RESULTS OF OPERATIONS

Business Overview

We are primarily a holding company. We operate through our wholly-owned and majority-owned subsidiaries, including NL Industries, Inc., Kronos Worldwide, Inc., CompX International, Inc., Tremont LLC and Waste Control Specialists LLC ("WCS"). Kronos (NYSE: KRO), NL (NYSE: NL) and CompX (NYSE: CIX) each file periodic reports with the Securities and Exchange Commission ("SEC").

We have three consolidated operating segments:

• Chemicals - Our chemicals segment is operated through our majority ownership of Kronos. Kronos is a leading global producer and marketer of value-added titanium dioxide pigments ("TiO2"). TiO2 is used for a variety of manufacturing applications, including plastics, paints, paper and other industrial products.

• Component Products - We operate in the component products industry through our majority ownership of CompX. CompX is a leading global manufacturer of security products, precision ball bearing slides and ergonomic computer support systems used in the office furniture, transportation, postal, tool storage, appliance and a variety of other industries. CompX is also a leading manufacturer of stainless steel exhaust systems, gauges and throttle controls for the performance marine industry.

• Waste Management - WCS is our wholly-owned subsidiary which owns and operates a West Texas facility for the processing, treatment, storage and disposal of hazardous, toxic and certain types of low-level radioactive waste. WCS obtained a byproduct disposal license in 2008 and is in the process constructing the byproduct disposal facility, which is expected to be operational in the second half of 2009. In January 2009 WCS received a low-level radioactive waste disposal permit, and construction of the low-level radioactive waste facility is currently expected to begin in the third quarter of 2009, following the completion of some pre-construction licensing and administrative matters, and is expected to be operational in the third quarter of 2010.

General

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements in this Quarterly Report on Form 10-Q that are not historical in nature are forward-looking in nature about our future that are not statements of historical fact. Statements in this report including, but not limited to, statements found in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements that represent our beliefs and assumptions based on currently available information. In some cases you can identify these forward-looking statements by the use of words such as "believes," "intends," "may," "should," "could," "anticipates," "expected" or comparable terminology, or by discussions of strategies or trends. Although we believe the expectations reflected in such forward-looking statements are reasonable, we do not know if these expectations will be correct. Forward-looking statements by their nature involve substantial risks and uncertainties that could significantly impact expected results. Actual future results could differ materially from those predicted. While it is not possible to identify all factors, we continue to face many risks and uncertainties. Among the factors that could cause our actual future results to differ materially from those described herein are the risks and uncertainties discussed in this Quarterly Report and those described from time to time in our other filings with the SEC including, but not limited to, the following:

· The cyclicality of certain of our businesses (such as Kronos' TiO2 operations;

· Customer inventory levels (such as the extent to which Kronos' customers may, from time to time, accelerate purchases of TiO2 in advance of anticipated price increases or defer purchases of TiO2in advance of anticipated price decreases;

· Changes in our raw material and other operating costs (such as energy costs);

· General global economic and political conditions (such as changes in the level of gross domestic product in various regions of the world and the impact of such changes on demand for, among other things, TiO2);

· Competitive products and substitute products;

· Possible disruption of our business or increases in the cost of doing business resulting from terrorist activities or global conflicts;

· Customer and competitor strategies;

· The impact of pricing and production decisions;

· Competitive technology positions;

· The introduction of trade barriers;

· Restructuring transactions involving us and our affiliates;

· Potential consolidation or solvency of our competitors;

· Demand for high performance marine components;

· The ability of our subsidiaries to pay us dividends;

· Uncertainties associated with new product development;

· Fluctuations in currency exchange rates (such as changes in the exchange rate between the U.S. dollar and each of the euro, the Norwegian krone, the Canadian dollar and the New Taiwan dollar);

· Operating interruptions (including, but not limited to, labor disputes, leaks, natural disasters, fires, explosions, unscheduled or unplanned downtime and transportation interruptions);

· The timing and amounts of insurance recoveries;

· Our ability to renew, refinance or establish credit facilities;

· Our ability to maintain sufficient liquidity;

· The ultimate outcome of income tax audits, tax settlement initiatives or other tax matters;

· The ultimate ability to utilize income tax attributes or changes in income tax rates related to such attributes, the benefit of which has been recognized under the more likely than not recognition criteria (such as Kronos' ability to utilize its German net operating loss carryforwards);

· Environmental matters (such as those requiring compliance with emission and discharge standards for existing and new facilities, or new developments regarding environmental remediation at sites related to our former operations);

· Government laws and regulations and possible changes therein (such as changes in government regulations which might impose various obligations on present and former manufacturers of lead pigment and lead-based paint, including NL, with respect to asserted health concerns associated with the use of such products);

· The ultimate resolution of pending litigation (such as NL's lead pigment litigation and litigation surrounding environmental matters of NL and Tremont and CompX's patent litigation);

· Our ability to comply with covenants contained in our revolving bank credit facilities; and

· Possible future litigation.

