Note 11—Employee benefit plans:

Defined contribution plans. We maintain various defined contribution pension plans for our employees worldwide. Defined contribution plan expense approximated $2.5 million in 2009, $3.2 million in 2010 and $3.9 million in 2011.

Defined benefit plans. Kronos and NL sponsor various defined benefit pension plans worldwide. The benefits under our defined benefit plans are based upon years of service and employee compensation. Our funding policy is to contribute annually the minimum amount required under ERISA (or equivalent foreign) regulations plus additional amounts as we deem appropriate.

Prior to December 31, 2009, we also maintained a U.S. plan related to Medite Corporation, a former business unit of Valhi (the "Medite plan"). Effective December 31, 2009, for financial reporting purposes the assets and liabilities of the Medite plan were transferred to a defined benefit pension plan maintained by Contran and are no longer reflected in our Consolidated Financial Statements as of that date. We transferred the assets and liabilities of the Medite plan to Contran in order to, among other things, achieve certain administrative cost savings. At December 31, 2009, the assets of the Medite plan were $26.5 million and the projected benefit obligation of the Medite Plan was $33.1 million. We accounted for the transfer by recording an increase in Valhi stockholders' equity as of December 31, 2009 of $4.3 million, comprised of the net $6.6 million liability representing the funded status of the plan, less the applicable deferred income tax asset of $2.3 million. Of such $4.3 million, $12.9 million related to an aggregate loss, net of income taxes, previously recognized in accumulated other comprehensive income (loss), and $8.6 million related to net periodic pension credit, net of income taxes, previously recognized in net income attributable to Valhi stockholders. The net periodic pension cost associated with this plan, included in our statements of operations was $.7 million in 2009.

We expect to contribute the equivalent of $29.1 million to all of our defined benefit pension plans during 2012. Benefit payments to plan participants out of plan assets are expected to be the equivalent of:


2012	$	27.7 million
2013		28.7 million
2014		28.7 million
2015		28.5 million
2016		28.3 million
Next 5 years		155.1 million

The funded status of our U.S. defined benefit pension plans is presented in the table below.


	Years ended December 31,
	2010			2011
	(In millions)
Change in projected benefit obligations ("PBO"):
Balance at beginning of the year	$	57.2		$	59.8
Interest cost		3.2			2.9
Actuarial loss		3.1			6.2
Benefits paid		(3.7	)		(3.6	)

Balance at end of the year	$	59.8		$	65.3

Change in plan assets:
Fair value at beginning of the year	$	43.5		$	50.4
Actual return on plan assets		10.4			(1.6	)
Employer contributions		.2			.2
Benefits paid		(3.7	)		(3.6	)

Fair value at end of year	$	50.4		$	45.4

Funded status	$	(9.4	)	$	(19.9	)

Amounts recognized in the Consolidated Balance Sheets:
Accrued pension costs:
Current	$	(.3	)	$	(.3	)
Noncurrent		(9.1	)		(19.6	)

Total		(9.4	)		(19.9	)
Accumulated other comprehensive loss—
Actuarial loss		25.3			37.3

Total	$	15.9		$	17.4

Accumulated benefit obligations ("ABO")	$	59.8		$	65.3

The components of our net periodic defined benefit pension benefit cost (credit) for U.S. plans are presented in the table below. The amounts shown below for the amortization of unrecognized actuarial losses for 2009, 2010 and 2011 were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2008, 2009 and 2010, respectively, net of deferred income taxes and noncontrolling interest.


	Years ended December 31,
	2009			2010			2011
	(In millions)
Net periodic pension benefit cost (credit) for U.S. plans:
Interest cost	$	5.2		$	3.2		$	2.9
Expected return on plan assets		(6.3	)		(4.2	)		(4.8	)
Amortization of unrecognized:
Net actuarial loss		2.2			1.2			1.0

Total	$	1.1		$	.2		$	(.9	)

Certain information concerning our U.S. defined benefit pension plans is presented in the table below.


	December 31,
	2010		2011
	(In millions)
Plans for which the ABO exceeds plan assets:
Projected benefit obligations	$	59.8	$	65.3
Accumulated benefit obligations		59.8		65.3
Fair value of plan assets		50.4		45.4

The discount rate assumptions used in determining the actuarial present value of the benefit obligations for our U.S. defined benefit pension plan as of December 31, 2010 and 2011 are 5.1% and 4.2%, respectively. The impact of assumed increases in future compensation levels does not have an effect on the benefit obligations as the plan is frozen with regards to compensation.

