                              1,615             3            336
Collection of:
Receivables                                           701           709            402
Loans to related parties                            1,126          -              -
Purchases of:
Marketable securities                            (114,565)       (1,574)       (20,077)
Interest in NL                                    (92,000)      (10,130)          -
Interest in other affiliates                         (192)       (4,308)          -
Bentonite, net                                       (1,189)       (1,121)        (1,050)
--------      --------       -------- 

Net cash provided (used) by
investing activities                        (143,292)      (62,207)         3,165
--------      --------       --------

F-7

8
TREMONT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

Years ended December 31, 1991, 1992 and 1993

(In thousands)

1991*        1992*        1993
----         ----         ----

Cash flows from financing activities:
Notes payable and long-term debt:

Additions                                       $  92,937      $77,903      $ 1,641
Principal payments                                (73,989)     (22,811)      (6,967)
Dividends                                            (3,747)      (5,102)        -
Bentonite, net                                          (53)          (58)       (110)
Other, net                                           (3,054)         185         (126)
---------      -------      ------- 

Net cash provided (used) by
financing activities                          12,094       50,117       (5,562)
---------      -------      ------- 

Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing
activities                                      (106,399)     (15,879)        (880)
Elimination of Bentonite net change                   (57)           37          31
Currency translation                                  (22)        (127)          (3)
---------      -------      ------- 
(106,478)     (15,969)        (852)
Balance at beginning of year                        132,197       25,719        9,750
---------      -------      -------

Balance at end of year                            $  25,719      $ 9,750      $ 8,898
=========      =======      =======

Supplemental disclosures - cash paid for:
Interest, net of amount capitalized             $   3,846      $ 1,537      $ 1,023
Income taxes (refund)                              (3,552)      (1,760)      (3,437)

* Reclassified

See accompanying notes to consolidated financial statements.

F-8

9
TREMONT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Organization and basis of presentation:

Tremont Corporation is principally a holding company with operations
conducted through its 75%-owned subsidiary, Titanium Metals Corporation
("TIMET"), and 18%-owned affiliate, NL Industries, Inc. Valhi, Inc. held
approximately 48% of Tremont's outstanding common stock and 49% of NL's
outstanding common stock at December 31, 1993. Contran Corporation holds,
directly or through subsidiaries, approximately 90% of Valhi's outstanding
common stock. All of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee. Mr. Simmons may be deemed to
control each of Contran, Valhi and Tremont.

On October 29, 1990, Baroid Corporation ("Old Baroid") implemented a
plan of restructuring to separate its (i) petroleum services businesses and
(ii) titanium metals and bentonite mining businesses into two publicly traded
companies. The separation was effected through a prorata distribution (the
"Distribution") of 100% of the outstanding common stock of a newly formed
company holding the petroleum services businesses ("New Baroid") to Old Baroid
stockholders of record as of October 29, 1990. Old Baroid subsequently changed
its name to "Tremont Corporation" and New Baroid changed its name to "Baroid
Corporation". For financial reporting purposes the Distribution was considered
a reverse spin-off and accounted for as if Baroid had formed Tremont as a
separate company and distributed Tremont's common stock pro rata to Baroid's
stockholders. In conjunction with the Distribution, Tremont entered into
various agreements as described in Note 15.

Immediately after the Distribution, Tremont continued to conduct its
titanium metals and bentonite mining businesses. In July 1993, Tremont sold its
bentonite mining business ("Bentonite") to Baroid for $20 million cash and,
accordingly, Bentonite is reported as discontinued operations for all periods
presented. In 1994, Baroid was acquired by Dresser Industries, Inc.

Note 2 -- Summary of significant accounting policies:

Principles of consolidation

The accompanying consolidated financial statements include the
accounts of Tremont and its majority-owned subsidiaries (collectively, the
"Company"). All material intercompany accounts and balances have been
eliminated.

Translation of foreign currencies

Assets and liabilities of subsidiaries whose functional currency is
deemed to be other than the U.S. dollar are translated at year-end rates of
exchange and revenues and expenses are translated at average exchange rates
prevailing during the year. Resulting translation adjustments and the Company's
equity in translation adjustments of less than majority-owned affiliates
accounted for by the equity method are accumulated in the currency translation
adjustments

F-9

10
component of stockholders' equity, net of related deferred income taxes.
Currency transaction gains and losses are recognized in income currently.

Cash and cash equivalents

Cash equivalents include U.S. Treasury securities purchased under
short-term agreements to resell, bank deposits and similar items with original
maturities of three months or less.

Marketable and other securities and securities transactions

The Company and NL each adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" effective December 31, 1993.

Under SFAS No. 115, the Company's portfolio of marketable debt and
equity securities are carried at market. Unrealized gains and losses on trading
securities are recognized in income currently. Unrealized gains and losses on
available-for-sale securities, and the Company's equity in unrealized gain and
loss adjustments of less than majority-owned affiliates, are accumulated in the
marketable securities adjustment component of stockholders' equity, net of
related deferred income taxes. Realized gains and losses are based upon the
specific identification of the securities sold. Upon adoption of SFAS No. 115,
the Company classified its portfolio of U. S. Treasury securities as trading
securities.

SFAS No. 115 superseded SFAS No. 12 under which marketable securities
were generally carried at the lower of aggregate market or amortized cost and
unrealized net gains were not recognized.

Inventories and cost of sales

Inventories are stated at the lower of cost or market. The last-in,
first-out ("LIFO") method is used to determine the cost of substantially all
titanium metals inventories. Other inventories are stated at average cost.
Sales are generally recorded when products are shipped.

Investments in NL and joint ventures

Investments in NL and more than 20%-owned but less than majority-owned
entities are accounted for by the equity method. Differences between the cost
of each such investment and the underlying equity in the historical carrying
amounts of the entity's net assets are allocated among the respective assets
and liabilities based upon estimated relative fair values. Such differences are
charged or credited to income as the entities depreciate, amortize or dispose
of the related net assets. At December 31, 1993, the unamortized net difference
relating to NL was $70 million, of which $29 million is goodwill being
amortized over 40 years, with substantially all of the remainder attributable
to NL's property and equipment. The unamortized net basis difference is greater
than the Company's $22 million net carrying amount of its investment in NL
because NL reports a shareholders' deficit on its separate historical basis of
accounting.

F-10

11
Property, equipment, depreciation and amortization

Property and equipment are stated at cost. Interest costs related to
major, long-term capital projects are capitalized as a component of
construction costs and were $1.5 million in 1991, $4.9 million in 1992 and $3.1
million in 1993. Maintenance, repairs and minor renewals are expensed; major
improvements are capitalized.

TIMET's new vacuum distillation process ("VDP") titanium sponge
facility commenced start-up in 1993. Depreciation related to the VDP plant is
computed on a units-of-production method based on the pounds of sponge
produced. Depreciation related to other assets is computed principally on the
straight-line method over the estimated useful lives of 15 to 40 years for
buildings and 5 to 18 years for machinery and equipment.