Net Income (Loss) Overview

Quarter Ended March 31, 2008 Compared to the Quarter Ended March 31, 2009 -

We reported a net loss attributable to Valhi stockholders of $20.0 million, or $.18 per diluted share, in the first quarter of 2009 compared to a net loss attributable to Valhi stockholders of $5.9 million, or $.05 per diluted share, in the first quarter of 2008. Our diluted loss per share increased from 2008 to 2009 primarily due to the net effects of:

· lower operating income from each of our Chemicals, Component Products and Waste Management Segments in 2009;

· a gain from a litigation settlement in 2009; and

· a gain from a sale of a business in 2009.

Our net loss in 2009 includes (i) a gain of $.07 per diluted share as a result of the gain on litigation settlement and (ii) a gain of $.04 gain from the sale of a business.

Current Forecast for 2009 -

We currently expect to report a higher net loss for 2009 as compared to the net loss in 2008 primarily due to the net effects of:
· lower expected operating income from our Chemicals Segment due to anticipated higher production costs;

· recording a lower gain from litigation settlements; and

· lower operating losses at WCS as we expect more revenues with the completion of the byproduct disposal facility in the second half of 2009.

Segment Operating Results - 2008 Compared to 2009 -

Chemicals -

We consider TiO2 to be a "quality-of-life" product, with demand affected by gross domestic product ("GDP") and overall economic conditions in our markets located in various regions of the world. Over the long-term, we expect demand for TiO2 will grow by 2% to 3% per year, consistent with our expectations for the long-term growth in GDP. However, even if we and our competitors maintain consistent shares of the worldwide market, demand for TiO2 in any interim or annual period may not change in the same proportion as the change in GDP, in part due to relative changes in the TiO2 inventory levels of our customers. We believe our customers' inventory levels are partly influenced by their expectation for future changes in market TiO2 selling prices. The majority of our TiO2 grades and substantially all of our production are considered commodity pigment products, we compete for sales primarily on the basis of price.

The factors having the most impact on our reported operating results are:
· TiO2 average selling prices;

· Currency exchange rates (particularly the exchange rate for the U.S. dollar relative to the euro, Norwegian krone and the Canadian dollar);

· TiO2 sales and production volumes; and

· Manufacturing costs, particularly maintenance and energy-related expenses.

The key performance indicators for our Chemicals Segment are our TiO2 average selling prices, our levels of TiO2 sales and production volumes.

                                            Three months ended March 31,
                                         2008             2009        % Change
                                                (Dollars in millions)

Net sales                             $    332.5       $    248.0           (25 )%
Cost of sales                              276.0            244.4           (11 )

Gross margin                          $     56.5       $      3.6           (94 )

Operating income (loss)               $     11.0       $    (25.5 )

Percent of net sales:
 Cost of sales                                83 %             99 %
 Gross margin                                 17                1
 Operating income                              3              (10 )

Ti02 operating statistics:
 Sales volumes*                              127               97           (24 )%
 Production volumes*                         132               64           (52 )

Percent change in net sales:
 Ti02 product pricing                                                         5 %
 Ti02 sales volumes                                                         (24 )
 Ti02 product mix                                                            (2 )
 Changes in currency exchange rates                                          (4 )

   Total                                                                    (25 )%

* Thousands of metric tons

Cost of Sales - Our Chemicals Segment's cost of sales percentage increased to 99% in the first quarter of 2009 compared to 83% in the first quarter of 2008 due to the unfavorable effects of the significant amount of unabsorbed fixed production costs resulting from reduced production volumes. Our TiO2 production volumes decreased 52% due to temporary plan curtailments during the first quarter that resulted in approximately $50 million of unabsorbed fixed production costs which were charged directly to cost of sales in the first quarter of 2009. The unabsorbed fixed cost charge was partially offset by $8.2 million in decreased maintenance costs and currency fluctuations (primarily the euro).

Operating Income (Loss) - Our Chemicals Segment's operating income declined in the first quarter of 2009 primarily due to the decrease in our gross margin and decreased sales volumes. Our gross margin fell to 1% in the first quarter of 2009 compared to 17% in the first quarter of 2008 as a result of lower sales volumes and higher manufacturing costs resulting from lower production volumes. We estimate the effect of changes in foreign currency exchange rates positively affect our Chemicals Segment's operating income by $28 million in the first quarter of 2009.