A summary of our key actuarial assumptions used to determine U.S. net periodic benefit cost (credit) for 2009, 2010 and 2011 are as follows:


	Years ended December 31,
Rate	2009			2010			2011
Discount rate		6.1	%		5.7	%		5.1	%
Long-term return on plan assets		10.0	%		10.0	%		10.0	%

Variances from actuarially assumed rates will result in increases or decreases in accumulated pension obligations, pension expense and funding requirements in future periods. The impact of assumed increases in future compensation levels does not have an effect on the periodic pension cost as the plan is frozen with regards to compensation.

The funded status of our foreign defined benefit pension plans is presented in the table below.


	Years ended December 31,
	2010			2011
	(In millions)
Change in PBO:
Balance at beginning of the year	$	432.3		$	454.8
Service cost		10.4			11.2
Interest cost		22.3			24.1
Participants' contributions		1.7			1.9
Plan amendments		3.8			—
Actuarial loss		25.3			18.4
Change in currency exchange rates		(18.3	)		(13.4	)
Benefits paid		(22.7	)		(27.3	)

Balance at end of the year	$	454.8		$	469.7

Change in plan assets:
Fair value at beginning of the year	$	314.0		$	334.8
Actual return on plan assets		27.3			18.2
Employer contributions		25.0			25.7
Participants' contributions		1.7			1.9
Change in currency exchange rates		(10.5	)		(9.6	)
Benefits paid		(22.7	)		(27.3	)

Fair value at end of year	$	334.8		$	343.7

Funded status	$	(120.0	)	$	(126.0	)

Amounts recognized in the Consolidated Balance Sheets:
Pension asset	$	.3		$	—
Accrued pension costs:
Current		(1.3	)		(1.3	)
Noncurrent		(119.0	)		(124.7	)

Total		(120.0	)		(126.0	)

Accumulated other comprehensive loss:
Actuarial loss		124.0			133.9
Prior service cost		7.7			6.5
Net transition obligations		2.2			1.7

Total		133.9			142.1

Total	$	13.9		$	16.1

ABO	$	423.5		$	437.5

In the fourth quarter of 2010, Kronos amended the benefit formula for most participants of its Canadian and Belgium plans effective January 1, 2011, resulting in a prior service cost of approximately $3.8 million as of December 31, 2010. Key assumptions as of December 31, 2010 and 2011 now reflect these plan revisions to the benefit formula.

The components of our net periodic defined benefit pension benefit cost (credit) for our foreign plans are presented in the table below. The amounts shown below for the amortization of unrecognized prior service cost, net transition obligations and actuarial losses for 2009, 2010 and 2011 were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2008, 2009 and 2010, respectively, net of deferred income taxes and noncontrolling interest. During 2011, certain eligible participants elected to take lump sum distributions upon their retirement, resulting in a nominal settlement charge in 2011.


	Years ended December 31,
	2009			2010			2011
	(In millions)
Net periodic pension cost for foreign plans:
Service cost	$	8.6		$	10.4		$	11.2
Interest cost		22.5			22.3			24.1
Settlement loss		—			—			.5
Expected return on plan assets		(15.7	)		(16.8	)		(18.0	)
Amortization of unrecognized:
Prior service cost		.8			.9			1.2
Net transition obligations		.5			.5			.5
Net actuarial loss		5.9			5.8			6.8

Total	$	22.6		$	23.1		$	26.3

Certain information concerning our foreign defined benefit pension plans is presented in the table below.


	December 31,
	2010		2011
	(In millions)
Plans for which the ABO exceeds plan assets:
Projected benefit obligations	$	395.0	$	469.7
Accumulated benefit obligations		371.0		437.5
Fair value of plan assets		276.0		343.7

A summary of our key actuarial assumptions used to determine foreign benefit obligations as of December 31, 2010 and 2011 was:


	December 31,
Rate	2010		2011
Discount rate		5.1%		4.9%
Increase in future compensation levels		3.0%		3.1%

A summary of our key actuarial assumptions used to determine foreign net periodic benefit cost for 2009, 2010 and 2011 are as follows:

Years ended December 31,

Rate

2009

2010

2011

Discount rate

5.9%

5.5%

5.1%

Increase in future compensation levels

3.2%

3.0%

3.0%

Long-term return on plan assets

5.9%

5.5%

5.5%

Variances from actuarially assumed rates will result in increases or decreases in accumulated pension obligations, pension expense and funding requirements in future periods.