Research and development

Research and development expense approximated $2 million in each of
1991, 1992 and 1993.

Employee benefit plans

Accounting and funding policies for retirement plans and
postretirement benefits other than pensions ("OPEB") are described in Note 11.

Reduction of interest in TIMET

In December 1993, Union Titanium Sponge Corporation ("UTSC"), a
Japanese consortium, exercised its option to convert its $75 million of
debentures into 25% of TIMET's outstanding voting common stock ("UTSC
conversion"). Tremont recorded a $31 million increase in its stockholders'
equity, net of deferred income taxes, as a result of this transaction.

Income taxes

Deferred income tax assets and liabilities are recognized for the
expected future tax consequences of temporary differences between the income
tax and financial reporting carrying amounts of assets and liabilities,
including investments in subsidiaries and unconsolidated affiliates not
included in the consolidated tax group.

TIMET was a member of Tremont's consolidated United States federal
income tax group from March 1990 until the December 1993 UTSC conversion. TIMET
is presently included in a consolidated tax group separate from Tremont.

In connection with the Distribution, Tremont and Baroid entered into a
tax sharing agreement which sets forth certain obligations of each entity with
respect to federal, state, foreign and local taxes for the periods during which
they were both included in the Old Baroid tax group. Pursuant to this
agreement, Baroid has indemnified the Company for any income taxes and related
interest paid by the Company which are attributable to a member of Baroid's
U.S. federal income tax group subsequent to the Distribution. Tremont was also
a party to a consolidated federal income tax liability sharing agreement
pursuant to which NL indemnified the Old Baroid tax group for any additional
U.S. federal income taxes

F-11

12
or related interest for periods prior to the separation of Old Baroid from NL
in December 1988.

Income (loss) per share of common stock

All share and per share information in this Annual Report on Form 10-K
reflects the May 14, 1991 one-for-ten reverse common stock split. Income (loss)
per common share is based upon the weighted average number of Tremont common
shares outstanding. Common stock equivalents and other securities are excluded
from the calculation because they are either antidilutive or because the effect
is not material.

Extraordinary item

The extraordinary item in 1993 relates to Tremont's equity in NL's
extraordinary loss resulting from NL's early extinguishment of indebtedness.

F-12

13
Note 3 -- Business and geographic segments:

Years ended December 31,  
--------------------------------------
1991          1992            1993
----          ----            ----
(In thousands)

Net sales                                            $155,684      $153,869        $151,177
========      ========        ========

Operating income (loss):
Before restructuring charge                        $  4,802      $ (9,727)       $(12,007)
Restructuring charge                                   -             -             (4,700)
--------      --------        -------- 
4,802        (9,727)        (16,707)

General corporate income (expense):
Gain on sale of gold venture                           -             -              5,500
Securities transactions                               2,083            648            217
Interest income                                       8,220         1,952             845
Loss on property and other assets                    (3,359)       (5,940)           -
Other, net                                           (7,981)       (8,511)         (2,250)
Interest expense                                       (3,813)       (3,681)         (4,266)
--------      --------        -------- 

Loss before equity in NL                                (48)      (25,259)        (16,661)

Equity in loss of NL                                     (308)      (10,925)        (44,778)
--------      --------        -------- 

Loss before income taxes                           $   (356)     $(36,184)       $(61,439)
========      ========        ======== 

Capital expenditures (a):
Titanium metals                                    $ 30,094      $ 74,903        $ 13,589
Corporate                                               218           377               5
--------      --------        --------

$ 30,312      $ 75,280        $ 13,594
========      ========        ========

Depreciation and amortization:
Titanium metals                                    $  2,725      $  3,170        $  4,609
Corporate                                                15            49              36
--------      --------        --------

$  2,740      $  3,219        $  4,645
========      ========        ========

______________

(a)      Capital expenditures in 1993 include capitalized interest of $3.1
million ($2.6 million non-cash) and exclude payment of previously
accrued capital expenditures of $5.3 million. Capital expenditures in
1992 include $7.6 million of accrued expenditures.

F-13

14
Substantially all of the Company's sales and operating income are
derived from U.S.-based operations. Export sales were $26.5 million in 1991,
$29.6 million in 1992 and $43.9 million in 1993. Over two-thirds of such export
sales were to Europe.

TIMET recorded a $4.7 million restructuring charge in 1993 related to
the closing of certain service centers in 1993 and severance costs associated
with reductions in TIMET's workforce expected to occur principally in 1994.
Operating income for 1991, 1992 and 1993 includes pretax income of $1.3
million, $.8 million and $.2 million, respectively, resulting from the
reduction of LIFO inventory quantities.

The Company's captive insurance subsidiary ("TRE Insurance") reinsured
certain risks of the Company, Baroid, NL and their respective subsidiaries and
also participated on various third party reinsurance treaties. All of the
reinsurance business is in a runoff basis. Results of the Company's captive
insurance operations, which are not significant, are included in general
corporate income (expense). See Note 15.

Identifiable assets

December 31,   
-----------------------
1992            1993
----            ----
(In thousands)

Business segments:
Titanium metals                                $267,024       $262,496
Corporate                                        66,069         59,074
Investment in NL                                 76,499         22,294
Investment in Bentonite                           8,682           -
Eliminations                                    (19,934)       (20,694)
--------       -------- 

$398,340       $323,170
========       ========

Geographic segments:
United States                                  $306,604       $290,388
Europe                                            6,555         10,488
Investment in NL                                 76,499         22,294
Investment in Bentonite                           8,682           -   
--------       --------

$398,340       $323,170
========       ========

Corporate assets consist principally of cash and cash equivalents,
marketable securities, deferred income taxes, property held for sale, and
intercompany receivables which principally comprise the eliminations.

F-14

15
Note 4 -- Investment in NL and joint ventures:

In December 1991, Tremont purchased 7.8 million shares of NL common
stock from Valhi in a privately-negotiated transaction at a price of $11.75 per
share, or an aggregate $92 million. Tremont purchased an additional 1.3 million
shares of NL common stock in market transactions during 1992 for an aggregate
cost of $10 million, increasing Tremont's holdings to 9.1 million shares or 18%
of NL's outstanding common stock.  Valhi may be deemed to control each of NL
and Tremont and, accordingly, Tremont reports its interest in NL by the equity
method. At December 31, 1993, the net carrying amount of the Company's
investment in NL was $2.46 per share, and the NYSE quoted market price of NL
common stock was $4.50 per share.  See Item 7 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of this Annual
Report on Form 10-K for summarized information relating to the results of
operations, financial position and cash flows of NL, which information is
incorporated herein by reference.

The Company's joint ventures' aggregate unaudited revenues and net
income in 1993 approximated $60 million and $12 million, respectively, while
the Company's related equity in earnings was $3.5 million.