Our Chemicals Segment's operating income is net of amortization of purchase accounting adjustments made in conjunction with our acquisitions of interests in NL and Kronos. As a result, we recognize additional depreciation expense above the amounts Kronos reports separately, substantially all of which is included within cost of sales. We recognized an additional $.7 million and $.6 million of additional depreciation expense in the first three months of 2008 and 2009, respectively, which reduced our reported Chemicals Segment operating income as compared to amounts reported separately by Kronos.

Currency Exchange Rates - Our Chemicals Segment has substantial operations and assets located outside the United States (primarily in Germany, Belgium, Norway and Canada). The majority of sales generated from our foreign operations are denominated in foreign currencies, principally the euro, other major European currencies and the Canadian dollar. A portion of our sales generated from our foreign operations is denominated in the U.S. dollar. Certain raw materials used worldwide, primarily titanium-containing feedstocks, are purchased in U.S. dollars, while labor and other production costs are purchased primarily in local currencies. Consequently, the translated U.S. dollar value of our foreign sales and operating results are subject to currency exchange rate fluctuations which may favorably or adversely impact reported earnings and may affect the comparability of period-to-period operating results. Overall, we estimate that fluctuations in foreign currency exchange rates had the following effects on our Chemicals Segment's sales and operating loss in 2009 as compared to 2008.

                                        Three months ended
                                     March 31, 2009 vs. 2008
                                  Increase (decrease) in millions

                Impact on:
                 Net sales                     $(13)
                 Operating income               28

Outlook - We currently expect our Chemicals Segment's results of operations will continue to be lower in 2009 as compared to 2008 primarily due to higher production costs resulting in part from significantly reduced production volumes and the resulting unabsorbed fixed production costs. We currently expect our Chemicals Segment to report operating losses in 2009 as compared to reporting operating income in 2008 due to lower expected income from operations in 2009.

In response to the worldwide economic slowdown and weak consumer confidence, we are significantly reducing our production volumes in 2009 in order to reduce our finished goods inventory and improve our liquidity. Overall industry pigment demand is expected to be lower in 2009 as compared to 2008 as a result of worldwide economic conditions. While we currently expect our sales volumes in 2009 will be lower as compared to 2008, we expect to gain market share following anticipated reductions in industry capacity due to competitors' permanent plant shutdowns. We believe average selling prices in 2009 will decline from year-end 2008 levels during the first half of the year but we anticipate prices will rise during the second half of 2009, which should result in slightly higher average worldwide TiO2 selling prices for the year. To mitigate the negative impact of our significantly reduced production volumes, we are reducing our operating costs where possible, including maintenance expenditures and personnel costs.

Our expectations as to the future of the TiO2 industry are based upon a number of factors beyond our control, including worldwide growth of gross domestic product, competition in the marketplace, solvency and continued operation of competitors, unexpected or earlier than expected capacity additions or reductions and technological advances. If actual developments differ from our expectations, our results of operations could be unfavorably affected.

We believe that our annual attainable production capacity for 2009 is approximately 532,000 metric tons. We expect our production volumes in 2009 will be significantly lower than our attainable capacity. We currently expect we will operate at 70% to 80% of our attainable production capacity in 2009. Our expected capacity utilization levels could be adjusted upwards or downwards to match changes in demand for our product.

Component Products -

The key performance indicator for our Component Products Segment is operating
income margin.

                                Three months ended March 31,
                             2008             2009        % Change

Net sales                 $     40.5       $     28.5           (30 )%
Cost of sales                   31.1             23.7           (24 )

Gross margin              $      9.4       $      4.8           (49 )%

Operating income (loss)   $      3.0       $     (1.0 )

Percent of net sales:
 Cost of sales                    77 %             83 %
 Gross margin                     23               17
 Operating income                  7               (3 )

Net Sales - Our Component Products Segment's sales decreased in the first quarter of 2009 as compared to 2008 primarily due to lower order rates from many of our customers resulting from unfavorable economic conditions in North America. We estimate the unfavorable effect of relative changes in currency exchange rates decreased our net sales by $.6 million.

Cost of Sales - Our Component Products Segment's cost of sales percentage increased 6% in the first quarter of 2009 as compared to the same period in 2008 due to reduced coverage of overhead and fixed manufacturing costs from lower sales volume and the related under utilization of capacity partially offset by cost reductions implemented in response to lower sales and the impact of relative changes in currency exchange rates.

Operating Income (Loss) - Our Component Products Segment had an operating loss in the first quarter of 2009 primarily due to lower operating margins discussed above and lower sales volumes.