The amounts shown for unrecognized actuarial losses, prior service cost and net transition obligations at December 31, 2010 and 2011 have not been recognized as components of our periodic defined benefit pension cost as of those dates. These amounts will be recognized as components of our periodic defined benefit cost in future years. These amounts, net of deferred income taxes and noncontrolling interest, are recognized in our accumulated other comprehensive income (loss) at December 31, 2010 and 2011. We expect approximately $9.8 million, $1.1 million and $.4 million of the unrecognized actuarial losses, prior service cost and net transition obligations, respectively, will be recognized as components of our periodic defined benefit pension cost in 2011. The table below details the changes in other comprehensive income (loss) during 2009, 2010 and 2011.


	Years ended December 31,
	2009		2010			2011
	(In millions)
Changes in plan assets and benefit obligations recognized in other comprehensive income (loss):
Net actuarial gain (loss)	$	3.0	$	(11.4	)	$	(30.1	)
Amortization of unrecognized:
Prior service cost		.8		.9			1.2
Net transition obligations		.5		.5			.5
Net actuarial gain		8.1		7.0			8.2
Plan amendment		—		(3.8	)		—

Total	$	12.4	$	(6.8	)	$	(20.2	)

At December 31, 2010 and 2011, substantially all of the assets attributable to our U.S. plans were invested in the Combined Master Retirement Trust ("CMRT"), a collective investment trust sponsored by Contran to permit the collective investment by certain master trusts that fund certain employee benefits plans sponsored by Contran and certain of its affiliates. The CMRT's long-term investment objective is to provide a rate of return exceeding a composite of broad market equity and fixed income indices (including the S&P 500 and certain Russell indices) while utilizing both third-party investment managers as well as investments directed by Mr. Simmons. Mr. Simmons is the sole trustee of the CMRT. The trustee of the CMRT, along with the CMRT's investment committee, of which Mr. Simmons is a member, actively manage the investments of the CMRT.

The CMRT trustee and investment committee do not maintain a specific target asset allocation in order to achieve their objectives, but instead they periodically change the asset mix of the CMRT based upon, among other things, advice they receive from third-party advisors and their expectations regarding potential returns for various investment alternatives and what asset mix will generate the greatest overall return. The CMRT holds TIMET common stock in its investment portfolio; however through December 31, 2009 we invested in a portion of the CMRT which does not include the TIMET holdings. Beginning in 2010, we began to invest in the portion of the CMRT that holds such stock. During the history of the CMRT from its inception in 1988 through December 31, 2011, the average annual rate of return (including the CMRT's investment in TIMET common stock) has been 14%, while such annual return excluding the CMRT's investment in TIMET common stock has been 11.4%. For the years ended December 31, 2009, 2010 and 2011, the assumed long-term rate of return for plan assets invested in the CMRT was 10%. In determining the appropriateness of the long-term rate of return assumption, we primarily rely on the historical rates of return achieved by the CMRT, although we consider other factors as well including, among other things, the investment objectives of the CMRT's managers and their expectation that such historical returns will in the future continue to be achieved over the long-term.

The CMRT unit value is determined semi-monthly, and the plans have the ability to redeem all or any portion of their investment in the CMRT at any time based on the most recent semi-monthly valuation. However, the plans do not have the right to individual assets held by the CMRT and the CMRT has the sole discretion in determining how to meet any redemption request. For purposes of our plan asset disclosure, we consider the investment in the CMRT as a Level 2 input because (i) the CMRT value is established semi-monthly and the plans have the right to redeem their investment in the CMRT, in part or in whole, at anytime based on the most recent value and (ii) observable inputs from Level 1 or Level 2 were used to value approximately 84% of the assets of the CMRT at December 31, 2010 and 2011, as noted below. The aggregate fair value of all of the CMRT assets, including funds of Contran and its other affiliates that also invest in the CMRT, and supplemental asset mix details of the CMRT as of December 31, 2010 and 2011, are as follows:


	December 31,
	2010			2011
	(In millions)
CMRT asset value	$	714.9		$	659.5
CMRT fair value input:
Level 1		83	%		82	%
Level 2		1			1
Level 3		16			17

		100	%		100	%

CMRT asset mix:
Domestic equities, principally publicly traded		73	%		75	%
International equities, publicly traded		2			2
Fixed income securities, publicly traded		16			14
Privately managed limited partnerships		8			8
Other		1			1

		100	%		100	%

At December 31, 2010 and 2011, subtrusts of the CMRT held .1% of our outstanding common stock. These shares are not reflected as treasury stock in our Consolidated Financial Statements because we do not consolidate the CMRT.