Note 5 -- Inventories:

December 31,  
---------------------
1992           1993
----           ----
(In thousands)

Raw materials                                       $ 7,276       $ 5,431
In process and finished products                     46,679        43,950
Supplies                                              3,371         3,259
-------       -------

$57,326       $52,640
=======       =======

The average cost of LIFO inventories exceeded the net carrying amount
of such inventories by approximately $11 million and $13 million at December
31, 1992 and 1993, respectively.

Note 6 -- Other noncurrent assets:

December 31,  
-----------------------
1992             1993
----             ----
(In thousands)

Restricted securities                                 $ 8,809         $ 7,729
Property held for sale                                  2,500           2,339
Other                                                   3,560           3,357
-------         -------

$14,869         $13,425
=======         =======

F-15

16
Note 7 -- Accounts payable and accrued liabilities:

December 31,     
----------------------
1992            1993
----            ----
(In thousands)

Accounts payable                                   $19,764        $23,304

Accrued liabilities:
OPEB cost                                          3,015          2,881
Pension cost                                         351          1,413
Other employee benefits                           10,645          9,183
Restructuring cost                                 -              4,238
Miscellaneous taxes                                1,416          1,781
Other                                              5,522          5,593
-------        -------

$40,713        $48,393
=======        =======

Note 8 -- Long-term debt:

December 31,  
---------------------
1992          1993
----          ----
(In thousands)

Convertible subordinated debentures                 $75,000       $  -   
=======       =======

U.S. bank credit agreement:
Revolver                                          $26,308       $27,648
Term                                               23,750        18,750
Other                                                 5,700         3,893
-------       -------
55,758        50,291
Less current maturities                               6,807         6,807
-------       -------

$48,951       $43,484
=======       =======

TIMET's convertible subordinated debentures were issued to UTSC, and
provided the majority of the financing for TIMET's new VDP titanium sponge
facility. In December 1993, UTSC exercised its option to convert its $75
million of subordinated debentures into 25% of TIMET's outstanding Class A
common stock. The debentures accrued interest at a weighted average rate of
8.4% through May 1993 when such interest ceased accruing. UTSC allowed TIMET to
defer $6 million of interest payments, originally due prior to July 1993, until
June 1994. Such deferred interest accrues interest at 10.4% and continues to be
collateralized by VDP related equipment. The Investors' Agreement with UTSC
contains stockholder protections and other covenants customary in transactions
of this type. In connection with UTSC's conversion, Tremont made an aggregate
$9 million capital contribution of intercompany notes and accrued interest to
TIMET.

F-16

17
TIMET's U.S. bank agreement provides for (i) a $30 million revolving
credit/letter of credit facility maturing not later than March 1995, and (ii) a
term loan facility due in equal quarterly installments of $1.25 million through
1997. Borrowings under this facility, as amended in October 1993, accrue
interest at the borrower's option at the prime rate plus 1.5%, LIBOR plus 3.5%,
or a CD rate plus 3.75%. At December 31, 1993, the weighted average interest
rate on outstanding revolver and term loan borrowings was 7%. Borrowings are
limited to a formula-determined amount of accounts receivable and inventories
and are collaterized by substantially all of TIMET's assets. The bank agreement
limits TIMET's additional indebtedness, payment of dividends and transactions
with affiliates, requires the maintenance of certain financial ratios and
amounts, and contains other covenants customary in lending transactions of this
type. At December 31, 1993, TIMET was not permitted to pay dividends under this
bank agreement and restricted net assets of TIMET included in the Company's
consolidated net assets was $80 million. TIMET's bank debt reprices with
changes in market interest rates and, accordingly, the carrying amount of such
debt is deemed to approximate market value.

At December 31, 1993, the Company had approximately $9 million of
outstanding letters of credit issued under a Dresser credit agreement. The
Company reimburses Dresser for any fees and expenses related to these letters
of credit and for any amounts drawn thereunder.

The aggregate maturities of long-term debt at December 31, 1993 are
shown in the table below.

Years ending December 31,                       Amount
- -------------------------                       ------
(In thousands)

1994                                         $  6,807
1995                                           34,454
1996                                            5,140
1997                                            3,890
--------

$ 50,291
========

F-17

18
Note 9 -- Income taxes:

Summarized below are (i) the components of the pretax loss from
continuing operations (ii) the difference between the income tax benefit
attributable to the pretax loss and the amounts that would be expected using
the U.S. federal statutory income tax rate of 34% in 1991 and 1992 and 35% in
1993, (iii) the components of the income tax benefit attributable to the pretax
loss, and (iv) the components of the comprehensive tax benefit.

Years ended December 31, 
------------------------------------------
1991             1992             1993
----             ----             ----
(In thousands)

Expected income tax benefit                          $    121          $12,303          $21,504
Incremental tax and rate differences on
equity in income of companies not
included in the consolidated tax group                  (748)            (736)             318
Valuation allowance                                      -              (9,371)         (21,667)
U.S. state income taxes, net                             (133)            (239)            (125)
Rate change adjustment of deferred taxes                 -                -                 610
Other, net                                               (324)             104              651
--------          -------         --------

$ (1,084)        $  2,061         $  1,291
========         ========         ========

Income tax benefit (expense):
Currently refundable (payable):
U.S. federal                                     $  2,111         $  2,225         $  5,512
U.S. state                                           (325)            (182)            (100)
Non-U.S.                                              268               50              (13)
--------         --------         -------- 
2,054            2,093            5,399
Deferred income taxes, principally U.S.              (3,138)             (32)          (4,108)
--------         --------         -------- 

$ (1,084)        $  2,061         $  1,291
=========        ========         ========

Pretax income (loss):
U.S.                                               $    653         $(34,564)        $(60,737)
Non-U.S.                                             (1,009)          (1,620)            (702)
--------         --------         -------- 

$   (356)        $(36,184)        $(61,439)
========         ========         ======== 

Years ended December 31,  
-----------------------------------------
1991            1992             1993
----            ----             ----
(In thousands)

Comprehensive tax benefit (provision)
allocable to:
Pretax income                                       $(1,084)         $ 2,061          $ 1,291
Discontinued operations                                  22             (195)          (3,922)
Stockholders' equity, deferred taxes
allocable to foreign currency
translation                                           -               1,304            1,358
-------          -------          -------

$(1,062)         $ 3,170          $(1,273)
=======          =======          ======= 

Changes in deferred income taxes resulting from adopting new
accounting standards are discussed in Note 13.

F-18

19
Deferred income tax expense in 1991 (a disclosure not required after
adopting of SFAS No. 109 in 1992) principally relates to depreciation.