Currency Exchange Rates - Our Component Products Segment has substantial operations and assets located outside the United States in Canada and Taiwan. The majority of sales generated from our foreign operations are denominated in the U.S. dollar, with the rest denominated in foreign currencies, principally the Canadian dollar and the New Taiwan dollar. Most of our raw materials, labor and other production costs for foreign operations are denominated primarily in local currencies. Consequently, the translated U.S. dollar values of our foreign sales and operating results are subject to currency exchange rate fluctuations which may favorably or unfavorably impact reported earnings and may affect comparability of period-to-period operating results. Overall, we estimate that fluctuations in currency exchange rates had the following effects on our Component Products Segment's sales and operating loss in 2009 as compared to 2008.

                               Three months ended
                             March 31, 2009 vs. 2008
                         Increase (decrease) in millions
Impact on:
 Net sales                           $ (.6)
 Operating income (loss)                .7

Outlook - Demand for our products continues to slow as customers react to the condition of the overall economy. While changes in market demand are not within our control, we are focused on the areas we can impact. Staffing levels are continuously being evaluated in relation to sales order rates resulting in headcount adjustments, to the extent possible, to match staffing levels with demand. We expect our lean manufacturing and cost improvement initiatives to continue to positively impact our productivity and result in a more efficient infrastructure that we can leverage when demand growth returns. Additionally, we continue to seek opportunities to gain market share in markets we currently serve, expand into new markets and develop new product features in order to mitigate the impact of reduced demand as well as broaden our sales base.

As discussed in Note 13 to the Condensed Consolidated Financial Statements, certain competitors have filed claims against CompX for patent infringement. We have denied the allegations of patent infringement and are seeking to have the claims dismissed. While we currently believe that our disposition of these claims should not have a material adverse effect on our consolidated financial condition, results of operations or liquidity, we could incur costs defending against such claims that could be material.

Waste Management -

                   Three months ended
                        March 31,
                   2008           2009
                      (In millions)

Net sales        $      .9       $    .8
Cost of sales          3.3           4.6

Gross margin     $    (2.4 )     $  (3.8 )

Operating loss   $    (4.4 )     $  (6.5 )

General - We have operated WCS's waste management facility on a relatively limited basis while we navigated the regulatory licensing requirements to receive permits for the disposal of byproduct waste material and for a broad range of low-level and mixed low-level radioactive wastes ("LLRW"). We previously filed license applications for such disposal capabilities with the applicable Texas state agencies. In May 2008, the Texas Commission on Environmental Quality ("TCEQ") issued us a license for the disposal of byproduct material. Byproduct material includes uranium or thorium mill tailings as well as equipment, pipe and other materials used to handle and process the mill tailings. We began construction of the byproduct facility infrastructure at our site in Andrews County, Texas in the third quarter of 2008 and expect this facility to be complete in the second half of 2009. In January 2009, TCEQ issued a near-surface low-level and mixed LLRW disposal license to us. Construction of the LLRW site is currently expected to commence in the third quarter of 2009, following the completion of some pre-construction licensing and administrative matters, and is expected to be operational in the third quarter of 2010. While construction for byproduct and LLRW disposal facilities is still in progress, we currently have facilities that allow us to treat, store and dispose of a broad range of hazardous and toxic wastes and byproducts, and to treat and store a broad range of low-level and mixed LLRW.

Outlook - Having obtained the final regulatory license we need to commence full scale operations, we are in process of constructing the facilities we will need to provide "one-stop shopping" for hazardous, toxic, low-level and mixed LLRW and radioactive byproduct material. WCS will have the broadest range of capabilities of any commercial enterprise in the U.S. for the storage, treatment and permanent disposal of these materials which we believe will give WCS a significant and valuable competitive advantage in the industry once construction is complete in 2010. We are also exploring opportunities to obtain certain types of new business (including disposal and storage of certain types of waste) that, if obtained, could help to increase our Waste Management Segment's sales, and decrease our Waste Management Segment's operating loss, in 2009. Our ability to increase our Waste Management Segment's sales volumes through these waste streams, together with improved operating efficiencies through further cost reductions and increased capacity utilization, are important factors in improving our Waste Management operating results and cash flows. Until we are able to increase our Waste Management Segment's sales volumes, we expect we will continue to generally report operating losses in our Waste Management Segment. While achieving increased sales volumes could result in operating profits, we currently do not believe we will report any significant levels of Waste Management operating profit until we have started to generate revenues following completion of the construction discussed above.

We believe WCS can become a viable, profitable operations; however, we do not know if we will be successful in improving WCS's cash flows. We have in the past, and we may in the future, consider strategic alternatives with respect to WCS. We could report a loss in any such strategic transaction.

General Corporate Items, Interest Expense, Provision for Income Taxes and Minority Interest - 2008 Compared to 2009

Interest and Dividend Income - A significant portion of our interest and dividend income in both 2008 and 2009 relates to the distributions we received from The Amalgamated Sugar Company LLC. We recognized dividend income from the . . .