At December 31, 2010 and 2011, plan assets attributable to our Chemicals Segment's foreign plans related primarily to Germany, Canada and Norway. In determining the expected long-term rate of return on plan asset assumptions, we consider the long-term asset mix (e.g. equity vs. fixed income) for the assets for each of our plans and the expected long-term rates of return for such asset components. In addition, we receive third-party advice about appropriate long-term rates of return. Such assumed asset mixes are summarized below:

•

In Germany, the composition of our plan assets is established to satisfy the requirements of the German insurance commissioner. Our German pension plan assets represent an investment in a large collective investment fund established and maintained by Bayer AG in which several pension plans, including our German pension plan and Bayer's pension plans, have invested. Our plan assets represent a very nominal portion of the total collective investment fund maintained by Bayer. These plan assets are a Level 3 input because there is not an active market that approximates the value of our investment in the Bayer investment fund. We determine the fair value of the Bayer plan assets based on periodic reports we receive from the managers of the Bayer plan. These periodic reports are subject to audit by the German pension regulator.

•

In Canada, we currently have a plan asset target allocation of 55% to equity securities and 45% to fixed income securities. We expect the long-term rate of return for such investments to average approximately 125 basis points above the applicable equity or fixed income index. The Canadian assets are Level 1 input because they are traded in active markets.

•

In Norway, we currently have a plan asset target allocation of 12% to equity securities, 72% to fixed income securities, 7% to real estate and the remainder primarily to liquid investments such as money markets. The expected long-term rate of return for such investments is approximately 8%, 4%, 7% and 3%, respectively. The majority of Norwegian plan assets are Level 1 inputs because they are traded in active markets; however approximately 10% of our Norwegian plan assets are invested in real estate and other investments not actively traded and are therefore a Level 3 input.

•

We also have plan assets in Belgium and the United Kingdom. The Belgian plan assets are invested in certain individualized fixed income insurance contracts for the benefit of each plan participant as required by the local regulators and are therefore a Level 3 input. The United Kingdom plan assets consist of marketable securities which are Level 1 inputs because they trade in active markets.

We regularly review our actual asset allocation for each of our plans, and periodically rebalance the investments in each plan to more accurately reflect the targeted allocation and/or maximize the overall long-term return when we consider it appropriate.

The composition of our December 31, 2010 and 2011 pension plan assets is show in the table below. The amounts shown for plan assets invested in the CMRT include a nominal amount of cash held by our U.S. pension plans which are not part of the plans' investment in the CMRT:


	Fair Value Measurements at December 31, 2010
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In millions)
Germany	$	176.2	$	—	$	—	$	176.2
Canada:
Local currency equities		19.6		19.6		—		—
Foreign equities		28.3		28.3		—		—
Local currency fixed income		30.7		30.7		—		—
Foreign currency fixed income		.2		.2		—		—
Cash and other		2.4		2.4		—		—
Norway:
Local currency equities		11.5		11.5		—		—
Foreign equities		.2		.2		—		—
Local currency fixed income		42.3		15.9		—		26.4
Foreign fixed income		3.5		.5		—		3.0
Cash and other		1.2		.6		—		.6
U.S.—CMRT		50.4		.3		50.1		—
Other		18.7		10.0		—		8.7

Total	$	385.2	$	120.2	$	50.1	$	214.9


	Fair Value Measurements at December 31, 2011
	Total		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(In millions)
Germany	$	187.2	$	—	$	—	$	187.2
Canada:
Local currency equities		18.1		18.1		—		—
Foreign equities		28.0		28.0		—		—
Local currency fixed income		33.8		33.8		—		—
Cash and other		2.4		2.4		—		—
Norway:
Local currency equities		2.0		2.0		—		—
Foreign equities		3.7		3.7		—		—
Local currency fixed income		35.9		35.9		—		—
Foreign fixed income		4.3		4.3		—		—
Real estate		5.1		—		—		5.1
Cash and other		6.3		4.9		—		1.4
U.S.—CMRT		45.4		.1		45.3		—
Other		16.9		10.0		—		6.9

Total	$	389.1	$	143.2	$	45.3	$	200.6

A rollforward of the change in fair value of Level 3 assets follows.


	Years ended December 31,
	2010			2011
	(In millions)
Fair value at beginning of year	$	207.1		$	214.9
Gain on assets held at end of year		15.9			18.8
Gain on assets sold during the year		1.5			1.8
Assets purchased		20.0			18.6
Assets sold		(15.9	)		(18.1	)
Transfers out		—			(29.2	)
Currency exchange rate fluctuations		(13.7	)		(6.2	)

Fair value at end of year	$	214.9		$	200.6

Postretirement benefits other than pensions (OPEB). NL, Kronos and Tremont provide certain health care and life insurance benefits for their eligible retired employees. We have no OPEB plan assets, rather, we fund benefit payments as they are paid. At December 31, 2011, we expect to contribute the equivalent of approximately $1.7 million to all of our OPEB plans during 2012. Benefit payments to OPEB plan participants are expected to be the equivalent of:


2012	$	1.7 million
2013		1.6 million
2014		1.5 million
2015		1.4 million
2016		1.3 million
Next 5 years		5.7 million

The funded status of our OPEB plans is presented in the table below.