The components of deferred taxes are summarized below:

December 31,
------------------------------------------------------
1992                           1993   
-----------------------       ------------------------
Assets      Liabilities       Assets       Liabilities
------      -----------       ------       -----------
(In millions)

Temporary differences relating to
net assets:
Inventories                          $   -           $ (7.6)       $   -            $ (7.3)
Property and equipment                   -             (1.3)           -              (3.6)
Accrued OPEB cost                      19.5              -           19.7               -
Accrued liabilities                     9.3              -           12.7               -
Other taxable differences                -             (5.0)           -              (6.6)
Investments in subsidiaries
and affiliates, including
foreign currency
translation adjustments               23.4              -           23.8               -
Tax loss and credit carryforwards          8.3              -           12.1               -
Valuation allowance                      (25.6)             -          (49.4)              - 
------          ------        ------           ------
Gross deferred tax assets
(liabilities)                          34.9           (13.9)         18.9            (17.5)

Netting                                   (9.3)            9.3         (13.0)            13.0
-------         ------        ------           ------

Net noncurrent deferred tax
asset (net current deferred
tax liabilities)                     $ 25.6          $ (4.6)       $  5.9           $ (4.5)
======          ======        ======           ====== 

Subsequent to the adoption of SFAS 106 and 109, the valuation
allowance increased by $9.4 million in 1992 and $23.8 million in 1993.

At December 31, 1993, Tremont and TIMET had, for U.S. federal income
tax purposes, allocated net operating loss carryforwards of $.9 million and
$24.5 million, respectively, expiring in 2007 and 2008. However, for financial
reporting purposes, and pursuant to the tax sharing agreement, TIMET's
operating loss carryforward is $15 million. The Company has foreign tax credit
carryforwards of $3 million expiring in 1994 and 1995.

Note 10 -- Other, net:

Years ended December 31,
-------------------------------
1991        1992        1993
----        ----        ----
(In thousands)

Gain on sale of gold venture                      $  -        $  -        $ 5,500
Securities transactions                             2,083         648         217
Interest income                                     8,220       1,952         845
Loss on property and other assets                  (3,359)     (5,940)       -
Equity in earnings (losses) of affiliates            (413)         13       3,540
Other, net                                           (475)        (91)        642
-------     -------     -------

$ 6,056     $(3,418)    $10,744
=======     =======     =======

F-19

20
Note 11 -- Employee benefit plans:

Incentive compensation plans

Substantially all of TIMET's employees, including TIMET's domestic
union employees, participate in variable compensation programs which provide
for incentive bonuses.The incentive bonuses are based upon TIMET's  financial
performance and, under certain circumstances, the individual performance of the
employee. Certain of TIMET's domestic union employees are guaranteed a minimum
$1,500 award per year through July 1994. The cost of these plans was $2.6
million in 1991, $1.3 million in 1992 and $1.1 million in 1993.

Defined contribution plans

Substantially all of TIMET's domestic nonunion employees are eligible
to participate in contributory savings plans with partial matching employer
contributions based on the profitability of TIMET. Certain of TIMET's domestic
union employees are also eligible to participate in the contributory savings
plan. Substantially all of TIMET's domestic nonunion employees also participate
in a defined contribution pension plan with contributions based upon the
profitability of TIMET. The cost of these pension and savings plans was nil in
1991 and 1992 and $.1 million in 1993.

Defined benefit pension plans

TIMET maintains noncontributory defined benefit pension plans covering
substantially all of its domestic union employees and a portion of its salaried
workforce. Defined pension benefits are generally based on years of service and
compensation, and the related expense is based upon independent actuarial
valuations. TIMET's funding policy is to contribute annually amounts satisfying
the funding requirements of the Employee Retirement Income Security Act of
1974, as amended. The defined benefit pension plan for nonunion employees has
been amended so that no further benefits for years of service accrue.

The funded status of TIMET's defined benefit pension plans and the
components of net periodic defined benefit pension cost are set forth below.
The rates used in determining the actuarial present value of the benefit
obligations at December 31, 1993 were: (i) discount rate - 7.5% (8% in 1992),
and (ii) rate of increase in future compensation levels - 3% to 7.4% (nil to
8.4% in 1992). The expected long-term rate of return on assets used was 9% (10%
in 1992). Plan assets are primarily comprised of U.S. government obligations,
corporate stocks and bonds.

F-20

21

Assets exceed                 Accumulated
accumulated                   benefits
benefits                  exceed assets
December 31,                 December 31, 
----------------------       ----------------------
1992           1993          1992           1993
----           ----          ----           ----
(In thousands)

Actuarial present value of benefit
obligations:
Vested benefit obligations                     $31,342        $15,173       $ 5,990        $26,277
Nonvested benefits                               3,756          1,313           434          2,240
-------        -------       -------        -------

Accumulated benefit obligations                 35,098         16,486         6,424         28,517
Effect of projected salary
increases                                         617            208         1,428          2,227
-------        -------       -------        -------

Projected benefit obligations                   35,715         16,694         7,852         30,744
Plan assets at fair value                         37,132         17,215         4,332         26,868
-------        -------       -------        -------
Plan assets over (under) projected
benefit obligations                               1,417            521        (3,520)        (3,876)
Unrecognized net loss from
experience different from
actuarial assumptions                             4,319          2,021         2,197          5,430
Unrecognized prior service cost                    1,542            543           498          1,262
Unrecognized net assets being
amortized over 14 years                          (4,305)        (1,667)         (104)        (2,112)
Adjustment to recognize
minimum liability                                  -              -           (1,164)        (2,353)
-------        -------       -------        ------- 
Total prepaid (accrued)
pension cost                                      2,973          1,418        (2,093)        (1,649)
Current portion                                     -              -             (351)        (1,413)
-------        -------       -------        ------- 
Noncurrent prepaid (accrued)
pension costs                                 $ 2,973        $ 1,418       $(1,742)       $  (236)
=======        =======       =======        ======= 

Years ended December 31, 
--------------------------------
1991        1992         1993
----        ----         ----
(In thousands)

Service cost benefits earned                            $   744     $   770      $   750
Interest cost on projected benefit obligations            3,092       3,273        3,406
Actual return on plan assets                             (7,182)     (3,504)      (4,677)
Net amortization and deferrals                            3,587        (677)         839
-------     -------      -------

$   241     $  (138)     $   318
=======     =======      =======

The pension liabilities component of stockholders' equity includes the
Company's equity in amounts recorded by NL.

F-21

22
Postretirement benefits other than pensions

TIMET provides certain postretirement health care and life insurance
benefits to eligible retired employees. Under plans currently in effect,
substantially all of TIMET's currently active employees would become eligible
for these benefits if they reach normal retirement age while working for TIMET.
Net pay-as-you-go expense prior to adoption of SFAS No. 106 for these
postretirement benefits was $2.3 million in 1991.

Tremont retained the obligations for certain postretirement health
care and life insurance benefits provided to eligible Old Baroid employees who
retired prior to the Distribution. Net pay-as-you-go expense prior to adoption
of SFAS No. 106 for these postretirement benefits was $1.9 million in 1991.