	Years ended December 31,
	2010			2011
	(In millions)
Actuarial present value of accumulated OPEB obligations:
Balance at beginning of the year	$	28.0		$	21.4
Service cost		.6			.2
Interest cost		1.2			1.0
Actuarial loss		2.3			.9
Plan amendment		(9.5	)		—
Change in currency exchange rates		.5			(.2	)
Benefits paid from employer contributions		(1.7	)		(1.2	)

Balance at end of the year	$	21.4		$	22.1

Fair value of plan assets	$	—		$	—

Funded status	$	(21.4	)	$	(22.1	)

Accrued OPEB costs recognized in the Consolidated Balance Sheets:
Current	$	(1.9	)	$	(1.7	)
Noncurrent		(19.5	)		(20.4	)

Total		(21.4	)		(22.1	)

Accumulated other comprehensive income (loss):
Net actuarial loss		2.4			3.4
Prior service credit		(14.6	)		(12.3	)

Total		(12.2	)		(8.9	)

Total	$	(33.6	)	$	(31.0	)

The amounts shown in the table above for unrecognized actuarial losses and prior service credit at December 31, 2010 and 2011 have not been recognized as components of our periodic OPEB cost as of those dates. These amounts will be recognized as components of our periodic OPEB cost in future years. These amounts, net of deferred income taxes and noncontrolling interest, are now recognized in our accumulated other comprehensive income (loss) at December 31, 2010 and 2011. We expect to recognize approximately $1.8 million of prior service credit as components of our periodic OPEB cost in 2011. The table below details the changes in other comprehensive income during 2009, 2010 and 2011.

In the fourth quarter of 2010, we amended our benefit formula for most participants of our plans effective January 1, 2011, resulting in a prior service credit of approximately $9.5 million as of December 31, 2010. Key assumptions including the health care cost trend rate as of December 31, 2010 and 2011 now reflect these plan revisions to the benefit formula.


	Years ended December 31,
	2009			2010			2011
	(In millions)
Changes in benefit obligations recognized in other comprehensive income (loss):
Net actuarial gain (loss) arising during the year	$	.4		$	(2.3	)	$	(.9	)
Plan amendments		4.8			9.5			—
Amortization of unrecognized:
Prior service cost		(.4	)		(.7	)		(2.3	)
Net actuarial loss		.3			—			—

Total	$	5.1		$	6.5		$	(3.2	)

The components of our periodic OPEB cost are presented in the table below. The amounts shown below for the amortization of unrecognized actuarial loss and prior service credit for 2009, 2010 and 2011 were recognized as components of our accumulated other comprehensive income (loss) at December 31, 2009, 2010 and 2011, respectively, net of deferred income taxes and noncontrolling interest.


	Years ended December 31,
	2009			2010			2011
	(In millions)
Net periodic OPEB cost (credit):
Service cost	$	.2		$	.6		$	.2
Interest cost		1.8			1.2			1.0
Amortization of unrecognized:
Prior service credit		(.4	)		(.7	)		(2.3	)
Actuarial loss		.3			—			—

Total	$	1.9		$	1.1		$	(1.1	)

A summary of our key actuarial assumptions used to determine the net benefit obligations as of December 31, 2010 and 2011 follows:


	December 31,
	2010		2011
Healthcare inflation:
Initial rate		8.0%—8.5%		8.0%
Ultimate rate		5.0%—5.5%		5.0%
Year of ultimate rate achievement		2018		2018
Discount rate		4.65%		3.93%

Assumed health care cost trend rates affect the amounts we report for health care plans. A one percent change in assumed health care trend rates would not have a material effect on the net periodic OPEB cost for 2011 or on the accumulated OPEB obligations at December 31, 2011.

The weighted average discount rate used in determining the net periodic OPEB cost for 2011 was 4.65% (the rate was 5.4% in 2010 and 5.9% in 2009). The weighted average rate was determined using the projected benefit obligations as of the beginning of each year.

Variances from actuarially-assumed rates will result in additional increases or decreases in accumulated OPEB obligations, net periodic OPEB cost and funding requirements in future periods.