The components of net periodic OPEB costs and accumulated OPEB
obligations are set forth below. The rates used in determining the actuarial
present value of the accumulated OPEB obligations at December 31, 1993 were (i)
discount rate -7.5% (7.75% in 1992), (ii) rate of increase in future
compensation levels - nil to 7.4% (nil to 6% in 1992), and (iii) rate of
increase in future health care costs - 14% in 1994, gradually declining to 6%
in 2016 and thereafter. If the health care cost trend rate was increased by one
percentage point for each year, OPEB expense would have increased approximately
$.6 million in 1993, and the actuarial present value of accumulated OPEB
obligations at December 31, 1993 would have increased approximately $4 million.

Years ended
December 31,    
---------------------------
1992               1993
----               ----
(In thousands)

Actuarial present value of accumulated OPEB
obligations:
Retiree benefits                                  $ 29,603           $ 28,580
Other fully eligible active plan                    10,493              4,414
participants
Other active plan participants                       6,971              8,521
--------           --------
47,067             41,515
Unrecognized net gain (loss) from experience
different from actuarial assumptions                   (470)             5,723
Unrecognized prior service credit                      7,950              7,296
--------           --------

Total accrued OPEB cost                               54,547             54,534
Less current portion                                   3,015              2,881
-------           --------

Noncurrent accrued OPEB cost                      $ 51,532           $ 51,653
========           ========

Years ended
December 31, 
---------------------------
1992               1993
----               ----
(In thousands)

Service cost benefits earned                               752                428
Interest cost on accumulated OPEB obligations            4,122              2,993
Net amortization and deferrals                            -                  (781)
--------           -------- 
$  4,874           $  2,640
========           ========

F-22

23
Note 12 -- Stockholders' equity:

Common stock

Shares of Common Stock    
-------------------------------------------
Issued         Reacquired       Outstanding
------         ----------       -----------
(In thousands)

Outstanding at December 31, 1990                       7,404             -                7,404
Exercise of options                                       65             -                   65
Restricted shares, net                                    38             -                   38
Reacquired                                              -                (173)             (173)
------           -------           -------
Outstanding at December 31, 1991                       7,507             (173)            7,334

Exercise of options                                       21             -                   21
Restricted shares, net                                    (2)            -                   (2)
-------         -------           ------- 

Outstanding at December 31, 1992 and 1993              7,526             (173)            7,353
======           =======           ======

Stock options and restricted stock

TIMET has a long-term performance incentive plan that provides for
discretionary grants of restricted stock, stock options and stock appreciation
rights covering a maximum of 10,000 shares of TIMET's nonvoting Class B common
stock. TIMET Class B shares are redeemable, at the option of the holder, at
fair value as determined by TIMET's Board of Directors.  Prior to 1990, TIMET
granted certain employees options to purchase 3,050 shares of Class B common
stock at an exercise price of $200 per share. During 1990, (i) options to
purchase 125 shares were canceled, (ii) options to purchase 1,170 shares of
TIMET Class B common stock became exercisable and were exercised, and (iii)
TIMET redeemed all then outstanding Class B shares for an aggregate $1.4
million. During 1991 all remaining TIMET options were converted into Tremont
restricted stock and no TIMET options or Class B common stock are currently
outstanding.

Tremont has a long-term performance incentive plan that provides for
discretionary grants of restricted stock, stock options and stock appreciation
rights. Options generally vest ratably over a five year period and expire ten
years from the date of grant. Restricted stock, forfeitable under certain
conditions, is held in escrow in the name of the grantee until the restriction
period of up to five years expires. At December 31, 1993, 216 restricted shares
were outstanding.

Tremont's 1993 Non-Employee Director Stock Option Plan provides that
options to purchase 1,000 shares of Tremont common stock are automatically
granted once a year to each non-employee director. Options are granted at a
price equal to the fair market value of such stock on the date of grant,
generally vest one year and expire five years from date of grant.

F-23

24
Changes in options outstanding under the Company's long-term
performance incentive plan are summarized in the table below. At December 31,
1993, options to purchase 36,000 shares were exercisable and options to
purchase an additional 35,000 shares become exercisable in 1994.  At December
31, 1993, 35,000 shares were available for future grant under the Company's
long term performance incentive plan and Tremont's Non- Employee Director Stock
Option Plan.

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

Outstanding at December 31, 1990                131              $4.69-22.22               $1,264
Exercised                                       (65)               8.44-9.68                 (566)
---              -----------               ------ 

Outstanding at December 31, 1991                 66               4.69-22.22                  698
Granted                                          88              16.00-18.75                1,650
Exercised                                       (21)               8.44-9.68                 (186)
---              -----------               ------ 

Outstanding at December 31, 1992                133               4.69-22.22                2,162
Granted                                         112                     8.81                  987
Canceled                                        (15)              8.81-18.75                 (245)
---              -----------               ------ 

Outstanding at December 31, 1993                230              $4.69-22.22               $2,904
===              ===========               ======

Note 13 -- Changes in accounting principles:

Marketable securities (SFAS No. 115)

The Company and NL each elected early compliance with SFAS No. 115
effective December 31, 1993. The cumulative effect of such change in accounting
principles was not material.

OPEB (SFAS No. 106) and income taxes (SFAS No. 109)

The company and NL each elected (i) early compliance with both SFAS
No. 106 and SFAS No.109 as of January 1, 1992; (ii) to apply SFAS No. 109
prospectively and not restate prior years; and (iii) immediate recognition of
the OPEB transition obligation. The cumulative effect of changes in accounting
principles adjustment is shown in the table below. The amounts attributable to
the Company's investment in NL consists of the Company's equity in the
respective historical amounts reported by NL and applicable adjustment of
certain of the Company's purchase accounting basis differences originally
recorded net-of-tax at rates differing from current rates.

Amount   
--------------
(In thousands)

Increase (decrease) in net assets at January
1, 1992:
Inventories                                          $   6,850
Investment in NL                                        (5,464)
Accrued OPEB cost                                      (53,567)
Deferred income taxes, net                              20,279
---------

Loss from cumulative effect of changes in
accounting principles                             $ (31,902)
========= 

F-24

25
Note 14 -- Discontinued operations:

The components of Tremont's discontinued bentonite mining business are
presented below:

Year ended December 31,
-----------------------------
1992                 1993
----                 ----
(In thousands)

Operating results of Bentonite:

Net sales                                                $15,522               $ 8,829
=======               =======

Operating income                                         $   642               $   480
Interest, net                                                  5                    16
-------               -------
Income before income taxes                                   637                   464
Income tax expense                                           195                   182
-------               -------
442                   282

Gain of sale of Bentonite, net of $3.7
million of related income taxes                            -                    7,254
-------               -------

$   442               $ 7,536
=======               =======

December 31, 
1992     
--------------
(In thousands)

Net assets of Bentonite:
Current assets                                              $ 6,626
Property, plant and equipment, net                            5,322
Other                                                         2,668
-------
14,616
-------

Current liabilities                                           3,246
Noncurrent liabilities                                        2,688
-------
5,934
-------

$ 8,682
=======

Note 15 -- Related party transactions:

The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions with related
companies such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options, advances
of funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (b) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and

F-25

26
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party.
While no transactions of the type described above are planned or proposed with
respect to the Company (except as otherwise set forth in this Annual Report on
Form 10-K), the Company continuously considers, reviews and evaluates, and
understands that Contran, Valhi and related entities consider, review and
evaluate such transactions. Depending upon the business, tax and other
objectives then relevant, it is possible that the Company might be a party to
one or more such transactions in the future. In connection with these
activities, the Company may consider issuing additional equity securities or
incurring additional indebtedness. The Company's acquisition activities have in
the past and may in the future include participation in the acquisition or
restructuring activities conducted by Valhi, NL and other companies that may be
deemed to be controlled by Harold C. Simmons.

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

The Company and Baroid entered into an Intercorporate Services
Agreement pursuant to which Baroid made certain services available to Tremont
on a fee basis through December 31, 1993, subject to termination or renewal by
mutual agreement. Fees for services provided by Baroid were $1.9 million in
1991, $.4 million in 1992, and $.2 million in 1993. Tremont and Baroid are also
parties to a tax sharing agreement as discussed in Note 2.

The Company has entered into an Intercorporate Services Agreement with
Valhi and, commencing in 1994, Contran, pursuant to which Valhi and Contran
agreed to provide certain services to Tremont on a fee basis. Fees for services
provided by Valhi were $.4 million in each of 1991 and 1992 and $.3 million in
1993.

Tremont and NL were parties to an Intercorporate Services and
Reimbursement Agreement pursuant to which NL provided certain services to
Tremont on a fee basis. Fees for services provided by NL were $.3 million in
1991, $.5 million in 1992 and $.1 million in 1993.

Pursuant to the Distribution, Baroid agreed to indemnify Tremont with
regard to all liabilities assumed by Baroid, which generally include all
liabilities related to the petroleum services businesses, and Tremont agreed to
indemnify Baroid with respect to liabilities assumed by Tremont, which
generally include all liabilities not related to the petroleum services
businesses.

In connection with the Distribution, NL and TRE Insurance entered into
an Insurance Sharing Agreement with respect to certain loss payments and
reserves established by TRE Insurance that (i) arise out of claims against
other entities for which NL is responsible and (ii) are subject to payment by
TRE Insurance under certain reinsurance contracts. Also, TRE Insurance will
credit NL with respect to certain underwriting profits or credit recoveries
that TRE Insurance receives from independent reinsurers that relate to retained
liabilities. Baroid entered into an Insurance Sharing Agreement with TRE
Insurance containing, with respect to liabilities for which it may be
responsible, substantially the same terms and conditions as the Insurance
Sharing Agreement between NL and TRE Insurance.

F-26

27
TIMET sales to its 26% owned German distributor were $5.9 million in
1991, $4.1 million in 1992 and $3.4 million in 1993.

TIMET has committed to have THT perform a substantial percentage of
TIMET's requirements for melting certain titanium products.  Purchases by TIMET
from THT were $2 million in 1992 and $6.5 million 1993.

The December 1991 purchase of NL common stock from Valhi is described
in Note 4. See also Note 16.

Aggregate payables to related parties at December 31, 1992 and 1993
principally represent accrued interest due to UTSC. Aggregate receivables from
related parties principally include amounts due under insurance loss sharing
agreements with NL and Baroid.

Note 16 -- Commitments and contingencies:

Operating leases

The Company leases certain manufacturing and office facilities and
various equipment. Most of the leases contain purchase and/or various term
renewal options at fair market and fair rental values, respectively. In most
cases management expects that, in the normal course of business, leases will be
renewed or replaced by other leases. The Company's net rent expense was
approximately $2.4 million in 1991, $1.9 million in 1992, and $1.4 million in
1993.

At December 31, 1993, future minimum payments under noncancellable
operating leases having an initial or remaining term of more than one year
were:

Years ending December 31,                                   Amount
- -------------------------                                   ------
(In thousands)

1994                                                     $  1,384
1995                                                        1,189
1996                                                          744
1997                                                          458
1998                                                          115
1999 and thereafter                                          -   
--------
3,890
Less sublease income                                       422
--------

$  3,468
========

Legal proceedings

Tremont and consolidated subsidiaries

In November 1991, a purported derivative complaint was filed in the
Court of Chancery of the State of Delaware, New Castle County, Alan Russell
Kahn v. Tremont Corporation, et. al. (No. 12339), in connection with Tremont's
agreement to purchase 7.8 million NL common shares from Valhi. In addition to
Tremont, the complaint names as defendants the members of Tremont's board of
directors and Valhi.  The complaint alleges, among other things, that Tremont's
purchase of the NL shares constitutes a waste of Tremont's assets and that
Tremont's board of directors breached their fiduciary duties to Tremont's
public stockholders, and

F-27

28
seeks, among other things, to rescind Tremont's consummation of the purchase of
the NL shares and award damages to Tremont for injuries allegedly suffered as a
result of the defendants' wrongful conduct. Tremont believes, and understands
that the other defendants believe, that the action is without merit. Tremont
has denied, and understands that the other defendants have denied, all
allegations of wrongdoing and liability and intends, and understands that the
other defendants intend, to defend the action vigorously. The defendants have
moved to dismiss the complaint on the ground that the plaintiff lacks standing
to pursue this action, and oral arguments are scheduled for early 1994. The
court has granted the plaintiff limited discovery with respect to the motion to
dismiss.

TIMET, along with United Air Lines, Inc. ("UAL"), McDonnell Douglas
Corporation, General Electric Company ("General Electric"), Aluminum Company of
America ("ALCOA") and RMI Titanium Company, have been named in a number of
lawsuits arising out of the crash of a DC-10 aircraft in Iowa on July 19, 1989.
TIMET understands the National Transportation Safety Board ("NTSB") determined
the probable cause of the crash to be limitations in UAL's inspection and
quality control programs that resulted in UAL's failure to locate a fatigue
crack in a disc in one of the aircraft's engines, manufactured by ALCOA and
General Electric, which disc failed prior to the incident. Early in the
investigation, the NTSB preliminarily identified TIMET as the supplier of the
titanium which ALCOA and General Electric used to manufacture the disc. In its
final report, however, the NTSB drew no conclusion as to the identity of the
supplier of the titanium used to manufacture the disc. TIMET believes, based
upon subsequent metallurgical testing carried out under the supervision of the
NTSB, that the titanium in the disc was not supplied by TIMET but rather by one
of TIMET's competitors in the titanium industry, but that the source of such
material cannot be determined with certainty.

The majority of the cases naming TIMET have been settled without
payment by TIMET to date (although the possibility of a future claim for
contribution by one or more other defendants exists with respect to certain of
such cases). In approximately 15 other cases, TIMET was granted summary
judgment, primarily on the basis that plaintiffs could not adequately establish
the source of the titanium metal used to manufacture the disc. The balance of
approximately 25 cases, which were pending in Circuit Court in Cook County,
Illinois, were dismissed by plaintiffs in early 1993 upon their motion with the
right to refile such cases within one year of dismissal. TIMET believes
plaintiffs dismissed these cases in order to avoid certain limitations on
discovery imposed by the trial court. Given the uncertainty over whether it
would be named as a defendant in any refiled cases, TIMET, along with certain
other defendants, appealed the trial court's decision to permit dismissal. The
parties are currently awaiting the decision of the appellate court.

Plaintiffs in the dismissed cases have since refiled those actions in
the same court and recently amended the complaint in the new cases to join
TIMET and others as defendants. (Joseph Trombello, et. al. v. McDonnell Douglas
Corp., et. al., Circuit Court, Cook County, Illinois, Case No. 93 L 4325).
TIMET has filed a motion to quash in the new cases on the basis that plaintiffs
lack personal jurisdiction over TIMET in Illinois.

TIMET maintains substantial general liability insurance coverage
against claims of this nature and TIMET's insurance carrier has assumed TIMET's
defense in the litigation. TIMET's insurance carrier has notified TIMET of its
belief

F-28

29
that the laws of certain states may prohibit it from insuring TIMET against
liability for punitive damages, if any, which TIMET may incur in this matter.
TIMET has secured waivers of claims for punitive damages against it in
substantially all of the remaining cases in which TIMET is named (including the
dismissed cases now on appeal) in return for a waiver of certain jurisdictional
objections by TIMET in such cases. The complaints in the refiled cases do not
currently seek punitive damages. Based upon the information which TIMET has
obtained to date, the Company does not believe that TIMET's ultimate liability
in this matter, if any, will exceed its applicable insurance coverage.

In 1993, TIMET discovered an anomaly in certain alloyed titanium
material manufactured by the Company for shipment to a jet engine manufacturer,
resulting from tungsten-contaminated master alloy sold to TIMET by a
third-party vendor and used as an alloying addition to this titanium material.
The engine manufacturer has taken the precaution of requiring the inspection,
and, in certain cases, the remelting, reprocessing, and reinspection, of all
titanium material that might have been manufactured using potentially
contaminated master alloy from this vendor (which also includes titanium
produced by another major U.S. titanium manufacturer that purchased master
alloy from the same supplier). Certain of this titanium material was still in
the form of intermediate stock, while other material had already been
fabricated into finished parts, some of which had been installed in military
jet aircraft engines. The investigation has eliminated from concern any such
titanium that had been subjected to hearth melting at some stage in the process
owing to its superior ability over vacuum arc melting alone to remove or
disperse tungsten particles from molten titanium.

TIMET may incur additional out-of-pocket expenses in connection with
this on-going investigation, either directly or indirectly through a claim for
reimbursement by the engine manufacturer (although no such claim has been made
to date). In this regard, TIMET accrued $.6 million in 1993 for anticipated
out-of-pocket expenses in connection with the reprocessing of material;
however, TIMET believes that any such costs, along with other liability for
costs or damages incurred by TIMET and its customers in this matter should
ultimately rest with the supplier of the defective master alloy. TIMET
maintains substantial general liability insurance coverage against claims of
this nature that it currently believes would cover most of any such claims in
the event it were unable to recover from the master alloy supplier.

The Company is involved in various other environmental, contractual,
product liability and other claims and disputes incidental to its business. The
Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse effect on
the Company's consolidated financial position, results of operations, or
liquidity.

NL Industries

Lead pigment litigation. Since 1987, NL, other past manufacturers of
lead pigments for use in paint and lead-based paint and the Lead Industries
Association have been named as defendants in various legal proceedings seeking
damages for personal injury and property damage allegedly caused by the use of
lead-based paints. Certain of these actions have been filed by or on behalf of
large United States cities or their public housing authorities. These legal
proceedings seek recovery under a variety of theories, including negligent
product design, failure to warn, breach of warranty, conspiracy/concert of

F-29

30
action, enterprise liability, market share liability, intentional tort, and
fraud and misrepresentation.

The plaintiffs in these actions generally seek to impose on the
defendants responsibility for lead paint abatement and asserted health concerns
associated with the use of lead-based paints, which was permitted for interior
residential use in the United States until 1973, including damages for personal
injury, contribution and/or indemnification for medical expenses, medical
monitoring expenses and costs for educational programs. Most of these legal
proceedings are in various pre-trial stages; several are on appeal.

The Company understands that NL believes that these actions are
without merit, intends to continue to deny all allegations of wrongdoing and
liability and to defend all actions vigorously. Considering NL's previous
involvement in the lead and lead pigment businesses, there can be no assurance
that additional litigation similar to that currently pending will not be filed.

Environmental matters and litigation. Some of NL's current and former
facilities, including several divested secondary lead smelters and former
mining locations, are the subject of civil litigation, administrative
proceedings or of investigations arising under federal and state environmental
laws. Additionally, in connection with past disposal practices, NL has been
named a potentially responsible party ("PRP") pursuant to CERCLA in
approximately 80 governmental enforcement and private actions associated with
hazardous waste sites and former mining locations, some of which are on the
U.S. EPA's Superfund National Priorities List. These actions seek cleanup cost
and/or damages for personal injury or property damage. While NL may be jointly
and severally liable for such costs, in most cases, it is only one of a number
of PRP's who are also jointly and severally liable. In addition, NL is a party
to a number of lawsuits filed in various jurisdictions alleging CERCLA or other
environmental claims. At December 31, 1993, NL had accrued $70 million in
respect of those environmental claims which are reasonably estimable. It is not
possible to estimate the range of costs for certain sites.  NL has estimated
that the upper end of the range of reasonably possible costs to NL for sites
for which it is possible to estimate costs is approximately $105 million. 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. The imposition of more stringent
standards or requirements under environmental laws or regulations, new
developments or changes respecting site clean-up costs or allocation of such
costs among PRP's, or a determination that NL is potentially responsible for
the release of hazardous substances at other sites, could result in
expenditures in excess of amounts currently estimated by NL to be required for
such matters. Further, there can be no assurance that additional environmental
matters will not arise in the future.

Other litigation. In February 1994, NL settled its lawsuit against
Lockheed Corporation and its directors. The litigation arose out of NL's
claims, among other things, that Lockheed had violated federal securities laws
by making false and misleading public statements about its employee stock
ownership plan. The jury concluded in a December 1992 verdict that Lockheed
violated the federal securities law and awarded NL $30 million, which gain
contingency was not recorded as income by NL at the time. Both companies
appealed. Under terms of the 1994 settlement, Lockheed  made a $27 million cash
payment to NL, resulting in net proceeds to NL of approximately $20 million.

F-30

31
In January 1990, an action was filed in the United States District
Court for the Southern District of Ohio against NLO, Inc., a subsidiary of NL,
and NL on behalf of a putative class of former NLO employees and their families
and former frequenters and invitees of the Feed Materials Production Center
("FMPC") in Ohio (Day, et al. v. NLO, Inc., et al., No. C-1-90-067). The FMPC
is owned by the United States Department of Energy (the "DOE") and was formerly
managed under contract by NLO. The complaint seeks damages for, among other
things, emotional distress and damage to personal property allegedly caused by
exposure to radioactive and/or hazardous materials at the FMPC and punitive
damages.  A trial was held separately on the defendants' defense that the
statute of limitations barred the plaintiffs' claims. In November 1991, the
jury returned a verdict against six of the ten named plaintiffs, finding that
their claims were time barred. The court has denied the plaintiffs' motion to
vacate the verdict, and has certified this action as a class action. A merits
trial is expected to be held in 1994.  Although no assurance can be given, the
Company understands that NL believes that, consistent with a July 1987 DOE
contracting officer's decision, the DOE will indemnify NLO in the event of an
adverse decision just as it did when two previous cases relating to NLO's
management of the FMPC were settled, and, therefore, that the resolution of the
Day matter is not expected to have a material adverse impact on NL. In the 1987
decision, the contracting officer affirmed NLO's entitlement to indemnification
under its contract for the operation of the FMPC for all liability, including
the cost of defense, arising out of those two previous cases.

NL is involved in various other environmental, contractual, product
liability and other claims and disputes incidental to its present and former
businesses. The Company understands that NL currently believes the disposition
of all claims and disputes, individually or in the aggregate, should not have a
material adverse effect on NL's consolidated financial position, results of
operations or liquidity.

Environmental matters

Tremont and consolidated subsidiaries. The Company's operations are
governed by various federal, state, local and foreign environmental laws and
regulations. The Company's policy is to comply with environmental laws and
regulations at all of its plants and to continually strive to improve
environmental performance. The Company believes that its operations are in
substantial compliance with applicable requirements of environmental laws. From
time to time, the Company may be subject to environmental regulatory
enforcement under various statutes, resolution of which typically involves the
establishment of compliance programs. Occasionally, resolution of these matters
may result in the payment of penalties, but to date such penalties have not
involved amounts having a material adverse effect on the Company. The Company
incurred capital expenditures for environmental protection and compliance of
$.7 million in 1991, $1.2 million in 1992, $.5 million in 1993 and its capital
budget provides for such expenditures of less than $1 million in 1994. However,
the imposition of more strict standards or requirements under environmental
laws and resolutions could result in expenditures in excess of amounts
currently estimated to be required for such matters.

F-31

32
TIMET owns approximately 32% of the outstanding common stock of Basic
Investments, Inc. ("BII"), whose subsidiaries, including Basic Management, Inc.
("BMI"), provide utility services, and own property (the "BMI Complex")
adjacent to TIMET's plant in Henderson, Nevada. The other owners of BII, Kerr
McGee Chemical Corporation, Chemstar Lime Company and Pioneer Chlor Alkali
Company, Inc. (successor to Stauffer Chemical Company), also operate facilities
in the BMI Complex (collectively, the "BMI Companies"). Each of such companies,
along with certain other companies who previously operated facilities in the
BMI Complex, have executed an agreement with the Nevada Division of
Environmental Protection ("NDEP") providing for a phased assessment of the
environmental condition of the BMI Complex and each of the individual company
sites. Phase I reports have been submitted to NDEP.  Negotiations with NDEP and
among the BMI Companies over the scope of any necessary sampling and analysis,
and the allocation of the costs therefore, are ongoing at this time. While no
determination has been made with respect to the need for, or scope of, any
remediation of this site, there can be no assurance that TIMET will not incur
some liability for any remediation costs which may result.

NL Industries. In addition to litigation referred to above, certain
information relating to regulatory and environmental matters pertaining to NL
is included in Item 1 - "Business - Unconsolidated Affiliate - NL Industries"
of this Annual Report on Form 10-K.

Concentrations of credit risk

A majority of TIMET's sales are to customers in the aerospace industry
(including airframe and engine construction). Sales to such customers, most of
whose operations are based principally in the United States, accounted for 60%
of TIMET's net sales in 1991 and 1992 and 50% in 1993. TIMET's ten largest
customers accounted for slightly less than 40% of TIMET's sales in each of the
past three years. Such customers accounted for approximately 30% of TIMET's
accounts receivable at December 31, 1993.

Income taxes

NL is undergoing examination of certain of its income tax returns in
various U.S. and non-U.S. jurisdictions, including Germany, and tax authorities
have or may propose tax deficiencies. The Company understands that NL believes
that it has adequate accruals for additional income taxes and related interest
expense which may ultimately result from such examinations and believes that
the ultimate disposition of all such examinations should not have a material
adverse effect on its consolidated financial position, results of operations or
liquidity.

F-32

33
Note 17 -- Quarterly results of operations (unaudited):

Quarter ended              
------------------------------------------------------
March 31        June 30        Sept. 30        Dec. 31
--------       --------        --------        -------
(In millions, except per share data)

Year ended December 31, 1993           

Net sales                                          $  39.6         $  39.7         $  34.1        $  37.8
Operating income (loss)                               (1.6)             .3           (10.5)          (4.9)

Loss from continuing operations                    $ (34.2)        $  (2.0)        $ (12.3)       $ (11.6)
Discontinued operations                                 .1              .2             7.2             -
Extraordinary item                                      -               -               -            (5.0)
-------         -------         -------         -------

Net loss                                         $ (34.1)        $  (1.8)        $  (5.1)       $ (16.6)
=======         =======         =======        ======= 

Income (loss) per common share:
Continuing operations                            $ (4.64)        $  (.28)        $ (1.68)       $ (1.58)
Discontinued operations                              .01             .03             .99            -
Extraordinary item                                   -               -               -             (.68)
-------         -------         -------        --------

Net loss                                       $ (4.63)        $  (.25)        $  (.69)       $ (2.26)
=======         =======         =======        ======= 

Year ended December 31, 1992

Net sales                                          $  32.5         $  37.6          $ 39.1        $  44.7
Operating loss                                        (3.9)           (3.1)           (2.5)           (.2)

Loss from continuing operations                    $  (6.6)        $  (7.5)         $ (7.0)       $ (12.9)
Discontinued operations                                 .3              .3              .6            (.8)
Cumulative effect of changes           
in accounting principles                            (31.9)             -               -              - 
-------         -------         -------        -------

Net loss                                         $ (38.2)        $  (7.2)        $  (6.4)       $ (13.7)
=======         =======         =======        ======= 

Income (loss) per common share:
Continuing operations                            $  (.91)        $ (1.01)        $  (.96)       $ (1.76)
Discontinued operations                              .04             .04             .09           (.11)
Cumulative effect of changes
in accounting principles                          (4.34)            -               -              -  
-------         -------         -------        -------

Net loss                                       $ (5.21)        $  (.97)        $  (.87)       $ (1.87)
=======         =======         =======        ======= 

F-33